Earnings call: Air Industries Group highlights profitable Q2, eyes growth

Air Industries Group (NYSE: AIRI), a manufacturer in the aerospace and defense sector, has reported a return to profitability in the second quarter of 2024, highlighting an encouraging performance with significant improvements in gross profit and a strong order backlog. The company’s CEO, Lou Melluzzo, expressed confidence in the fiscal year’s outlook, anticipating continued growth and the potential for a robust fiscal 2025.

Key Takeaways

• Air Industries Group achieved profitability in Q2 of 2024, with gross profit up nearly 22% from the same quarter last year.
• Revenue increased modestly by 2.8% compared to Q2 of 2023.
• Bookings for Q2 were strong at $16.5 million, a 27% increase from Q1.
• The company’s total funded backlog exceeded $100 million, a significant milestone.
• Net sales for fiscal 2024 are projected to be at least $50 million.
• Adjusted EBITDA for 2024 is expected to be significantly better than in 2023.
• Management expects Q3 to show some softness, followed by a stronger Q4.

Company Outlook

• Air Industries Group reaffirms its 2024 net sales target of at least $50 million.
• Adjusted EBITDA in 2024 is projected to be significantly better than the previous year.
• The company is working on large booking opportunities that could enhance growth in 2024 and 2025.

Bearish Highlights

• Q3 is expected to reflect some softness compared to earlier quarters.
• The company is facing challenges with the timing of orders, raw material flows, and delivery times for finished products.

Bullish Highlights

• The company’s Connecticut operations benefited from a Rotorcraft product ramp-up.
• Profit enhancement initiatives led to increased gross margins and controlled expenses.
• Strong order flow and an improved backlog set a positive tone for the remainder of the year.

Misses

• Q2 revenue was down by $489,000 compared to the first quarter of 2024.

Q&A Highlights

• Q4 is expected to be stronger than Q3 in terms of revenue and potentially margin.
• There are no significant new capital projects planned, with the focus on paying down debt.
• The company is exploring both military and commercial opportunities, with commercial work being a relatively new area for the New York operations.

In conclusion, Air Industries Group’s second-quarter performance signals a positive trajectory for the company, with a focus on maintaining profitability, controlling expenses, and capitalizing on new opportunities in both military and commercial sectors. The management remains optimistic about the company’s growth prospects despite some anticipated softness in the third quarter.

InvestingPro Insights

Air Industries Group (NYSE: AIRI) has shown a return to profitability in Q2 2024, but a deeper dive into the numbers with InvestingPro real-time data reveals a nuanced picture. The company’s gross profit for the last twelve months as of Q2 2024 stands at $7.93 million, translating to a gross profit margin of 14.85%. While this margin reflects the improvements mentioned in the article, it’s important to note that it is considered weak relative to industry standards, which is also highlighted by an InvestingPro Tip that AIRI suffers from weak gross profit margins.

The revenue growth year-over-year is modest at 0.89%, with a quarterly increase of 2.78%. This aligns with the article’s note of a slight increase in revenue, reinforcing the narrative of gradual growth. However, the company’s price performance tells a different story, with a significant 31.9% drop over the last three months. This is a critical metric for investors and is flagged as an InvestingPro Tip, indicating that the price has performed poorly over the last decade and has fallen significantly recently.

Furthermore, Air Industries Group has not been profitable over the last twelve months, as per another InvestingPro Tip, and does not pay a dividend to shareholders. This could be a concern for investors looking for income or signs of financial stability through profitability.

For those interested in a comprehensive analysis, there are additional InvestingPro Tips available on the platform. These tips provide deeper insights into AIRI’s financial health and market performance, and can be found at With these metrics and expert tips in mind, investors can better gauge Air Industries Group’s future in the aerospace and defense sector.

Full transcript – Air Industries Group (AIRI) Q2 2024:

Operator: Hello, and welcome to the Air Industries Group Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. This call and the accompanying webcast may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, including statements regarding, among other things, the company’s business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company’s expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth in, contemplated by, or underline the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization, or agent designation with respect to a meeting of the company’s shareholders. At this time, I would now like to turn the call over to Lou Melluzzo, President and CEO. Please go ahead.

Lou Melluzzo: Thank you, Joe. And thank you all for joining us today. The results for the second quarter of 2024 are extremely encouraging, we are profitable for the quarter which was an improvement over a loss in Q1. While we had a modest 2.8% increase in revenue for the quarter compared to last year, we achieved a significant increase in gross profit. For the quarter, gross profit increased by 474,000 or nearly 22% compared to Q2 of 2023. Just to get some perspective on our Q2 results, while revenue was down by $489,000, gross profit was $738,000 or nearly 39% higher than in the first quarter. Our gross margin on sales increased from 13.6% to 19.5%. It is important to understand that profitability is highly dependent on several factors such as product mix, timing, and a steady flow of raw material. Our Connecticut operations benefited from the ramp-up of a Rotorcraft product, and the fruition of several company-wide profit enhancement initiatives that we have been working on over the last several months. This increased gross margins together with closely controlled expenses resulted in our return to profitability. In addition, I want to mention that we expect Q3 to reflect some softness as compared to our earlier quarters, followed by a stronger Q4. Now let me turn to bookings. Our order flow continues to be strong. Bookings in Q2 were $16.5 million, growing $3.5 million, or 27%, from the level we achieved in Q1. We achieved a book-to-bill ratio of 1.20 to 1.00. Given our strong bookings, our total funded backlog at the end of Q2 was slightly over $100 million, which is a significant milestone. Our goal is to grow the backlog from here. Before turning the call over to Scott, I want to provide a brief summary of our recent visit to the Farnborough International Show. The show is a trade exhibit for the aerospace and defense industry and is attended by key primes in manufacturing. From our perspective, it was a great show. Our schedule was booked full. We met and solidified relationships with both old and new customers and believe we have set the stage for great things to come. Now let me turn the call over to Scott, who will discuss our Q2 results in more detail. I’ll be back to add some closing commentary and a bit more specifics on our 2024 outlook before opening the call up to questions and answers. Scott, you may proceed.

Scott Glassman: Thanks, Lou. I share Lou’s enthusiasm about the Q2 results. Let me discuss them in more detail. Consolidated net sales for the second quarter ends June 30, 2024 for $13.6 million. This represents a 2.8% increase as compared to the $13.2 million we achieved in Q2 of 2023. The improvement in our operating results is directly due to increased gross margins, which is approximately $474,000, or 22% higher than Q2 of 2023, and $738,000, or 39% higher than the first quarter. During our last call, we expressed confidence that margins would improve and they have. Although, quarterly fluctuations may still occur, we believe that gross margins on a year-over-year basis will continue to show improvement. We continue to focus on keeping operating expenses controlled. For the second quarter, they were $1.9 million, which was $206,000 or 9.8% lower than the prior year second quarter, and $273,000 or 12.6% less than Q1 of 2024. As a result of increased profitability and controlled expenses, be it operating income exceeding $0.75 million compared to a modest operating income of just $72,000 in Q2 of 2023, and an operating loss of close to $260,000 in Q1 of 2024. Finally, on the bottom line, the net income of $298,000 or $0.09 per share compared to a loss of $395,000 or negative $0.12 a share in 2023, and a loss of $706,000 or a loss of $0.21 a share in Q1 of ‘24. From the first quarter to the second quarter, our net income has increased by over a $1 million. For the six months ended June 30, 2024, our adjusted EBITDA was $1,775,000, an improvement of nearly $236,000 or 15% from the prior year. The detailed reconciliation of EBITDA to GAAP was included in our press release that was issued last evening. As filed on Form 8-K earlier this year, we amended our credit facility and negotiated more favorable covenants. In this regard, I am pleased to report that we are in compliance with these covenants and expect to remain in compliance. Now let me quickly highlight a few items on the balance sheet. Compared to December 31, 2023, our total debt is up by $1.6 million to $24,939,000, a 7% increase. This was due to the completion of the installation of solar panels at our Connecticut manufacturing facility, an increase in our equipment term loan that was made with our recent amendment to our banking agreement. Inventory is slightly lower, which reflects timing and carefully monitoring inventory levels with a goal to improve our working capital requirements. Accounts receivable is essentially unchanged, but other working capital accounts, such as accounts payable and accrued expenses, are down by about $0.5 million. And with that, I will turn the poll back to Lou for some closing remarks and an update on our 2024 business outlook. Lou?

Lou Melluzzo: Thank you, Scott. First half of fiscal 2024, reflecting strength, strong order flow, and an improvement from last year. I feel confident about our second half. With two quarters under our belt, fiscal 2024 is on track to be a year of significant growth. Although, it remains difficult to predict the timing of orders, raw materials, and delivery times for finished products, the company reaffirms our target of net sales for fiscal 2024 to be at least $50 million, with adjusted IBITDA in 2024 being significantly better than in 2023. Additionally, we are working on a number of large booking opportunities that we expect to finalize soon. If we are successful in closing these opportunities before the end of our fiscal 2024, not only will we achieve growth in 2024, but 2025 will be even better. With that, Joe, I would like to open the call to our questions and answer portion.

Operator: [Operator Instructions] And our first question comes from the line of Howard Halpern with Taglich Brothers.

Howard Halper: Congratulations, guys, fantastic quarter. You did mention briefly that Q4 will be stronger than Q3. Is that in terms of revenue and margin or just in terms of revenue for Q3? And are there new programs starting, I guess, in Q3 that might hamper those margin a little bit?

Scott Glassman: Hi, Howard. So Q3 is going to be a combination of lower sales and which will obviously give you lower margin dollars, probably slightly lower margin percentage as well, which, as we said, will turn around in the fourth quarter. It has to do with some customer pushouts and things of that nature, but we are confident that the year will be as we have laid out.

Lou Melluzzo: Howard, it’s timing of orders in material flow. The pipeline is full. It’s a very positive thing for the balance of the year.

Howard Halper: Okay. Are there any additional projects that you are doing in-house to create efficiencies, or is that type of capital spending coming to an end where you’ll start paying down some debt?

Lou Melluzzo: We came out, well, we’ve been very frugal this year with capital spending. We retrofitted it. We haven’t. We purchased one new coordinate measuring machines early this year, I think to the tune of about $300,000. But other than that, we had three machines in the shop that have been there for a while. It’s old iron and it has great capability to be spending machines. It’s what you need in this business. And we spent roughly $300,000 per machine to bring it up to the 21st century. So basically new controls and new brand to this things and we will reap the benefit. We’re looking, our pipeline of potential orders is immense. I mean, immense. So we don’t want to get caught short. We wanted to make sure that we had machines to be able to produce this work if we’re fortunate enough to win some of these projects coming up. Because in this industry, you’re a year out and getting things repaired and equipment in. So we went ahead and spent the money to prepare for potential flood gate of new opportunities coming down the pike.

Howard Halper: Okay. And in terms of those opportunities and maybe in conjunction with the air show too, those opportunities, are they, as you said, new, old and potentially new customers, but are the programs brand new or will they be similar to some of the other programs that you have that are ongoing?

Lou Melluzzo: It’s all aerospace programs, predominantly air industries group is a roughly 85% military programs. But in light of what’s happened to the commercial aviation and Boeing (NYSE:), there’s been a lot more opportunities on the other side of the fence, on the commercial side, which we have one product here in our Bay Shore facility in New York that’s commercial, everything else, and that’s our thrust strut. So, we’re pursuing both military and commercial work. Commercial would be a relatively new frontier for us here in New York. We do a lot more commercial in our Connecticut operations, but it’s the same equipment. It’s the same materials. It’s the same way to approach the work, so it’s nothing new to us. It’s just commercial in the past hasn’t been as lucrative as military work. We all know that. That’s no secret, but Boeing with the 767 and the 787 and all these other new programs. And despite the issues that they’ve had with it, a lot of people during COVID that were commercially based went out of business. So we’re finding that the market is looking for companies such as ours for commercial applications, and we plan on taking advantage of it.

Howard Halper: Okay. Well, I look forward to those announcements yet to come. Keep up the great work, guys.

Lou Melluzzo: Thank you, Howard.

Scott Glassman: Thanks, Howard.

Operator: Thank you. There are no further questions at this time. Now I’ll turn the call back to Lou Melluzzo for closing remarks.

Lou Melluzzo: Thank you, Joe. Thank you all for taking the time to be on this call today and for your interest in Air Industries Group. We look forward to updating you on our progress on the next call. Thank you again. Joe, with that, if there’s no further questions or anything, you may terminate the call or end the call.

Operator: Thank you. This concludes today’s conference. You may now disconnect your lines at this time. Enjoy the rest of your day.

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