What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-10 · 96 added, 91 removed, 163 unchanged (53% of the section changed)

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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 ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), supply chain and labor market pressures, the rate at which new aircraft are produced, government funding 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.

Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), supply chain and labor market pressures, 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.

New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy.

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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.

During 2023, given the ongoing challenges faced in our business as described herein, including as a result of the COVID-19 pandemic and its continued impact on the aerospace industry, and based upon our 2023 Outlook as described herein, our ability to satisfy the already tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging and is an item that our management team will be closely monitoring throughout the year.

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 additional supply chain pressures, the timing of customer orders and our ability to 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 during 2023.

During 2023, given the ongoing challenges faced in our business as described herein, including as a result of the COVID-19 pandemic and its continued impact on the aerospace industry and supply chain disruptions, our ability to satisfy the already tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging and is an item that our management team will be closely monitoring throughout the year.

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 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 during 2023.

In September 2021 the Company was awarded a grant of up to $14.7 million from the U.S.

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The Company received $5.2 million in the first quarter of 2022.

The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray.

During the three months ended April 2, 2022, the Company recognized $6.0 million of the award.

The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award was intended to defray.

During the six months ended July 2, 2022, the Company recognized $6.0 million of the award.

We are also 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.

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The Company recorded the gain and received the payment in the first quarter of 2023.

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

Three Months Ended

($ in thousands) April 1, 2023 April 2, 2022

CONSOLIDATED RESULTS OF OPERATIONS

Six Months Ended Three Months Ended

($ in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Sales $ 330,992 $ 245,303 $ 174,454 $ 129,127

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Net Loss $ (16,414) $ (14,111) $ (11,999) $ (11,010)

A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.

CONSOLIDATED FIRST QUARTER RESULTS

Consolidated sales were up $40.4 million, or 34.7%, from the first quarter of 2022.

A discussion by segment can be found at “Segment Results of Operations” in this MD&A.

CONSOLIDATED SECOND QUARTER RESULTS

Consolidated sales were up $45.3 million, or 35.1%, from the second quarter of 2022, and up 11.4% sequentially.

Aerospace sales increased $49.1 million over the comparator quarter, or 44.9%, driven by higher sales to the commercial transport market.

Test Systems sales decreased $3.8 million on lower defense revenue.

Consolidated cost of products sold in the second quarter of 2023 was $141.8 million, compared with $113.4 million in the prior-year period.

The increase was primarily due to higher volume and higher material and labor costs.

Selling, general and administrative (“SG&A”) expenses were $30.3 million in the second quarter of 2023 compared with $24.1 million in the prior-year period.

The current period was impacted by increased wages and benefits and litigation-related legal expenses of $4.9 million partially offset by a reduction in legal reserves of $1.3 million.

Interest expense was $5.9 million in the current period, compared with $1.7 million in the prior-year period, primarily driven by higher interest rates on the Company’s new credit facilities.

Interest expense includes approximately $0.7 million of non-cash amortization of capitalized financing-related fees.

Income tax expense was $8.1 million in the current period, 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 $12.0 million, or $0.37 per diluted share, compared with net loss of $11.0 million, or $0.34 per diluted share, in the prior year.

Bookings were $207.1 million in the quarter resulting in a book-to-bill ratio of 1.19:1.

The quarter closed with a record backlog of $611.1 million.

CONSOLIDATED YEAR-TO-DATE RESULTS

Consolidated sales were up $85.7 million, or 34.9%, from the first half of 2022.

Aerospace sales increased $83.3 million, or 39.5%, driven by higher sales to the commercial transport market.

Test Systems sales increased $6.2 million, due primarily to the reversal of a $5.8 million deferred revenue liability assumed with an acquisition and associated with a customer program which is no longer expected to occur.

Consolidated cost of products sold in the first quarter of 2023 was $129.0 million, compared with $96.2 million in the prior-year period.

Test Systems sales increased $2.4 million, due primarily to the reversal of a $5.8 million deferred revenue liability assumed with an acquisition and associated with a customer program which is no longer expected to occur, partially offset by lower defense revenue.

Consolidated cost of products sold in the first half of 2023 was $270.8 million, compared with $209.7 million in the prior-year period.

The increase was primarily due to higher volume and higher material and labor costs.

The prior-year period benefited the AMJP Program grant which provided a $6.0 million offset to cost of products sold.

Selling, general and administrative (“SG&A”) expenses were $29.9 million in the first quarter of 2023 compared with $24.1 million in the prior-year period primarily due to increased wages and benefits and an increase of $3.2 million in litigation-related legal expenses.

The Company recognized in the quarter a final earnout of $3.4 million for the 2019 sale of its semiconductor test business, compared with $11.3 million recognized in the prior-year period.

Other income in the 2023 first quarter included $1.8 million associated with the reversal of a liability related to an equity investment.

SG&A expenses were $60.2 million in the first half of 2023 compared with $48.2 million in the prior-year period primarily due to increased wages and benefits and an increase of $7.3 million in litigation-related legal expenses partially offset by a reduction of legal reserves of $1.3 million.

In the current year period, the Company recognized a final earnout of $3.4 million for the 2019 sale of its semiconductor test business, compared with $11.3 million recognized in the prior-year period.

Other income in the first half of 2023 included $1.8 million associated with the reversal of a liability related to an equity investment.

Interest expense was $11.4 million in the current period, compared with $3.3 million in the prior-year period, primarily driven by higher interest rates on the Company’s new credit facilities.

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Consolidated net loss was $16.4 million, or $0.50 per diluted share, compared with net loss of $14.1 million, or $0.44 per diluted share, in the prior year.

Bookings were $157.8 million in the quarter resulting in a book-to-bill ratio of 1.05:1, excluding the impact of the $5.8 million adjustment to sales referred to previously.

Backlog at quarter end was a record $578.5 million.

Approximately $498.7 million of backlog is expected to ship over the next twelve months.

COVID-19 Impacts on Our Business

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As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.

We had a solid start to the year as continued strong customer demand and an improving supply chain helped us exceed the upper end of our revenue expectations for the quarter.

Our leading position in passenger power and inflight connectivity for commercial aerospace combined with the robust recovery in that market has driven demand for our products.

The trends give us confidence in the revenue ramp we are planning for the rest of 2023.

We expect revenue to increase significantly in the second quarter to $165 million to $175 million and are maintaining full year guidance of $640 million to $680 million.

We have also restructured our Test segment to take out approximately $4 million to $5 million in costs and improve operating results.

We expect this effort, together with the cooperation of our supply chain and strong customer demand, will improve financial results as we advance through the year.

Consolidated backlog at April 1, 2023 was $578.5 million.

Approximately 86% of the backlog is expected to be recognized as revenue in over the next twelve months and the balance thereafter.

Planned capital expenditures for 2023 are expected to be approximately $14 million to $17 million.

SEGMENT RESULTS OF OPERATIONS AND OUTLOOK

Operating profit, 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.

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 expenses are directly identifiable to the respective segment.

Operating profit is reconciled to (loss) income before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.

Operating profit (loss) is reconciled to loss before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.

AEROSPACE SEGMENT

Three Months Ended

($ in thousands) April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

($ in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Sales $ 294,101 $ 210,694 $ 158,386 $ 109,300

Less Inter-segment Sales

(122) (10) (4) (10)

Total Aerospace Sales

$ 293,979 $ 210,684 $ 158,382 $ 109,290

Operating Profit $ 4,087 $ 3,050

Operating Profit (Loss) $ 17,806 $ (226) $ 13,719 $ (3,276)

Operating Margin 6.1 % (0.1) % 8.7 % (3.0) %

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$ 293,979 $ 210,684 $ 158,382 $ 109,290

(In thousands) April 1, 2023 December 31, 2022

(In thousands) July 1, 2023 December 31, 2022

$ 520,564 $ 481,416

$ 522,577 $ 477,660

AEROSPACE FIRST QUARTER RESULTS

AEROSPACE SECOND QUARTER RESULTS

Aerospace segment sales increased $49.1 million, or 44.9%, to $158.4 million, and up 16.8% sequentially.

The increase was driven by a 61.9% increase, or $42.8 million, in commercial transport sales.

Sales to this market were $112.1 million, or 64.3% of consolidated sales in the quarter, compared with $69.2 million, or 53.6% of consolidated sales in the second quarter of 2022.

Improving global airline travel driving higher fleet utilization and increased production rates resulted in increased demand.

General Aviation sales increased $6.9 million, or 38.0%, to $25.0 million.

Aerospace segment operating profit improved to $13.7 million, or 8.7% of sales, compared with operating loss of $3.3 million in the same period last year.

The improved operating profit was driven by higher volume primarily in the commercial transport market.

Aerospace bookings in the second quarter were $188.8 million, for a book-to-bill ratio of 1.19:1.

Backlog for the Aerospace segment was a record $522.6 million at quarter end.

AEROSPACE YEAR-TO-DATE RESULTS

Aerospace segment sales increased $83.3 million, or 39.5%, to $294.0 million driven by a 54.7%, or $73.0 million increase in commercial transport sales.

Sales to this market were $94.2 million, or 60.2% of consolidated sales in the quarter, compared with $64.1 million, or 55.1% of consolidated sales in the first quarter of 2022.

Sales to this market were $206.3 million, or 62.3% of consolidated sales in the first half of 2023, compared with $133.3 million, or 54.3% of consolidated sales in the same period of 2022.

Improving global airline travel driving higher fleet utilization and increased production rates resulted in increased demand.

General Aviation sales increased $10.5 million, or 30.8%, to $44.5 million.

Aerospace segment operating profit improved to $4.1 million compared with operating profit of $3.1 million in the same period last year, which included an AMJP grant offset to cost of sales of $6.0 million.

Absent the impact of the AMJP grant on last year’s first quarter, aerospace operating profit improved $7.0 million on a sales increase of $34.2 million.

Aerospace segment operating profit improved to $17.8 million compared with operating loss of $0.2 million in the same period last year, which included an AMJP grant offset to cost of sales of $6.0 million.

Absent the impact of the AMJP grant on the first half of last year, aerospace operating profit improved $24.0 million on a sales increase of $83.3 million.

The improvement in operating profit was driven by higher volume primarily in the commercial transport market, partially offset by the effects of material and labor inflation.

AEROSPACE OUTLOOK

Aerospace bookings were $150.1 million, for a book-to-bill ratio of 1.11:1.

Backlog for the Aerospace segment was a record $492.2 million at quarter end with approximately $441.7 million expected to be recognized as revenue over the next twelve months.

Our Aerospace business continues to accelerate, in step with the air travel recovery that is underway worldwide.

Our business is trending back to pre-pandemic levels and will benefit further from a number of high-profile programs that we have won during the downturn, including our involvement on the U.S.

Army’s Future Long-Range Assault Aircraft (“FLRAA”) program which we expect to begin in the next several weeks.

Margin performance will continue to improve as supply chain spot buys decline and volume increases.

TEST SYSTEMS SEGMENT

Three Months Ended

($ in thousands) April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

($ in thousands) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Sales $ 37,013 $ 34,638 $ 16,072 $ 19,840

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(In thousands)

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

$ 119,440 $ 111,513

Backlog $ 88,499 $ 93,696

TEST SYSTEMS FIRST QUARTER RESULTS

Test Systems segment sales were $20.9 million, up $6.2 million compared with the prior-year period primarily as a result of a reversal of $5.8 million deferred revenue liability recorded with a previous acquisition.

Absent that item, Test Systems sales increased $0.4 million.

Test Systems segment operating loss was $0.6 million compared with operating loss of $1.8 million in the first quarter of 2022.

Absent the non-operating sales adjustment resulting from the reversal of the deferred revenue liability, Test Systems operating loss for the current period was $6.4 million and was negatively affected by mix, under absorption of fixed costs due to volume and $2.6 million in increased litigation-related legal expenses.

Shortly after the quarter ended the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs.

TEST SYSTEMS SECOND QUARTER RESULTS

Test Systems segment sales were $16.1 million, down $3.8 million primarily as a result of lower defense revenue.

Test Systems segment operating loss was $6.1 million compared with nearly break-even in the second quarter of 2022.

Test Systems operating loss for the current period was negatively affected by mix, under absorption of fixed costs due to volume and $2.2 million in increased litigation-related legal expenses.

In April 2023 the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs.

These initiatives are expected to provide savings of $4 million to $5 million annually, beginning with the third quarter.

TEST SYSTEMS OUTLOOK

Bookings for the Test Systems segment in the quarter were $7.7 million, for a book-to-bill ratio of 0.51:1 for the quarter, excluding the impact of the $5.8 million adjustment to sales referred to previously.

The Test Systems segment’s backlog at the end of the first quarter of 2023 was $86.3 million, with approximately $57.1 million expected to be recognized as revenue over the next twelve months.

In April 2023, Astronics announced that the Test business had been awarded a contract award to produce portable radio test equipment for the U.S.

Marine Corps’ Handheld Radio Test Sets program (“HHRTS”).

This program is expected to generate revenue of approximately $40 million over a five-year period.

An initial task order for approximately $10 million is expected in the coming weeks.

Our Test business is going through a transition period.

We have been quite successful winning new business, including radio test programs for both the U.S.

Army and U.S.

Marine Corps, which promise to be major contributors to our results in the near future.

However, these programs have developed more slowly than expected, so we found it necessary to restructure and right size the business for the interim period.

We expect the restructuring to improve profitability for the segment at current run rates until the new programs gain traction.

Bookings for the Test Systems segment in the quarter were $18.3 million and included the initial $9.6 million production order for the Handheld Radio Test Sets Program for the U.S.

Marine Corps.

Book-to-bill ratio was 1.14:1 for the quarter.

The Test Systems segment’s backlog at the end of the second quarter of 2023 was $88.5 million.

TEST SYSTEMS YEAR-TO-DATE RESULTS

Test Systems segment sales were $37.0 million, up $2.4 million compared with the prior-year period primarily as a result of a reversal of a $5.8 million deferred revenue liability recorded with a previous acquisition.

Absent that item, Test Systems sales decreased $3.4 million.

Test Systems segment operating loss was $6.7 million compared with operating loss of $1.8 million in the first half of 2022.

Absent the non-operating sales adjustment resulting from the reversal of the deferred revenue liability, Test Systems operating loss for the current period was $12.6 million and was negatively affected by mix, under absorption of fixed costs due to volume and $4.8 million in increased litigation-related legal expenses.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities:

Cash used for operating activities totaled $19.2 million for the first three months of 2023, as compared with $0.3 million cash provided by operating activities during the same period in 2022.

Cash flow from operating activities decreased compared with the same period of 2022 primarily related to increases in inventory to fulfill customer demand in upcoming quarters coupled with increased lead times on certain key components required inventory to be purchased further in advance.

In contrast, operating cash flows in the first quarter of 2022 benefited from the receipt of income tax refunds and AMJP grant proceeds.

We expect to generate positive cash flow for the remainder of 2023.

Cash used for operating activities totaled $21.2 million for the first six months of 2023, as compared with $10.3 million cash used for operating activities during the same period in 2022.

Cash flow from operating activities decreased compared with the same period of 2022 primarily related to increases in accounts receivable due to higher sales and increases in inventory to fulfill customer demand in upcoming quarters coupled with increased lead times on certain key components required inventory to be purchased further in advance.

In contrast, operating cash flows in the first six months of 2022 benefited from the receipt of income tax refunds and AMJP grant proceeds.

Investing Activities:

Cash provided by investing activities was $1.9 million for the first three months of 2023 compared with $20.8 million in cash provided by investing activities in the same period of 2022.

Cash used for investing activities was $0.4 million for the first six months of 2023 compared with $19.5 million in cash provided by investing activities in the same period of 2022.

Investing cash flows in 2022 were positively impacted by the receipt of $10.7 million and $11.3 million related to the calendar 2020 and 2021 earnouts, respectively, from the sale of the semiconductor business compared to $3.4 million received in the current year related to the calendar 2022 earnout.

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Financing Activities:

Cash provided by financing activities totaled $9.2 million for the first three months of 2023, as compared with cash used for financing activities of $26.7 million during the same period in 2022.

The Company had net proceeds on our credit facilities of $14.1 million in the first three months of 2023 compared with net repayments of $26.0 million in the same period in 2022.

Cash provided by financing activities totaled $11.9 million for the first six months of 2023, as compared with cash used for financing activities of $27.7 million during the same period in 2022.

The Company had net proceeds on our credit facilities of $19.0 million in the first six months of 2023 compared with net repayments of $27.0 million in the same period in 2022.

During the current year period, the Company also paid $6.4 million in debt issuance costs associated with the January 2023 refinancing.

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The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026.

Under the terms of the ABL Revolving Credit Facility, the Company will now pay interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%.

Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%.

The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.

On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit returns to $115 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.

Eligible cash receipts that have not yet been applied to outstanding debt balance are classified as restricted cash in the accompanying consolidated balance sheets.

At April 1, 2023, there was $88.1 million outstanding on the ABL Revolving Credit Facility and there remained $26.9 million available.

The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter.

The Company also entered into a $90 million asset-based Term Loan Facility on January 19, 2023.

At July 1, 2023, there was $93.7 million outstanding on the ABL Revolving Credit Facility and there remained $26.3 million available.

The Company also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023.

The Term Loan Facility is secured primarily by fixed assets, real estate and intellectual property.

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The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%.

The Company will pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million of which will be paid on June 19, 2023 and $0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.

Amortization of the principal under the Term Loan Facility will begin in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increasing to 0.542% per month for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter.

Total scheduled principal payments of $6.8 million are payable over the next twelve months and as such, have been classified as current in the accompanying

consolidated condensed balance sheet as of April 1, 2023.

The remaining $0.9 million is due within the next twelve months and is classified in the accompanying Consolidated Condensed Balance Sheet within current maturities of long-term debt.

Amortization of the principal under the Term Loan Facility began in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increasing to 0.542% per month for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter.

Total scheduled principal payments of approximately $9.0 million are payable over the next twelve months and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of July 1, 2023.

The weighted-average interest rate on current maturities of long-debt is 13.1%.

The remaining balance $83.2 million is recorded as long-term in the accompanying consolidated condensed balance sheet.

Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four quarter EBITDA of $14.7 million for the Company’s first quarter of 2023, $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter.

The remaining balance of $80.3 million at July 1, 2023 is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.

Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four quarter EBITDA of $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter.

In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principal amount outstanding on an annual basis.

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Further, the Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.

The Company is in compliance with all covenant requirements as of April 1, 2023.

The Company is in compliance with all covenant requirements as of July 1, 2023.

The Company incurred $9.0 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility.

All costs are amortized to interest expense over the term of the respective agreement.

Deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.6 million as of April 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($5.8 million as of April 1, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.

Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.4 million as of July 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($5.3 million as of July 1, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.

Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.

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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.

On June 5, 2023, the Company filed a shelf registration statement 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.

During the three months ended July 1, 2023, we did not issue any securities pursuant to this registration statement, and $150 million remained available for future sales.

Astronics currently expects that the net proceeds of any such future offerings of securities pursuant to the shelf registration statement would be used for general corporate purposes, including, without limitation, organic strategic initiatives and reducing debt as well as general working capital needs.

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.

The Company’s backlog at April 1, 2023 was $578.5 million compared with $571.4 million at December 31, 2022 and $475.1 million at April 2, 2022.

The Company’s backlog at July 1, 2023 was $611.1 million compared with $571.4 million at December 31, 2022 and $494.4 million at July 2, 2022.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Except as noted below, our contractual obligations and commitments have not changed materially from the disclosures in our 2022 Annual Report on Form 10-K.

Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $178.1 million at April 1, 2023.

Our contractual obligations and commitments have not changed materially from the disclosures in our 2022 Annual Report on Form 10-K.

Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $183.0 million at July 1, 2023.

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.

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Quantitative and Qualitative Disclosures About Market Risk

See Market Risk in Item 2, above.

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 this Item 3.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis