What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-05 compared with 2024-03-05 · 159 added, 154 removed, 207 unchanged (60% of the section changed)

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We have two reportable segments, Aerospace and Test Systems.

Our Aerospace segment has principal operating facilities in the United States, Canada and France.

Our Test Systems segment has principal operating facilities in the United States and the United Kingdom.

We have engineering offices in Ukraine and India.

Our Aerospace segment has principal operating facilities in the United States, Canada and France and an engineering office in Ukraine.

Our Test Systems segment has principal operating facilities in the United States and an engineering office in India.

Our Aerospace segment designs and manufactures products for the global aerospace industry.

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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 to identify means of creating improved productivity.

The main challenges that we continue to face include varying levels of supply chain pressures, material availability and cost increases (including tariffs), labor availability and cost, and improving shareholder value through increasing profitability.

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 a weak economy, aircraft groundings, tight credit markets, 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.

Reduced aircraft build rates driven by regulatory actions impacting OEM production, a weak economy, aircraft groundings, tight credit markets, 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.

Delays in delivery schedules and incremental costs resulting from supply chain, tariff 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 on the growth opportunities currently in front of us.

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.

Our ABL Revolving Credit Facility subjects 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 tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging in 2024 and 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 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.

See Part I, Item 1A, Risk Factors, for an additional discussion of risks associated with our potential inability to satisfy the financial and restrictive covenants set forth in the ABL Revolving Credit Facility and Term Loan Facility.

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, 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.

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 recently resolved strike, and we continue to align with them on production expectations.

See Item 1A, Risk Factors, of this report for an additional discussion of risks associated with our potential inability to satisfy the financial and restrictive covenants set forth in the ABL Revolving Credit Facility.

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

Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”).

The Company received $7.3 million and $7.4 million under the grant in 2022 and 2021, respectively.

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 years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively.

The Company received $7.3 million under the grant in 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 was intended to defray.

During the year ended December 31, 2022, the Company recognized $6.0 million of the award.

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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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.

In October 2024, a customer reported within the Aerospace segment declared bankruptcy.

As a result, the Company recorded a full reserve of $1.0 million for outstanding receivables, a reserve of $1.7 million for inventory and $0.6 million for impairment of fixed assets.

In November 2023, a non-core contract manufacturing 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 a $3.6 million reserve against dedicated inventory.

As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and a reserve of $3.6 million for inventory.

The associated assets existed prior to 2023.

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 the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.

In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout for $11.3 million.

The Company recorded the gain and received the payment in the first quarter of 2022.

In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout for $3.4 million.

The total proceeds of the divestiture included two elements of contingent purchase consideration (“earnout”).

In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million.

The Company recorded the gain and received the payment in the first quarter of 2022.

See further information in Note 21 in Item 8, Financial Statements and Supplementary Data, of this report.

On October 6, 2021, the Company sold one of its Aerospace buildings for $9.2 million.

Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded.

The operation has been integrated into another facility.

In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million.

The Company recorded the gain

and received the payment in the first quarter of 2023.

We are not eligible for any further earnout payments related to this divestiture.

Commercial Transport Market

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In the commercial transport market, while many of our key long-term fundamentals remain intact, we continue to see residual, though improving, near-term market pressure due to effects of certain supply chain challenges.

We have experienced improvement throughout 2023 driven by the increased production rate of the 737 MAX and improved activity with our airline customers.

Aircraft build rates are expected to continue to improve during 2024 and 2025 from current levels as production of the 737 MAX and A-320 is expected to increase, and the aftermarket is expected to strengthen over the course of

the year as aircraft utilization and load factors increase.

We have experienced improvement throughout 2024 driven by improved activity with our airline customers, though production was negatively affected by the quality control issues and labor workforce stoppage on the 737 MAX.

Aircraft build rates are expected to continue to improve during 2025 and 2026 from current levels as production of both the 737 MAX and A-320 are expected to increase, and the aftermarket is expected to strengthen over the course of the year as aircraft utilization and load factors increase.

International travel utilizing primarily widebody aircraft is close to pre-pandemic levels and we believe widebody aircraft production rates will continue to directionally match air traffic volumes.

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Military Aerospace Market

Sales to the military aerospace market include sales of lighting and safety products, avionics products, electrical power and seat motion products and structures products.

Sales to the military aerospace market include sales of lighting and safety products, avionics products, electrical power products and structures products.

Sales to this market totaled approximately 11.1% of our consolidated sales and amounted to $88.0 million in 2024.

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Sales to the general aviation market consist mostly of line-fit products driven by aircraft build rates although there are some aftermarket sales as well.

We have seen notable improvement in the current year and expect that to continue into 2024 as build rates are expected to increase post-pandemic.

Sales to the general aviation market include sales of lighting and safety products, avionics products, and electrical power and seat motion products.

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Sales by our Test Systems segment accounted for approximately 11.2% of our consolidated sales in 2024 and amounted to $88.7 million.

This segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications.

military applications.

Sales to the aerospace and defense market were $45.4 million in 2024.

Sales to the mass transit market were $18.9 million and sales to other markets were $17.3 million in 2023.

Sales to the mass transit market were $10.9 million and sales to the radio test market were $32.5 million in 2024.

Sales to the military and mass transit markets are subject to fluctuations resulting from changes in governmental spending, elimination of certain programs, or failure to win new business through the competitive bid process.

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The preparation of the Company’s financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported.

These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 in Item 8, Financial Statements and Supplementary Data, of this report.

These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in Note 1, Summary of Significant Accounting Principles and Practices, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

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Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections.

See Note 2 to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for a further description of revenue recognition under ASC 606.

See Note 2, Revenue, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for a further description of revenue recognition under ASC 606.

Reviews for Impairment of Goodwill

Our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions.

We had approximately $58.2 million of goodwill as of December 31, 2023 and 2022.

We had approximately $58.1 million and $58.2 million of goodwill as of December 31, 2024 and 2023, respectively.

We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

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Management projects sales growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies.

If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and the impairment loss is recorded for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

If the carrying value of

the reporting unit exceeds its fair value, goodwill is considered impaired and the impairment loss is recorded for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

The Company’s four reporting units remaining with goodwill as of the first day of our fourth quarter were subject to the annual goodwill impairment test.

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CONSOLIDATED RESULTS OF OPERATIONS AND PERFORMANCE

(In thousands, except percentages, employees and per share data) 2023 2022

(In thousands, except percentages and per share data) 2024 2023

RESULTS OF OPERATIONS:

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SG&A Expenses as a Percentage of Sales 17.8 % 18.5 %

Loss from Operations $ (6,671) $ (30,044)

Income (Loss) from Operations $ 26,466 $ (6,671)

Operating Margin 3.3 % (1.0) %

Net Gain on Sale of Businesses $ — $ 3,427

Other (Income) Expense, Net $ (261) $ 1,611

Loss on Extinguishment of Debt $ 10,148 $ —

Other Expense (Income), Net $ 2,187 $ (261)

Interest Expense, Net $ 21,998 $ 23,328

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Weighted Average Shares Outstanding – Diluted 35,037 33,104

OTHER YEAR-END DATA:

Number of Employees 2,500 2,400

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

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2024 Compared With 2023

Consolidated sales were up $154.3 million, or 28.8%, to $689.2 million compared to the prior year.

Aerospace sales increased $143.6 million, or 31.1%, driven by increased demand across our range of aerospace product lines.

Test System sales increased $10.7 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, and higher radio test product revenue.

Growth in sales were driven by the Aerospace segment due to continued strength in demand primarily from the Commercial Transport market.

Aerospace sales were up $101.9 million, or 16.8%, while Test Systems sales increased $4.4 million on higher radio test revenue.

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 2024 was $627.1 million, compared with $568.4 million in the prior year.

The increase was primarily due to higher volume as well a $3.6 million inventory reserve charge associated with the bankruptcy of a customer and $1.4 million in non-cash stock bonuses reinstated in the current year.

The prior-year period benefited from the AMJP Program grant which provided a $6.0 million offset to Cost of Products Sold.

Research and development expenses increased $5.2 million due to higher innovation spend.

Margins remained under pressure in the year because of inflation and supply chain workarounds.

We are passing on increased costs where we can although it will take time to be reflected in sales.

We are expecting continued improvement in pricing as well as stabilization in certain input costs as we advance into 2024.

Selling, General and Administrative (“SG&A”) expenses were $127.5 million in 2023 compared with $101.6 million in the prior-year period primarily due to increased wages and benefits, an accounts receivable reserve charge of $7.5 million associated with the bankruptcy of a customer, a net increase of $7.9 million in litigation-related legal expenses and reserve adjustments, and a $2.8 million increase of incentive compensation expenses recorded in SG&A.

The prior-year period reflects $2.6 million in expense related to a customer accommodation dispute and a lease termination settlement.

In 2023, 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.

The increase was primarily due to higher volume, coupled with an increase of $11.0 million for resumed incentive programs including bonuses, 401K profit sharing contributions, a $5.2 million warranty reserve related to a new product launch that requires field modification, and a $6.1 million increase in non-bankruptcy related inventory reserves, offset by a decrease in reserves associated with customer bankruptcies previously discussed of $1.9 million.

Selling, General and Administrative (“SG&A”) expenses were $141.9 million in 2024 compared with $127.5 million in the prior-year period primarily due to increased wages and benefits, including a $6.0 million increase for resumed incentive programs, and an increase of $8.9 million in litigation-related legal expenses and reserve adjustments in 2024.

SG&A was also impacted by a $1.9 million increase in restructuring-related severance charges incurred in our Test Systems segment.

The prior year was negatively impacted by a $7.5 million reserve for accounts receivable compared to a $1.5 million reserve for accounts receivable and fixed asset impairments in the current year associated with customer bankruptcies previously discussed.

On February 21, 2025, the UK High Court of Justice rendered a decision in the Company’s long-running patent infringement dispute in that jurisdiction.

The ruling requires payment of approximately $11.9 million and, as a result, SG&A expense in 2024 reflects a $4.8 million true up to legal reserves for that matter.

Any additional amounts required to be paid by the Company related to certain other factors peripheral to the damages award will be determined at follow-up hearings expected to occur in the first half of 2025.

The Company expects that payment of the final liability will be required in the second quarter of 2025, and that an appeal, if any, would likely be heard in early 2026.

Impacting net income was $10.1 million for the loss on extinguishment of debt which included $4.5 million in call premiums on the previous term loans and the write-off of $5.6 million of associated deferred financing costs.

In 2023, the Company recognized a final earnout of $3.4 million for the 2019 sale of its semiconductor test business.

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

Interest expense was $23.3 million in the current year, compared with $9.4 million in the prior year, primarily driven by higher interest rates on credit facilities entered into in January 2023.

Interest expense decreased to $22.0 million from $23.3 million in the year ended December 31, 2023 related to the lower average borrowings and cost of debt resulting from the Company’s refinancing activities.

Tax expense of $8.3 million was 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, compared with a tax expense of $0.1 million in the prior year.

Consolidated net loss was $16.2 million, or $0.46 per diluted share, compared with net loss of $26.4 million, or $0.80 per diluted share, in the prior year.

At December 31, 2023, our consolidated backlog was $592.3 million.

At December 31, 2022, our backlog was $571.4 million.

Backlog in the Aerospace segment was $517.2 million at December 31, 2023.

Backlog in the Test Systems segment was $75.0 million at December 31, 2023.

For the year, bookings totaled $808.1 million, resulting in a book-to-bill ratio of 1.02:1.

Backlog at the end of the year was $599.2 million

Our effective tax rates for 2024 and 2023 were (106.1)% and (0.4)%, respectively.

In the past, research and development costs were deducted as incurred.

However, beginning with the 2022 tax year, these costs are required to be capitalized for tax purposes and amortized over 5 years.

Prior to 2022, research and development costs were deducted as incurred.

However, beginning with the 2022 tax year, these costs are required to be capitalized for tax purposes and amortized over five years.

While this would typically result in the creation of an associated deferred tax asset, due to our cumulative three-year pre-tax loss, a valuation allowance was applied against the deferred tax asset.

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• Recognition of approximately $13.6 million of valuation allowance against federal deferred tax assets.

See Note 11 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.

See Note 11, Income Taxes, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.

• Recognition of approximately $3.4 million of 2024 U.S.

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• Recognition of approximately $6.8 million of valuation allowance against federal deferred tax assets.

See Note 11 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.

See Note 11, Income Taxes, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.

• Recognition of approximately $3.4 million of 2023 U.S.

R&D tax credits.

Impact of the COVID-19 Pandemic

Our business continues to face varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic.

Domestic air travel has recovered from the impact of the COVID-19 pandemic, and international travel utilizing primarily widebody aircraft is close to pre-pandemic levels.

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.

See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions.

2023 Compared With 2022

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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.

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.

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

Operating profit (loss) is reconciled to loss before income taxes in Note 20 of Item 8, Financial Statements and Supplementary Data, of this report.

Operating profit is reconciled to loss before income taxes in Note 20, Segments, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

We do not have 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.

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Sales $ 706,684 $ 604,830

Operating Profit (Loss) $ 24,629 $ (1,883)

Operating Profit $ 62,406 $ 24,629

Operating Margin 8.8 % 4.1 %

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2024 Compared With 2023

Aerospace segment sales increased $143.6 million, or 31.1%, to $604.8 million.

Aerospace segment sales of $706.7 million were up $101.9 million, or 16.8%.

The improvement was driven by a 21.4%, or $92.4 million, increase in Commercial Transport sales.

Sales to this market were $432.2 million, or 62.8% of consolidated sales in 2023, compared with $314.6 million, or 58.8% of consolidated sales in 2022.

Higher airline spending and increasing OEM build rates drove the increased demand.

General Aviation sales increased $17.4 million, or 27.5%, to $80.8 million due in part to higher demand in the business jet market for electrical power and motion and avionics products.

The Company expects strong demand in the business jet industry to drive higher OEM production rates in the near future, resulting in further increases in demand for its products.

Military Aircraft sales increased $7.1 million, or 13.0%, to $61.6 million from increased production of higher sales of lighting and safety and avionics products.

Aerospace segment operating profit improved to $24.6 million compared with an operating loss of $1.9 million last year, which included an Aviation Manufacturing Jobs Protection (“AMJP”) Program grant offset to Cost of Products Sold of $6.0 million.

Operating margin expansion reflects the leverage gained on higher volume, partially offset by the $11.1 million in charges related to the customer bankruptcy, an increase in litigation-related legal expenses and reserve adjustments of $2.9 million, and an increase in incentive compensation expense of $2.8 million.

Growth was primarily related to increased demand by airlines for cabin power, lighting and safety and inflight entertainment & connectivity (“IFEC”) products which are in the Electrical Power & Motion, Lighting & Safety and Avionics product groups.

Military Aircraft sales increased $26.4 million, or 42.8%, to $88.0 million, driven by increased demand for Lighting & Safety and Avionics products as well as progress on the FLRAA program.

General Aviation sales decreased $6.5 million, or 8.0%, to $74.3 million, primarily due to lower sales of antenna products.

Other sales decreased $10.4 million as the Company is winding down its non-core contract manufacturing arrangements.

Aerospace segment operating profit of $62.4 million, or 8.8%, improved over the prior year despite a $16.4 million increase in litigation-related legal expenses and reserve adjustments related to the ongoing patent dispute previously discussed, $5.2 million in warranty expense related the previously-mentioned field modification, a $6.7 million increase in non-bankruptcy related inventory reserves and a $13.2 million increase 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 $7.8 million.

The improvement in segment operating profit reflects leverage gained on higher volume and improving production efficiencies.

Aerospace bookings in 2024 were $732.7 million, for a book-to-bill ratio of 1.04:1.

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The Aerospace segment’s backlog at December 31, 2024 was $537.6 million, compared to $511.5 million at December 31, 2023.

Approximately $474.5 million of the December 31, 2023 backlog is expected to be recognized as revenue over the next twelve months.

2023 Compared With 2022

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2024 Compared With 2023

Test Systems segment sales were $84.4 million, up $10.7 million compared with the prior year as a result of the reversal of a $5.8 million deferred revenue liability recorded with a previous acquisition and higher radio test revenue.

Test Systems segment sales were $88.7 million, up $4.4 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 operating loss was $8.5 million compared with operating loss of $8.7 million in 2023.

Absent the non-operating sales adjustment resulting from the reversal of the deferred revenue liability, Test Systems operating loss for the current period was $14.5 million and continued to be negatively affected by mix and under absorption of fixed costs due to volume, a $5.0 million increase in litigation-related legal expenses, and $0.7 million of non-cash bonuses.

The Test Systems segment has been investing in significant new development programs which are expected to result in more profitable business in the near future.

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 2024 results benefited from the margin realized on the HHRTS and TS-4549/T sales and a $7.5 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.

Additional restructuring initiatives were implemented in the 2024 fourth quarter, which are expected to provide annualized savings of approximately $4 million to $5 million, beginning in the first quarter of 2025.

Restructuring-related severance expense increased $1.6 million in 2024 compared with 2023.

During the fourth quarter of 2024, we also substantially completed the closure of a third Test facility in the last two years.

Bookings for the Test Systems segment in 2024 were $75.4 million, for a book-to-bill ratio of 0.85:1 for the year.

Backlog in the Test Systems segment was $61.7 million at December 31, 2024, compared to $75.0 million at December 31, 2023.

The Test Systems segment expects to recognize $52.1 million of backlog as revenue in 2024.

2023 Compared With 2022

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CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

For further information on our contractual obligations and other commitments as of December 31, 2023 and estimated timing thereof, see the notes referenced below, in Item 8, Financial Statements and Supplementary Data, of this report.

Long-term Debt and Interest Payments — Refer to Note 8, Long-Term Debt, in this report.

The Company completed a financing transaction totaling $205 million on January 19, 2023, which refinanced its previous revolving credit facility that was scheduled to mature in November 2023.

The new financing consists of a $90 million asset-based Term Loan Facility and a $115 million asset-based revolving credit facility, which was later amended to temporarily increase the limit to $120 million until January 31, 2024 and then returning to the original $115 million.

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, provided the ABL Revolving Credit Facility is extended beyond that date.

The Term Loan Facility has an interest rate of SOFR plus 8.75% and is collateralized primarily by real estate, fixed assets and intellectual property.

Amortization of the term loan principal has a monthly amortization rate of 0.833% until maturity, at which time the remaining outstanding balance is due.

Scheduled principal payments of $9.0 million are due under the Term Loan Facility during 2024.

The Term Loan Facility required a commitment fee of $4.5 million, $0.9 million of which is due in the second quarter of 2024.

The ABL Revolving Credit Facility has a scheduled maturity of January 19, 2026, an interest rate of SOFR plus 2.25% to 2.75% and is collateralized primarily by inventory and accounts receivable.

For further information on our contractual obligations and other commitments as of December 31, 2024 and estimated timing thereof, see the notes to the Consolidated Financial Statements referenced below, in Item 8, Financial Statements and Supplementary Data, of this report.

Long-term Debt and Interest Payments — Refer to Note 8, Long-Term Debt, in Item 8, Financial Statements and Supplementary Data, of this report.

On November 25, 2024, the Company entered into a second amendment to the ABL Revolving Credit Facility that increased the maximum aggregate amount available to be borrowed thereunder to $220.0 million from $200.0 million.

The ABL Revolving Credit Facility has a scheduled maturity of July 11, 2027, an interest rate of SOFR plus 2.75% to 3.25% and is collateralized primarily by inventory, accounts receivable, machinery and equipment and real estate.

The ABL Revolving Credit Facility requires payment of a quarterly commitment fee of 0.25% or 0.375% based on the Company’s average excess availability.

Future interest payments under the two credit facilities of approximately $35.5 million have been estimated using the applicable interest rate of each debt facility based on expected future borrowings and scheduled term loan repayments.

On December 3, 2024, the Company issued $165.0 million aggregate principal amount of Convertible Notes due 2030, which amount includes the additional notes issued pursuant to the initial purchasers’ full exercise of their option to purchase additional Convertible Notes.

The Convertible Notes bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025.

The Convertible Notes will mature on March 15, 2030, unless earlier converted, redeemed or repurchased.

The initial conversion rate is 43.6814 shares of common stock per $1,000 principal amount of Convertible Notes, which represent the initial conversion price of $22.89 per share.

Future interest payments under the ABL Revolving Credit Facilities and the Convertible Notes of approximately $49.9 million have been estimated using the applicable interest rate of each debt instrument based on expected future borrowings or outstanding amount of Convertible Notes, as applicable.

Actual future ABL borrowings and rates may differ from those used to estimate the amounts discussed above.

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Lease Obligations — Refer to Note 10, Leases, in Item 8, Financial Statements and Supplementary Data, of this report for details on obligations and timing of expected future lease payments, including a five-year maturity schedule.

Legal Reserves — Refer to Note 19, Legal Proceeding in Item 8, Financial Statements and Supplementary Data, of this report for management’s estimate of damages to be paid related to our ongoing litigation with Lufthansa Technik and timing thereof.

The lease maturity schedule excludes legally binding operating lease payments of $3.3 million per year through 2033 for a lease that has been signed in 2025, but not commenced.

Legal Reserves — Refer to Note 19, Legal Proceedings, in Item 8, Financial Statements and Supplementary Data, of this report for management’s estimate of damages to be paid related to our ongoing litigation with Lufthansa Technik and timing thereof.

LIQUIDITY AND CAPITAL RESOURCES

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Working Capital 1

$ 270,020 $ 246,448

Indebtedness $ 175,000 $ 172,499

Other Year-end Data

Other Data for the Annual Period

Capital Expenditures $ 8,428 $ 7,643

1 Working capital is calculated as the difference between Current Assets and Current Liabilities.

Our cash flow from operations, available borrowing capacity, and proceeds under our ATM Program (as defined below) are expected to provide us with the financial resources needed to run our operations and reinvest in our business for at least the next 12 months.

Our cash flow from operations and available borrowing capacity under our ABL Revolving Credit Facilities are expected to provide us with the financial resources needed to run our operations and reinvest in our business for at least the next 12 months.

Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results.

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Operating Activities

Cash used for operating activities totaled $24.0 million in 2023, as compared with $28.3 million cash used for operating activities in 2022.

Cash flow from operating activities improved compared with 2022 primarily related to improvement in our financial results, coupled with accounts receivable and inventory using less cash as supply chain challenges have improved, partially offset by increased outflows related to accounts payable.

The $3.4 million and $11.3 million earnouts in 2023 and 2022, respectively, from the sale of the semiconductor business are treated as investing activities and thus are shown as non-cash gains removed from the calculation of cash flow from operations.

Additional non-cash items in 2023 include $12.6 million incremental provisions for inventory and receivables, primarily the result of the customer bankruptcy previously discussed, and a $5.8 million deferred liability recovery.

Operating cash flows in 2022 benefited from the receipt of income tax refunds and AMJP grant proceeds.

Cash provided by operating activities totaled $30.6 million in 2024, as compared with $24.0 million cash used for operating activities in 2023.

Cash flow from operating activities improved compared with 2023 primarily related to improvement in our financial results, coupled with accounts receivable using less cash, partially offset by increased outflows related to inventory and accounts payable.

Non-cash items include $10.1 million for the loss on extinguishment of debt in 2024 and a $5.8 million deferred liability recovery in 2023.

The $3.4 million earnout in 2023 from the sale of the semiconductor business is treated as investing activities and thus is shown as a non-cash gain removed from the calculation of cash flow from operations.

Our cash flows from operations are primarily dependent on our net loss adjusted for non-cash expenses and income and the timing of collections of receivables, inventory levels and payments to suppliers and employees.

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Investing Activities

Cash used for investing activities in 2023 was $4.1 million compared to $14.4 million cash provided by investing activities in 2022.

Investing cash flows in 2023 were positively impacted by the receipt of $3.4 million related to the calendar 2022 earnout from the sales of the semiconductor business compared to the receipt of $10.7 million and $11.3 million related to the calendar 2020 and 2021 earnouts, respectively, in 2022.

Cash used for investing activities in 2024 was $8.4 million compared to $4.1 million cash used for investing activities in 2023.

Investing cash flows in 2023 were positively impacted by the receipt of $3.4 million related to the calendar 2022 earnout from the sales of the semiconductor business.

Future requirements for PP&E depend on numerous factors, including expansion of existing product lines and introduction of new products.

Management believes that our cash flow from operations and current borrowing arrangements will provide for these capital expenditures.

Management believes that our cash flow from operations and available capacity under our ABL Revolving Credit Facility will provide for these capital expenditures.

We expect to continue to evaluate acquisition opportunities in the future.

Financing Activities

Cash provided by financing activities totaled $25.4 million for 2023, as compared with cash used for financing activities of $1.4 million for 2022.

Cash used for financing activities totaled $14.5 million for 2024, as compared with cash provided by financing activities of $25.4 million for 2023.

The Company received proceeds from our at-the-market equity offering program (the “ATM Program”) of $21.3 million in 2023.

Additionally, the Company made net borrowings under our credit facilities of $8.5 million in 2023 compared with net repayments of $1.0 million in 2022, partially offset by an increase 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”).

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 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 was to return to $115 million.

On October 31, 2023, the Company executed a second amendment to extend the temporary limit of $120 million until January 31, 2024 at which time the limit returned 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 and any ending cash balances subject to the dominion arrangement collateralize the outstanding borrowings under the ABL Revolving Credit Facility.

Eligible cash receipts that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying Consolidated 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 31, 2024, and $10 million thereafter.

On December 31, 2023, there was $87.0 million outstanding on the ABL Revolving Credit Facility and there remained $32.7 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 of which was paid on the closing date, $1.8 million of which was paid on June 19, 2023 and $0.9 million of 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, increasing to 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 in 2024 and as such, have been classified as current in the accompanying Consolidated Balance Sheets as of December 31, 2023.

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

The remaining balance of $76.5 million as of December 31, 2023, is recorded as long-term in the accompanying Consolidated Balance Sheets.

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 $51.7 million in the Company’s fourth quarter of 2023, increasing to $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter.

The non-cash accounts receivable reserve associated with the customer bankruptcy recorded in 2023 was not required to be included in the calculation of EBITDA pursuant to our ABL Revolving Credit Facility and the Term Loan Facility.

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.

No such amounts are 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 year ended December 31, 2023.

The Company incurred $8.8 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility.

Additionally, the Company made net borrowings under our credit facilities of $2.5 million in 2024 compared with net borrowings of $8.5 million in 2023, coupled with a $9.9 million increase in costs associated with amending and refinancing our credit facilities in 2024.

The Company amended its ABL Revolving Credit Facility on July 11, 2024, by entering into the Seventh Amended and Restated Credit Agreement, which set the maximum aggregate amount that the Company can borrow pursuant to the revolving credit line at $200.0 million, with borrowings subject to a borrowing base determined primarily by inventory, accounts receivable, machinery and equipment and real estate.

The Company also entered into a $55.0 million Term Loan Facility on July 11, 2024.

The Company repaid in full all outstanding indebtedness under the previous term loan dated 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% 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.

On November 25, 2024, the Company entered into a second amendment to the ABL Revolving Credit Facility which increased the maximum aggregate amount that the Company can borrow pursuant to the ABL Revolving Credit Facility to $220.0 million from $200.0 million.

The maturity date of borrowings under the ABL Revolving Credit Facility remains July 11, 2027.

The Company and the applicable lenders also agreed in a separate first amendment to increase the amount of unsecured indebtedness the Company is permitted to incur under the ABL Revolving Credit Facility, subject to completion of the Convertible Notes offering (discussed below).

Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the ABL Revolving 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 2.75% to 3.25% 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 ABL Revolving Credit Facility.

On December 31, 2024, there was $10.0 million outstanding on the ABL Revolving Credit Facility and there remained $209.7 million available for future borrowings, net of outstanding letters of credit, before our minimum excess availability requirement discussed below.

Pursuant to the ABL Revolving Credit 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.

As of December 31, 2024, the Company was in compliance with these covenants.

On December 3, 2024, the Company issued $165.0 million aggregate principal amount of Convertible Notes, which amount includes the additional Convertible Notes issued pursuant to the initial purchasers’ full exercise of their option to purchase additional Convertible Notes.

The Convertible Notes bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025.

The Convertible Notes will mature on

March 15, 2030, unless earlier converted, redeemed or repurchased.

The initial conversion rate is 43.6814 shares of common stock per $1,000 principal amount of Convertible Notes, which represent the initial conversion price of $22.89 per share.

The Convertible Notes are convertible at the option of the holders at any time on or after December 15, 2029, until the close of business on the second scheduled trading day immediately preceding the maturity date.

Upon conversion, the Company will satisfy its conversion obligations by paying and/or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.

Beginning March 20, 2028, if the Company’s stock price has been at least 130% of the conversion price for a specified period of time, the Convertible Notes may be called at the option of the issuer.

Under the same conditions, the Company can elect to redeem the Convertible Notes for cash.

After the first quarter of 2025, if the Company’s stock price has been at least 130% of the conversion price for 20 of 30 trading days ending on and including the last trading day of the immediately preceding quarter, the Convertible Notes may be called at the option of the holder.

The fair value of the Convertible Notes was approximately $176.9 million as of December 31, 2024 based on quoted prices for these instruments in active markets, and is classified as a Level 1 measurement within the fair value hierarchy.

On December 3, 2024, the Company repaid in full all outstanding indebtedness under the Term Loan Facility.

The Term Loan Facility payoff consisted of a repayment of a principal amount of approximately $54.9 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 3.00% which satisfied all of the Company’s indebtedness obligations thereunder.

The Company funded the repayment of its obligations under the Term Loan Facility with a portion of the proceeds received from the issuance and sale of the Convertible Notes.

Scheduled principal payments of $9.0 million were payable under the Term Loan Facility and were classified as current in the accompanying Consolidated Balance Sheets as of December 31, 2023.

The interest rate on current maturities of long-term debt was 14.20% at December 31, 2023.

The Company incurred $12.2 million in incremental debt issuance costs during 2024.

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 ($2.0 million as of December 31, 2023) are recorded within Other Assets and those associated with the Term Loan Facility ($4.3 million as of December 31, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets.

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

Debt issuance cost amortization expense was approximately $2.6 million, $3.0 million and $0.8 million in 2024, 2023 and 2022, respectively.

Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($3.0 million as of December 31, 2024) are recorded within Other Assets and those associated with the Convertible Notes ($6.3 million as of December 31, 2024) are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets.

The unamortized balance of deferred debt issuance costs on our previous credit facilities of $2.0 million was recorded within Other Assets and $4.3 million was recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets at December 31, 2023.

In 2024, the Company recorded a loss on extinguishment of the debt of approximately $10.1 million below Income from Operations, which was comprised of $4.5 million of prepayment fees on the previous term loans and a write-off of $5.6 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 Statements of Operations.

Certain of the Company’s subsidiaries are borrowers under the ABL Revolving Credit Facility and the assets of such subsidiaries also secure the obligations under the ABL Revolving Credit Facility.

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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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.

Shares of Common Stock under the ATM Program are offered using Wells Fargo Securities, LLC and HSBC Securities (USA) Inc., as sales agents (the “Sales Agents” and each a “Sales Agent”), pursuant to the equity distribution agreement, dated August 8, 2023, by and among the Company and the Sales Agents.

During the year ended December 31, 2023, the Company sold 1,334,228 shares of our common stock under the ATM Program, generating aggregate net proceeds of $21.3 million after deducting related expenses.

The Company currently is obligated to use the net proceeds from any sale of shares of common stock pursuant to the ATM Program to pay down the outstanding principal amount of, and any unpaid interest on, the ABL Revolving Credit Facility.

However, any principal amount paid down on our ABL Revolving Credit Facility using the proceeds of the ATM Program will be, subject to compliance with the requirements and conditions set forth in the ABL Revolving Credit Facility, available to be reborrowed by the Company and used for, among other items, working capital and general corporate purposes.

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.

On August 8, 2023, the Company initiated an at-the-market equity offering 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 year ended December 31, 2024, the Company did not sell any shares of our common stock under the ATM Program.

During the year ended December 31, 2023, the Company sold 1,334,228 shares of our common stock under the ATM Program.

The Company generated $21.8 million in aggregate gross proceeds from sales under the ATM Program at an average sale price of $16.31 per share.

Aggregate net proceeds from the ATM Program were $21.3 million after deducting related expenses, including commissions to the sales agents and issuance costs.

As of December 31, 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.

On February 4, 2025, the Company entered into a factoring agreement with Citibank, N.A.

under which we can sell certain receivables resulting from sales to a certain customer.

The arrangement is designed to provide the Company with an immediate cash advance on eligible receivables, up to a limit of $45 million a year as restricted by our ABL Revolving Credit Facility.

As of the date of this report, the Company has not utilized the factoring agreement.

Management continues to evaluate its financing

needs and the potential utilization of the factoring agreement based on the Company’s operational and working capital requirements.

There is no current commitment or obligation to factor any receivables under this agreement.

Cash on hand at the end of the year was $18.4 million.

Net debt was $156.6 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.

Lufthansa Technik AG (“Lufthansa”) filed actions in Germany, the United Kingdom (“UK”) and France.

These matters are more fully discussed in Note 19, Legal Proceedings, to our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data and Item 1A, Risk Factors, of this report.

The Company expects its cash flow from operations will provide sufficient cash flows to fund operations, including payment of the $11.9 million damage award related to the February 21, 2025 ruling issued in relation to the Lufthansa UK matter.

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 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.

Refer to Item 1A, Risk Factors, for further discussion.

Refer to Note 8 of our Consolidated Financial Statements in Item 8, Financial Statement and Supplementary Data, of this report for additional information regarding our credit facility.

Management believes that it should retain the capital generated from operating activities for investment in advancing technologies, acquisitions and debt retirement.

Accordingly, there are no plans to institute a cash dividend program.

Further, we are precluded from payment of dividends under our credit facilities.

RELATED-PARTY TRANSACTIONS

Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Company’s 2024 Proxy Statement which will be filed with the SEC within 120 days after the end of the Company’s 2023 fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

See Note 1, Summary of Significant Accounting Principles and Practices, of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

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-K

Item 7. Management’s Discussion and Analysis