Earnings call transcript: Air Industries Q4 2024 sees revenue growth and improved margins

Air Industries Group reported its financial results for the full year 2024, showing significant improvements in revenue and operating profit. The company, which is heavily involved in military aerospace products, increased its revenue by 7% to $55.1 million compared to 2023. Despite a net loss of $1.366 million, this marks a notable improvement from the previous year’s loss of $2.1 million. According to InvestingPro data, the stock has faced significant headwinds, dropping nearly 47% over the past six months, with its price currently at $3.07, near its 52-week low of $3.00.

Key Takeaways

• Revenue increased by 7% to $55.1 million in 2024.
• Gross profit grew by 20.2%, and operating profit turned positive.
• Adjusted EBITDA rose by 35% to $3.641 million.
• Stock price fell by 5.54%, closing at $3.07.
• Six new long-term agreements worth nearly $60 million were secured.

Company Performance

Air Industries Group demonstrated performance improvements in 2024, driven by revenue growth and operational efficiency. The company capitalized on its focus in the military aerospace sector, securing major contracts and expanding its backlog significantly. InvestingPro analysis shows the company operates with a moderate debt-to-equity ratio of 1.82 and maintains a gross profit margin of 16.21%. The company’s overall financial health score is rated as "weak" by InvestingPro, suggesting room for improvement despite operational progress.

Financial Highlights

• Revenue: $55.1 million, a 7% increase from 2023.
• Gross Profit: Increased by 20.2% to $1.5 million.
• Operating Profit: $459,000, a turnaround from a loss in 2023.
• Net Loss: $1.366 million, an improvement from a $2.1 million loss in 2023.
• Adjusted EBITDA: $3.641 million, up 35%.

Outlook & Guidance

Looking ahead, Air Industries Group anticipates continued improvement in 2025, with projected capital expenditures of around $2 million. While analysts maintain a price target of $7.75, significantly above current levels, the company faces challenges with negative free cash flow of -$3.48 million in the last twelve months. For deeper insights into AIRI’s valuation and growth potential, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports, available for over 1,400 US stocks.

Executive Commentary

CEO Lou Maluza expressed optimism about the company’s trajectory, stating, "2024 was a successful rebuilding year." He emphasized operational improvements, noting, "Our operations are running as smooth as silk." Maluza also reassured investors about the company’s resilience amidst potential military spending cuts, saying, "We do not expect to be materially harmed by reductions in military spending."

Risks and Challenges

• Supply Chain Issues: Potential disruptions could impact production timelines.
• Market Saturation: Increased competition in the aerospace sector may pressure margins.
• Macroeconomic Pressures: Economic downturns could affect defense budgets.
• Tariffs: Changes in trade policies may impact costs and pricing.
• Defense Budget Considerations: Reductions could affect future contract opportunities.

Air Industries Group’s strategic focus on military aerospace and operational improvements positions it well for future growth, despite current challenges reflected in its stock price movement. With a beta of just 0.01, the stock shows minimal correlation with broader market movements. Investors seeking detailed analysis of AIRI’s financial health, valuation metrics, and growth prospects can access comprehensive research and additional ProTips through InvestingPro’s extensive database of company metrics and expert insights.

Full transcript - Air Industries Group (AIRI) Q4 2024:

Rob, Conference Call Moderator, Air Industries Group: Hello, and welcome to the Air Industries Group Year End twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. This call 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 underlying the forward looking statements. In light of these risks and uncertainties, there could 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 solicitation of a proxy, consent, authorization or agent designation with respect to the meaning of the company’s shareholders.

At this time, I’d like to turn the call over to Lou Maluza, President and CEO. Please go ahead.

Lou Maluza, President and CEO, Air Industries Group: Thank you, Rob, and thank you all for joining us today. 2024 was a successful rebuilding year. Our financial results showed significant improvement over 2023. Our dramatic improved bookings of new business have led to a record backlog at a level we have never seen before. For 2024 compared to 2023, revenue, operating profit and net income, adjusted EBITDA all improved.

Revenue was in excess of $55,000,000 improvement of nearly $2,600,000 or 7%. Operating income by more than $750,000 converting a loss in 2023 to operating profit in 2024. We incurred a net loss for the year, but the loss was reduced by $765,000 a reduction of 36%. Adjusted EBITDA, our primary measure of financial performance, improved by nearly $1,000,000 or 35%. As 2024 came to a close, we continued our accelerated business development and sales efforts.

The aerospace industry usually book to bill ratio, the total number the total of new business booked divided by sales billed to customers to measure the health of the business. A ratio of 1.2:one is considered healthy and supportive of a growing business. In January of twenty twenty three, our ratio was a dismal 0.75:one. At December 2024, it had improved to 1.29:one, an improvement of 72%, now higher than the industry standard. Our new business sales efforts accelerated at year end and into the first quarter of twenty twenty five.

Beginning in December and continuing to March eleven of twenty twenty five, we announced six major new contracts for LTA’s long term agreements totaling nearly $60,000,000 of new business, spread over four aircraft platforms and four customers. Bookings meet the backlog. Over the past two years in 2023 and 2024, our full funded backlog and backlog fully supported by firm customers’ purchase orders increased by nearly $32,000,000 or 36.7% and is now at almost $118,000,000 Our total backlog, including unfunded orders, also increased dramatically and now is in excess of $0.02 $5,000,000,000 During 2024, we enjoyed improving financial results. Our business development efforts during that year continued to accelerate. This has laid a strong foundation for the future.

While we do not expect straight line improvement, we do expect improvement to continue in 2025 and beyond. Now let me turn the call over to Scott, who will discuss our results in more detail. And I’ll be back to add closing commentary and a bit more specifics on the outlook for some preliminary thoughts on 2025 before opening it up to questions and answers. So, Scott, let’s go over the

Scott, CFO, Air Industries Group: finances, please. Good morning, everybody, and thank you, Lou. Before I begin, I would also like to comment on the delay in filing our 10 ks. Late last year, our independent audit firm merged. Mergers of accounting firms often result in additional time to complete an audit as new personnel and procedures are involved.

The good news is that it was filed yesterday afternoon within the fifteen day automatic extension period, so we remain compliant. I too share Lou’s enthusiasm about the 2024 results. Let me discuss them in some more detail. Our consolidated net sales for the year were $55,100,000 that was 7% higher than the $51,500,000 we achieved in 2023. The improvement in gross margin and profit is even more significant news.

For the year, gross profit increased by over $1,500,000 or 20.2% compared to that of 2023. Our gross margin for the year was 16.2%, an increase of 1.7 percentage points compared to 2023. Now while the gross margin of 16.2% remains below our historical average, we anticipate continued improvements in the future. Our operating expenses were controlled as well, even though we are in an inflationary environment. For the year, they were $8,500,000 an increase of $750,000 or 9.7% higher than the previous year.

I’d like to point out that included in this increase was an additional $315,000 of stock compensation expense, which is a non cash item. The increase in stock compensation expense accounted for 42% of the total increase. Had it not been for this noncash additional expense, our operating expenses would have only increased by 435,000 or 5.6%. Our operating profit for the year was $459,000 which is a significant improvement from the loss we had in 2023. Finally, on the bottom line, we had a net loss of $1,366,000 or $0.41 a share.

This is a dramatic improvement from 2023, where we had a net loss of $2,100,000 or $0.65 a share. Adjusted EBITDA for the year was $3,641,000 an increase of $944,000 or 35% compared to that of 2023. I’m also very pleased to report that we remain in compliance with our loan with our lender. Now let me quickly highlight a few balance sheet items comparing 2024 to 2023. Our total debt is up by about $3,000,000 which resulted from additional borrowings under our revolving credit facility and additional borrowings due to the completion of our solar power installation in our Connecticut facility.

Our inventory is about $1,000,000 lower than at the end of twenty twenty three, and we continue to monitor our inventory levels very diligently. Accounts receivable are up by about $1,000,000 as are accounts payable and accrued expenses. And with that, I turn the call back to Lou for some other remarks and then to our Q and A. Lou?

Lou Maluza, President and CEO, Air Industries Group: Thanks, Scott. We would be remiss if we did not address the question on everybody’s mind, the impact of potential tariffs and those effects on budget cuts. Nobody knows the final effect on tariffs, what they may be and what expected damages we may incur. Our business is heavily weighed to the military aerospace. And as such, we are required to source most of the raw materials and hardware from our domestic sources.

That said, increased tariffs may restrict imports and restricted imports may reduce supply, perhaps leading to an increase in prices for domestically produced products. We do have one important product in the commercial aviation for which we source material from China. Now thankfully, our contract for this product has a price protection clause, us to pass along any significant cost that is more than 5% lifetime. There’s also a widespread concern about possible reductions in the defense budget. We expect that there will be strategic reductions in the budget, but we believe that the programs we support will not materially be reduced and perhaps may be increased.

The administration has made it clear that it is maintaining or increasing spending to counter tensions in The Pacific. We are well positioned for this. One of our major aircraft programs is the Navy’s E-2D Advanced Hawkeye aircraft. This plane is a flying combat information center, surveilling and controlling the airspace around any aircraft carrier battle group. We were recently awarded a large $33,000,000 contract for the CH-fifty three ks heavy lift helicopter that is now just entering into full rate production.

This helicopter’s function is to transfer U. S. Marines and equipment from ship to land. Aircraft carriers in the new heavy lift helicopters are obviously critical for the military to counter threats in the Pacific. And although the conversations in Washington changes daily, we do not expect to be materially harmed by reductions in military spending.

Thus, we are working tirelessly to continue to take risk out of the business. With that, I would like to turn this over to our questions and answers portion of the call. Rob, can you open up the lines, please?

: Sure.

Rob, Conference Call Moderator, Air Industries Group: Thank you. You. The first question is from the line of Howard Halpern with Tankers Brothers. Please proceed with your questions.

: Congratulations on the

Lou Maluza, President and CEO, Air Industries Group: floor. Morning, Howard.

Scott, CFO, Air Industries Group: Good morning, Howard. Thank you. Good morning.

: Just one more question, I guess, regarding potential supply chain. Mean, I don’t know the answer to this, but do any of the raw materials that are in the supply chain, are there any rare earth elements that come from China in your supply chain?

Lou Maluza, President and CEO, Air Industries Group: Howard, in the products that we make, we’re not aware of any, to be honest with you. On all the military programs, there’s an edict to make sure that the products are sourced out of American soil, American mines. We have one product that is a commercial product that we do piggyback off OEMs contract and the OEMs has chosen China to be the supplier. So, that’s kind of we do. But we have price protection on that one contract to a band of 5%, as I stated earlier.

So, our obligations on that contract is it could only go up another 5%. That would be our incurred cost and everything else would be transferred to the client. Now, that doesn’t mean that, that product can’t be sourced to you in The United States. It used to be prior to, I guess,

Scott, CFO, Air Industries Group: maybe two or three years ago. Two years ago, I mean, we’re

Lou Maluza, President and CEO, Air Industries Group: out here in The United States, and we have started those conversations again in lieu of the, you know, what is happening. They actually started long before. But again, the ultimate decision rests on the OEM because they’re the ones that place the purchase order with these mills. Okay.

: And but the way you’ve constructed now the operations in 2024, you believe that the efficiency and flexibility you have in 2025, I mean, you have the ultimate flexibility going forward in your operations?

Lou Maluza, President and CEO, Air Industries Group: The operations and you’re welcome to visit with us and we’ll schedule and give you a tour. The operations are impeccable at this point. The floors look polished, the machines are clean and new. And we’ve done we’ve solved the problem for that we had in the past with bottlenecks and pinch points. We have duplicate machines across the board.

And quite frankly, the operations are running in New York, are running as smooth as silk. In Connecticut, we’re a little bit behind because we put a lot of money early in my career here to make sure that our flagship operation in Connecticut in New York, I’m sorry, was optimal. But since in the last two years, we put about that was about 4,000,000

Scott, CFO, Air Industries Group: or $5,000,000 About $5,000,000 In the

Lou Maluza, President and CEO, Air Industries Group: next, we have two new large machines being installed in Connecticut right now. One of them just hit the floor about three weeks ago and has been installed and is going through final testing. And a very large other second machine is scheduled to commit mid May and it will probably be operational at some point mid June, maybe the June. So, now, we’ve solar paneled that facility in Connecticut. It’s got a brand new roof.

Now, that facility dates back to 1941. And so we are bringing that up to speed. And it’s making great strides. So yes, the operations are running very efficiently at this point.

: Okay. And talking about CapEx, is that still going to be around property and equipment about $2,000,000 or might that be a little less this year?

Scott, CFO, Air Industries Group: I would expect this year to be a little less. I want to preface that with saying we’ve already committed for these machines that we’re installing and that’s kind of straddling straddled, if you will, 2024 into the beginning of 2025 as far as the timing of the payments and whatnot. However, for the rest of the year, aside from that, those are our largest expenditures that we expect currently for 2025. I’ll also preface that, Howard, with

Lou Maluza, President and CEO, Air Industries Group: if a client walks in tomorrow and has $10,000,000 a year of work to drop off and I need a new piece of equipment, I’m going to buy a new piece of equipment. Absolutely, but 100%. But we’re not we don’t you never know. But right now, we feel that we’ve done a pretty decent job at making the shops efficiently for what we do.

: And I don’t know if you have a precise answer, but do you know how many potential new program starts you might have this year? Or is it going to be just piling into did you have a lot of starts last year and it’s just full bore production?

Lou Maluza, President and CEO, Air Industries Group: Yes. In years past, especially coming out of COVID, which were very lean times for orders to go out, We got flooded with a lot of new starts. You’re absolutely correct, Howard. That’s been minimized. Some of the work is repeat.

We’ve gotten follow on contracts for the E-2D Hawkeye, which we’ve been making for a while. So that’s just going to be a continuation of our existing production. There’s no engineering. There’s always continuous improvement, but there’s no new engineering. We are working with some new clients, and there’s always a new start here and there, but it’s definitely more

: And that will be the one of the drivers for improved gross margins as time goes by?

Lou Maluza, President and CEO, Air Industries Group: Right, right. Once a program becomes mature in the first and the second after the first year, we tend to improve efficiencies dramatically.

: Okay. And one last one, you care to comment on it. Q1 relative to Q4, could you give some just a little bit of color?

Scott, CFO, Air Industries Group: We’re really not going to give that much color on it. Obviously, we just filed the 10 ks yesterday, which was year end, as you all know. So I would say our gross margin dollars are in line with our internal expectations. We’re still going through the closing process, which should be done in the next day or so. And then in a couple of weeks, we will put out results for the first quarter.

: Okay. Okay. Thanks, guys, and keep up the great work in 2025.

Scott, CFO, Air Industries Group: Thanks so much, Howard. Thank you for the call, Howard.

Rob, Conference Call Moderator, Air Industries Group: Thank you. Thank you. At this time, we have no additional questions, and I’ll hand the call over to Luma Lusso for closing remarks.

Lou Maluza, President and CEO, Air Industries Group: Thank you, Rob. Thank you all for taking the time to be on the call today and your interest in Air Industries Group. We look forward to updating you on the progress of our next call. Rob, at this point, you may close the line.

Rob, Conference Call Moderator, Air Industries Group: Thank you, Mr. Meluso. This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.

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