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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-05-06 · 141 added, 75 removed, 147 unchanged (60% of the section changed)

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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 trailing four-quarter EBITDA requirements, minimum liquidity requirements, minimum fixed charge coverage ratio requirements, and excess cash flow repayment provisions.

These include financial covenants pertaining to minimum liquidity 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 in our ABL Revolving Credit Facility and Term Loan Facility 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 affecting OEMs, 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.

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.

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.

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CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended

($ in thousands) March 30, 2024 April 1, 2023

Six Months Ended Three Months Ended

($ in thousands) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Sales $ 383,188 $ 330,992 $ 198,114 $ 174,454

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Effective Tax Rate 49.7 % (133.6) % (21.8) % (207.5) %

Net Loss $ (3,178) $ (4,415)

Net (Loss) Income $ (1,645) $ (16,414) $ 1,533 $ (11,999)

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

CONSOLIDATED FIRST QUARTER RESULTS

CONSOLIDATED SECOND QUARTER RESULTS

Consolidated sales were up $23.7 million, or 13.6%.

Aerospace sales increased $28.0 million, or 20.7%, driven by increased demand in our Electrical Power & Motion product line.

Test Systems sales increased $0.5 million.

The prior-year period Test Systems sales benefited from 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 2024 was $150.9 million, compared with $129.0 million in the prior-year period.

The increase was primarily due to higher volume.

Selling, general and administrative (“SG&A”) expenses were $32.5 million in the first quarter of 2024 compared with $29.9 million in the prior-year period primarily due to increased wages and benefits, a $1.9 million increase of incentive compensation expenses recorded in SG&A, and partially offset by a decrease of $0.8 million in litigation-related legal expenses.

In the first quarter of 2023, 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.

Consolidated net loss was $3.2 million, or $0.09 per diluted share, compared with net loss of $4.4 million, or $0.14 per diluted share, in the prior year.

Aerospace sales increased $18.6 million and Test Systems sales increased $5.1 million.

Consolidated cost of products sold in the second quarter of 2024 was $156.8 million, compared with $141.8 million in the prior-year period.

The increase was primarily due to higher sales volume, coupled with $2.0 million in bonus expense as the Company’s incentive programs resumed in 2024.

Selling, general and administrative (“SG&A”) expenses were $33.8 million in the second quarter of 2024 compared with $30.3 million in the prior-year period primarily due to increased wages and benefits, including an increase of bonus expense recorded in SG&A of $2.0 million.

Consolidated net income was $1.5 million, or $0.04 per diluted share, measurably improved compared with net loss of $12.0 million, or $0.37 per diluted share, in the prior year.

Tax benefit in the quarter was $0.3 million, compared with tax expense of $8.1 million in the prior year.

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Backlog at the end of the quarter was $633.4 million.

CONSOLIDATED YEAR-TO-DATE RESULTS

Consolidated sales were up $52.2 million, or 15.8%.

Aerospace sales increased $46.6 million and Test Systems sales increased $5.6 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 first half of 2024 was $307.6 million, compared with $270.8 million in the prior-year period.

The increase was primarily due to higher volume, coupled with $3.8 million in bonus expense recorded to cost of products sold as the Company’s incentive programs resumed in 2024.

SG&A expenses were $66.3 million in the first half of 2024 compared with $60.2 million in the prior-year period primarily due to increased wages and benefits, including an increase in bonus expense recorded in SG&A of $3.9 million.

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.

Consolidated net loss was $1.6 million, or $0.05 per diluted share, compared with net loss of $16.4 million, or $0.50 per diluted share, in the prior year.

Tax benefit in the current period was $1.6 million, compared with tax expense of $9.4 million in the prior year.

SEGMENT RESULTS OF OPERATIONS

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Cost of products sold and other operating expenses are directly identifiable to the respective segment.

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

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.

AEROSPACE SEGMENT

Three Months Ended

($ in thousands) March 30, 2024 April 1, 2023

Six Months Ended Three Months Ended

($ in thousands) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Sales $ 340,623 $ 294,101 $ 176,948 $ 158,386

Less Inter-segment Sales

(42) (122) (5) (4)

Total Aerospace Sales

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$ 340,581 $ 293,979 $ 176,943 $ 158,382

(In thousands) March 30, 2024 December 31, 2023

(In thousands) June 29, 2024 December 31, 2023

$ 504,462 $ 493,660

$ 554,592 $ 517,240

AEROSPACE FIRST QUARTER RESULTS

AEROSPACE SECOND QUARTER RESULTS

Aerospace segment sales increased $18.6 million, or 11.7%, to $176.9 million.

The improvement was driven by a 14.6% increase, or $16.3 million, in Commercial Transport sales.

Sales to this market were $121.4 million, or 65.6% of consolidated

sales in the quarter, compared with $94.2 million, or 60.2% of consolidated sales in the first quarter of 2023.

Higher airline spending and higher OEM build rates drove increased demand.

Military aircraft sales increased $3.0 million, or 21.4%, to $17.1 million.

General Aviation sales increased $0.1 million, or 0.5%, to $19.6 million.

Aerospace segment operating profit of $12.1 million, or 7.4% of sales, compares with operating profit of $4.1 million, or 3.0% of sales, in the same period last year.

Sales to this market were $128.4 million, or 64.8% of consolidated sales in the quarter, compared with $112.1 million, or 64.3% of consolidated sales in the second quarter of 2023.

Higher airline spending drove increased demand.

Military Aircraft sales increased $11.2 million, or 82.4%, to $24.8 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 $6.0 million, or 24.0%, to $19.0 million due to lower antenna and VVIP sales.

Aerospace segment operating profit of $19.3 million grew 41% compared with operating profit of $13.7 million in the same period last year.

As a percent of sales, operating margin expanded to 10.9%, or 220 basis points over the prior-year period.

Operating margin expansion reflects the leverage gained on higher volume and improving production efficiencies.

Operating profit in the first quarter of 2024 was impacted by a $1.9 million increase in litigation-related legal expenses related to an ongoing patent dispute and the resumption of the Company’s bonus programs, which was $2.4 million.

Operating profit in the second quarter of 2024 was impacted by a $3.0 million increase in litigation-related legal expenses and reserve adjustments related to an ongoing patent dispute and $2.9 million related to the resumption of the Company’s incentive programs.

Aerospace bookings were $192.7 million for a book-to-bill ratio of 1.09:1.

Backlog for the Aerospace segment was $554.6 million at quarter end.

AEROSPACE YEAR-TO-DATE RESULTS

Aerospace segment sales increased $46.6 million, or 15.9%, to $340.6 million.

The improvement was driven by a 21.1% increase, or $43.5 million, in commercial transport sales.

Sales to this market were $249.8 million, or 65.2% of consolidated sales in the first half of 2024, compared with $206.3 million, or 62.3% of consolidated sales in the same period of 2023.

Higher airline spending drove increased demand.

Military Aircraft sales increased $14.2 million, or 51.4%, to $41.9 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 $5.9 million, or 13.3%, to $38.6 million due to lower antenna and VVIP sales.

Aerospace segment operating profit of $31.4 million grew 76% compared with operating profit of $17.8 million in the same period last year.

As a percent of sales, operating margin expanded to 9.2%, or 315 basis points over the prior-year period.

Operating margin expansion reflects the leverage gained on higher volume and improving production efficiencies.

Operating profit in the first half of 2024 was impacted by a $4.9 million increase in litigation-related legal expenses and reserve adjustments related to an ongoing patent dispute and $5.3 million related to the resumption of the Company’s incentive programs.

TEST SYSTEMS SEGMENT

Three Months Ended

($ in thousands) March 30, 2024 April 1, 2023

Six Months Ended Three Months Ended

($ in thousands) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Sales $ 42,607 $ 37,013 $ 21,171 $ 16,072

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(In thousands)

March 30, 2024 December 31, 2023

June 29, 2024 December 31, 2023

$ 123,294 $ 122,681

Backlog $ 78,774 $ 75,036

TEST SYSTEMS FIRST QUARTER RESULTS

TEST SYSTEMS SECOND QUARTER RESULTS

Test Systems segment sales were $21.2 million, up $5.1 million.

Test Systems segment operating loss was $3.1 million, compared to operating loss of $0.6 million in the first quarter of 2023.

The improvement was driven by radio test sales following the award of the U.S.

Army TS-4549/T contract, which contributed $7.2 million in sales during the quarter.

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.

Test Systems segment operating loss was $5.3 million, compared to operating loss of $6.1 million in the second quarter of 2023.

The positive margin realized on the Army contract was offset by $3.5 million related to the revision of estimated costs noted above.

Additionally, Test Systems continues to be negatively affected by mix and under absorption of fixed costs due to current volume.

In April 2024, the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs resulting in $0.7 million in severance expense recognized during the second quarter.

As part of the restructuring the Test business closed an operation in Kilgore, TX, simplifying its operations.

We expect to realize annual savings of approximately $4 million from these activities, beginning in the third quarter.

Bookings for the Test Systems segment in the quarter were $26.4 million, including a $15.5 million initial booking for the U.S.

Army TS-4549/T radio test set program.

The book-to-bill ratio of 1.25:1 for the quarter.

Backlog was $78.8 million at the end of the second quarter of 2024 compared with a backlog of $73.6 million at the end of the previous quarter.

TEST SYSTEMS YEAR-TO-DATE RESULTS

Test Systems segment sales were $42.6 million, up $5.6 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 $6.7 million in the first half of 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.

Test Systems’ operating loss continues to be negatively affected by mix and under absorption of fixed costs due to low volume.

The first quarter of 2024 included a $2.7 million decrease in litigation-related expenses partially offset by a $0.6 million increase in non-cash bonuses.

Given the continued delay in expected project awards, in April 2024 the Test Systems segment implemented additional restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs.

These initiatives are expected to provide annualized savings of approximately $4 million, beginning in the third quarter.

Severance is expected to approximate $1 million associated with these efforts.

Bookings for the Test Systems segment in the quarter were $20.0 million for a book-to-bill ratio of 0.93:1 for the quarter.

Backlog was $73.6 million at the end of the first quarter of 2024 compared with a backlog of $86.3 million at the end of the first quarter of 2023.

The first half of 2024 benefited from the margin realized on the TS-4549/T sales and a $5.0 million decrease in litigation-related expenses, however Test Systems’ operating loss 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 which was $1.1 million, 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 $2.0 million for the first three months of 2024, as compared with $19.2 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 related to improvement in our financial results, coupled with accounts receivable and inventory using less cash as supply chain challenges have improved.

Cash used for operating activities totaled $4.2 million for the first six months of 2024, as compared with $21.2 million cash used for operating activities during the same period in 2023.

Cash flow used for operating activities decreased compared with the same period of 2023 primarily related to improvement in our financial results, coupled with accounts receivable and inventory using less cash as supply chain challenges have improved.

Investing Activities:

Cash used for investing activities was $1.6 million for the first three months of 2024 compared with $1.9 million in cash provided by investing activities in the same period of 2023.

Cash used for investing activities was $3.4 million for the first six months of 2024 compared with $0.4 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 $17 million and $22 million.

The Company expects capital spending in 2024 to be in the range of $17 million to $22 million.

Financing Activities:

Cash used for financing activities totaled $5.0 million for the first three months of 2024, as compared with cash provided by financing activities of $9.2 million during the same period in 2023.

The Company made net borrowings under our credit facilities of $5.9 million in the first three months of 2024 compared with net proceeds of $14.1 million in the same period in 2023, partially offset by a decrease in costs associated with amending and refinancing our credit facilities.

The Company amended the existing revolving credit facility on January 19, 2023 by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”).

Cash provided by financing activities totaled $0.8 million for the first six months of 2024, as compared with cash provided by financing activities of $11.9 million during the same period in 2023.

The Company made net borrowings under our credit facilities of $5.9 million in the first six months of 2024 compared with net borrowings of $19.0 million in the same period in 2023.

The Company made cash payments related to the employee tax obligations related to the equity-based compensation and bonuses of $3.2 million and $0.6 million in the current year and prior year, respectively.

The Company also benefited from a decrease in costs associated with amending and refinancing our credit facilities in the current year to date.

The Company's long-term debt at June 29, 2024 and December 31, 2023 consisted of borrowings under its Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”) which was entered into on January 19, 2023.

The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable.

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 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 must 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 March 27, 2024, the Company executed an amendment to the ABL Revolving Credit Facility, extending a temporary increase to the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until May 15, 2024, at which time the limit is to return to $115 million.

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

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

The Company was required to 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.

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.

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 30, 2024, and $10 million thereafter.

On March 30, 2024, there was $83.4 million outstanding on the ABL Revolving Credit Facility and there remained $36.3 million available, net of outstanding letters of credit (though subject to the minimum liquidity requirement).

The Company was also required to maintain minimum excess availability of $10 million for the quarter ended June 29, 2024.

On June 29, 2024, there was $97.4 million outstanding on the ABL Revolving Credit Facility and there remained $17.3 million available, net of outstanding letters of credit (though subject to the minimum liquidity requirement).

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

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

The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, if the ABL Revolving Credit Facility is extended beyond that date.

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 must 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 which was paid in June 2023 and $0.9 million, which is due in the second quarter of 2024.

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, 0.542% per month for the period July 1, 2023 through September 1, 2023 and 0.833% monthly thereafter.

Total scheduled principal payments of $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 March 30, 2024.

The interest rate on current maturities of long-debt is variable at SOFR plus 8.75% and was 14.2% at March 30, 2024.

The remaining balance of $74.3 million as of March 30, 2024, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.

Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, as amended in March 2024, the Company was required to comply with a minimum trailing four quarter Adjusted EBITDA, as defined in the amended ABL Revolving Credit Facility and Term Loan Facility Agreements, of $45.3 million in the Company’s first quarter of 2024, increasing to $48.0 million in the second quarter of 2024, $67.1 million in the third quarter of 2024 and $70 million thereafter.

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.

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

The maturity date of the Term Loan Facility was the

earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, if the ABL Revolving Credit Facility was extended beyond that date.

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

The Company was required to 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 which was paid in June 2023 and $0.9 million which was paid in June 2024.

Amortization of the principal under the Term Loan Facility began 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, 0.542% per month for the period July 1, 2023 through September 1, 2023 and 0.833% monthly thereafter.

Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company was required to comply with a minimum trailing four quarter Adjusted EBITDA, as defined in the ABL Revolving Credit Facility and Term Loan Facility Agreements, of $48.0 million in the second quarter of 2024, increasing thereafter.

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

No such amounts were payable for the year ended December 31, 2023.

Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility.

Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00.

Further, the Company is subject to excess cash flow repayment provisions, restrictions on additional indebtedness, share repurchases and dividend payments, and a

limitation on capital expenditures.

The Company was in compliance with debt covenants under the ABL Revolving Credit Facility and Term Loan Facility as of and for the quarter ended March 30, 2024.

The Company incurred $0.8 million in incremental debt issuance costs related to the new facilities during the three months ended March 30, 2024, allocated between the ABL Revolving Credit Facility and the Term Loan Facility.

The Company was subject to a minimum fixed charge coverage ratio of 1.10 to 1.00.

Further, the Company was subject to excess cash flow repayment provisions, restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.

The Company was in compliance with debt covenants under the ABL Revolving Credit Facility and Term Loan Facility as of and for the quarter ended June 29, 2024.

The Company amended its existing ABL Revolving Credit Facility on July 11, 2024 by entering into the Seventh Amended and Restated Credit Agreement (the “Restated ABL Agreement”).

The Restated ABL Agreement 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 Restated ABL Agreement extended the scheduled maturity date for the credit facility from January 19, 2026 to July 11, 2027.

Under the terms of the Restated ABL Agreement, 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 Restated ABL Agreement).

The Company will pay a quarterly commitment fee under the Restated ABL Agreement 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 (the “Revised 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%) 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 $550,000) per year.

The Company is required to pay a call premium of $3.2 million in conjunction with the repayment of the original Term Loan Facility.

Total payments of $1.3 million are payable over the next twelve months, including the annual amortization of the Revised Term Loan Facility and the final monthly $0.8 million payment due under the Term Loan Facility prior to its termination, and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of June 29, 2024.

The interest rate on current maturities of long-debt is variable at SOFR plus 8.75% and was 14.2% at June 29, 2024 and December 31, 2023.

The remaining balance of $79.7 million under the Term Loan Facility as of June 29, 2024, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.

The Company incurred $1.7 million in incremental debt issuance costs during the six months ended June 29, 2024, allocated between the original and Restated 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 ($1.8 million as of March 30, 2024) are recorded within Other Assets and those associated with the Term Loan Facility ($4.5 million as of March 30, 2024) 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.

Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($1.8 million as of June 29, 2024) are recorded within Other Assets and those associated with the Term Loan Facility ($4.5 million as of June 29, 2024) 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 under the Restated ABL Agreement and the Revised 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 Restated ABL Agreement and the Revised 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 Restated Agreement, or $15.0 million.

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.

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If the outstanding principal amount balance of the ABL Revolving Credit Facility has been reduced to zero, then the Company intends to use the net proceeds of the ATM Program for general corporate purposes.

During the three months ended March 30, 2024, the Company did not sell any shares of our common stock under the ATM Program.

As of March 30, 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.

During the three and six months ended June 29, 2024, the Company did not sell any shares of our common stock under the ATM Program.

As of June 29, 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 $4.4 million.

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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 and sales proceeds from the ATM Program.

The Company may also utilize available capacity under the Restated ABL Agreement.

Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results.

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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 on March 30, 2024 was $612.5 million compared with $592.3 million on December 31, 2023 and $558.6 million on April 1, 2023.

The Company’s backlog on June 29, 2024 was $633.4 million compared with $592.3 million on December 31, 2023 and $611.1 million on July 1, 2023.

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.

Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $166.6 million as of March 30, 2024.

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 Restated ABL Agreement extended the scheduled maturity date for the credit facility from January 19, 2026 to July 11, 2027.

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 a commitment fee to the lenders under the Revised Term Loan Facility in the amount of 2.0% of the total aggregate commitment.

The principal amount of the Revised Term Loan Facility will amortize at a rate of 1.00% (or approximately $550,000) 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.

Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $178.4 million as of June 29, 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.

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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