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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
☒
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 28, 2024
or
 
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number 0-7087
 
ASTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
 
New York
(State or other jurisdiction of
incorporation or organization)
16-0959303
(IRS Employer
Identification Number)
130 Commerce Way, East Aurora, New York
(Address of principal executive offices)
14052
(Zip code)
(716) 805-1599
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $.01 par value per shareATRONASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Table of Contents
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer”, a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐Accelerated filer☒
Emerging growth company
☐
Non-accelerated filer
☐
Smaller Reporting Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
As of November 1, 2024, 35,262,393 shares of common stock were outstanding consisting of 29,685,114 shares of common stock ($.01 par value) and 5,577,279 shares of Class B common stock ($.01 par value).


Table of Contents
TABLE OF CONTENTS
PAGE
PART I
Item 1
•
•
•
•
•
•
Item 2
Item 3
Item 4
PART II
Item 1
Item 1a
Item 2
Item 3
Item 4
Item 5
Item 6

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Part I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
September 28, 2024 with Comparative Figures for December 31, 2023
(Unaudited)
(In thousands)
 
September 28, 2024December 31, 2023
Current Assets:
Cash and Cash Equivalents
$5,177 $4,756 
Restricted Cash1,187 6,557 
Accounts Receivable, Net of Allowance for Estimated Credit Losses
193,494 172,108 
Inventories
204,952 191,801 
Prepaid Expenses and Other Current Assets
19,371 14,560 
Total Current Assets
424,181 389,782 
Property, Plant and Equipment, Net of Accumulated Depreciation81,309 85,436 
Operating Right-of-Use Assets24,849 27,909 
Other Assets7,387 7,035 
Intangible Assets, Net of Accumulated Amortization55,702 65,420 
Goodwill58,169 58,210 
Total Assets
$651,597 $633,792 
Current Liabilities:
Current Maturities of Long-term Debt
$550 $8,996 
Accounts Payable
57,058 61,134 
Current Operating Lease Liabilities5,080 5,069 
Accrued Expenses and Other Current Liabilities
68,204 46,106 
Customer Advance Payments and Deferred Revenue
19,144 22,029 
Total Current Liabilities
150,036 143,334 
Long-term Debt178,423 159,237 
Long-term Operating Lease Liabilities21,409 24,376 
Other Liabilities52,525 57,327 
Total Liabilities402,393 384,274 
Shareholders’ Equity:
Common Stock
377 373 
Accumulated Other Comprehensive Loss(8,456)(9,426)
Other Shareholders’ Equity
257,283 258,571 
Total Shareholders’ Equity
249,204 249,518 
Total Liabilities and Shareholders’ Equity$651,597 $633,792 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 28, 2024 With Comparative Figures for 2023
(Unaudited)
(In thousands, except per share data)
 
Nine Months EndedThree Months Ended
September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Sales$586,886 $493,914 $203,698 $162,922 
Cost of Products Sold468,598 413,091 160,955 142,304 
Gross Profit118,288 80,823 42,743 20,618 
Selling, General and Administrative Expenses100,698 95,276 34,369 35,097 
Income (Loss) from Operations17,590 (14,453)8,374 (14,479)
Net Gain on Sale of Business— (3,427)— — 
Loss on Extinguishment of Debt6,987 — 6,987 — 
Other Expense (Income), Net1,214 (562)343 348 
Interest Expense, Net of Interest Income17,832 17,381 6,217 5,991 
Loss Before Income Taxes(8,443)(27,845)(5,173)(20,818)
Provision for (Benefit from) Income Taxes4,940 5,552 6,565 (3,835)
Net Loss$(13,383)$(33,397)$(11,738)$(16,983)
Loss Per Share:
Basic
$(0.38)$(1.02)$(0.34)$(0.51)
Diluted
$(0.38)$(1.02)$(0.34)$(0.51)
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Loss
Three and Nine Months Ended September 28, 2024 With Comparative Figures for 2023
(Unaudited)
(In thousands)
 
Nine Months EndedThree Months Ended
September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Net Loss$(13,383)$(33,397)$(11,738)$(16,983)
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments
127 (117)1,051 (828)
Retirement Liability Adjustment – Net of Tax
843 557 281 185 
Total Other Comprehensive Income (Loss)970 440 1,332 (643)
Comprehensive Loss$(12,413)$(32,957)$(10,406)$(17,626)
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 28, 2024 With Comparative Figures for 2023
(Unaudited)
(In thousands)
Nine Months Ended
September 28, 2024September 30, 2023
Cash Flows from Operating Activities:
Net Loss$(13,383)$(33,397)
Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities:
Depreciation and Amortization18,572 19,758 
Amortization of Deferred Financing Fees2,711 2,148 
Provisions for Non-Cash Losses on Inventory and Receivables8,023 13,713 
Equity-based Compensation Expense6,414 5,603 
Operating Lease Non-Cash Expense3,869 3,816 
Non-Cash 401K Contribution and Quarterly Bonus Accrual3,454 3,773 
Non-Cash Annual Stock Bonus Accrual1,448 — 
Loss on Extinguishment of Debt6,987 — 
Net Gain on Sale of Business, Before Taxes— (3,427)
Non-Cash Litigation Provision Adjustment— (1,305)
Non-Cash Deferred Liability Recovery— (5,824)
Other2,899 911 
Changes in Operating Assets and Liabilities Providing (Using) Cash:
Accounts Receivable(22,712)(12,980)
Inventories(19,829)(24,024)
Accounts Payable(3,304)4,033 
Accrued Expenses13,517 5,111 
Customer Advance Payments and Deferred Revenue(2,919)(562)
Income Taxes798 3,443 
Operating Lease Liabilities(3,777)(3,660)
Supplemental Retirement Plan Liabilities(309)(304)
Other Assets and Liabilities1,690 898 
Net Cash from Operating Activities4,149 (22,276)
Cash Flows from Investing Activities:
Proceeds from Sale of Business and Assets— 3,427 
Capital Expenditures(5,244)(6,037)
Net Cash from Investing Activities(5,244)(2,610)
Cash Flows from Financing Activities:
Proceeds from Long-term Debt195,978 135,732 
Principal Payments on Long-term Debt(187,498)(125,984)
Stock Award Activity(3,219)2,480 
Financing-related Costs(5,863)(6,447)
Financing Extinguishment Costs(3,210)— 
Proceeds from At-the-Market Stock Sales— 13,045 
Other(96)(47)
Net Cash from Financing Activities(3,908)18,779 
Effect of Exchange Rates on Cash54 (20)
Decrease in Cash and Cash Equivalents and Restricted Cash(4,949)(6,127)
Cash and Cash Equivalents and Restricted Cash at Beginning of Period11,313 13,778 
Cash and Cash Equivalents and Restricted Cash at End of Period$6,364 $7,651 
Supplemental Disclosure of Cash Flow Information
Interest Paid$15,261 $14,136 
Income Taxes Paid, Net of Refunds$3,975 $2,192 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders’ Equity
Three and Nine Months Ended September 28, 2024 With Comparative Figures for 2023
(Unaudited)
(In thousands)
Nine Months EndedThree Months Ended
September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Common Stock
Beginning of Period$314 $291 $320 $295 
Issuance of Common Stock Through At-the-Market (“ATM”) Offering— 8 — 8 
Net Shares Issued to Fund Bonus Obligations3 — — — 
Net Exercise of Stock Options, including ESPP— 4 — 4 
Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”)1 2 — 1 
Class B Stock Converted to Common Stock3 3 1 — 
End of Period321 308 321 308 
Convertible Class B Stock
Beginning of Period59 63 57 60 
Class B Stock Converted to Common Stock(3)(3)(1)— 
End of Period56 60 56 60 
Additional Paid in Capital
Beginning of Period129,544 98,630 137,290 102,020 
Issuance of Common Stock Through ATM Offering, Net of Offering Costs— 13,611 — 13,611 
Equity-based Compensation Expense and Net Exercise of Stock Options, including ESPP6,414 8,714 1,772 4,721 
Gross Shares Issued to Fund Bonus Obligations6,281 — — — 
Tax Withholding Related to Issuance of RSU’s and Shares for Bonus Obligations(3,219)(636)(42)(33)
End of Period139,020 120,319 139,020 120,319 
Accumulated Comprehensive Loss
Beginning of Period(9,426)(9,526)(9,788)(8,443)
Foreign Currency Translation Adjustments127 (117)1,051 (828)
Retirement Liability Adjustment – Net of Taxes843 557 281 185 
End of Period(8,456)(9,086)(8,456)(9,086)
Retained Earnings
Beginning of Period209,753 240,360 206,778 221,698 
Net Loss(13,383)(33,397)(11,738)(16,983)
Reissuance of Treasury Shares for 401K Contribution(1,330)(3,142)— (894)
End of Period195,040 203,821 195,040 203,821 
Treasury Stock
Beginning of Period(80,726)(89,898)(76,777)(85,229)
Shares Issued to Fund 401K Obligation3,949 6,883 — 2,214 
End of Period(76,777)(83,015)(76,777)(83,015)
Total Shareholders’ Equity$249,204 $232,407 $249,204 $232,407 
See notes to consolidated condensed financial statements.


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ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders’ Equity, Continued
Three and Nine Months Ended September 28, 2024 With Comparative Figures for 2023
(Unaudited)
(In thousands)
Nine Months EndedThree Months Ended
(Shares)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Common Stock
Beginning of Period31,402 29,122 32,024 29,478 
Issuance of Common Stock Through ATM Offering— 834 — 834 
Net Shares Issued to Fund Bonus Obligations218 — — — 
Net Issuance from Exercise of Stock Options, including ESPP— 438 — 437 
Net Issuance of Common Stock for RSU’s165 145 51 55 
Class B Stock Converted to Common Stock352 305 62 40 
End of Period32,137 30,844 32,137 30,844 
Convertible Class B Stock
Beginning of Period5,952 6,314 5,662 6,049 
Class B Stock Converted to Common Stock(352)(305)(62)(40)
End of Period5,600 6,009 5,600 6,009 
Treasury Stock
Beginning of Period2,833 3,155 2,694 2,991 
Shares Issued to Fund 401K Obligation(139)(242)— (78)
End of Period2,694 2,913 2,694 2,913 
See notes to consolidated condensed financial statements.


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ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
September 28, 2024
(Unaudited)
1) Basis of Presentation
The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the supply chain pressures and residual impacts of the COVID-19 pandemic have increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the nine months ended September 28, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The balance sheet on December 31, 2023, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the financial statements and footnotes included in Astronics Corporation’s 2023 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense, and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and seat motion systems, lighting and safety systems, avionics products, systems certification, aircraft structures and automated test systems.
We have principal operations in the United States (“U.S.”), Canada, France, and England, as well as engineering offices in Ukraine and India.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout for $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023.
In October 2024, a customer reported within the Aerospace segment declared bankruptcy. As a result, the Company recorded a full reserve of $0.8 million for outstanding receivables, a reserve of $0.9 million for inventory and $0.5 million for impairment of fixed assets. The reserves are non-cash in the current quarter and year to date, as the associated assets existed prior to 2024. In the third quarter of 2023, a customer reported within the Aerospace segment filed for bankruptcy under Chapter 11. As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and $3.6 million for inventory in the prior year periods.
Restricted Cash
Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in Note 7), the Company has a cash dominion arrangement with the banking institution for its accounts within the United States whereby daily cash receipts are contractually utilized to pay down outstanding balances on the ABL Revolving Credit Facility. Account balances that have not yet been applied to the ABL Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets. The following table provides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the amounts included in the Consolidated Condensed Statements of Cash Flows.
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(In thousands)September 28, 2024September 30, 2023
Cash and Cash Equivalents$5,177 $3,981 
Restricted Cash1,187 3,670 
Total Cash and Restricted Cash Shown in Statements of Cash Flows$6,364 $7,651 
Trade Accounts Receivable and Contract Assets
The allowance for estimated credit losses is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay.
The changes in allowances for estimated credit losses for the three and nine months ended September 28, 2024 and September 30, 2023 consisted of the following:
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Balance at Beginning of the Period$9,193 $2,630 $1,495 $1,725 
Bad Debt Expense, Net of Recoveries1,132 7,581 734 7,680 
Write-off Charges Against the Allowance and Other Adjustments(7,982)(1,025)114 (219)
Balance at End of the Period$2,343 $9,186 $2,343 $9,186 
As previously discussed, the Company recorded a full reserve of $0.8 million in the third quarter of 2024 for outstanding receivables associated with a customer bankruptcy within the Aerospace segment. Additionally, the Company recorded a full reserve in the third quarter of 2023 of $7.5 million for outstanding accounts receivable associated with a customer bankruptcy within the Aerospace segment, which was subsequently written off in the second quarter of 2024.
Research and Development Expenses
Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs, and depreciation. Research and development expenses amounted to $12.4 million and $14.1 million for the three months ended and $39.9 million and $39.5 million for the nine months ended September 28, 2024 and September 30, 2023, respectively. These costs are included in cost of products sold.
Valuation of Goodwill and Long-Lived Assets
The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Long-lived assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value.
As of September 28, 2024 and September 30, 2023, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the nine-month periods then ended.
Foreign Currency Translation
The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended September 28, 2024 and September 30, 2023.
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Newly Adopted Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
StandardDescriptionFinancial Statement Effect or Other Significant Matters
ASU No. 2023-07
Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosure
The standard includes updates to the disclosure requirements for a public entity’s reportable segments and provides more detailed information about a reportable segment’s expenses. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with retrospective application required.The Company is currently evaluating the impact of adopting this guidance. We expect adoption to result in additional disclosures in the notes to our Consolidated Financial Statements.
ASU No. 2023-09
Income Taxes (Topic 740), Improvements to Income Tax Disclosures
The amendments in this update require enhanced disclosures within the annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclosure of both percentages and dollar amounts, and disaggregation of the reconciling items by nature when they meet a quantitative threshold. The update also includes enhanced disclosure requirements for income taxes paid. The new standard is effective for annual periods beginning after December 15, 2024; early adoption is permitted.The Company is currently evaluating the impact of adopting this guidance. We expect adoption to result in additional disclosures in the notes to our Consolidated Financial Statements.
We consider the applicability and impact of all ASUs. Recent ASUs were assessed and determined to be either not applicable or had or are expected to have minimal impact on our financial statements and related disclosures.
2) Revenue
On September 28, 2024, we had $611.9 million of outstanding performance obligations, which we refer to as total backlog. In conjunction with the customer bankruptcy discussed in Note 1, we have removed all outstanding backlog in the third quarter of 2024, approximately $9.3 million, related to such customer. We expect to recognize approximately $519.8 million of our outstanding performance obligations as revenue over the next twelve months and the balance thereafter.
The Company's contract assets and contract liabilities consist primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the nine months ended September 28, 2024:
(In thousands)Contract AssetsContract Liabilities
Beginning Balance, January 1, 2024
$46,321 $22,888 
Ending Balance, September 28, 2024
$57,489 $20,210 
The increase in contract assets reflects the net impact of new revenue recognized in excess of billings exceeding billing of previously unbilled revenue during the period, partially offset by a $3.5 million revision of estimated costs to complete certain long-term mass transit Test contracts which was recorded in the second quarter of 2024. The revision resulted in reduced revenue recognized during the nine months ended September 28, 2024 due to lower estimates of the percentage of work completed on the programs. The decrease in contract liabilities reflects the net impact of revenue recognized in excess of new customer advances or deferred revenues recorded.
We recognized $6.3 million and $9.3 million during the three months ended and $16.4 million and $22.1 million during the nine months ended September 28, 2024 and September 30, 2023, respectively, in revenues that were included in the contract liability balance at the beginning of the period.
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Work in Progress within Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of
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recovery, the capitalized costs are written off. Capitalized fulfillment costs were $4.2 million and $4.7 million on September 28, 2024 and December 31, 2023, respectively. Amortization of fulfillment costs recognized within Cost of Products Sold was approximately $0.1 million and $3.1 million for the three and nine months ended September 28, 2024. No amortization of fulfillment costs was recorded in 2023.
The following table presents our revenue disaggregated by Market Segments as follows:
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Aerospace Segment
Commercial Transport
$383,679 $308,016 $133,850 $101,724 
Military Aircraft
63,545 44,335 21,685 16,687 
General Aviation
56,643 60,656 18,077 16,193 
Other
14,268 23,076 3,942 7,500 
Aerospace Total518,135 436,083 177,554 142,104 
Test Systems Segment
Government & Defense
68,751 57,831 26,144 20,818 
Test Systems Total68,751 57,831 26,144 20,818 
Total$586,886 $493,914 $203,698 $162,922 
The following table presents our revenue disaggregated by Product Lines as follows:
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Aerospace Segment
Electrical Power & Motion
$263,919 $185,712 $90,467 $64,312 
Lighting & Safety
135,162 116,967 46,921 38,496 
Avionics
83,716 83,011 29,151 22,347 
Systems Certification
12,272 19,832 4,460 6,535 
Structures
8,798 7,485 2,613 2,914 
Other
14,268 23,076 3,942 7,500 
Aerospace Total518,135 436,083 177,554 142,104 
Test Systems68,751 57,831 26,144 20,818 
Total$586,886 $493,914 $203,698 $162,922 
3) Inventories
Inventories consisted of the following:
(In thousands)
September 28, 2024December 31, 2023
Finished Goods
$32,315 $29,013 
Work in Progress
29,519 32,118 
Raw Material
143,118 130,670 
$204,952 $191,801 
As further described in Note 1, the Company recorded a $0.9 million and $3.6 million reduction in inventory for customer bankruptcies within the Aerospace segment in the three and nine months ended September 28, 2024 and September 30, 2023, respectively.
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4) Property, Plant and Equipment
Property, Plant and Equipment consisted of the following:
(In thousands)
September 28, 2024December 31, 2023
Land
$8,617 $8,606 
Buildings and Improvements
71,766 71,480 
Machinery and Equipment
130,174 126,725 
Construction in Progress
4,003 4,219 
214,560 211,030 
Less Accumulated Depreciation
133,251 125,594 
$81,309 $85,436 
5) Intangible Assets
The following table summarizes acquired intangible assets as follows:
September 28, 2024December 31, 2023
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents11 years$2,146 $2,146 $2,146 $2,146 
Non-compete Agreement4 years11,082 11,082 11,082 11,072 
Trade Names10 years11,435 10,257 11,426 9,973 
Completed and Unpatented Technology9 years47,911 41,710 47,896 38,961 
Customer Relationships15 years142,236 93,913 142,208 87,186 
Total Intangible Assets13 years$214,810 $159,108 $214,758 $149,338 
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows:
Nine Months EndedThree Months Ended
(In thousands)
September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Amortization Expense
$9,728 $10,577 $3,189 $3,381 
Amortization expense for acquired intangible assets expected for 2024 and for each of the next five years is summarized as follows:
(In thousands)
2024$12,868 
2025$10,935 
2026$9,533 
2027$7,825 
2028$7,037 
2029$5,664 
6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 28, 2024:
(In thousands)December 31, 2023
Foreign
Currency
Translation
September 28, 2024
Aerospace$36,575 $(41)$36,534 
Test Systems21,635 — 21,635 
$58,210 $(41)$58,169 
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7) Long-term Debt and Notes Payable
The Company amended the existing revolving credit facility on July 11, 2024 by entering into the Seventh Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow pursuant to the revolving credit line at $200 million, with borrowings subject to a borrowing base determined primarily by inventory, accounts receivable, machinery and equipment and real estate. The maturity date of borrowings under the ABL Revolving Credit Facility is July 11, 2027. Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the credit facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%) plus an applicable margin ranging from 2.50% to 3.00% determined based upon the Company’s excess availability (as defined in the ABL Revolving Credit Facility). The Company is required to pay a quarterly commitment fee under the ABL Revolving Credit Facility on undrawn revolving credit commitments in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability under the credit facility. On September 28, 2024, there was $126.0 million outstanding on the ABL Revolving Credit Facility and there remained $70.9 million available, net of outstanding letters of credit.
The Company also entered into a $55 million Term Loan Facility on July 11, 2024. The Term Loan Facility is secured primarily by the Company’s intellectual property and equity interests of the Company’s subsidiaries. The maturity date of the Term Loan Facility is July 11, 2027. The Company pays interest under the Term Loan Facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%) plus an applicable margin ranging from 5.50% to 6.75% determined based upon the Company’s consolidated leverage ratio (as defined in the Term Loan Facility). The Company paid a commitment fee to the lenders under the Term Loan Facility in the amount of 2.0% of the total aggregate commitment. The Company is required to repay the principal amount of the term loans under the Term Loan Facility in quarterly installments on the last day of each fiscal quarter in an amount equal to $0.1 million. The principal amount of the Term Loan Facility amortizes at a rate of 1.00% (or approximately $0.6 million) per year. The Term Loan Facility is subject to a call premium of 3.00% if called prior to January 12, 2026, and 0.00% thereafter until the maturity date on July 11, 2027. The Company has the option to prepay the outstanding amounts under the Term Loan Facility up to $12.0 million without penalty.
Total payments of $0.6 million are payable over the next twelve months, including the annual amortization of the Term Loan Facility, and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of September 28, 2024. The interest rate on current maturities of long-debt was 8.2% at September 28, 2024 and 14.2% at December 31, 2023. The remaining balance of $54.5 million under the Term Loan Facility as of September 28, 2024, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.
The Company repaid in full all outstanding indebtedness under the original term loan facility dated as of January 19, 2023. The payoff amount of approximately $84.5 million consisted of a repayment of the principal amount of approximately $80.3 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 4.00% (or approximately $3.2 million) which satisfied all of the Company’s indebtedness obligations thereunder. The Company funded the repayment of its obligations under the previous agreement with borrowings under the ABL Revolving Credit Facility and the Term Loan Facility.
The Company incurred $5.9 million in incremental debt issuance costs during the nine months ended September 28, 2024, allocated between the original and revised ABL Revolving Credit Facilities and the original and revised Term Loan Facilities. All costs are amortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.8 million as of September 28, 2024) are recorded within Other Assets and those associated with the Term Loan Facility ($2.0 million as of September 28, 2024) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.
In the three and nine months ended September 28, 2024, the Company recorded a loss on extinguishment of the debt of approximately $7.0 million below Income from Operations, which was comprised of the $3.2 million prepayment fee on the previous term loan and a write-off of $3.8 million of unamortized deferred financing costs. The Company also had a write-off of deferred financing costs of approximately $0.5 million related to the exiting ABL lender in Interest Expense within the Consolidated Condensed Statements of Operations.
Certain of the Company’s subsidiaries are borrowers under the ABL Revolving Credit Facility and the Term Loan Facility and the assets of such subsidiaries also secure the obligations under the Restated Agreement and the Term Loan Facility.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. The Company is also required to maintain minimum excess availability of the greater of 10% of the borrowing base under the ABL Revolving Credit Facility, or $15.0 million. Under the provisions of the ABL Revolving
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Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings and any cash balances subject to the dominion arrangement collateralize the outstanding borrowings under the ABL Revolving Credit Facility. Eligible cash balances that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.
The Company expects its sales growth and reductions in working capital will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections.
Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts.
8) Product Warranties
In the ordinary course of business, the Company warrants its products against defects in design, materials, and workmanship typically over periods ranging from twelve to sixty months. The Company determines warranty reserves needed by product line based on experience and current facts and circumstances.
Activity in the warranty accrual is summarized as follows:
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Balance at Beginning of Period$9,751 $8,009 $11,303 $7,705 
Warranties Issued8,333 4,463 5,032 2,555 
Warranties Settled(2,714)(3,060)(1,012)(909)
Reassessed Warranty Exposure39 (548)86 (487)
Balance at End of Period$15,409 $8,864 $15,409 $8,864 
9) Income Taxes
The effective tax rates were approximately (126.9)% and 18.4% for the three months ended and (58.5)% and (19.9)% for the nine months ended September 28, 2024 and September 30, 2023, respectively. Beginning with the 2022 tax year, certain research and development costs are required to be capitalized and amortized over sixty months for income tax purposes. The tax rate in the 2024 period was impacted by a valuation allowance applied against the deferred tax asset associated with the research and development costs that are expected to be capitalized and was partially offset by the removal of valuation allowances related to net operating losses and certain timing differences that are expected to reverse during 2024. In addition, the tax rate in the 2024 period was also impacted by state income taxes and the federal research and development credit expected for 2024.
The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, are collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to its recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the
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negative evidence of cumulative losses. Accordingly, during the years ended December 31, 2023 and 2022, the Company determined that a portion of its deferred tax assets were not expected to be realizable in the future and the Company continues to maintain the valuation allowance against its deferred tax assets as of September 28, 2024.
10) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows:
Nine Months Ended
Three Months Ended
(In thousands)
September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Weighted Average Shares - Basic34,961 32,707 35,011 33,000 
Net Effect of Dilutive Stock Awards— — — — 
Weighted Average Shares - Diluted34,961 32,707 35,011 33,000 
Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The Company incurred a net loss for the three and nine months ended September 28, 2024 and the three and nine months ended September 30, 2023, therefore all outstanding stock options and unvested restricted stock units are excluded from the computation of diluted loss per share because the effect of their inclusion would be anti-dilutive. The number of common shares excluded from the computation was approximately 1,218,000 shares as of September 28, 2024 and 1,315,000 shares as of September 30, 2023.
11) Shareholders' Equity
Share Buyback and Reissuance
The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. Common shares repurchased by the Company are recorded at cost as treasury shares and result in a reduction of equity. Under its current credit agreements, the Company is currently restricted from further stock repurchases.
When treasury shares are reissued, the Company determines the cost using an average cost method. The difference between the average cost of the treasury shares and the reissuance price is included in Retained earnings. During the nine month periods ended September 28, 2024 and September 30, 2023, the Company reissued 139,000 and 242,000 treasury shares, respectively, associated with the funding of employer 401K contributions and recorded the difference between the average cost and the reissuance price, $1.3 million and $3.1 million, respectively, as a reduction to Retained Earnings.
At-the-Market Equity Offering
On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $30.0 million. During the three and nine months ended September 28, 2024, the Company did not sell any shares of our common stock under the ATM Program. During the three and nine months ended September 30, 2023, the Company sold 834,228 shares of our common stock under the ATM Program. The Company generated $13.9 million in aggregate gross proceeds from sales under the ATM Program at an average sale price of $16.70 per share. Aggregate net proceeds from the ATM Program were $13.6 million after deducting related expenses, including commissions to the Sales Agents and issuance costs. Of this amount, $13.1 million in net cash proceeds were received in the three and nine months ended September 30, 2023, with the remainder received in October 2023. As of September 28, 2024, the Company had remaining capacity under the ATM Program to sell shares of Common Stock having an aggregate offering price up to approximately $8.2 million.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
(In thousands)September 28, 2024December 31, 2023
Foreign Currency Translation Adjustments$(6,224)$(6,351)
Retirement Liability Adjustment – Before Tax(4,514)(5,357)
Tax Benefit of Retirement Liability Adjustment2,282 2,282 
Retirement Liability Adjustment – After Tax(2,232)(3,075)
Accumulated Other Comprehensive Loss$(8,456)$(9,426)
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The components of other comprehensive income (loss) are as follows:
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Foreign Currency Translation Adjustments$127 $(117)$1,051 $(828)
Retirement Liability Adjustments:
Reclassifications to Selling, General and Administrative Expenses:
Amortization of Prior Service Cost
290 288 97 95 
Amortization of Net Actuarial Losses
553 269 184 90 
Retirement Liability Adjustment843 557 281 185 
Other Comprehensive Income (Loss)$970 $440 $1,332 $(643)
12) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain current and retired executive officers. The following table sets forth information regarding the net periodic pension cost for the plans.
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Service Cost$— $79 $— $26 
Interest Cost1,028 976 343 324 
Amortization of Prior Service Cost290 288 97 95 
Amortization of Net Actuarial Losses553 269 184 90 
Net Periodic Cost$1,871 $1,612 $624 $535 
Participants in the SERP are entitled to paid medical, dental, and long-term care insurance benefits upon retirement under the plan. The Company also has a defined benefit plan related to its subsidiary in France. The net periodic cost for both plans for the three and nine months ended September 28, 2024 and September 30, 2023, is immaterial.
The service cost component of net periodic benefit costs above is recorded in Selling, General and Administrative Expenses within the Consolidated Condensed Statements of Operations, while the remaining components are recorded in Other Expense (Income), Net.
13) Sales to Major Customers
The loss of major customers or a significant reduction in business with a major customer would significantly, and negatively impact our sales and earnings. In the three and nine months ended September 28, 2024 and September 30, 2023, the Company had one customer over 10% of consolidated sales. Sales to The Boeing Company (“Boeing”) accounted for 10.5% and 11.0% of sales in the three and nine months ended September 28, 2024 and 11.6% and 11.1% in the three and nine months ended September 30, 2023, respectively. Accounts receivable from Boeing on September 28, 2024 were approximately $19.7 million.
14) Legal Proceedings
Lufthansa
One of the Company’s subsidiaries is involved in numerous patent infringement actions brought by Lufthansa Technik AG (“Lufthansa”) in Germany, the United Kingdom (“UK”) and France. The Company is vigorously defending all such litigation and proceedings. Additional information about these legal proceedings can be found in Note 19 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The reserve for the German indirect claim and interest was approximately $17.0 million on September 28, 2024 and $17.1 million on December 31, 2023. The Company currently believes it is unlikely that the damages in the German indirect proceedings and related interest will be paid within the next twelve months. Therefore, the liability related to this matter is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets on September 28, 2024 and December 31, 2023.
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In the matter before the UK High Court of Justice, Lufthansa has pleaded its case for monetary compensation at a separate trial which was conducted in October 2024. At this proceeding, Lufthansa elected to pursue a monetary claim based upon the defendants’ profits from their infringing activities. As of December 31, 2023, the Company had recorded a liability for the UK claim of $7.4 million, inclusive of interest, based on information available at the time. This amount was subject to change as additional data was received and evaluated, and as additional information regarding the nature of its claim was put forward by Lufthansa in advance of the damages trial. During the quarter ended September 28, 2024, both the Company and Lufthansa submitted to the UK High Court of Justice calculations of the estimated damages derived from the reports of the parties’ respective financial experts. The Company’s experts have calculated a range of loss of $7.4 million to $15.7 million (inclusive of interest), while Lufthansa has calculated a range of loss as up to approximately $107 million, excluding interest.
The damages trial judgment is expected to be issued in late 2024 or early 2025. While the Company believes they have valid defenses such that the judgment should be at the low end of the range of exposure noted above, the outcome and the amount of any damages that come due and owing cannot be predicted. As of September 28, 2024, we have recognized a liability of $7.4 million associated with this claim, which represents the low end of the range of exposure described above. Additional interest will continue to accrue on damages that come due and owing until the final payment to Lufthansa.
The Company is performing scenario planning to accommodate the range of potential outcomes. It is expected that the UK High Court of Justice will grant permission to appeal, though this is not assured under UK law. If an appeal is allowed, it is unclear whether payment of any imposed judgment would be due shortly after the ruling or deferred, in whole or in part, until the appeal is heard and adjudicated.
The liability related to this matter is classified within Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheets as of September 28, 2024. The liability related to this matter was classified within Other Liabilities (non-current) in the Company’s Consolidated Balance Sheets as of December 31, 2023.
A liability for reimbursement of Lufthansa’s legal expenses associated with the UK matter was approximately $1.0 million and $0.7 million on September 28, 2024 and December 31, 2023, respectively, which is expected to be paid within the next twelve months and, as such, is classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheet as of September 28, 2024 and December 31, 2023. The Company expects additional amounts to be payable associated with Lufthansa’s legal fees incurred related to the damages proceedings, but is unable to estimate a range of exposure and as such has not recorded any additional liabilities at this time.
With respect to the proceeding in France, as previously disclosed, on December 4, 2020, the French Court held the French patent invalid for all asserted claims. There can consequently be no finding of infringement on first instance. Lufthansa has appealed this judgment. The appeal hearing took place on December 8, 2022, and on February 24, 2023, the Court upheld the first instance judgment in favor of AES. Lufthansa lodged an appeal before the French Supreme Court; the French Supreme Court will review the Court of Appeal of Paris’ reasoning around the nullification of one of the claims of the patent. AES filed briefs with the French Supreme Court on January 22, 2024 and on September 11, 2024 in response to Lufthansa’s appeal. The closure of the written phase of the procedure is scheduled for December 3, 2024 and a decision from this Court is expected in late December 2024 or January 2025. As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of September 28, 2024 or December 31, 2023.
There were no other significant developments in any of these matters during the nine months ended September 28, 2024.
Other
On March 23, 2020, Teradyne, Inc. filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent and copyright infringement, and certain other related claims. The Defendants moved to dismiss certain claims from the case. On November 6, 2020, the Court dismissed the Company from the case, and also dismissed a number of claims, though the patent and copyright infringement claims remained. The case proceeded to discovery. In addition, on December 21, 2020, ATS filed a petition for inter partes review (“IPR”) with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent, and on July 21, 2021, the PTAB instituted IPR. The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims. Teradyne did not appeal the decision. On June 5, 2023, the parties attended a court-ordered mediation but did not reach a settlement. After the mediation, Teradyne agreed to drop its remaining state law claims in exchange for ATS dropping one of its defenses, leaving only its copyright claim. On December 7, 2023, the District Court granted ATS’s motion for summary judgment on its affirmative defense of fair use. The Court subsequently entered final judgment in favor of ATS on December 14, 2023. Teradyne filed a Notice of Appeal to the Ninth Circuit Court of Appeals on January 12, 2024. Teradyne’s opening brief on its appeal was filed on April 9, 2024. ATS’s answering brief was filed on June 10, 2024. Teradyne’s reply brief was filed on August 7, 2024. Oral argument on the appeal has not yet been scheduled. No
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amounts have been accrued for this matter in the September 28, 2024, or December 31, 2023 financial statements, as loss exposure was neither probable nor estimable at such times.
Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations.
15) Segment Information
Below are the sales and operating profit (loss) by segment for the three and nine months ended September 28, 2024 and September 30, 2023, and a reconciliation of segment operating profit (loss) to loss before income taxes. Operating profit (loss) is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.
Nine Months EndedThree Months Ended
(In thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Sales:
Aerospace$518,187 $436,217 $177,564 $142,116 
Less Inter-segment Sales(52)(134)(10)(12)
Total Aerospace Sales518,135 436,083 177,554 142,104 
Test Systems68,790 57,831 26,183 20,818 
Less Inter-segment Sales(39)— (39)— 
Total Test Systems Sales68,751 57,831 26,144 20,818 
Total Consolidated Sales$586,886 $493,914 $203,698 $162,922 
Segment Measure of Operating Profit (Loss) and Margins
Aerospace
$45,628 $10,342 $14,251 $(7,464)
8.8 %2.4 %8.0 %(5.3)%
Test Systems
(8,428)(8,521)(13)(1,781)
(12.3)%(14.7)%— %(8.6)%
Total Segment Measure of Operating Profit (Loss)37,200 1,821 14,238 (9,245)
6.3 %0.4 %7.0 %(5.7)%
(Additions to) Deductions from Segment Measure of Operating Profit:
Net Gain on Sale of Business— (3,427)— — 
Loss on Extinguishment of Debt6,987 — 6,987 — 
Interest Expense, Net of Interest Income
17,832 17,381 6,217 5,991 
Corporate Expenses and Other
20,824 15,712 6,207 5,582 
Loss Before Income Taxes$(8,443)$(27,845)$(5,173)$(20,818)
During the three and nine months ended September 28, 2024 and September 30, 2023, reserves associated with customer bankruptcies of $2.2 million and $11.1 million, respectively, were recorded in Aerospace Operating Profit (Loss). See Note 1 for further discussion. Aerospace Operating Profit included $3.2 million and $8.5 million in compensation expense related to the resumption of the Company’s incentive programs in the three and nine months ended September 28, 2024, respectively. Aerospace Operating Profit in the three and nine months ended September 28, 2024 was negatively impacted by a $3.5 million atypical warranty reserve related to a new product launch that requires a field modification.
During the nine months ended September 30, 2023, $5.8 million was recognized in sales related to the reversal of a deferred revenue liability assumed with an acquisition and associated with a customer program within our Test Systems Segment which is no longer expected to occur, which also benefits Test Systems’ operating loss for the period. Test Systems Operating Loss included $0.7 million and $1.8 million in compensation expense related to the resumption of the Company’s incentive programs in the three and nine months ended September 28, 2024, respectively.
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Corporate expenses and other for the nine months ended September 30, 2023, includes income of $1.8 million associated with the reversal of a liability related to an equity investment, as we will no longer be required to make the associated payment. This amount is included in Other Expense (Income), Net in the Consolidated Condensed Statement of Operations.
Total Assets:
(In thousands)
September 28, 2024December 31, 2023
Aerospace
$508,514 $493,660 
Test Systems
127,839 122,681 
Corporate
15,244 17,451 
Total Assets
$651,597 $633,792 
16) Fair Value
There were no financial assets or liabilities carried at fair value measured on a recurring basis on September 28, 2024 or December 31, 2023.
There were no non-recurring fair value measurements performed in the nine months ended September 28, 2024 and September 30, 2023.
Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable, and accounts payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.
17) Subsequent Events
On October 15, 2024, the Company announced that David C. Burney, the Company’s current CFO, will retire on January 3, 2025. The Company entered into a Transition and Retirement Agreement which granted certain benefits related to the retirement. Accordingly, in the fourth quarter of 2024, the Company expects to record non-cash charges of approximately $0.5 million in accelerated RSU expense within SG&A and approximately $0.7 million in non-cash charge within Other Expense for the waiver of the early retirement penalty in the SERP II.
In October 2024, the Company offered a voluntary separation program to certain workers in our Test Systems segment to align the workforce and management structure with near-term revenue expectations and operational needs. We expect to record severance and related benefits expense of approximately $1 million in the fourth quarter. These initiatives are expected to provide annualized savings of approximately $2 million, beginning with the first quarter of 2025.
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2023.)
OVERVIEW
Astronics Corporation, through its subsidiaries, is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our 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.
Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products. Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial transport, military, and general aviation markets, suppliers to those OEMs, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense (“USDOD”). Our Test Systems segment designs, develops, manufactures, and maintains automated test systems that support the aerospace and defense and mass transit industries as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEMs and prime government contractors for both electronics and military products.
Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial.
Important factors affecting our growth and profitability are the rate at which new aircraft are produced, government funding and timing of awards of military programs, our ability to have our products designed into new aircraft, and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft and supply chain and labor market pressures. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once one of our products is designed into a new aircraft, the spare parts business associated thereto is also frequently retained by the Company. Future growth and profitability of the Test Systems business is dependent on developing and procuring new and follow-on business. The nature of our Test Systems business is such that it pursues large, often multi-year, projects. There can be significant periods between orders in this business, which may result in large fluctuations in sales and profit levels and backlog from period to period. Test Systems segment customers include the USDOD, prime contractors to the USDOD, mass transit operators and prime contractors to mass transit operators.
Each of the markets that we serve presents opportunities that we expect will provide growth for the Company over the long-term. We continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions.
The main challenges that we continue to face include varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic, material availability and cost increases, labor availability and cost, and improving shareholder value through increasing profitability. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to pass cost increases along to customers and control operating expenses, and identify means of creating improved productivity. Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.
Reduced aircraft build rates driven by regulatory actions impacting OEM production, aircraft groundings, tight credit markets, weak economy, reduced air passenger travel, and an increasing supply of used aircraft on the market would likely result in reduced demand for our products, which will result in lower profits. Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future. Many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs. Delays in delivery schedules and incremental costs resulting from supply chain and labor rate pressures have in the past resulted, and could in the future also result in, lower profits. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing the growth opportunities currently in front of us.
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Our ABL Revolving Credit Facility and Term Loan Facility each subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum excess availability requirements and minimum fixed charge coverage ratio requirements. An unexpected decline in our revenues or operating income, including occurring as a result of events beyond our control, could cause us to violate our financial covenants. Our ability to satisfy the financial covenants under our credit agreements is an item that our management team continues to closely monitor. While the Company expects to remain in compliance with the required financial covenants for the duration of the agreements, any unexpected negative impacts to our business, including as a result of declines in aircraft production rates from expectations or production delays resulting from regulatory actions or labor strikes affecting OEMs or subsidiaries of the Company, additional supply chain pressures, the timing of customer orders, and our ability to meet customer delivery schedules, or labor availability and cost pressures, could result in lower revenues and reduced financial profits, and, as a result thereof, our inability to satisfy the financial covenants in our ABL Revolving Credit Facility and Term Loan Facility.
Challenges affecting the commercial aviation industry or key participants can adversely impact the demand for our products and services, the timing of orders, deliveries and related payments and other factors. We are monitoring the production and other challenges at The Boeing Company, including the recent strike, and we continue to align with them on production expectations and assess potential impacts to our business. The impacts from the strike to our revenues, earnings and cash flows for the three and nine months ended September 28, 2024 have not been significant.
We are monitoring the ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others. Although the conflict has not resulted in a direct material adverse impact on our business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 semiconductor test business earnout for $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023.
In October 2024, a customer reported within the Aerospace segment declared bankruptcy. As a result, the Company recorded a full reserve of $0.8 million for outstanding receivables, a reserve of $0.9 million for inventory and $0.5 million for impairment of fixed assets. The reserves are non-cash in the current quarter and year to date, as the associated assets existed prior to 2024. In the third quarter of 2023, a customer reported within the Aerospace segment filed for bankruptcy under Chapter 11. As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and $3.6 million for inventory in the prior year periods.
CONSOLIDATED RESULTS OF OPERATIONS
Nine Months EndedThree Months Ended
($ in thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Sales$586,886 $493,914 $203,698 $162,922 
Gross Profit (sales less cost of products sold)$118,288 $80,823 $42,743 $20,618 
Gross Margin20.2 %16.4 %21.0 %12.7 %
Selling, General and Administrative Expenses$100,698 $95,276 $34,369 $35,097 
SG&A Expenses as a Percentage of Sales17.2 %19.3 %16.9 %21.5 %
Net Gain on Sale of Business$— $(3,427)$— $— 
Loss on Extinguishment of Debt$6,987 $— $6,987 $— 
Interest Expense, Net$17,832 $17,381 $6,217 $5,991 
Effective Tax Rate(58.5)%(19.9)%(126.9)%18.4 %
Net Loss$(13,383)$(33,397)$(11,738)$(16,983)
A discussion by segment can be found in “Segment Results of Operations” in this MD&A.
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CONSOLIDATED THIRD QUARTER RESULTS
Consolidated sales were up $40.8 million, or 25.0%. Aerospace sales increased $35.5 million and Test Systems sales increased $5.3 million.
Consolidated cost of products sold in the third quarter of 2024 was $161.0 million, compared with $142.3 million in the prior-year period. The increase was primarily due to higher sales volume coupled with $2.5 million for resumed incentive programs, a $3.5 million atypical warranty reserve related to a new product launch that requires a field modification and a $3.2 million increase in non-bankruptcy related inventory reserves, offset by a decrease in non-cash reserves associated with customer bankruptcies previously discussed of $2.7 million.
Selling, general and administrative (“SG&A”) expenses were $34.4 million in the third quarter of 2024 compared with $35.1 million in the prior-year period. The current year was affected by increased wages and benefits, including $2.0 million for resumed incentive programs, and an increase of $1.9 million in litigation-related legal expenses and reserve adjustments in 2024. The prior year was negatively impacted by a $7.5 million reserve for accounts receivable compared to a $1.3 million reserve for accounts receivable and fixed asset impairments in the current quarter associated with customer bankruptcies previously discussed.
Third quarter 2024 expenses included a $3.2 million call premium on the previous term loan and the write-off of $3.8 million of associated deferred financing costs. The $7.0 million total has been reflected as Loss on Extinguishment of Debt.
Tax expense in the quarter was $6.6 million, primarily due to a valuation allowance applied against the deferred tax asset associated with research and development costs that are required to be capitalized for tax purposes.
Consolidated net loss was $11.7 million, or $0.34 per diluted share, compared with net loss of $17.0 million, or $0.51 per diluted share, in the prior year.
Bookings were $189.2 million in the quarter resulting in a book-to-bill ratio of 0.93:1. For the trailing twelve months, bookings totaled $795.5 million and the book-to-bill ratio was 1.02:1. Backlog at the end of the quarter was $611.9 million.
CONSOLIDATED YEAR-TO-DATE RESULTS
Consolidated sales were up $93.0 million, or 18.8%. Aerospace sales increased $82.1 million and Test Systems sales increased $10.9 million. The prior-year period Test Systems sales benefited from the reversal of a $5.8 million deferred revenue liability recorded with a previous acquisition.
Consolidated cost of products sold in the 2024 was $468.6 million, compared with $413.1 million in the prior-year period. The increase was primarily due to higher volume, coupled with $6.2 million for resumed incentive programs, a $3.5 million warranty reserve previously mentioned and a $3.4 million increase in non-bankruptcy related inventory reserves, offset by a decrease in non-cash reserves associated with customer bankruptcies previously discussed of $2.7 million.
SG&A expenses were $100.7 million in the 2024 compared with $95.3 million in the prior-year period. The current year was affected by increased wages and benefits, including $5.9 million related for resumed incentive programs, and an increase of $1.9 million in litigation-related legal expenses and reserve adjustments in 2024. The increase in SG&A expenses was offset by a decrease in non-cash reserves associated with customer bankruptcies previously discussed of $6.2 million.
The expenses in the current year include the $7.0 million Loss on Extinguishment of Debt described above.
In the prior year period, the Company recognized a $3.4 million gain from the final earnout payment for the 2019 sale of its semiconductor test business, as well as $1.8 million within Other Income associated with the reversal of a liability related to an equity investment.
Tax expense in the current period was $4.9 million, compared with tax expense of $5.6 million in the prior year.
Consolidated net loss was $13.4 million, or $0.38 per diluted share, compared with net loss of $33.4 million, or $1.02 per diluted share, in the prior year.
SEGMENT RESULTS OF OPERATIONS
Operating profit (loss), as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense, other corporate expenses and other non-operating sales and expenses. Cost of products sold and other operating
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expenses are directly identifiable to the respective segment. Operating profit (loss) is reconciled to loss before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.
AEROSPACE SEGMENT
Nine Months EndedThree Months Ended
($ in thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Sales$518,187 $436,217 $177,564 $142,116 
Less Inter-segment Sales
(52)(134)(10)(12)
Total Aerospace Sales
$518,135 $436,083 $177,554 $142,104 
Operating Profit (Loss)$45,628 $10,342 $14,251 $(7,464)
Operating Margin8.8 %2.4 %8.0 %(5.3)%
Aerospace Sales by Market
(In thousands)
Commercial Transport$383,679 $308,016 $133,850 $101,724 
Military Aircraft63,545 44,335 21,685 16,687 
General Aviation56,643 60,656 18,077 16,193 
Other14,268 23,076 3,942 7,500 
$518,135 $436,083 $177,554 $142,104 
Aerospace Sales by Product Line
(In thousands)
Electrical Power & Motion$263,919 $185,712 $90,467 $64,312 
Lighting & Safety135,162 116,967 46,921 38,496 
Avionics83,716 83,011 29,151 22,347 
Systems Certification12,272 19,832 4,460 6,535 
Structures8,798 7,485 2,613 2,914 
Other14,268 23,076 3,942 7,500 
$518,135 $436,083 $177,554 $142,104 
(In thousands)September 28, 2024December 31, 2023
Total Assets
$508,514 $493,660 
Backlog
$543,638 $511,540 
The backlog on September 28, 2024 and December 31, 2023 excludes backlog associated with the customer bankruptcy referred to previously.
AEROSPACE THIRD QUARTER RESULTS
Aerospace segment sales increased $35.5 million, or 24.9%, to $177.6 million. The improvement was driven by a 31.6% increase, or $32.1 million, in Commercial Transport sales. Sales to this market were $133.9 million, or 65.8% of consolidated sales in the quarter, compared with $101.7 million, or 62.5% of consolidated sales in the third quarter of 2023. Growth was primarily related to increased demand by airlines for inflight entertainment & connectivity (“IFEC”) products which are in the Electrical Power & Motion and Avionics product groups.
Military Aircraft sales increased $5.0 million, or 30.0%, to $21.7 million, driven by progress on the FLRAA program. General Aviation sales increased $1.9 million, or 11.6%, to $18.1 million due to higher VVIP sales. Other sales decreased $3.6 million as the Company is winding down its non-core contract manufacturing arrangements.
Aerospace segment operating profit of $14.3 million was up $21.7 million compared with operating loss of $7.5 million in the same period last year. Operating margin was 8.0% reflecting the leverage gained on higher volume and improving production efficiencies.
The segment’s operating profit in the third quarter of 2024 was impacted by $3.5 million in warranty expense related to the previously-mentioned field modification, $5.1 million in litigation-related legal expenses and reserve adjustments related to an
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ongoing patent dispute, $3.9 million in inventory reserves, and $3.2 million in compensation expense related to the resumption of the Company’s incentive programs, and a non-cash reserve associated with a customer bankruptcy of $2.2 million.
Aerospace bookings were $173.6 million for a book-to-bill ratio of 0.98:1. Backlog for the Aerospace segment was $543.6 million at quarter end and excludes $9.3 million of backlog that was associated with the customer bankruptcy referred to previously.
AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales increased $82.1 million, or 18.8%, to $518.1 million. The improvement was driven by a 24.6% increase, or $75.7 million, in Commercial Transport sales. Sales to this market were $383.7 million, or 65.4% of consolidated sales in 2024, compared with $308.0 million, or 62.3% of consolidated sales in the same period of 2023. Higher airline spending drove increased demand.
Military Aircraft sales increased $19.2 million, or 43.3%, to $63.5 million, driven by progress on the FLRAA program as well as higher sales of lighting, safety and avionics products for military aircraft. General Aviation sales decreased $4.0 million, or 6.6%, to $56.6 million due to lower antenna and VVIP sales. Other sales decreased $8.8 million as the Company is winding down its non-core contract manufacturing arrangements.
Aerospace segment operating profit of $45.6 million was up $35.3 million compared with operating profit of $10.3 million in the same period last year. Operating margin improvement reflects the leverage gained on higher volume and improving production efficiencies. Operating profit in 2024 was impacted by a $4.2 million increase in warranty expense, which was primarily related to the previously-mentioned field modification, an $8.6 million increase in litigation-related legal expenses and reserve adjustments related to an ongoing patent dispute, a $3.9 million increase in inventory reserves and $8.5 million in compensation expense related to the resumption of the Company’s incentive programs, offset by a decrease in non-cash reserves associated with customer bankruptcies of $8.9 million.
TEST SYSTEMS SEGMENT
Nine Months EndedThree Months Ended
($ in thousands)September 28, 2024September 30, 2023September 28, 2024September 30, 2023
Sales$68,790 $57,831 $26,183 $20,818 
Less Inter-segment Sales(39)— (39)— 
Total Test Systems Sales$68,751 $57,831 $26,144 $20,818 
Operating Loss$(8,428)$(8,521)$(13)$(1,781)
Operating Margin(12.3)%(14.7)%— %(8.6)%
All Test Systems sales are to the Government and Defense Market.
(In thousands)
September 28, 2024December 31, 2023
Total Assets
$127,839 $122,681 
Backlog$68,227 $75,036 
TEST SYSTEMS THIRD QUARTER RESULTS
Test Systems segment sales were $26.1 million, up $5.3 million. The improvement was driven by the U.S. Marine Corps’ Handheld Radio Test Sets (“HHRTS”) and the U.S. Army’s TS-4549/T programs, which contributed $5.3 million and $1.2 million, respectively, in sales during the quarter.
Test Systems segment operating loss was near break-even, compared with operating loss of $1.8 million in the third quarter of 2023. The improvement was the result of lower litigation-related legal expenses, partially offset by additional compensation expense from the resumption of the Company’s incentive programs. Test Systems continues to be negatively affected by mix and under absorption of fixed costs at current volume levels.
Additional restructuring initiatives were implemented in the 2024 fourth quarter. In October 2024, the Company offered a voluntary separation program which is currently expected to provide annualized savings of approximately $2 million, beginning in the first quarter of 2025. The Company expects to record severance expense of approximately $1 million in the fourth quarter of 2024 related to this initiative.
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Bookings for the Test Systems segment in the quarter were $15.6 million. The book-to-bill ratio was 0.60:1 for the quarter. Backlog for the Test Systems segment was $68.2 million at quarter end.
TEST SYSTEMS YEAR-TO-DATE RESULTS
Test Systems segment sales were $68.8 million, up $10.9 million driven primarily by our U.S. Army and U.S. Marine Corps’ Radio Test programs. However, sales were negatively impacted by $3.5 million due to a revision of estimated costs to complete certain long-term mass transit Test contracts. The revision resulted in reduced revenue recognized in the period due to lower estimates of the percentage of work completed on the programs. The prior-year period sales benefited from the reversal of a $5.8 million deferred revenue liability recorded with a previous acquisition.
Test Systems segment operating loss was $8.4 million, compared to operating loss of $8.5 million in 2023. Test Systems operating loss for the prior-year period benefited from the $5.8 million sales adjustment resulting from the reversal of the deferred revenue liability. The first nine months of 2024 benefited from the margin realized on the HHRTS and TS-4549/T sales and a $6.7 million decrease in litigation-related expenses, however Test Systems’ operating performance continues to be negatively affected by mix and under absorption of fixed costs due to low volume, the resumption of the Company’s incentive programs, and the revision of estimated costs on certain long-term mass transit contracts discussed above, which resulted in a $3.5 million reversal of revenue.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities:
Cash provided by operating activities totaled $4.1 million for the first nine months of 2024, as compared with $22.3 million cash used for operating activities during the same period in 2023. Cash flow from operating activities increased compared with the same period of 2023 primarily resulting from the improvement in our operating results, driven by higher sales.
Investing Activities:
Cash used for investing activities was $5.2 million for the first nine months of 2024 compared with $2.6 million in cash used for investing activities in the same period of 2023. Investing cash flows in 2023 were positively impacted by the receipt of $3.4 million received in the prior year related to the calendar 2022 earnout.
The Company expects capital spending in 2024 to be in the range of $9 million to $11 million.
Financing Activities:
Cash used for financing activities totaled $3.9 million for the first nine months of 2024, as compared with cash provided by financing activities of $18.8 million during the same period in 2023. The Company made net borrowings under our credit facilities of $8.5 million in the first nine months of 2024 compared with net borrowings of $9.7 million in the same period in 2023.
The Company amended the existing revolving credit facility on July 11, 2024 by entering into the Seventh Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow pursuant to the revolving credit line at $200 million, with borrowings subject to a borrowing base determined primarily by inventory, accounts receivable, machinery and equipment and real estate. The maturity date of borrowings under the ABL Revolving Credit Facility is July 11, 2027. Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the credit facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%) plus an applicable margin ranging from 2.50% to 3.00% determined based upon the Company’s excess availability (as defined in the ABL Revolving Credit Facility). The Company is required to pay a quarterly commitment fee under the ABL Revolving Credit Facility on undrawn revolving credit commitments in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability under the credit facility. On September 28, 2024, there was $126.0 million outstanding on the ABL Revolving Credit Facility and there remained $70.9 million available, net of outstanding letters of credit.
The Company also entered into a $55 million Term Loan Facility on July 11, 2024. The Term Loan Facility is secured primarily by the Company’s intellectual property and equity interests of the Company’s subsidiaries. The maturity date of the Term Loan Facility is July 11, 2027. The Company pays interest under the Term Loan Facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%) plus an applicable margin ranging from 5.50% to 6.75% determined based upon the Company’s consolidated leverage ratio (as defined in the Term Loan Facility). The Company paid a commitment fee to the lenders under the Term Loan Facility in the amount of 2.0%
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of the total aggregate commitment. The Company is required to repay the principal amount of the term loans under the Term Loan Facility in quarterly installments on the last day of each fiscal quarter in an amount equal to $0.1 million. The principal amount of the Term Loan Facility amortizes at a rate of 1.00% (or approximately $0.6 million) per year. The Term Loan Facility is subject to a call premium of 3.00% if called prior to January 12, 2026, and 0.00% thereafter until the maturity date on July 11, 2027. The Company has the option to prepay the outstanding amounts under the Term Loan Facility up to $12.0 million without penalty.
Total payments of $0.6 million are payable over the next twelve months, including the annual amortization of the Term Loan Facility, and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of September 28, 2024. The interest rate on current maturities of long-debt was 8.2% at September 28, 2024 and 14.2% at December 31, 2023. The remaining balance of $54.5 million under the Term Loan Facility as of September 28, 2024, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.
The Company repaid in full all outstanding indebtedness under the original term loan facility dated as of January 19, 2023. The payoff amount of approximately $84.5 million consisted of a repayment of the principal amount of approximately $80.3 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 4.00% (or approximately $3.2 million) which satisfied all of the Company’s indebtedness obligations thereunder. The Company funded the repayment of its obligations under the previous agreement with borrowings under the ABL Revolving Credit Facility and the Term Loan Facility.
The Company incurred $5.9 million in incremental debt issuance costs during the nine months ended September 28, 2024, allocated between the original and revised ABL Revolving Credit Facilities and the original and revised Term Loan Facilities. All costs are amortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.8 million as of September 28, 2024) are recorded within Other Assets and those associated with the Term Loan Facility ($2.0 million as of September 28, 2024) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.
In the three and nine months ended September 28, 2024, the Company recorded a loss on extinguishment of the debt of approximately $7.0 million below Income from Operations, which was comprised of the $3.2 million prepayment fee on the previous term loan and a write-off of $3.8 million of unamortized deferred financing costs. The Company also had a write-off of deferred financing costs of approximately $0.5 million related to the exiting ABL lender in Interest Expense within the Consolidated Condensed Statements of Operations.
Certain of the Company’s subsidiaries are borrowers under the ABL Revolving Credit Facility and the Term Loan Facility and the assets of such subsidiaries also secure the obligations under the Restated Agreement and the Term Loan Facility.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. The Company is also required to maintain minimum excess availability of the greater of 10% of the borrowing base under the ABL Revolving Credit Facility, or $15.0 million. Under the provisions of the ABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings and any cash balances subject to the dominion arrangement collateralize the outstanding borrowings under the ABL Revolving Credit Facility. Eligible cash balances that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.
On June 5, 2023, the Company filed a shelf registration statement on Form S-3 with the SEC, which allows us to issue shares of common stock, preferred stock, warrants, subscription rights, purchase contracts and debt securities in one or more offerings up to an aggregate offering price of $150 million and on terms to be determined at the time of the offering. On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $0.01 per share having an aggregate offering price of up to $30 million.
During the three and nine months ended September 28, 2024, the Company did not sell any shares of our common stock under the ATM Program. During the three and nine months ended September 30, 2023, the Company sold 834,228 shares of our common stock under the ATM Program. The Company generated $13.9 million in aggregate gross proceeds from sales under
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the ATM Program at an average sale price of $16.70 per share. Aggregate net proceeds from the ATM Program were $13.6 million after deducting related expenses, including commissions to the Sales Agents and issuance costs. Of this amount, $13.1 million in net cash proceeds were received in the three and nine months ended September 30, 2023, with the remainder received in October 2023. As of September 28, 2024, the Company had remaining capacity under the ATM Program to sell shares of common stock having an aggregate offering price up to approximately $8.2 million.
Cash on hand at the end of the quarter was $6.4 million. Net debt was $174.6 million, compared with $161.2 million at the end of 2023.
The Company expects its cash flow from operations will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections. The Company may also utilize available capacity under the ABL Revolving Credit Facility.
Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts.
Lufthansa Technik AG (“Lufthansa”) filed actions in Germany, the United Kingdom (“UK”) and France. These matters are more fully discussed in Note 14 of our Consolidated Financial Statements in Part 1, Item 1, Financial Information of this report, and Risk Factors in Part 2, Item 1a, Other Information of this report. In the matter before the UK High Court of Justice, Lufthansa is seeking damages significantly higher than the amount which has been accrued as a liability by the Company. While we believe we have valid defenses and are vigorously defending all such litigation and proceedings, based upon the outcome of the damages trial this may have a material impact on the Company’s liquidity and cash flows in future periods, but the extent of the impact, if any, will not be known until the judgment is released. The Company is performing scenario planning to accommodate the range of potential outcomes.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.
BACKLOG
The Company’s backlog on September 28, 2024 was $611.9 million compared with $586.6 million on December 31, 2023 and $598.6 million on September 30, 2023. The backlog in each of the periods presented excludes backlog associated with the customer bankruptcy referred to previously.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Our contractual obligations and commitments have not changed materially from the disclosures in our 2023 Annual Report on Form 10-K except as set forth below.
The Company amended its existing ABL Revolving Credit Facility on July 11, 2024 by entering into the Seventh Amended and Restated Credit Agreement. The ABL Revolving Credit Facility increased the maximum aggregate amount that the Company can borrow pursuant to the revolving credit line thereunder to $200 million from $115 million, with borrowings subject to a borrowing base determined primarily by inventory, accounts receivable, machinery and equipment and real estate. The ABL Revolving Credit Facility extended the scheduled maturity date for the credit facility from January 19, 2026 to July 11, 2027. Under the terms of the ABL Revolving Credit Facility, the Company will now pay interest on the unpaid principal amount of the credit facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%) plus an applicable margin ranging from 2.50% to 3.00% determined based upon the Company’s excess availability (as defined in the ABL Revolving Credit Facility). The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility on undrawn revolving credit commitments in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability under the credit facility.
The Company also entered into a $55 million Term Loan Facility on July 11, 2024. The Revised Term Loan Facility is secured primarily by the Company’s intellectual property and equity interests of the Company’s subsidiaries. The maturity date of the Revised Term Loan Facility is July 11, 2027. The Company will pay interest under the Revised Term Loan Facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10% per annum (which collectively shall be at least 1.00%)
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plus an applicable margin ranging from 5.50% to 6.75% determined based upon the Company’s consolidated leverage ratio (as defined in the Revised Term Loan Facility). The Company will pay a commitment fee to the lenders under the Revised Term Loan Facility in the amount of 2.0% of the total aggregate commitment. The Company is required to repay the principal amount of the term loans under the Revised Term Loan Facility in quarterly installments on the last day of each fiscal quarter in an amount equal to $137,500. The principal amount of the Revised Term Loan Facility will amortize at a rate of 1.00% (or approximately $0.6 million) per year.
The Company repaid in full all outstanding indebtedness under the Term Loan Credit Agreement dated as of January 19, 2023. The payoff amount of approximately $84.5 million consisted of a repayment of the principal amount of approximately $80.3 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 4.00% (or approximately $3.2 million) which satisfied all of the Company’s indebtedness obligations thereunder. The Company funded the repayment of its obligations under the previous agreement with borrowings under the Restated Agreement and the Revised Term Loan Facility.
Refer to Note 7 of the Notes to Consolidated Condensed Financial Statements included in this report for additional information regarding the amended and expanded credit agreements.
MARKET RISK
Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $181.0 million as of September 28, 2024. A change of 1% in interest rates of all variable rate debt would impact annual net loss by approximately $1.8 million, before income taxes.
Although the majority of our sales, expenses, and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related primarily to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 2024 has not been significant.
The future impacts of the Russia and Ukraine conflict and the COVID-19 pandemic and the recently resolved Boeing strike and their residual effects, including economic uncertainty, inflationary environment, and disruption within the global supply chain, labor markets, and aerospace industry, on our business remain uncertain. As we cannot anticipate the ultimate duration or scope of the Russia-Ukraine war, the COVID-19 pandemic or the ramifications of the recently resolved Boeing strike, the ultimate financial impact on our results cannot be reasonably estimated but could be material.
CRITICAL ACCOUNTING POLICIES
Refer to Note 2 of the Notes to Consolidated Condensed Financial Statements included in this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2023.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to Consolidated Condensed Financial Statements included in this report.
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume,” and other words and terms of similar meaning, including their negative counterparts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The disclosure under the heading “Market Risk” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above is incorporated by reference into Item 3.
Item 4. Controls and Procedures
a.Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (its principal executive officer) and Chief Financial Officer (its principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 28, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 28, 2024.
b.Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Currently, we are involved in legal proceedings relating to an allegation of patent infringement and, based on rulings to date we have concluded that losses related to these proceedings are probable. For a discussion of contingencies related to legal proceedings, see Note 14 of the Notes to Consolidated Condensed Financial Statements.
Item 1a. Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”), which could materially affect our business, financial condition or results of operations. Our risk factors have not changed materially from those risk factors previously disclosed in our 2023 10-K except as set forth below. The risks described in this report and in the 2023 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.
Our ABL Revolving Credit Facility and Term Loan Facility contain financial and restrictive covenants that we may be unable to satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness thereunder and limit our ability to borrow additional funds. In addition, the terms of our ABL Revolving Credit Facility and Term Loan Facility contain covenants that restrict our current and future operations, particularly our ability to take certain actions. Our ABL Revolving Credit Facility and Term Loan Facility each subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum excess availability and minimum fixed charge coverage ratio requirements. An unexpected decline in our revenues or operating income, including occurring as a result of events beyond our control, could cause us to violate our financial covenants. A covenant violation could result in a default under the ABL Revolving Credit Facility and Term Loan Facility. If any such default occurs, the lenders may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. Further, as the amount available to us under our credit facilities is subject to borrowing base calculations determined by the value of accounts receivable, inventory, real estate and machinery and equipment (under our ABL Revolving Credit Facility), an unexpected decline in the value of these assets would require a mandatory prepayment. If any of these events were to occur, we may not be able to pay our debts and other monetary obligations as they come due, and our ability to continue to operate as a going concern could be impaired, which could in turn cause a significant decline in our stock price and could result in a significant loss of value for our shareholders. Furthermore, the lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings, which could leave us without access to sufficient liquidity to operate our business. In addition, following an event of default, the lenders under the ABL Revolving Credit Facility and Term Loan Facility will have the right to proceed against the collateral granted to them to secure the debt, which includes our available accounts receivable, inventory, machinery and equipment, real estate and intellectual property. If the debt under the ABL Revolving Credit Facility and Term Loan Facility were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full our debt.
Additionally, our ABL Revolving Credit Facility and Term Loan Facility also contain a number of restrictive covenants that impose significant operating and financial restrictions on the Company and our subsidiaries and may limit our ability to engage in acts that we believe to be in our long-term best interests. The ABL Revolving Credit Facility and Term Loan Facility include covenants restricting, among other things, the ability of the Company and our subsidiaries to:
•incur additional indebtedness;
•pay dividends on or repurchase our capital stock;
•make certain acquisitions or investments;
•sell assets; and
•engage in certain business activities.
Currently, our AES subsidiary is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable and the amounts of such losses could be substantial. Lufthansa Technik AG (“Lufthansa”) filed actions in Germany, the United Kingdom (“UK”) and France. These matters are more fully discussed in Note 19 in Item 8, Financial Statements and Supplementary Data of our Form 10-K, and in Note 14 of our Consolidated Financial Statements in Item 1, Financial Information of this report. In both Germany and the UK, the Company has been found to infringe the patents of Lufthansa and will be subject to monetary damages, estimates of which have been accrued as liabilities in our financial statements, but the actual amount of damages that may be addressed in the future could be substantially higher. In the matter before the UK High Court of Justice, Lufthansa has pleaded its case for monetary compensation at a separate trial which was
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conducted in October 2024. Lufthansa is seeking damages significantly higher than the amount which has been accrued as a liability by the Company. Lufthansa has calculated its loss as up to $107 million, excluding interest. While we believe we have valid defenses and are vigorously defending all such litigation and proceedings, if the monetary damages award is decided adversely against the Company, the associated damages could have a material adverse effect on our results of operations, financial condition, cash flows, or business, and, based upon the amount of such damages award, there could be scenarios in which it could be difficult for the Company to satisfy the amount of such damages, in whole or in part. While the Company is performing scenario planning and is engaged with its lenders to seek to be in a position to cover the range of possible outcomes and satisfy any potential damages, these activities and other activities that the Company may undertake may not be successful or may not be sufficient to cover the full amount of any damages assessed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes our purchases of our common stock for the three months ended September 28, 2024:
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Program
June 30, 2024 - July 27, 2024— $— — $41,483,815 
July 28, 2024 - August 24, 2024— $— — $41,483,815 
August 25, 2024 - September 28, 2024— $— — $41,483,815 
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Securities Trading Plans of Directors and Officers
During the three months ended September 28, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Section 302 Certification - Chief Executive Officer
Section 302 Certification - Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.1*
Instance Document
Exhibit 101.2*
Schema Document
Exhibit 101.3*
Calculation Linkbase Document
Exhibit 101.4*
Labels Linkbase Document
Exhibit 101.5*
Presentation Linkbase Document
Exhibit 101.6*
Definition Linkbase Document
*
Submitted electronically herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
ASTRONICS CORPORATION
(Registrant)
Date:
November 7, 2024
By:
/s/ David C. Burney
David C. Burney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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