Greetings, and welcome to the Astronics Corporation First Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to your host, Deborah Pawlowski, Investor Relations for Astronics Corporation. Please go ahead, Deb.

Thanks, Kevin, and good afternoon, everyone. We certainly appreciate your time today and your interest in Astronics. On the call with me here, I have Pete Gundermann, our Chairman, President and CEO; and Nancy Hedges, our Chief Financial Officer. You should have a copy of our first quarter results, which crossed the wires after the market closed today. And if you don’t have that release, you can find it on our website at astronics.com. As you are aware, we may make some forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. You can find those documents on our website or at sec.gov. During today’s call, we’ll also discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today’s release. With that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie. Hello, everybody, and welcome to the call. I’m going to open the presentation with my comments on the first quarter, which we feel was a very strong start to the year, and Nancy will follow up with some specifics on our financials. Then we’ll turn our attention to expectations going forward for the remainder of the year. As I said, the first quarter was a very strong start to 2025. Revenue of $206 million was at the high end of our range or just beyond and up 11% year-over-year. The revenue level drove solid improvement on margins with adjusted net income of $17 million, up from $2 million last year and adjusted EBITDA of $30.7 million, up from $17.6 million last year. Adjusted EBITDA was about 15% of sales and similar to the fourth quarter from last year. On a rolling 12-month basis, adjusted EBITDA as we calculate it has been $110 million. This is up from $67 million for the previous 12-month period and $16 million for the 12-month period before that. So we’ve made some pretty solid progress. In addition, first quarter bookings were really strong at $280 million, which yields a book-to-bill of 1.36. That bookings total was a new record for the company, which left us with a backlog at quarter end of $673 million, also a new all-time record. The bookings included a significant order of $57 million for the next phase of our FLRAA development effort. We remain very engaged in that program and are doing whatever we can to help ensure its success. We expect total development billings of approximately $90 million by the time it is all done, and we continue to believe that the program will be a significant driver for our company’s long-term future. It’s worth noting…

Thanks, Pete. I’ll now walk through the key drivers behind our consolidated Q1 performance and then touch on segment level results. As Pete noted, we had a strong start to fiscal ‘25 with continued momentum in our Aerospace segment and solid execution across the organization. Gross margin expansion, improved EBITDA and strong operating cash flow are clear signs that the operational and financial initiatives we implemented over the past year are delivering results. Beginning in Q1 of fiscal ‘25, we implemented a change in how research and development expenses are presented in our financial statements. R&D is now shown as a separate line item below gross profit on the income statement, whereas previously, it was included within cost of goods sold. The prior period was recasted for comparability. This change enhances transparency and better aligns with common industry practices. That said, gross profit increased 28% year-over-year to $60.8 million, and gross margin expanded almost 390 basis points to 29.5%, up from 25.7% in the prior year quarter. This improvement reflects continued volume growth and favorable operating leverage in Aerospace. The quarter also included a $1.9 million adjustment, as Pete mentioned, in our Test segment related to the long-term contract. Operating income was $13.1 million for the quarter and includes a $6.2 million true-up to the reserve for the U.K. litigation matter, comprised of $0.5 million in additional damages and $5.7 million in interest-related accruals. We also incurred $3 million in legal expenses tied to the ongoing litigation. Excluding these items, adjusted operating income was $22.6 million or 11% of sales compared with $5.5 million and 3% in the prior year. Adjusted EBITDA was $30.7 million or 14.9% of sales, up from 9.5% last year, primarily reflecting improved profitability from the higher volume. Interest expense declined $2.6 million year-over-year due to…

Now for a look at the future, which is usually a straightforward discussion, but not so much these days, long story short, we are for now holding to our original top line forecast for 2025 of $820 million to $860 million in revenue, representing a 6% increase on 2024 at the midpoint. However, at the same time, we feel there is both upside potential and downside risk to this forecast. On the positive side, our strong first quarter results and recent booking success suggest there should be upside potential and there very well may be. As we have discussed, there are many positive trends surrounding our industry and our business, and there are scenarios in which those positive trends could continue for the indefinite future. At the same time, there is reason to be cautious given the macroeconomic concerns that exist today due largely to the tariff regime that the administration in Washington is rolling out. The implications of the on again, off again nature of the rollout has caused major uncertainty and many significant companies in a wide range of industries are pulling guidance altogether until the situation is clarified. As for us, we feel we are reasonably well-positioned to deal with whatever tariffs become part of the final plan. We estimate our tariff obligation based on the structure currently in place and before mitigations is in the range of $10 million to $20 million. This estimate could change, obviously, if when the tariff rates change and is also dependent on confirming indirect tariffs from our domestic suppliers who may import subcomponents on our behalf. In any event, we feel we have a full toolkit to deal with final tariffs, whatever they turn out to be. These include modifying our supply chain, first and foremost, to favor lower tariff countries, which we did plenty of the first time Trump was in office. Secondly, implementing pass-through pricing changes, which we expect will be very achievable in a number of our product lines and the development of other tariff-reducing structures and practices, including duty drawback systems, free trade zones and/or local-for-local manufacturing arrangements in certain situations. We hope and expect the tariff situation will stabilize in the coming months. And as it does, we will implement a set of actions to minimize the effects for our company and for our customers, preserving value for them and margin for us. This will take some time, but we will maintain a disciplined and determined mindset to make sure we get the best answer. We will certainly plan to be talking about this subject regularly on future calls with you all. And that concludes our prepared remarks. So, I think we are ready for questions now.

[Operator Instructions] Our first question today is coming from Jon Tanwanteng from CJS Securities. Your line is now live.

Hi. This is Jeremy on for Jon. And I want to start by saying congrats on a strong start to the year and thank you for taking the time. How much mitigation can you do this year to offset the $10 million to $20 million tariff impact? And are you able to quantify what is direct and indirect?

Sure. Well, first of all, it’s really hard to quantify timing when we don’t yet know exactly what the tariffs are going to be. It’s a little frustrating. You want to have a plan to solve the situation, but we don’t know what the situation is yet. So, it’s a little hard to act. Let me give you a little bit of a flavor. Last time Trump was in office, he implemented some tariffs. We were, at that point, very heavily involved with subcontract manufacturing in China, in particular. And we moved a ton of that out, something like $40 million. We moved it to other countries, which at the time had lower tariff rates. And before you can consider doing something similar now, you kind of have to take a guess as to what those tariffs are going to be in various countries around the world or you have to kind of wait and see. So, we don’t have a timing plan at this point, and we need more surety as to what the tariff structure is going to be before we really pull the trigger on anything significant. But we are considering all kinds of alternatives and playing scenarios back and forth to try to be up to speed and ready to go when the time comes. Your second part of your question about how much was direct and how much was indirect, it’s roughly three quarters direct and one quarter indirect, I would say. I would also add, though, that we are relatively confident on what our direct tariff charges were – are given the current tariff rates. We are still doing quite a bit of digging to confirm what our indirect tariff obligations might be. Nancy, you want to add anything to that?

No, I think you summarized it well. I mean we – our exposure to China is significantly less than it previously was. So, we think we have – there is still obviously a heavy tariff rate. So, that will be impactful depending on where that lands. Yes, I don’t think I have anything else to add.

Understood. Thank you for that. And then you mentioned conducting reviews of each business. So, does that mean more restructuring or is it maybe a product and portfolio management type review or perhaps a prelude to something more strategic?

It could be any of those things. We are not really limiting it, and it’s a little premature to talk about it until we get done with the reviews. But one of the challenges in running a company like ours from my perspective, we take a number of initiatives to develop new products and develop new businesses. Sometimes those are quickly successful. Sometimes they are quickly not successful. And in those cases, you have to ask yourself, is it worth investing in, is it worth maintaining the effort or at some point, do you get impatient with it and try to change. And I have got examples in my head right now where we are probably more patient than we should have been and other examples where our patience has paid off very handsomely. So, it’s not a science, it’s a little bit of an art, and we are kind of going into these reviews in that with that mindset. But these are not big chunks of our business. The test business is the biggest. The others are relatively small at this point in terms of product lines or initiatives. So, should be less consequential. But the test business, in particular, because it is its own segment, it kind of sticks out like a sore thumb. So, it gets a corresponding amount of attention.

Awesome. And then if I could just squeeze one more in here. Can you talk about your 737 expectations today versus last quarter? And if there is any change in how Boeing has communicated its production needs with you, especially given Spirit announcing furloughs and China refusing some deliveries? Thank you.

Yes, we – sure. We have not heard of major changes from Boeing. I would remind listeners that we intend to build at a rate somewhat reduced from what they are building. We are, however, actually if anything pleased at the progress they seem to be making, which is perhaps a little bit more than what industry in general expected in terms of rate progression as we move through 2025. So, we don’t think that the wheels are coming off by any means. I don’t – from what I understand the China situation is not consequential at least for 2025. There are plenty of other people who will take their airplanes if they don’t want them. So, I think if anything, w are encouraged. I mean the sooner they get up to 38 or anything similar to that, the sooner we will get an uptick also as they burn through our inventory.

Awesome. Thank you and congrats again on a great quarter.

Thank you.

Thank you. Next question is coming from Sam Struhsaker from Truist Securities. Your line is now live.

Hi. Good evening guys, on for Mike Ciarmoli, and yes, congrats on a nice quarter here.

Thank you.

Just to start off kind of building on the last question there. Is there any way you guys could provide any more detail kind of on – with the demand within the quarter, how much of that was in aero you were sort of seeing from – for the products that you sell to both? How much of the demand growth was kind of coming from airlines directly versus from the OEMs themselves, any additional color there by chance?

Well, it’s been pretty strong demand from both sides. We typically say that our commercial transport sales are roughly 50% line fit and 50% aftermarket with the caveat that there are some major customers of ours where it’s kind of hard to know actually whether the product is ultimately going to end up line fit or end up aftermarket. But I guess I would tell you that we feel demand has been pretty consistently strong in both sides, and we are pretty comfortable with how it sits. Again, absent tariff wars, we think it’s the table set for a pretty good trend here with Boeing ramping up production and Airbus also. And a reminder, though you didn’t ask this specifically, Airbus is just as important to us in terms of line-fit content as Boeing is. We don’t put quite as much content on a typical Airbus airplane, but they build more of them at this point. So, the two of them together are very important and all the trends are going in the right direction, both for narrow-body and wide-body. And generally, up until the tariff war erupted, demand from the airlines has remained strong also. It hasn’t cut off at this point. Our projects tend to be pretty long-term projects or at least longer term than one month. So, we haven’t seen a significant change there. And I don’t expect we will given all the wheels that are in motion for various modification programs. Obviously, if macroeconomic issues result in a depressed economy here in the North America or around the world, that will change them sooner or later. But we are not seeing evidence of that at this point, we are certainly not modeling it in.

No, that makes great sense. And glad to hear as well. I guess kind of shifting here a little bit over to the Test segment. That $1.9 million charge, do you guys feel like that’s pretty contained at this point or I know you mentioned you are kind of still looking into that. I mean what’s – is there potential incremental risk there or do you feel pretty good about where that is after that?

We would have to say that there is potential risk there, and that’s why we are doing this review. The programs in question have suffered from consistently – consistent misses, I would say, over the 2 years that we have been involved. Actually, it’s longer than that, 3 years or 4 years. So, we have to kind of draw a conclusion to these things sooner than later for the company to get on its right foot. And one of the things we are going to look at is how comfortable are we with those estimates that have come out of that business on those programs.

Got it. Makes sense. And then just maybe one last one for me, if I could, the – it seems like the UK settlement is, for the most part, kind of coming out as a relatively best case scenario for you guys. At this point, are you kind of thinking the worst case risk ceiling would be that $7.2 million and that’s worst case scenario, but that’s probably the worst it could get. And after that, whichever way that settlement goes, that would sort of be the conclusion to that part of the whole case in the UK?

Yes, yes and yes. The $7.2 million, we think is worst case on legal fees. We think it will probably end up or could end up lighter than that and we are not going to know probably until we have another hearing, which is later in the second quarter here. And then that should be it for UK with the big asterisk that there is likely to be an appeal. We don’t know that for sure. We expect that it will be an appeal. We are not really that nervous about an appeal at this point. Our lawyers seem to be pretty comfortable with the judgment that we received. So, hopefully, that’s the end of it. But if there is an appeal, that will likely draw or stretch into the middle of 2026, I would guess, at this point. So, it will be a while before it gets resolved. But to qualify the judgments in the UK to-date, we are thrilled with the damages ruling. That could have been a whole lot worse based on what the plaintiffs were asking for. We are not so pleased with the interest charges, but given the damages ruling, we will live with it. And the legal situation is a little bit frustrating, but that’s how the rules work there. I mean the legal expense situation. It’s not something we are familiar with in the UK or in the U.S., but in the UK legal fees are debatable. So, we will see how that works out. But I think in a worst case, we are going to end up somewhere around that $20 million, $22 million, $23 million total.

Got it. Makes sense. Yes, and as you said, I mean even with those facts then, it’s still definitely better than what the worst case scenario could have been. And then the Germany side of that, I know it was like a way far out, that’s nothing on the horizon, right? Any potential re-appeal over there, you have mentioned that in the past?

Yes, that’s something that is pretty much on hold, waiting to see how the UK situation worked out, we suspect. And now that there is some clarity there, Germany may pick up. But again, we don’t expect that to happen until 2026 either. So, apart from this May hearing on the legal fees, it should be a pretty quiet year for the rest of the year in 2025 on the legal front, we are hoping until 2026 gets here and then we will start to fire it all up again.

Got it. Makes good sense. Thanks again for the time and congrats again on the nice results.

Thank you.

Thank you. We reached the end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments.

No real closing comments. Thanks for your – thank you for your time and attention and keep your fingers crossed for successful tariff clarity for all of us sometime soon. Talk to you next quarter. Bye.

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.