Greetings and welcome to the Astronics Corporation third quarter fiscal year 2026 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Deborah Pawlowski, investor relations for Astronics. Please go ahead.

Thank you and good afternoon, everyone. We appreciate your time today and your interest in Astronix. Joining me on the call are Peter Gundermann, our Chairman, President, CEO, and Nancy Hedges, our Chief Financial Officer. You should have a copy of our third quarter 2026 financial results, which crossed the wires after the market closed today. If you do not have the release, you can find it on our website at Astronix.com. As you are likely aware, we may make some forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with Securities and Exchange Commission. You can find those documents on our website as well or at FEC.gov. During today's call, we will have some non-GAAP measures that we will discuss. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for GAAP results. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release. With that, I will turn it over to Pete to begin.

Pete? Hello, everybody, and welcome to the call. We're here to talk about our third quarter results and our outlook for the remainder of the year. We'll also take an early peek at 2027. Nancy and I will do our usual back and forth and then open up the lines for questions. In summary, the third quarter was very strong for Astronics. We set another record for quarterly sales driven by the record bookings and backlog we achieved in the previous quarter. The strong top line played well on the bottom line. Adjusted operating income was 18.8% of sales and adjusted EBITDA was 21.8% of sales. Both of these measures have improved significantly over the course of the year. Both of our segments contributed to the results. Our aerospace business had record sales of 245 million, continuing the positive trend it has maintained since the depths of COVID. In addition to record sales, our aerospace segment ended the quarter with record backlog, so the indications are that the growth trend should continue. Our test segment also had a very positive quarter. Sales of 26 million were the highest since 2019, and positive operating income of 14.7% shows the benefit of the cost cutting we have accomplished in that business over the last year. Our test business also benefited from 5.3 million of sales related to the U.S. Army radio test program known as 4549T, which is ramping and will approximately double that quarterly rate by the time we reach full rate production in early 2027. So we expect the improvement to continue in our test business as we go forward. Looking briefly at year-to-date results, the first three quarters of 2026 were very strong, showing high market demand for our products and services. The strong demand drove record backlogs and is now driving strong financial bottom line results. Year-to-date sales of $762 million are up 22% over the previous year. Year-to-date operating income is 16% through three quarters compared to 6.6% last year. And adjusted EBITDA is $149 million. or 19.5% of sales compared to 14.3% of sales last year. In recent calls, I have spent time describing the sources of demand that are driving our business and can report today that they remain in force. Briefly, these demand drivers include, first, increasing aircraft build rates, second, Increasing adoption of high-level in-flight entertainment and connectivity systems driven by strong passenger demand. Increased penetration of advanced flight-critical electrical power systems that we provide for small and medium-sized aircraft. The trend towards premium aircraft seating that uses our seat motion systems. and five, the ramp that is currently underway in our test business that I just mentioned related to our US Army radio test program 4549T. These growth drivers cover our business comprehensively and remain very much enforced. They have driven us to 22% growth so far in 2026 and an average of 18% annual growth since 2022. In our last call, we also talked about certain levers that we are using to improve our margin profile. Again, I'm not going to review them in detail, but briefly, they were number one, the increased leverage that comes with higher sales volume to repricing of long term contracts that come due to cover the inflation that we have seen in recent years. Three, improve productivity and efficiency as our workforce stabilizes from the disruption associated with the pandemic. And four, certain simplification or portfolio shaping initiatives we have undertaken to sharpen the focus of our business and lower the cost of running it. All of these margin levers have been valuable and we continue to work all of them. and the good news is that we feel each of them has room to run. I don't have any significant new announcements regarding them to make today, but know that under the surface, we continue to work these profitability levels and there is more to be gained. The cumulative effect of these margin levers on our financial performance has been dramatic. As I mentioned moments ago, Our operating margin year to date has climbed from 6.6% last year to 16% so far this year and our adjusted EBIT margin has risen from 14.3% last year to 19.5% this year. And in the third quarter, our adjusted EBIT was just shy of 22%, our highest level in many years.

So we feel we're in a good place.

Demand for our products is strong. and we've demonstrated the ability to convert that demand into an improved bottom line. We feel like we are in a good spot. With that being said, I'll turn it over to Nancy to review the Q3 accounting details. Nancy?

Thanks, Pete, and good afternoon, everyone. I'll walk through our third quarter results in more detail, provide color on our product lines and our segments, and review cash flow in the balance sheet. As Pete noted, we delivered another strong quarter with record sales and operating income and further improvement in profitability across both segments. Sales reached $271.7 million, up 28.5% from the prior year period. Higher volume and improved productivity continued to drive margin expansion, while test systems made meaningful progress as production on the Army radio test program advanced. Gross profit increased 46% to $94 million or 34.6% of sales. In addition to the impact of volume and better productivity, the 410 basis point expansion benefited from $1.9 million in tariff refunds recognized during the quarter, which contributed 70 basis points. R&D expense decreased $900,000 due to the timing of projects. We expect R&D to normalize in the near future in a range of 4% to 5% of sales. SG&A expense was $30.7 million, down approximately half a million dollars year over year, and declined to 11.3% of sales from 14.8%. while SG&A expense benefited from approximately 4.4 million in recoveries related to the favorable outcome of our UK patent infringement appeal and a separate favorable settlement of approximately a million dollars. Those benefits were largely offset by higher wages and benefits, higher incentive compensation associated with our improved profitability, and incremental expenses related to BMA, the German seat motion company that we acquired in October of last year. Operating income doubled year over year to a record $54 million or 19.9% of sales. While the legal recoveries and settlements contributed to reported results, we also delivered substantial improvement on an adjusted basis with those benefits excluded. Adjusted operating income was $51 million, also nearly double the prior year level. Adjusted operating margin expanded 650 basis points to 18.8%. and reached our stated high-teens operating margin target. Interest expense declined approximately $1.1 million or 37.1% to $1.8 million reflecting lower debt balances and the reduction in interest rates following our September 2025 refinancing activities. We recorded a tax benefit of approximately $200,000 in the quarter, which included a partial valuation allowance reversal and research and development credits. In the fourth quarter, we will evaluate whether objectively verifiable evidence of sufficient future taxable income supports an additional release of our deferred tax asset valuation allowance. Depending on that assessment, we could recognize an additional release of approximately $35 to $40 million. Net income was $52.2 million, or $1.08 per diluted share, compared with a net loss of $11.1 million, or $0.26 per diluted share last year. For context, the prior year quarter did include a $32.6 million loss on settlement of debt associated with the partial repurchase of our 2030 convertible notes. Adjusted net income, which excludes the benefit of the legal settlements I mentioned earlier, was $38.9 million compared with $19.4 million in the prior year period. On a per share basis, adjusted net income nearly doubled to 81 cents per diluted share from 41 cents per diluted share last year. Adjusted EBITDA increased over 81% to $59.3 million. Adjusted EBITDA margin expanded to a near high 21.8% compared with 15.5% last year and 19.8% in the trailing second quarter. This level of performance reflects strong operating leverage in aerospace and the measurable improvement from test systems. Consolidated bookings were $271.1 million for a book-to-bill ratio of 1 to 1. Backlog ended the quarter at $780 million, roughly even with our record second quarter. Turning to aerospace, segment sales were a record $245.5 million, a 27.4% increase over the prior year period. We had growth across each of our major markets, led by commercial transport, where sales increased 29%. General aviation sales increased 52%, while military aircraft sales were up 5%. We had double digit growth in each of our major product lines. Our largest product group, in-flight entertainment and connectivity, grew 24%, or $25.2 million, to $131 million. reflecting the strong demand in both commercial transport and general aviation for our connectivity and passenger power products. While currently less than 10% of aerospace sales, seat motion had the highest rate of growth, more than doubling by 13.2 million to 24.9 million. The year-over-year comparison includes a $6.4 million contribution from BMA, indicating strong organic growth for this product category, supported by airlines' continued investment in premium seating. Lighting and safety sales increased 17% to $61.6 million, driven primarily by improved build rates. And flight-critical electrical power sales increased 25% to $20.9 million from higher demand for airframe power products, do in part to the MB75 FLARA program. Aerospace segment operating profit was $57.6 million or 23.4% of sales compared with $31.2 million or 16.2% of sales in the prior year quarter. The improvement reflects leverage on higher volume, improved production efficiencies, and the $1.9 million in tariff refunds, and approximately $4.4 million benefit associated with the favorable UK patent appeal outcome. On an adjusted basis, aerospace operating profit increased 71.5% to a record $55.1 million. Adjusted aerospace operating margin reached 22.5%, an increase of 580 basis points from the prior year period and up from 21.4% in the second quarter. Aerospace bookings were $258.3 million for a book-to-bill ratio of 1.05. Backlog ended the quarter at a record $670 million, up from $657 million at the end of the second quarter. Turning to test systems, sales were $26.2 million, up $7.5 million, or 40% from the prior year period. Growth was driven by early levels of production on the U.S. Army 4549T radio test program, which contributed $5.3 million in the quarter. That was partially offset by a $2.2 million revision to estimated cost to complete certain long-term mass transit contracts, which reduced revenue recognized in the quarter. Test systems operating profit was $3.9 million, or 14.7% of sales. This compared with approximately break even in the prior year quarter and approximately $600,000 in the second quarter. We achieved this improvement while the Army radio test program was still in the early stages of production. We expect similar program revenue in the fourth quarter subject to suppliers keeping up. We continue to expect to generate about $9 to $10 million per quarter for this program. Test systems bookings, which will be lumpy because of the purchasing pattern for defense contracts, were $12.8 million in the quarter for a book-to-bill ratio of 0.49. The sequential comparison follows the second quarter's $44.7 million Army Production Award. Given the timing of defense contract awards, we believe that trailing 12-month bookings provide a more meaningful view of demand. And on that basis, test systems bookings totaled $121.8 million, representing a book-to-bill ratio of 1.41. Backlog ended the quarter at $109.9 million. Now turning to cash flow on the balance sheet, we generated $25.8 million in cash from operations during the third quarter. Higher cash earnings were partially offset by increased working capital requirements, including higher receivables generated from the quarter's record sales and the growth in inventory to support anticipated demand in 2027. Capital expenditures were $4.2 million in the quarter and $21.1 million year-to-date. We now expect full-year CapEx to be in the range of $25 to $30 million compared with our previous expectation of $40 to $45 million. The reduction reflects the timing of planned projects rather than a change in investments to support our growth. Long-term debt decreased $25.5 million from the end of the second quarter to $284.8 million. Since year-end, our long-term debt has declined $49.7 million. And available liquidity at quarter-end was $278 million. Pete will share with you our revenue outlook for the future. On margins, as should be expected, in addition to the impact of volume changes, fourth quarter gross margin will also depend on sales mix. We also expect R&D to step up in the fourth quarter based on project timing. Through the first nine months, we have increased profitability, generated cash, and reduced debt. Our priorities remain executing on our growth opportunities, simplifying the business, and maintaining the operating discipline needed to sustain strong profitability and cash generation. And with that, I'll turn it back to Pete for final comments before we open the line for questions. Pete?

Thank you, Nancy. Turning to our expectations for the future, we are maintaining our 2026 revenue guide of $1.02 billion to $1.04 billion. At the midpoint, this implies growth of 19.5% over 2025. It also implies fourth quarter revenue of $255 to $275 million, which at the midpoint would be a small step back from a record third quarter. I believe that this is the result of customer scheduling and is not at all indicative of any major change in our business. More important perhaps are our expectations for 2027, which is right around the corner. We are nearing completion of our planning process and are paying close attention to market developments, macroeconomic trends, and supply chain status, among other inputs to our planning process. Indications are that it will be another very strong year for Astronics. We do not have official guidance ready for today, but we believe we are zeroing in on another year of strong double-digit growth, which we expect to also drive continued strength in our bottom line. We expect we will have our revenue guide ready to go closer to year-end, and we look forward to sharing that news at the right time. I think that ends our prepared remarks, so we can open up the line for questions now.

We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Greg Palm with Craig Hallam Capital Group.

Yes, thanks for taking the questions. Starting with the Q4 guide, so a little bit wider range here than normal, so just curious to get your thoughts, and then as we think about sort of high-end versus low-end, what are some of the assumptions baked in?

Yeah, it's a... It is a wider range than we would like to go out with at this point, but I think it is a fair thing to do given what we're seeing in the market. The midpoint would suggest a small decline, but we've been at or above kind of the high end of the range for most quarters. So I wouldn't be at all surprised if we were closer to the high end. On the other hand, if things slide out unexpectedly at the end of the year, there's always that potential also. It's kind of a unique year end. A lot of things happening in the market, but in general, with a backlog and all the feedback that we're getting from customers, we expect that strong market conditions will prevail.

Can you just give us some sense on, from a timing standpoint, what have you seen new in the last few months in terms of scheduling or delays, whatever you want to call them, that is maybe causing this visibility to maybe lessen a little bit relative to what we've been seeing earlier in the year?

Yeah, I'd say a couple things that we're paying attention to. One is the change in direction, maybe, or the re-planning for the MV75 program, which was on an accelerate, accelerate, accelerate basis and now is being rescheduled, replanned. We're waiting to see what that's all about. I would also tell you that in the last, say, three months especially, it seems like there is maybe a little bit more concern on our troops about the supply chain capability globally having to do in particular with commodities that are also used heavily in data centers, frankly. I mean, memory and a lot of the memory modules that we build into some of our components are definitely, we're seeing lead time stretch out, we're seeing some price escalation. So far, we're working with our customers and we're finding mutually acceptable ways to move forward and not have that affect us much. But it is a little bit of a different environment, bringing back some feelings of what the supply chain was like a few years ago when electronics were in short supply kind of across the board. It's more limited now. It's more narrow. But it is something that we're watching pretty carefully.

Yep. Okay. Lastly, just a clarification. I appreciate maybe the early thoughts on 2027, but you used the word strong double-digit and not just double-digit growth. I just want to ask if we should interpret that as being something well north of just 10%, which would be just more of a double-digit expectation.

Yeah, that's what we implied. That's what we meant.

Yeah, okay.

Something well north of 10%, exactly.

Yep, understood. Okay, appreciate the thoughts. Thanks.

All right, thank you.

Our next question is from John Tanwintang with CJS Securities.

Hey, good afternoon. Thank you for taking my questions, and congrats on a really nice quarter there. Pete, I was wondering if you could expand just a little bit on that last point. How do you get to strong double digits next year, if you could break that down? I know that, you know, build rates are probably still going up even with supply chain headwinds. Where are you seeing the rest, you know, especially with maybe some uncertainty in FLARA, some uncertainty with airline profitability? Looking forward to just help us understand just the broad brackets.

Yeah, it's really kind of wrapped up in those five drivers that I kind of described briefly. Increasing build rates is certainly part of it. We see that being an important part, even with the slightly reduced ramps that have been announced recently. We think there continues to be very strong demand for high-end in-flight entertainment and connectivity, and we've got a very strong position in that market. what drives a lot of our backlog, so that's the best way to see that kind of market strength. We don't see that weakening at this point. You know, the Advanced Flight Critical Electrical Power Systems, the NV75 is kind of the big program that we talk about a lot, but there are other drivers also. the eVTOL world continues to mature and develop and we actually have reasonably significant positions on some missile programs which we have not talked a whole lot about in the past but and we don't have a whole lot of boost in our backlog from those programs today but we're we're being asked to do some pricing exercises and some capacity exercises, which suggests that that could be a meaningful boost for us, you know, not just in 2027, but coming up in the next few years. And then high-end aircraft seating, I mean, it's just been a real change in how the aircraft, the airlines are addressing the market. For a long time, it was, you know, commoditized and lower cost, and now all of a sudden all the major airlines are offering new high-end options and we are a leading provider of the motion systems that seat companies around the world use to build those seats which is you know I think it's up 40 percent or something so far this year. We see that continuing and then finally the Our test business, you know, we've been talking about our test business as a project for a long time, but this 4549-T program in particular and a few other kind of related follow-on awards that we have on our site suggest that that could be a pretty dynamic part of our business going forward. And so when you look at those four or five things all together, it's really a very precise very persuasive and very strong picture. So, you know, there are questions in the market. You know, the supply chain things I talked about a little bit. There are macroeconomic concerns with the war in Iran, the oil prices. There are certainly things that kind of work the other way. But in general, when we look at that demand and we look at the fact that we're having record revenues and we still have a backlog that keeps growing, bookings that are exceeding Shipments, it's hard to think, I mean, just to satisfy that customer demand, we'll have to have a growth rate that's very significant for next year.

Great. Thanks for that, Khaled. If you could touch on one more piece of that. I didn't hear you mention the LEO transition. I was wondering if you had an update in that market, you know, and what the airlines are doing relative to LEO providers and their component suppliers.

I don't have significant announcements for today. I guess I would offer that there is increasing recognition or acceptance, it seems, that LEO connectivity systems offer a level of performance that geo-based systems are hard-pressed to meet. There are trade-offs in terms of coverage and cost and capacity for changeover. but there's a wide range of ways that we can participate in that. Everything from the engineering and certification to the related hardware sales that go with it. So we are actively involved in that pursuit. I've been saying for a while that I expect kind of the battle lines to be drawn between the various competitors and various market entrants. As we turn the end of the year here, that's all of a sudden getting pretty close. but we're still sticking with that forecast. I think by the end of the year, there will be more clarity as to our position in that world. Okay, great. Thank you very much.

Our next question is from Gautam Khanna with TD Cowen.

Yes, I had a couple questions. I was wondering first, has there been any backlog stretch or customer deferrals of any kind anywhere in the business?

Not significant. It hasn't been a factor. We do watch that pretty closely, especially with airlines and their profitability and the price of oil. That's the thing that you wonder about. But it seems like the major programs are holding and it seems like everybody's staying in line at the OEMs certainly for new airplanes. So we don't see that being a significant issue. Some of our government programs are subject to defense funding and allocations of money and things like that and of course we just had an election that could have implications for some parts of the business but it's nothing that's you know, obvious or significant to us at this point.

Okay, and then could you recalibrate us on what the MV75 revenues were this year and what you're penciling in for 27?

We, Nancy checked me on this, but I want to say that we are sitting at about 30 or 40 million as a plan for 2026. And for 2027, I think the most, the best guess is to hold it kind of at that rate. We're waiting for direction on that from Bell as they go through some of their rescheduling exercises. I will offer that compared to some of the supply chain that we're familiar with. We're pretty much on target and managing the risks associated with the program pretty effectively. So we're maybe a little bit ahead of the program in general. I don't know what that's gonna mean for us, but it's in that order of magnitude. Nancy, are you gonna correct me at all on any of those numbers?

Yeah, a little. I don't like to correct you, but I will correct you a little. I think we'll be closer to the $35 million mark for 2026, a little bit lower with the replanning.

Okay, great. And then if you could just talk about margins this year, maybe just as a baseline of comparison into next year, some of the non-recurring items like IEPA tariff recoveries and the like, what is sort of the including the Q4 guidance level of EBIT that you're kind of pointing to at the midpoint in 26, off of which we should build 27. And if you could just comment on incremental margin expectations in 27 and beyond based on what you're seeing in your backlog.

Do you want to get that, Nancy?

Yeah, so you see our EBIT Yeah, I can get that. So our EBITDA, our adjusted EBITDA was 21.8% in Q3, very strong performance. So we've been putting in pretty strong performance through the previous three quarters as well. So it's obviously going to ebb and flow as we build through 2027. But we think that our incremental margin expectations, we've shared previously that our incremental margin or margin and incremental sales, I should say, has been trending around 40%. And we believe that that's still a realistic level that we can look to in 2027 with the sales and profit drivers that Pete mentioned in his comments.

and just last, any guidance for bookings in the fourth quarter and maybe early next year based on proposals you're responding to right now?

I don't know if we have any specific guidance other than bookings can be a little lumpier than shipments, of course, because you get single big bookings that you will deliver on over multiple periods. But in general, we think the demand picture, it continues to be pretty strong. There's a lot of innovation. There's some catch-up things that have to be done on the defense side. And we're tied into some real high-level programs there, which we're pretty excited about. And then we think people can get frustrated at the ramp at Boeing and Airbus, but there still is the ramp, and we're looking forward to that. We think we're in a good position with them. So I would expect the fourth quarter to be a logical extension or consistent with what we've seen for the last three quarters.

Great, thank you. As a reminder, if you'd like to ask a question, please press star one. Our next question is from Liam Baker with KeyBank Capital Markets.

Hey, thanks for taking my question. With airlines adding more premium seats and seat supply still being constrained, are customers asking for more seat motion capacity than you currently provide? If so, what is the limiting the industry's ability to meet the demand?

If they want to order it, we'll find a way to build it. I don't think we are a limiting factor in terms of seat supply, but there have been challenges in that part of the world for sure. a lot of them are certification related and a lot of them are just capacity related. I mean the high-end seat market is not a market that's used to producing at the quantities that the world is demanding right now. So you know you get the wide-body airplanes that are ramping 350 and 87 but you also have a major replenishment retrofit Demand cycle going on, narrow bodies and wide bodies. So it's a pretty positive picture for the companies that make seats and we're a prominent supplier to many of them. But we're not a challenge there, I don't think. I mean, we do have the capacity to meet current demand. We are looking at ways to increase capacity. over where we think it's going to need to go over the next year, year and a half. So there are some pressures there, but for the moment, we are keeping up with the market for sure.

Okay, thanks. And then the next one, across your Boeing and Airbus content, where are current monthly ship set requests versus six months ago? And where are customers asking you to be by mid-27? Are you shipping ahead of the aircraft assembly today? or are customers building buffers ahead of the expected rate increases?

I do not feel like they're, well, first of all, just for clarity, we do a lot more kind of lines that work that standard product with Boeing than we do with Airbus. So we have less content on Airbus airplanes, but they build a lot more airplanes. But the content we put on there is mostly ISAC related, IFEC. So it's modular in nature. So if their demand goes up or down a little bit, it kind of doesn't matter a whole lot because we have all the retrofit, you know, airline programs around the world that we can ship to instead. So we're less sensitive. to inventory build up at Airbus than we could be at Boeing where we have more kind of line set standard product content. But we are, to get to your question there, we are basically shipping at the moment in the high 30s shipsets per month. We think we're keeping up with demand. We don't think they're building inventory. We think that they've drawn down the inventory that they did build up. But we're pretty much one for one with them at this point. And the way our contracts work with them, generally they order this month a product that they want delivered in three or four months. So they're keeping us on a a tight leash, so to speak, that is tied to their production rates and that's fine with us. That's a good plan. We can work that way. Does that make sense?

Yeah, it does. Thank you. Sure.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you again for your participation.