Astronics Corporation Reports 2018 Fourth Quarter and Full Year Financial Results

• Fourth quarter sales up 18.4% to $203 million; full year sales up
  28.6% to $803 million
• Achieved record Aerospace segment sales in fourth quarter and full
  year 2018
• Record Aerospace backlog of $326 million at year-end
• Earnings per diluted share for 2018 of $1.41 compared with $0.58 in
  the prior year
• Strong cash flow from operations of $39.5 million for the quarter
  and $54.9 million in 2018

EAST AURORA, N.Y.–(BUSINESS WIRE)–Astronics Corporation (NASDAQ: ATRO), a leading supplier of advanced
technologies and products to the global aerospace and defense
industries, today reported financial results for the three and twelve
months ended December 31, 2018. Results include the results of Telefonix
PDT, which was acquired on December 1, 2017 and Customer Control
Concepts (“CCC”), which was acquired on April 3, 2017 (collectively, the
“Acquired Businesses”). Earnings per share for all periods were adjusted
for the 3 for 20 (15%) distribution of Class B Stock for shareholders of
record on October 12, 2018.

Peter J. Gundermann, President and Chief Executive Officer, commented,
“We had a strong finish to 2018. Consolidated sales in the fourth
quarter were up 18.4%, leading to 2018 full year sales of

$803 million, a 28.6% increase over 2017. The increased volume helped to
strengthen margins and deliver net income of $46.8 million in 2018, up
from $19.7 million in 2017. We continue to make solid progress improving
margins, especially in our Aerospace business.”

He continued, “We also had strong demand through the year, with solid
fourth quarter bookings of

$220 million, exceeding sales by 9%. Total bookings for the year were
$837 million, beating sales by 4%. We entered 2019 with a record backlog
of $403 million, excluding the semiconductor backlog that was sold in
2019, which sets us up well for another solid year.”

Consolidated Review

Fourth Quarter Results

Consolidated sales were up 18.4%, or $31.6 million, from the prior-year
period. Aerospace segment sales of $175.2 million were up $35.7 million
including $12.0 million of acquired sales from Telefonix PDT. Test
Systems segment sales of $27.7 million were down $4.1 million.

Consolidated gross margin improved 470 basis points from the benefit of
higher organic sales and Telefonix PDT’s contribution to gross profit
and strong margin profile.

Selling, general and administrative (“SG&A”) expenses were up
$5.9 million primarily due to the acquisition of Telefonix PDT, which
had thirteen weeks of operations in the quarter compared with four weeks
in the prior year. Included in SG&A was intangible asset amortization
expense of $1.6 million related to the Telefonix PDT acquisition.

Operating income in the fourth quarter was $18.6 million compared with a
$7.3 million operating loss in the same period of the prior year. The
fourth quarter of 2017 was negatively impacted by an approximate $16.2
million impairment charge associated with its Armstrong Aerospace
reporting unit.

The effective tax rate for the quarter was 19.9%, compared with 41.8% in
the fourth quarter of 2017. The 2018 fourth quarter tax rate had a net
benefit from the U.S. Tax Cuts and Jobs Act (the “Act”). The 2017 fourth
quarter tax rate was unfavorably impacted by the $1.3 million estimated
transition tax on the deemed repatriation of foreign earnings resulting
from the Act, enacted in December 2017.

Bookings in the quarter were $220.4 million, which exceeded sales by 9%,
resulting in a record backlog at year-end of $403.3 million, excluding
$12.2 million of semiconductor backlog which was sold with the business
in 2019.

Full Year Results

Consolidated sales were $803.3 million, up 28.6%, or $178.8 million,
from the same period last year. Organic sales increased $94.0 million,
or 15.0%. Acquired sales for 2018 was $84.8 million and all related to
the Aerospace segment. Aerospace segment sales of $675.6 million were up
26.4%, or

$141.0 million, and Test Systems segment sales were up 42.0% to $127.6
million.

Consolidated gross profit benefited from higher organic sales and the
gross profit contribution of Telefonix PDT. This was partially offset by
CCC’s lower margin profile due to low volume and the $7.5 million
year-to-date loss associated with an acquired development contract.

The $28.3 million increase in SG&A was due primarily to the incremental
SG&A costs of the Acquired Businesses, which added $20.9 million. This
included $7.4 million of incremental intangible asset amortization
expense in 2018. Corporate overhead expenses increased $2.6 million due
primarily to increased staffing and infrastructure development.

The effective tax rate for 2018 was 10.5%, compared with 21.3% in 2017.
The decrease was due primarily to the decrease in the federal rate as a
result of the Act and a net tax benefit of $4.0 million related to a
revised state tax filing position. The effective tax rate for 2017 was
unfavorably impacted by the $1.3 million estimated transition tax on the
deemed repatriation of foreign earnings resulting from the Act.

Bookings for the year, led particularly by the Aerospace segment,
totaled $837.3 million, exceeding sales by 4%.

Aerospace Segment Review (refer to sales by market and segment
data in accompanying tables)

Aerospace Fourth Quarter Results

Aerospace segment sales increased by $35.7 million, or 25.6%, to $175.2
million, when compared with the prior year’s fourth quarter, driven by
strong growth in organic sales of $23.7 million, or 17.0%. Telefonix PDT
contributed $12.0 million in acquired sales in the period.

Electrical Power & Motion sales increased $19.0 million, or 29.1%, due
to higher sales of in-seat power and seat motion products. Avionics
sales were up $9.0 million as a result of the addition of Telefonix PDT
which contributed an incremental $11.0 million to sales in this product
line, more than offsetting declines in other avionics products. Lighting
& Safety sales increased by $8.8 million due to a general increase in
volume. Sales of Other products increased $2.5 million, due primarily to
the Telefonix PDT acquisition and increased volume. Systems
Certification sales decreased by $3.0 million on lower project activity.

Aerospace segment operating profit for the fourth quarter of 2018 was
$22.2 million, or 12.7% of sales, compared with an operating loss of
$7.9 million in the same period of 2017. Aerospace operating profit
benefited from the contribution margin on higher organic sales, the
addition of Telefonix PDT, and operating improvements at CCC, AeroSat
and Armstrong. These business units improved by a combined $4.6 million
to a loss of $6.4 million, exclusive of the $16.2 million impairment
charge related to Armstrong in the 2017 fourth quarter. These
improvements were partially offset by the impact of tariffs enacted
during the latter half of 2018.

Aerospace bookings in the fourth quarter of 2018 were $175.6 million,
for a book-to-bill ratio of 1.00:1 for the quarter. Backlog was a record
$326.0 million at the end of the fourth quarter of 2018.

Aerospace Full Year Results

Aerospace segment sales increased by $141.0 million, or 26.4%, to $675.6
million, when compared with the prior-year period. Organic sales
increased $56.2 million, or 10.5%, compared with the prior year.

Avionics sales increased by $77.9 million, driven primarily by the
acquisitions, which contributed incremental sales of $72.5 million to
Avionics sales. Electrical Power & Motion sales increased

$38.9 million, or 14.7%, and Lighting & Safety sales increased $15.7
million, both for similar reasons as in the quarter. Sales of Other
products were up $10.6 million, due to the Telefonix PDT business. The
increases were slightly offset by a decrease in Structures sales of $1.7
million.

Aerospace operating profit for 2018 was $69.8 million, or 10.3% of
sales, compared with $38.9 million, or 7.3% of sales, in the same period
of 2017. Aerospace operating profit benefited from higher organic sales
and profits of Telefonix PDT, offset partially by increased operating
losses of CCC, AeroSat and Armstrong which improved by $3.8 million to
$34.7 million compared with the prior year, excluding Armstrong’s 2017
goodwill impairment charge. For the year, intangible asset amortization
expense was $9.2 million related to the Acquired Businesses. Operating
profit in the prior year was negatively impacted by the $16.2 million
impairment at Armstrong.

Aerospace bookings for 2018 came to $712.0 million, up 5% over sales.
The Aerospace segment had record backlog of $326.0 million at year-end.

Mr. Gundermann commented, “Our Aerospace business continues to perform
very well. In the fourth quarter, we set our fourth quarterly sales
record in a row, and the year was up 23% over our previous high. Demand
was strong throughout the year, such that our Aerospace bookings of $712
million exceeded sales by 5%. We entered 2019 with a record backlog of
$326 million, which supports our expectations that 2019 will be another
very strong year.”

He added, “We continue to make progress with respect to margins in our
Aerospace business. Our fourth quarter Aerospace operating margin of
12.7% was the strongest we have achieved in nearly two years. A big part
of this improvement came from the three troubled business we have
discussed in the past. The operating loss from these three summed to
$6.4 million in the fourth quarter, compared with $28.3 million during
the first three quarters of 2018, showing good progress. We expect the
first quarter of 2019 will be at the same level as the fourth quarter,
but we also expect to make steady progress thereafter as volume in these
businesses picks up.”

Test Systems Segment Review (refer to sales by market and
segment data in accompanying tables)

Test Systems Fourth Quarter Results

Sales in the fourth quarter of 2018 decreased approximately $4.1 million
to $27.7 million compared with $31.8 million in the prior-year period.
Test sales to the Aerospace & Defense market and the Semiconductor
market decreased by $2.6 million and $1.5 million, respectively.

Operating profit declined to $0.6 million, or 2.0% of sales, from $4.5
million, or 14.2% of sales, in the fourth quarter of 2017 on lower sales
and mix change.

Bookings for the Test Systems segment in the quarter were $44.8 million,
for a book-to-bill ratio of 1.62:1 for the quarter. Excluding the
divested semiconductor business, bookings were $43.3 million in the
fourth quarter. Backlog was $89.5 million at the end of 2018, of which
$12.2 million was related to the since-divested semiconductor business.

Test Systems Full Year Results

Sales in 2018 increased 42.0% to $127.6 million compared with sales of
$89.9 million for 2017. The growth was driven by a $52.3 million
increase in sales to the Semiconductor market, offset by a decrease in
Aerospace & Defense sales of $14.5 million.

Operating profit was $10.7 million, or 8.4% of sales, compared with $7.4
million, or 8.2% of sales, in 2017. This was primarily due to increased
sales volume partially offset by approximately $2.0 million in increased
engineering costs and elevated initial costs associated with new
products.

Mr. Gundermann commented, “Our Test business had a very strong 2018,
with sales up 42% over 2017, although it ended on a weaker note in the
fourth quarter as we anticipated. The Test business contributed strongly
to our profits for the year, with operating income of $10.7 million in
2018, up from $7.4 million in 2017.”

Outlook

Consolidated sales in 2019 are expected to be in the range of $760
million to $805 million. Excluding sales of the disposed semiconductor
business from 2018 sales, the mid-point of the range represents
consolidated organic growth of 8%. Approximately $710 million to $745
million is expected from the Aerospace segment, an increase at the
mid-point of about 8% over 2018. Test Systems segment sales for 2019 are
expected to be in the range of $50 million to $60 million, the mid-point
representing an increase of 14% over Test Systems sales in 2018 after
backing out the disposed semiconductor business.

On February 13, 2019, Astronics completed the sale of its semiconductor
test business. The Company expects to record a pre-tax gain on the sale
of approximately $80 million in the first quarter of 2019. The income
tax expense relating to the gain is estimated to be $22 million.

Consolidated backlog at December 31, 2018 was $415.5 million. Excluding
$12.2 million of backlog that was disposed of in the 2019 sale of the
semiconductor business, backlog was $403.3 million, of which
approximately $352.4 million is expected to ship in 2019.

The effective tax rate for 2019, excluding the impact of the gain on the
sale of the semiconductor business, is expected to be approximately 18%
to 22%.

Capital equipment spending in 2019 is expected to be in the range of
$22.0 million to $28.0 million.

Mr. Gundermann commented, “We will be without our semiconductor test
business in 2019, which we sold to Advantest on February 13, 2019. We
have enjoyed our participation in the semi-test industry, but came to
the conclusion that it would be difficult for us to expand its customer
base meaningfully without extraordinary levels of investment. We feel
the business is better off with Advantest, and we are pleased with the
return we earned. We originally acquired the semiconductor business as
part of a 2014 acquisition for $69 million. That acquisition paid back
its purchase price in under two years, so we feel the return we have
recognized is very good.

We believe we can deliver a very solid 2019. Our Test segment, without
the semi-test business, is set up for a solid year of growth with its
remaining A&D products, helped in part by our recently announced award
on the New York City subway program. At the same time, we will need to
adjust to the lower overall volume of our Test segment, so margins are
expected to be modest to breakeven. Our Aerospace business, on the other
hand, anticipates another year of solid sales growth and strengthening
margins. As Aerospace will represent 90% of our volume, these results
will largely determine our year.”

Fourth Quarter 2018 Webcast and Conference Call

The Company will host a teleconference today at 11:00 a.m. ET. During
the teleconference, management will review the financial and operating
results for the period and discuss Astronics’ corporate strategy and
outlook. A question-and-answer session will follow.

The Astronics conference call can be accessed by calling (201) 493-6784.
The listen-only audio webcast can be monitored at www.astronics.com. To
listen to the archived call, dial (412) 317-6671 and enter replay pin
number 13687409. The telephonic replay will be available approximately
two hours following the call through Thursday, February 28, 2019. A
transcript will also be posted to the Company’s website once available.

About Astronics Corporation

Astronics Corporation (NASDAQ: ATRO) serves the world’s aerospace and
defense industries with proven, innovative technology solutions.
Astronics works side-by-side with customers, integrating its array of
power, connectivity, lighting, structures, interiors, and test
technologies to solve complex challenges. For 50 years, Astronics has
delivered creative, customer-focused solutions with exceptional
responsiveness. Today, global airframe manufacturers, airlines, armed
services, completion centers and Fortune 500 manufacturing organizations
rely on the collaborative spirit and innovation of Astronics.

For more information on Astronics and its solutions, visit Astronics.com.

Safe Harbor Statement

This news release contains forward-looking statements as defined by the
Securities Exchange Act of 1934. One can identify these forward-looking
statements by the use of the words “expect,” “anticipate,” “plan,”
“may,” “will,” “estimate” or other similar expressions. Because such
statements apply to future events, they are subject to risks and
uncertainties that could cause actual results to differ materially from
those contemplated by the statements. Important factors that could cause
actual results to differ materially from what may be stated here include
the progress being made with the three operations having losses, the
continuation of the trend in growth with passenger power and
connectivity on airplanes, the ability of the company to advance its
Test business, the ability to achieve at or near breakeven performance
in the Test business, the Company’s ability to deliver a solid 2019, the
ability to win new projects in the Test business and margins to expand
with growth, the success of the Company achieving its sales
expectations, the state of the aerospace, defense, and consumer
electronics industries, the market acceptance of newly developed
products, internal production capabilities, the timing of orders
received, the status of customer certification processes and delivery
schedules, the demand for and market acceptance of new or existing
aircraft which contain the Company’s products, the need for new and
advanced test and simulation equipment, customer preferences and other
factors which are described in filings by Astronics with the Securities
and Exchange Commission. The Company assumes no obligation to update
forward-looking information in this news release whether to reflect
changed assumptions, the occurrence of unanticipated events or changes
in future operating results, financial conditions or prospects, or
otherwise.

FINANCIAL TABLES FOLLOW

*All share quantities and per-share data have been restated to reflect
the impact of the fifteen percent Class B stock distribution to
shareholders of record on October 12, 2018.

Contacts

Company:
David C. Burney, Chief Financial Officer
Phone:
(716) 805-1599, ext. 159
Email: [email protected]

Investor Relations:
Deborah K. Pawlowski, Kei Advisors LLC
Phone:
(716) 843-3908
Email: [email protected]

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