Air Industries Group
Q4 2019 Earnings Call Transcript

Published:

  • Operator:
    Good day, and welcome to the Air Industries Conference Call. Today’s conference is being recorded. Air Industries Group’s Safe Harbor statement. Except for the historical information contained herein, the matters discussed in this presentation contain forward-looking statements. The accuracy of these statements is subject to significant risks and uncertainties. Actual results could differ materially from those contained in the forward-looking statements. See the company’s SEC filings on Forms 10-K and 10-Q for important information about the company and related risks.EBITDA is used as a supplemental liquidity measure, because management finds it useful to understand and evaluate results, excluding the impact of non-cash depreciation and amortization charges, stock-based compensation expenses, and non-recurring expenses and outlays prior to consideration of the impact of other potential sources and uses of cash, such as working capital items. This calculation may differ in method of calculation from similarly titled measures used by other companies.At this time, I would like to turn the conference over to CEO, Lou Melluzzo. Please go ahead.
  • Luciano Melluzzo:
    Thank you, Anita. Good morning, and thank you for joining us as we summarize Air Industries’ results for 2019. Our results for the year are much improved over 2018. Sales are up, gross profit is up, and expenses remain well controlled. Air Industries has reported an operating profit for the first time in several years.A few high points for 2019 compared to 2018 are
  • Michael Recca:
    Thank you. Good morning, everyone. A couple of topics I want to discuss
  • Luciano Melluzzo:
    Thank you, Mike. Let me close with a few thoughts on the remainder of the year. Our results for 2019 confirm that we have increased sales and margins. We have achieved both operating profitability and greatly reduced our loss compared to 2018. We are dedicated to continuing these trends.During 2019, we issued guidance that revenue would be $50 million to $55 million, with EBITDA in the $5 million to $5.5 million. We have achieved both goals. While we expect 2020 to exceed 2019 due to the uncertainty in the world today, we are not issuing guidance at this time. We will do so as soon as things stabilize.With that, this concludes our formal remarks this morning. And I would like to open the call – I would like to open the line up for questions from participants. Anita, can you take the call, please?
  • Operator:
    Thank you. Yes, sir. Thank you. [Operator Instructions] We have a question. Caller, your line is open. Please go ahead.
  • John Nobile:
    Hi, good morning. This is John Nobile from Taglich Brothers. Thanks for the call and thanks for taking my questions. I just have a few here. My first one, I was hoping that you could actually break out your sales from defense-related sales versus commercial sales in 2019. If you have a rough estimate of that, that would be great?
  • Luciano Melluzzo:
    First, good morning, John. How are you?
  • John Nobile:
    Good. How are you?
  • Luciano Melluzzo:
    John, we’re about 80%, 85% military and 15% to 20% basically. You’d call it 80-20, something in that neighborhood of military versus commercial. So we are not predominantly heavily on the military side.
  • John Nobile:
    Okay. I just wanted to make sure. So about 80% military, 20% commercial. Now, I expect – expected defense sales to grow in 2020. I believe commercial sales, given the current situation will probably be under pressure, at least, in the short-term. But is there anything encouraging that you’re able to say about the long-term commercial sales from what you see at this point?
  • Luciano Melluzzo:
    So our involvement in the commercial side is really – was a couple of platforms. I mean, we are heavily into the geared turbofan. That’s the contract that we published, I believe, back at the beginning of the year for $60 million by five-year LPA going forward. We don’t expect that – at least from where we’re sitting right now, we don’t expect that to slowdown dramatically. I think the need for that engine will be hot, heavy in the future.So that’s a pretty stable platform to be on. We have a very little content on the A380 now. We know that the A380 is coming to an end at some point, and we’re going to be ramping that up. Actually, we’ve ramped up our first contract, but we just got an extension for another year, year-and-a-half at much favorable pricing that we’ve been doing this program, and I don’t see that being sidelined.So that that’s not going to affect us that much. We have absolutely zero content on the 737. So that has had no impact on Air Industries or Sterling Engineering operations in any way, shape or form. So our content on the commercial side is – we’re not in a great exposure is what we’re saying.
  • John Nobile:
    Okay. Well, that’s great to hear. I just wanted to make sure I get some clarification on that end. But obviously, being more heavily into defense, like there’s a little defensive, if I could say it that way. And what is the current backlog? I know it’s been floating around $100 million. What is the current backlog? And how much of that is actually defense-related?
  • Luciano Melluzzo:
    Our current backlog, 18-month funded backlog resides at $114.7 million, just under $115 million. And of that…
  • Michael Recca:
    [indiscernible] we could put pie for the defense more like 90%...
  • Luciano Melluzzo:
    Yes.
  • Michael Recca:
    …for lead time items.
  • Luciano Melluzzo:
    It’s….
  • John Nobile:
    Oh, okay, great.
  • Luciano Melluzzo:
    [Multiple Speakers] on the defense side.
  • John Nobile:
    Okay. And one thing, being that you have – do have that much of a defense backlog. On the last call, you mentioned that you purchased four horizontal lathes, and that was in an effort to remove some of the bottlenecks in shipping product. Could you comment on the status of those lathes? And any further progress that might have been made in alleviating the bottleneck?
  • Luciano Melluzzo:
    So we purchased two horizontal lathes. We purchased…
  • John Nobile:
    Two, okay, I’m sorry, I thought that was four.
  • Luciano Melluzzo:
    Yes, [Multiple Speakers] horizontals and 4,500s, and those machines are both fully operational, fully staffed and they’re running two shifts and they work wonders with eliminating the bottlenecks to that area. And last year’s CapEx also included a large boring mill in Karaki, [ph] also included a large boring mill in Karaki, horizontal boring mill, which we’ve just retrofitted and that is also running a commercial product on it right now, a community product that’s kind of what we bought this thing for. All three pieces of the equation are 100% operational and staffed.
  • John Nobile:
    Okay. So with these here, alleviating the bottleneck, one can at least anticipate, especially with the heavy defense spending that there should be a ramp-up – a sequential ramp-up in sales from – at least in the fourth quarter?
  • Luciano Melluzzo:
    We are forecasting a ramp-up this year. Obviously, there’s a hiccup right now in the system with this virus. And we don’t know it’s going to affect the supply base, how it’s going to affect the OEMs. I mean, as of right now, there’s – Boeing has shutdown a factory on the West Coast, doesn’t have really that much effect. We’re seeing Airbus, I think, has closed in France for four or five days for deep cleaning. MTU is working some limited hours came over in Sweden and Norway are also working on a limited schedule. We don’t know.I mean, the only difference here is that, this thing blows over in a couple of weeks, which I don’t know if that’s the case or not. And obviously, our government can’t give us more information. But I can’t see this thing being around for six months or I pray to God, it’s not around six months.
  • John Nobile:
    No, I have fully understand.
  • Luciano Melluzzo:
    We have hired some personnel in Q1. We’ve added four people to the day shift. We’ve added four to the night shift since December. So we are planning on a ramp-up.
  • Michael Recca:
    [Multiple Speaker] keep in mind. Remember, we’re different than a retail store or in a restaurant. The demand – even if we have a delay in shipments, because a lot of our customer is close, when they reopen, we can make up that difference. So…
  • John Nobile:
    Okay. So…
  • Luciano Melluzzo:
    We are considered in essential business, John. So which means, we’re going to open from – open through this. And it would be our intent to keep the machining operations going…
  • John Nobile:
    Okay.
  • Luciano Melluzzo:
    …pretty much at all costs. And like Mike has just been saying, it’s an opportunity to get ahead. Even though, you might not be able to ship the parts this week or next week, we’ll have those parts go in time.
  • John Nobile:
    No, that’s great to hear. And that was my next question I wanted to find out if you were considered an essential business, where you still are operational. So that, that was good to hear that. If I could switch gears here to interest rates here, the interest costs, let’s see, in 2019, it was about $3.6 million and that was at an average rate of about 9.5%. Now in light of the current rate being around or less than 4%, Mike, if I could ask you, what do you believe the interest expense will be in 2020 from what you see right now?
  • Michael Recca:
    It’ll be down by about $1,100,000. Again…
  • John Nobile:
    $1 million. Okay. So we were $3.6 million. But you’re looking roughly, as you see now, maybe about $2.5 million in that line?
  • Michael Recca:
    That’s correct.
  • John Nobile:
    Okay. And just one final question. If there’s anybody else, I’ll leave it open for them. The ROTH agreement to date, how much was raised from that agreement?
  • Michael Recca:
    Oh, John, I’m glad, you asked. That – the ROTH agreement opened up, we sold our shares for four days. We raised about a $1 million. We literally sold 419,577 shares. So that was it.
  • John Nobile:
    Okay. Those 419,000 shares…
  • Michael Recca:
    That is – that’s correct.
  • John Nobile:
    Is that correct? No. And that was approximately $1 million raised. All right, great. Well, it’s good to hear some words of encouragement these days here from what’s happening in your business. That’s all I have. Thanks for taking my call. I’ll leave it open to others. Thank you.
  • Michael Recca:
    Always a pleasure, John. Thank you for calling.
  • Operator:
    Thank you. We have no further questions at this time. [Operator Instructions] It appears we have no further questions at this time, sir.
  • Luciano Melluzzo:
    Okay. So with that, once again, thank you, everyone, for taking the time to be on this call today and for your attentions and questions. The management and employees of Air Industries look forward to continued growth in 2020. Anita, please close.
  • Operator:
    Thank you, sir. This concludes today’s call. Thank you for your participation. You may now disconnect.
  • Luciano Melluzzo:
    Thank you.

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