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AC

ASTRONICS CORP (ATRO)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue was $211.4M (+3.8% y/y) with Aerospace strength offsetting Test Systems softness; adjusted diluted EPS was $0.49 while GAAP EPS was $(0.31) given a $32.6M non‑cash loss on debt settlement .
  • Versus S&P Global consensus, ATRO delivered a clean EPS beat ($0.49 vs $0.42*) and was essentially in line on revenue ($211.4M vs $212.1M*); adjusted EBITDA efficiency improved to 15.5% of sales .
  • Management guided Q4 revenue to $225–$235M and raised/trimmed FY25 guidance to $847–$857M (midpoint +$5M vs prior), pointing to a step‑up exit rate and an “early look” for low double‑digit growth in 2026 .
  • Strategic refinancing reduced dilution risk (repurchased 80% of 2030 converts; added 0% converts and a $300M cash‑flow revolver), a potential catalyst alongside segment margin expansion and imminent Test Systems program ramp in 4Q/early 1Q .

What Went Well and What Went Wrong

  • What Went Well

    • Aerospace operating margin expanded to 16.2% (adjusted 16.7%) on volume, pricing, and productivity; CEO: “well surpassing our near‑term margin target” .
    • Adjusted EBITDA margin rose to 15.5% (highest since 2020), with adjusted operating margin up to 12.3% and bookings of $210.4M keeping book‑to‑bill at 1.0x .
    • Balance sheet actions reduced future dilution risk by ~5.8M shares and lowered cost of debt; CFO: “less dilution, lower cost of conversion, lower cost of debt and greater financial flexibility” .

  • What Went Wrong

    • GAAP net loss $(11.1)M (−$0.31/sh) driven by $32.6M loss on settlement of debt tied to convertible repurchase .
    • Test Systems remained at breakeven on low sales ($18.7M) with under‑absorption still a headwind; ramp depends on U.S. Army radio test program timing .
    • Tariffs were a ~$4M Q3 headwind; management estimates $15–$20M annualized exposure before mitigation, implying ongoing gross margin pressure until offsets fully materialize .

Financial Results

Headline P&L and Margins (chronological)

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($M)$203.7 $205.9 $204.7 $211.4
GAAP Diluted EPS$(0.34) $0.26 $0.04 $(0.31)
Adjusted Diluted EPS$0.34 $0.44 $0.38 $0.49
Gross Margin %27.1% 29.5% 25.8% 30.5%
Operating Margin %4.1% 6.4% 2.3% 10.9%
Adjusted EBITDA ($M)$27.1 $30.7 $25.4 $32.7
Adjusted EBITDA Margin %13.3% 14.9% 12.4% 15.5%

Segment Breakdown

MetricQ3 2024Q2 2025Q3 2025
Aerospace Sales ($M)$177.6 $193.6 $192.7
Aerospace Operating Margin %8.0% 9.3% 16.2%
Test Systems Sales ($M)$26.1 $11.1 $18.7
Test Systems Operating Margin %(0.0)% (60.7)% (0.1)%

KPIs and Cash

KPIQ1 2025Q2 2025Q3 2025
Bookings ($M)$279.7 $177.0 $210.4
Book‑to‑Bill (x)1.36 0.86 1.00
Backlog ($M)$673.0 $645.4 $646.7
Cash from Ops ($M)$20.6 $(7.6) $34.2
Capital Expenditures ($M)$2.1 $4.6 $13.2

Q3 2025 vs Consensus (S&P Global)

MetricActualConsensus*Surprise
Revenue ($M)$211.4 $212.1*$(0.6)M / (0.3)%
Adjusted Diluted EPS$0.49 $0.42*+$0.07 / +17.6%

Values marked with * are from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2025—$225–$235M Introduced
RevenueFY 2025$840–$860M (raised lower end in Q2) $847–$857M Narrowed; midpoint +$5M
Capital ExpendituresFY 2025$40–$50M $40–$50M Maintained

Management also reiterated an ambition to drive adjusted EBITDA margins toward high‑teens to ~20%+ over time (not formal guidance) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Supply chain & productivityImproving efficiencies; record bookings/backlog in Q1 ; Q2 progress masked by test cost revisions Continued productivity gains; revenue stabilizing >$200M/quarter Improving operational execution
Tariffs/macroPotential $10–$20M annual impact; mitigation planned (Q1) Range refined to $15–$20M; ~$4M Q3 expense; mitigation actions outlined (pricing, FTZ, restructuring) Headwind persists; mitigation underway
Test Systems U.S. Army radio testExpected 4Q start in Q1 ; 6–8 week delay in Q2 Production turn‑on expected late 4Q or early 1Q; $215M IDIQ over 4–5 years Imminent ramp
FLRAA (V‑280/MV‑75)$57M booking in Q1; program progressing ~2025 revenue $28M; 2026 ~$38–$40M; margin “catch‑up” as dev concludes Building into 2026
M&A/Capabilities—Envoy Aerospace (ODA) in Q3; acquired Bühler Motor Aviation (seat actuation), <$1x sales, $20–$25M 2026 revenue Expanding portfolio
Financing/liquidityLower interest post‑Dec 2024 refinancing (Q1/Q2) Issued $225M 0% converts; repurchased 80% of 2030 converts; new $300M revolver; eliminated ~5.8M potential shares More flexibility, less dilution

Management Commentary

  • CEO (press release): “Strong sales supported operating margin expansion… Recent refinancing actions provide us with enhanced financial flexibility… set us up for a strong finish to 2025 and an exciting 2026.”
  • CEO (Aerospace): “Our Aerospace business had a strong third quarter achieving a 16.2% operating margin, well surpassing our near‑term margin target…”
  • CFO (refinancing): “…repurchase 80% of the 5.5% Notes… end result is less dilution, lower cost of conversion, lower cost of debt and greater financial flexibility.”
  • CEO (growth outlook): “We anticipate that market conditions will stay strong… our early look suggests we should see low double‑digit growth for next year.”

Q&A Highlights

  • Q4 bridge: Test Systems expected at ~$20–$21M (vs $18.7M in Q3), implying a larger step‑up in Aerospace; Q4 range widened by program timing risks .
  • 2026 outlook: Management’s “low double‑digit” growth expectation includes a meaningful contribution from the Army radio test program; shutdown risk seen as largely timing related .
  • FLRAA trajectory: 2025 revenue ~ $28M; 2026 $38–$40M; as development pricing resolves, margin catch‑up expected to make it a “significant contributor” in 2026 .
  • BMA accretion: Expected $20–$25M 2026 revenue; margins consistent with corporate average; synergies via coordination with PGA seat actuation .
  • Interest/CapEx/D&A: Interest lower due to 0% converts but revolver usage and $33M legacy converts remain; heavy Q4 CapEx ($20–$30M) tied to Seattle/Redmond facility build‑out; slight D&A uptick on acquisitions .

Estimates Context

  • Q3 2025 vs consensus (S&P Global): EPS beat ($0.49 vs $0.42*), revenue ~in line ($211.4M vs $212.1M*). Management’s Q4 guidance ($225–$235M) brackets revenue consensus of ~$228.3M*, with the midpoint implying in‑line top‑line and operating leverage on volume .
  • FY25 guidance midpoint ($852M) sits modestly above prior midpoint ($850M), suggesting slight upward bias to consensus if Q4 executes to plan .
    Values marked with * are from S&P Global.

Key Takeaways for Investors

  • Aerospace operating leverage is showing through: 16.2% segment OM and 30.5% consolidated GM indicate pricing/productivity actions are sticking; watch for sustainability into the seasonally strong Q4 .
  • The capital structure reset is a tangible positive: dilution risk substantially reduced, interest burden lowered, and revolver capacity expanded, improving equity case quality .
  • Q4 step‑up is a near‑term catalyst: If the $225–$235M revenue guide is met, the exit run‑rate supports the 2026 low double‑digit growth narrative, especially with Test Systems ramp .
  • Tariffs remain a monitored headwind (~$4M in Q3; $15–$20M annual exposure pre‑mitigation), but pass‑through pricing and supply chain actions could further protect margins .
  • Program milestones matter: Watch timing on U.S. Army radio test production start and FLRAA development transition; slippage would affect mix and margins near‑term .
  • M&A enhances capabilities: Envoy (ODA) strengthens certification and schedule control in retrofits; BMA augments seat actuation scale and portfolio .
  • Trading set‑up: EPS beat and cleaner balance sheet are supportive; execution on Q4 guide and visibility into 2026 growth/margins are likely to drive the next leg.

Appendix: Additional Operational Details

  • Q3 Aerospace sales mix: Commercial Transport +11.5% y/y; Military +27.1%; General Aviation −23.0% (VVIP timing); Aerospace gross margin 31.4% .
  • Test Systems: Book‑to‑bill ~1.0x; backlog $74.3M; profitability expected post Army radio test production start .
  • Cash/Liquidity: Q3 operating cash flow $34.2M; liquidity $111.9M at quarter end; planned FY25 CapEx $40–$50M (facility consolidation/build‑out) .