What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-26 compared with 2025-03-05 · 145 added, 174 removed, 192 unchanged (62% 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 and an engineering office in Ukraine.

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

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

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Department of Defense (“USDOD”).

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

Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense and mass transit industries.

In the Test Systems segment, Astronics’ products are sold to a global customer base including OEMs and prime government contractors for both electronics and military products.

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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, material availability and cost increases (including tariffs), 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.

Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.

Reduced aircraft build rates driven by regulatory actions impacting OEM production, 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.

The main challenges that we continue to face include varying levels of supply chain pressures, material availability and cost increases (including costs associated with the imposition of tariffs by the United States and other countries discussed herein), labor availability and cost, and improving shareholder value through increasing profitability.

have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.

Reduced aircraft build rates driven by regulatory actions impacting OEM production, a weak economy, aircraft groundings, tight credit markets, reduced air passenger travel, tariffs impacting OEM demand, 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, tariff 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 tariffs and other trade policy matters, supply chain pressures, and labor market pressures have in the past resulted in, 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 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.

On October 22, 2025, the Company entered into the $300 million senior secured Revolving Credit Facility.

The Revolving Credit Facility replaced the Company’s ABL Revolving Credit Facility which was terminated on October 22, 2025.

The 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 a total leverage ratio, a consolidated interest coverage ratio, and a secured net debt leverage ratio requirement.

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.

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.

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 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.

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 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.

Although the conflict has not resulted in a direct material adverse impact on our business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time.

Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.

We are monitoring the production levels and anticipated ramp-ups at Boeing and Airbus, and we continue to align our operations with their production expectations.

We are monitoring the ongoing conflict between Russia and Ukraine, as well as other geopolitical tensions and conflicts around the world, and the potential impact of related export controls, financial and economic sanctions, and other restrictions imposed by the U.S., the U.K., the European Union, and other countries.

While the Russia-Ukraine conflict has not resulted in a direct material adverse impact on our business to date, the implications of both this and other global conflicts in the short-term and long-term are difficult to predict.

Factors such as increased energy costs, disruptions in the availability of certain raw materials, restrictions on air travel or trade with affected regions, sanctions on companies or industries, shifts in customer stability, and broader impacts on the global economy and aviation sector could pose risks to our operations and financial performance.

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

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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.

During 2025, the Company initiated simplification activities in the Aerospace segment, including costs related to footprint rationalization and portfolio shaping.

Restructuring charges, including a reduction of inventory and impairment of other long-lived assets, were recorded as a result of these simplification initiatives.

In the year ended December 31, 2025, the Company recorded $5.8 million and $0.4 million in simplification initiative charges to Cost of Products Sold and Selling, General and Administrative Expenses, respectively, in the accompanying Consolidated Statements of Operations.

On January 20, 2026, the United States Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) did not authorize the President to impose tariffs.

The IEEPA tariff case has been remanded back to the Court of International Trade to address whether the lower court can issue a nationwide injunction against tariffs imposed under IEEPA.

It is unknown at this time if or when refunds will be issued for IEEPA tariffs previously paid by the Company.

On June 30, 2025, the Company purchased the membership interests of Envoy Aerospace, located in Aurora, Illinois.

Envoy Aerospace is an FAA ODA services provider.

Envoy Aerospace is included in our Aerospace segment.

The total purchase price was approximately $8.3 million, net of cash acquired and the estimated closing adjustment.

On October 13, 2025, the Company acquired all of the issued and outstanding capital stock of BMA, located in Uhldingen-Mühlhofen, Germany.

BMA is an established manufacturer of aircraft seat actuation systems with a broad product portfolio that

includes actuators, electronics, control panels, pneumatic systems, and lighting.

BMA will be included in our Aerospace segment.

The total purchase price was approximately $18.0 million, net of cash acquired and the estimated closing adjustment.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.

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

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

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

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.

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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 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.

We have experienced improvement throughout 2025 driven by improved activity with our airline customers and recovery from negative effects on production from the quality control issues and labor workforce stoppage on the 737 MAX experienced in late 2024.

Aircraft build rates improved in 2025, and are expected to continue to ramp during 2026 and 2027 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 has returned to pre-pandemic levels and we believe widebody aircraft production rates will continue to directionally match air traffic volumes.

Sales to the commercial transport market include sales of lighting and safety systems, electrical power and seat motion systems, aircraft structures, avionics products and systems certification.

Sales to this market totaled approximately $599.3 million or 69.5% of our consolidated sales in 2025.

Maintaining and growing sales to the commercial transport market will depend not only on continued market recovery post-pandemic, but also on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines.

Maintaining and growing sales to the commercial transport market will depend on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines.

This spending by the airlines is impacted by their profits, cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers.

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Our ability to maintain and grow sales to this market depends on our ability to maintain our technological advantages over our competitors and maintain our relationships with major in-flight entertainment suppliers and global airlines.

The satellite communications industry is experiencing significant ongoing disruption, as customers evaluate the benefits of lower-cost, low Earth orbit (“LEO”) solutions, challenging the traditional geosynchronous satellite-based systems.

This transition represents both a risk to portions of our existing products and an opportunity to evolve our offerings to align with the growing demand for LEO products and services.

Military Aerospace Market

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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.

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

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

Sales to this market totaled approximately 8.1% of our consolidated sales in 2025 and amounted to $69.8 million.

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Sales by our Test Systems segment accounted for approximately 7.5% of our consolidated sales in 2025 and amounted to $64.8 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.

Sales to the aerospace and defense market were $35.4 million in 2025.

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We had approximately $62.9 million and $58.1 million of goodwill as of December 31, 2025 and 2024, 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.

The Test Systems operating segment is its own reporting unit while the other reporting units are one level below our Aerospace operating segment.

The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We use the discounted cash flow method to estimate the fair value of each of our reporting units.

The Company may elect to perform a qualitative assessment that considers economic, industry and company-specific factors for some or all of the Company's selected reporting units.

If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company proceeds to a quantitative test.

The Company may also elect to perform a quantitative test instead of a qualitative test for any or all of the Company's reporting units.

The quantitative impairment test consists of comparing the fair value of a reporting unit to its carrying value.

We use the discounted cash flow method to estimate the fair value of our reporting units.

The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate.

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.

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.

Based on our quantitative assessments of our reporting units, we concluded that goodwill was not impaired in 2024, 2023 or 2022.

Management projects sales growth rates, operating margins and cash flows based on the 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.

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

Based on our assessments of our reporting units, we concluded that goodwill was not impaired in 2025, 2024 or 2023.

CONSOLIDATED RESULTS OF OPERATIONS AND PERFORMANCE

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

($ in thousands) 2025 2024

RESULTS OF OPERATIONS:

Sales $ 862,128 $ 795,426

Gross Profit (sales less cost of products sold) 258,158 220,428

Gross Margin 29.9 % 27.7 %

Research and Development Expenses (“R&D”) 1

43,475 52,086

Selling, General and Administrative Expenses (“SG&A”) 138,271 141,876

SG&A Expenses as a Percentage of Sales 16.0 % 17.8 %

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

Operating Margin 3.3 % (1.0) %

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

Loss on Extinguishment of Debt $ 10,148 $ —

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

Loss on Settlement of Debt $ 32,644 $ 10,148

Interest Expense, Net $ 12,561 $ 21,998

Effective Tax Rate 8.1 % (106.1) %

Net Loss $ (16,215) $ (26,421)

Net Loss Margin (2.0) % (3.8) %

Diluted Loss Per Share $ (0.46) $ (0.80)

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

Net Income (Loss) $ 29,359 $ (16,215)

1 R&D Expenses have been reclassified from Cost of Products Sold to a separate line item below Gross Profit.

All periods presented have been revised to reflect this presentation.

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

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2025 Compared With 2024

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.

Growth in sales was driven by continued strength in demand for the Aerospace segment primarily from the Commercial Transport market.

Aerospace sales increased $90.6 million, or 12.8%, which more than offset the $23.9 million decline in Test Systems sales.

Consolidated sales were negatively impacted by $8.3 million from revisions of estimated costs to complete certain long-term mass transit contracts in the Test Systems segment.

Consolidated cost of products sold in 2025 was $604.0 million, compared with $575.0 million 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 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.

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

The increase was primarily due to higher sales volume and $10.4 million of tariff expense in 2025.

Additionally, simplification initiatives in the Aerospace segment, including costs related to footprint rationalization and product portfolio shaping activities, resulted in $5.8 million in charges within cost of products sold during the year.

The prior year was negatively impacted by $3.8 million in higher warranty expense related to an atypical warranty campaign and $1.7 million in reserves associated with customer

bankruptcies.

Both periods reflect the change in presentation for R&D, which is now identified as an expense item on the income statement below gross profit.

Selling, General and Administrative expenses were $138.3 million in 2025 compared with $141.9 million in the prior year driven by a decrease of $5.6 million in litigation-related legal expenses and reserve adjustments and $1.5 million of prior-year reserves associated with customer bankruptcies, partially offset by $1.8 million in higher legal and accounting expenses related to acquisitions.

R&D was $8.6 million lower reflecting the timing of projects.

The current year includes a $32.6 million loss on settlement of debt as a result of a partial repurchase of the 2030 Convertible Notes, compared to a loss on settlement of debt of $10.1 million in the prior year, which was related to the $4.5 million in call premiums on the previous term loans, which were extinguished upon issuance of the 2030 Convertible Notes, and the write-off of $5.6 million of associated deferred financing costs.

As a result of the lower outstanding borrowings and the reduced cost of debt resulting from the refinancing actions in late 2024 and in 2025, interest expense decreased $9.4 million or 42.9%.

Tax expense was $2.6 million compared with a tax expense of $8.3 million in the prior year, primarily due to a valuation allowance reversal associated with research and development costs that are expected to be expensed for tax purposes in the current year under the OBBBA, along with a $1.0 million adjustment to reverse certain federal and state deferred tax liabilities.

Consolidated net income of $0.81 per diluted share improved from a net loss of $(0.46) per diluted share in the prior year from the strength in operating profit and lower interest expense.

Bookings were up 14.4% to $924.4 million with a book-to-bill ratio of 1.07:1 in 2025.

The book-to-bill ratio is calculated as total orders received during the period compared with total revenue recognized during the period.

Backlog as of December 31, 2025 was $674.5 million.

Our effective tax rates for 2025 and 2024 were 8.1% and (106.1)%, respectively.

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.

In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S.

However, beginning with the 2022 tax year, as required by the 2017 Tax Cuts and Jobs Act, these costs were required to be capitalized for tax purposes and amortized over five years.

In 2025, the One Big Beautiful Bill Act (“OBBBA”) restored the ability to deduct research and development expenditures immediately in the year incurred for tax years beginning in 2025 and also provided the ability to deduct research and development costs that were previously capitalized prior to 2025.

Due to our cumulative three-year pre-tax loss, a valuation allowance was applied against the deferred tax asset.

In addition to state and foreign income taxes, the following items had the most significant impact on the difference between our statutory U.S.

federal income tax rate (21% in 2025 and 2024) and our effective tax rate:

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

• Removal of approximately $8.7 million of valuation allowance against federal deferred tax assets.

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

• Approximately $6.9 million of nondeductible items which reduced the federal net operating loss for the year.

The recognition of the federal net operating loss was offset by the federal valuation allowance recognized during the year.

• Recognition of approximately $3.4 million of 2025 U.S.

R&D tax credits.

R&D tax credits which were offset by the federal valuation allowance recognized during the year.

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

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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 20, Segments, to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

Operating profit is reconciled to income (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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Aerospace segment sales of $797.3 million were up $90.6 million, or 12.8%.

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

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.

Sales in the Commercial Transport market grew $74.7 million, or 14.2%.

Growth was primarily related to increased demand by airlines for cabin power, lighting and safety, seat motion and system certification products and services.

Military Aircraft sales increased $28.3 million, or 32.1%, to $116.3 million, driven by pricing initiatives and increased demand for lighting and safety products, and continued progression on the MV-75 program engineering efforts.

General Aviation sales decreased $4.5 million, or 6.1%, to $69.8 million, as a result of lower airframe power sales due to timing of programs.

Other sales decreased $7.8 million as the Company has wound down its non-core contract manufacturing arrangements.

Aerospace segment operating profit of $113.2 million, or 14.2%, improved over the prior year resulting from leverage gained on higher volume, favorable mix, pricing initiatives and improved production efficiencies.

The year also benefitted from a $6.5 million decrease in litigation-related legal expenses and reserve adjustments related to the ongoing patent dispute previously discussed.

Additional benefits include a $3.8 million decrease in warranty expenses related to an atypical warranty

campaign and the absence of reserves for customer bankruptcies, which were $3.2 million in the prior year.

These gains were partially offset by a $6.3 million increase in costs related to simplification and restructuring initiatives during the current year.

Aerospace bookings in 2025 were $847.5 million, for a book-to-bill ratio of 1.06:1.

The book-to-bill ratio is calculated as total orders received during the period compared with total revenue recognized during the period.

The Aerospace segment’s backlog at December 31, 2025 was $600.8 million, compared to $537.6 million at December 31, 2024.

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2025 Compared With 2024

Test Systems segment sales were $88.7 million, up $4.4 million driven primarily by our U.S.

Test Systems segment sales were $64.8 million, down $23.9 million from 2024.

The decrease was driven by lower sales on 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.

Additionally, segment sales were negatively impacted by $8.3 million due to revisions of estimated costs to complete certain long-term mass transit Test contracts.

The revisions resulted in reduced revenue recognized in the period due to lower estimates of the percentage of work completed on the programs.

Test Systems operating loss was $7.8 million compared with operating loss of $8.5 million in 2024.

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.

Net revisions to the estimated costs to complete had a $8.8 million detrimental impact to operating income and partially offset the net savings realized from recent restructuring activities.

Test Systems continues to be negatively affected by mix and under absorption of fixed costs at current volume levels.

Bookings for the Test Systems segment in 2025 were $76.8 million, for a book-to-bill ratio of 1.19:1 for the year.

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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.

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.

On October 22, 2025, the ABL Revolving Credit Facility was terminated and replaced with a cash flow-based Revolving Credit Facility with a $300.0 million limit.

The scheduled maturity date for the Revolving Credit Facility is October 16, 2030.

Under the terms of the Revolving Credit Facility, the Company pays interest on the unpaid principal amount outstanding under the Revolving Credit Facility at a rate equal to Term SOFR plus an applicable margin ranging from 1.25% to 2.125% determined based upon the Company’s Total Net Debt Leverage Ratio.

The Company pays a quarterly commitment fee under the Revolving Credit Facility on unused Revolving Commitments ranging from 0.20% to 0.35%.

On December 3, 2024, the Company issued $165.0 million aggregate principal amount of 2030 Convertible Notes.

The 2030 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.

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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.

The Company partially repurchased $132.0 million of the 2030 Convertible Notes during the third quarter of 2025 and $33.0 million remains outstanding at December 31, 2025.

The 2030 Convertible Notes can be settled in any combination of cash or shares.

On September 15, 2025, the Company issued $225.0 million of 2031 Convertible Notes.

The 2031 Convertible Notes do not bear any interest and will mature on January 15, 2031, unless earlier converted, redeemed or repurchased.

The initial conversion rate is 18.2243 shares of common stock per $1,000 principal amount of 2031 Convertible Notes, which represents the initial conversion price of $54.87 per share.

The principal amount of the 2031 Convertible Notes will be settled by paying cash and the premium, if any, can be settled in any combination of cash or shares.

In connection with the issuance of the 2031 Convertible Notes, the Company entered into capped call transactions (the “Capped Calls”) with certain financial institutions.

The Capped Calls are generally expected to reduce the potential dilution to the Company’s common stock upon any conversion of the 2031 Convertible Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2031 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap price of approximately $83.41 per share of the Company’s common stock.

The Capped Calls expire January 15, 2031.

Future interest payments over the next twelve months under the Revolving Credit Facility and the Convertible Notes of approximately $6.9 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 borrowings and rates may differ from those used to estimate the amounts discussed above.

Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business and amount to approximately $226.1 million payable over the next twelve months.

Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related with the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits, in Item 8, Financial Statements and Supplementary Data, of this report.

Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related to the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits, in Item 8, Financial Statements and Supplementary Data, of this report.

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.

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.

Legal Reserves — Refer to Note 19, Legal Proceedings and Other Matters, 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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1 Working capital is calculated as the difference between Current Assets and Current Liabilities.

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 cash flow from operations and available borrowing capacity under our 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 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.

Cash provided by operating activities totaled $74.8 million in 2025, as compared with $30.6 million cash provided by operating activities in 2024.

Cash flow from operating activities improved compared with 2024 reflecting higher cash earnings offset by higher working capital requirements associated with increased activity.

Cash provided by operating activities in 2025 included $21.6 million in payments related to the UK patent dispute and $11.6 million in net federal and state income tax payments.

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

Sales and operating results of our Aerospace segment are influenced by build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending for government and military programs.

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Investing Activities

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 available capacity under our ABL Revolving Credit Facility will provide for these capital expenditures.

Cash used for investing activities in 2025 was $53.7 million compared to $8.4 million cash used for investing activities in 2024, driven by a higher level of capital expenditures related to the ongoing facility expansion activities and acquisitions during the year.

Future requirements for property, plant and equipment (“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 available capacity under our credit facilities will provide for these capital expenditures.

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

Financing Activities

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 $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.

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.

Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.

On June 5, 2023, the Company filed a shelf registration statement on Form S-3 with the SEC, which allows us to issue shares of common stock, preferred stock, warrants, subscription rights, purchase contracts and debt securities in one or more offerings up to an aggregate offering price of $150 million and on terms to be determined at the time of the offering.

On August 8, 2023, the Company initiated an at-the-market equity offering program 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 used for financing activities totaled $22.4 million for 2025, as compared with cash used for financing activities of $14.5 million for 2024.

The Company received net proceeds under its convertible notes and revolving credit facilities of $14.2 million, offset by $26.9 million in payments for capped call transactions and $10.4 million in financing-related fees and expenses in 2025.

Net proceeds of debt were $2.5 million in the prior year, offset by $16.6 million in financing-related fees, expenses and settlement costs.

Cash on hand at the end of the year was $18.2 million.

Net debt was $324.8 million, compared with $156.6 million at the end of 2024.

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.

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.

As of December 31, 2025, we are in compliance with all covenants under each of our financing arrangements.

Our financing arrangements are more fully discussed in Note 8, Long-Term Debt, to our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

The Company expects its cash flow from operations will provide sufficient cash flows to fund operations, including payment of any further amounts related to the Lufthansa matters.

The Company paid $21.6 million for ordered liabilities for damages, interest and legal fee reimbursement related to the UK matter in the year ended December 31, 2025.

Both the Company and Lufthansa have been granted permission to appeal the rulings by the UK High Court of Justice.

The appeals are scheduled to be heard by the UK Court of Appeal in March 2026.

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.

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 and Other Matters, to our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data and Item 1A, Risk Factors, of this report.

On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $30 million.

During the year ended December 31, 2025 and 2024, the Company did not sell any shares of its common stock under the ATM Program.

As of December 31, 2025, 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.

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.

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

RECENT ACCOUNTING PRONOUNCEMENTS

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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-K

Item 7. Management’s Discussion and Analysis