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AC

ASTRONICS CORP (ATRO)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $204.7M, up 3.3% YoY but down slightly sequentially; GAAP EPS was $0.04 and adjusted EPS was $0.38, with adjusted EBITDA at 12.4% of sales driven by record Aerospace sales, while Test Systems was weighed by an EAC adjustment and restructuring costs .
  • Versus S&P Global consensus, revenue modestly missed ($204.7M vs $208.3M) while EPS matched ($0.38 adjusted), and EBITDA (GAAP) came in below consensus ($13.6M vs $30.8M); thin coverage (two estimates) suggests limited sell-side participation and potential estimate recalibration in H2 2025* (Values retrieved from S&P Global).
  • Management raised the lower end of FY 2025 revenue guidance to $840M–$860M (midpoint +$10M), citing Aerospace tailwinds (Boeing/Airbus production rates, aftermarket retrofits, pricing) and expectation of second-half strength, even as the Army radio test program may slide into 2026 .
  • Strategic actions: exited non-core product lines (satellite antennas; contract engineering/manufacturing), incurring $6.2M charges, and acquired Envoy Aerospace (FAA ODA) to fortify certification capabilities for connectivity and cabin modifications .
  • Key catalyst path: sustained Aerospace margin expansion (~16% adjusted operating margin) supported by pricing and volume leverage; watch tariff mitigation progress (annualized $15–$20M materials cost headwind) and Test Systems inflection as restructuring benefits become visible in H2 2025 .

What Went Well and What Went Wrong

What Went Well

  • Record Aerospace sales of $193.6M (+9.4% YoY), with Commercial Transport +13.4% and Military +10.7%; adjusted Aerospace operating margin rose 300 bps YoY to 16.3% .
  • Adjusted EBITDA improved to $25.4M (12.4% margin), with book-to-bill positive on a TTM basis (1.02x) and backlog at $645.4M; management emphasized strong industry tailwinds (traffic, utilization, build rates, adoption of IFEC) .
  • Strategic portfolio focus and pricing: stepped away from low-margin lines and noted pricing increases embedded in contracts aiding margin trajectory; “we have been successful… inflation has changed people’s cost structures” .

What Went Wrong

  • Test Systems underperformed: sales fell to $11.1M and reported a $6.7M operating loss; EAC changes reduced revenue by $6.4M and detracted $6.9M from operating income, masking ~$5M annualized cost savings starting to flow through .
  • Legal costs: UK patent dispute led to $3.5M legal fee reimbursement order and $21.6M cash payments (damages, interest, fees) impacting cash flow; tariff changes add $15–$20M annualized materials cost before mitigation .
  • Sequential margin compression: GAAP gross margin declined to 25.8% (from 29.5% in Q1) and GAAP operating margin fell to 2.3% (from 6.4%), reflecting Test EAC and Aerospace simplification charges and warranty reserve .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$198.1 $208.5 $205.9 $204.7
Revenue Consensus Mean ($USD Millions)———$208.3*
GAAP Diluted EPS ($)$0.04 $(0.08) $0.26 $0.04
Primary EPS Consensus Mean ($)———$0.38*
Adjusted Diluted EPS ($)$0.20 $0.48 $0.44 $0.38
Gross Margin (%)28.0% 24.0% 29.5% 25.8%
Operating Margin (%)3.8% 4.3% 6.4% 2.3%
Adjusted Operating Margin (%)6.4% 11.4% 11.0% 8.9%
Adjusted EBITDA ($USD Millions)$20.2 $31.5 $30.7 $25.4
Adjusted EBITDA Margin (%)10.2% 15.1% 14.9% 12.4%
EBITDA Consensus Mean ($USD Millions)———$30.8*
  • Estimates marked with * are Values retrieved from S&P Global.

Segment performance:

Segment MetricQ2 2024Q1 2025Q2 2025
Aerospace Sales ($M)$176.9 $191.4 $193.6
Aerospace Operating Profit ($M)$19.3 $22.3 $18.0
Aerospace Adjusted Operating Profit ($M)$23.5 $31.0 $31.5
Aerospace Adjusted Margin (%)13.3% 16.2% 16.3%
Test Systems Sales ($M)$21.2 $14.6 $11.1
Test Systems Operating Profit (Loss) ($M)$(5.3) $(2.2) $(6.7)
Test Systems Adjusted Operating Profit (Loss) ($M)$(4.5) $(1.5) $(6.6)

KPIs:

KPIQ2 2024Q1 2025Q2 2025
Bookings ($M)$218.9 $279.7 $177.0
Backlog ($M)$626.4 $673.0 $645.4
Book-to-Bill (Quarter)1.10x 1.36x 0.86x
TTM Book-to-Bill1.08x 1.08x 1.02x
Cash from Operations ($M)—$20.6 $(7.6)
Cash & Equivalents ($M)—$25.9 $13.5
Liquidity ($M)—~$194.0 ~$191.3
CapEx ($M, quarter)—$2.1 $4.6–$4.7
Interest Expense ($M, quarter)$5.9 $3.15 $3.10

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$820M–$860M $840M–$860M Raised lower end
CapExFY 2025$35M–$50M $40M–$50M Raised lower end
Quarterly cadenceH2 2025—Q3 “up marginally” vs H1; Q4 “up more substantially” Qualitative cadence
Tariff impact (materials)Annualized$10M–$20M (pre-mitigation) $15M–$20M (pre-mitigation) Higher range
Radio Test Program (US Army)Start timingQ4 2025 expected “May slide into early 2026” Pushed out risk

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
Aerospace volume & pricingBoeing/Airbus rates, pricing adjustments, strong aftermarket; adjusted Aerospace margin 16% in Q4’24 and 16.2% in Q1’25 Confident sustaining ~16% adjusted margins; pricing increases flowing through; specific 737 shipset ramp path described Improving margins on higher volume/pricing
Test Systems programs & EACQ1 EAC charge ($1.9M); expected Q4 start for Army radio test program Larger EAC/EAC-related revenue reduction ($6.4M) and $6.9M OI impact; production start could slip into 2026, but H2 improvement still expected Near-term headwinds; H2 stabilization; timeline risk
Tariffs/macroAnticipated $10–$20M materials impact; mitigation toolkit outlined Updated impact $15–$20M; management exploring mitigation, resourcing, pass-through pricing; uncertainty remains Elevated headwind with mitigation
Legal/regulatory (UK patent)Damage award ~$12.4M and $5.7M interest; potential $7.2M legal fee reimbursement; payments expected Q2 $21.6M in UK-related payments (damages, interest, fees); $3.5M fee reimbursement ordered; appeals likely into 2026 Cash flow drag largely behind; residual appeals
Portfolio actions & strategyReviews to optimize focus areas; restructuring in Test Exiting satellite antennas and contract engineering/manufacturing; $6.2M charges; eight facilities closed in recent years Simplification, margin focus
Certification capability—Acquired Envoy Aerospace (FAA ODA) to accelerate STCs/PMAs for retrofit/IFEC upgrades Strategic capability add

Management Commentary

  • “Given all this, we are increasing our 2025 revenue guide to $840,000,000 to $860,000,000… The midpoint $850,000,000 would represent an increase of 6.9%” .
  • On margins: “Our adjusted operating margin excluding those two portfolio shaping actions… were up around 16%” and “pricing increases… are also helping us quite a bit” .
  • On Test timing: “The… 4549T program… may push us from starting a production phase out of the fourth quarter into the first quarter [2026]” .
  • On tariffs: “Almost half… comes from… Malaysia… another quarter… from China… there are pricing opportunities and passing it on to customers” .
  • On strategy: “We… step away from a couple of… product lines… satellite antennas and contract engineering/manufacturing… low growth and low margin” .
  • On LEO vs GEO: “We decided that the investment in developing new antennas… would be too risky… [but] IFEC capabilities are… relevant to LEO” .

Q&A Highlights

  • Margin sustainability: Management comfortable sustaining ~16% adjusted Aerospace margins supported by volume and pricing; tariff impact an unknown but mitigation underway .
  • Tariffs scope: Annualized $15–$20M cost impact; Malaysia exposure more resourcable, China harder; expect to use pass-through pricing and supply-chain moves .
  • Test Systems path: Despite EAC reset, H2 revenue improvement expected; Army radio test production could slip into 2026; breakeven to low-single-digit adjusted EBITDA targeted for Test in H2 .
  • Strategic alternatives for Test: No active divestiture; focus on operational improvements; revisit strategic options post-2025 budgeting .
  • Production rates: Boeing 737 shipsets stepping from low-20s to low-30s, with potential to high-30s/low-40s pending approvals; Airbus A220 program cited as future driver .

Estimates Context

  • Q2 2025 actuals vs S&P Global consensus: Revenue $204.7M vs $208.3M (slight miss); adjusted EPS $0.38 matched; EBITDA (GAAP) $13.6M vs $30.8M (miss), with only two estimates contributing* (Values retrieved from S&P Global).
  • Context: Company emphasizes adjusted EBITDA ($25.4M, 12.4% margin) and adjusted operating margin (8.9%); EAC and simplification/warranty charges weighed GAAP profitability this quarter .
  • Implications: Raised FY revenue guide and stronger H2 Aerospace trajectory may prompt upward revenue revisions; Test timeline and tariff mitigation uncertainty likely temper EBITDA estimate trajectories until visibility improves .

Key Takeaways for Investors

  • Aerospace execution remains the core earnings engine; sustaining ~16% adjusted operating margins with pricing leverage and production rate tailwinds positions H2 for margin expansion .
  • Test Systems headwinds from EAC and mix should abate as restructuring savings flow and program timing clarifies; watch for H2 order flow and visibility into 4549T ramp now likely 2026 .
  • Tariff mitigation is the swing factor for 2H margins; management’s toolkit (resourcing, pass-through pricing, duty drawback, FTZs) suggests partial offset—monitor concrete actions and customer price acceptance .
  • Balance sheet/liquidity improved post-refinancing; Q2 cash flow was depressed by UK payments and taxes, but management guides to positive operating cash flow for H2 2025 .
  • Portfolio simplification should lift structural margins; exiting low-margin product lines and adding ODA capability (Envoy) sharpen competitive differentiation in retrofit/IFEC .
  • Near-term trading lens: revenue guide raise and H2 cadence are positives; headline GAAP EBITDA miss vs consensus and tariff/legal noise could cap near-term multiple expansion until mitigation evidence surfaces .
  • Medium-term thesis: operating leverage in Aerospace, pricing actions, and certification capabilities support margin compounding into 2026; Test recovery is a call option contingent on program timing .
Estimates marked with * are Values retrieved from S&P Global.