Air Industries Group (NYSEAM:AIRI) is a leading manufacturer of precision components and assemblies for large aerospace and defense contractors. With a rich history dating back to 1941, the company has maintained an impeccable record, producing parts for critical military and commercial applications without any known incidents of part failure leading to a fatal mission.

Business Overview

The company's products include landing gear, flight controls, engine mounts, and components for aircraft jet engines and ground turbines, among other complex machines. The ultimate end-users for most of AIRI's products are the U.S. government, foreign governments, and commercial global airlines. The company has cultivated long-standing relationships with a number of defense and aerospace prime contractors, generating sales across several high-profile platforms and programs, including the F-18 Hornet, the E-2 Hawkeye, the UH-60 Black Hawk Helicopters, Geared Turbo Engines, the CH-53 Helicopter, the F-35 Lighting II, and the F-15 Eagle Tactical Fighter.

Financials

In fiscal 2023, AIRI reported annual net sales of $51,516,000 and a net loss of $2,131,000. The company generated annual operating cash flow of $4,862,000 and annual free cash flow of $2,743,000. During the first quarter of 2024, the company reported net sales of $14,061,000, a net loss of $706,000, and used $232,000 in operating cash flow.

Despite facing significant financial and operational challenges in recent years, AIRI has strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster its competitive position. The company has also expanded its sales and marketing efforts, with a sharp focus on expanding relationships with existing customers and cultivating new ones. These efforts have positioned AIRI for growth, as evidenced by its strong backlog and order flow.

As of March 31, 2024, AIRI's total unfilled contract values amounted to $179.1 million, including $99.3 million in backlog and all potential orders against long-term agreement (LTA) contracts previously awarded to the company. This provides the company with multi-year visibility into its future revenue and validates the strength of its customer relationships.

During the first quarter of 2024, AIRI reported a book-to-bill ratio of 0.92 to 1, with bookings of $12.95 million. The company's expectation for its annual book-to-bill ratio in fiscal 2024 to exceed the industry standard of 1.2 to 1 appears optimistic given the current performance.

Risks and Challenges

However, the company's financial performance in the first quarter of 2024 was impacted by several factors. Gross profit as a percentage of sales declined to 13.6% from 15% in the prior-year period, primarily due to the initiation of several new programs for new customers, which typically have lower margins during the development stage. Additionally, the company experienced some operational challenges at its Connecticut manufacturing facility, resulting in lower-than-expected production hours.

Outlook

Despite these challenges, AIRI remains confident in its ability to improve its financial performance as the year progresses. The company expects gross margins to improve later in 2024 as it refines its operations and accelerates its product ramp-up. Additionally, AIRI is working with its existing lender to obtain adjusted or new financing that better meets its operational requirements and strategic goals.

Liquidity

The company's liquidity position remains a concern, as it was not in compliance with a required covenant under its current credit facility as of March 31, 2024. AIRI is in discussions with its lender to obtain a waiver of this covenant violation and is exploring alternative financing options to better support its growth plans.

Looking ahead, AIRI is targeting net sales for fiscal 2024 of at least $50 million, with adjusted EBITDA expected to be better than the $4,862,000 generated in 2023. The company's confidence in its ability to achieve these targets is bolstered by its strong backlog, the continued momentum in its new business development efforts, and its strategic investments in operational improvements.

Conclusion

In conclusion, Air Industries Group is navigating a challenging operating environment, but its long-standing customer relationships, strategic investments, and focus on growth have positioned the company for potential success in the coming year. Investors will want to closely monitor the company's progress in securing new financing, improving its operational efficiency, and capitalizing on the opportunities presented by its robust backlog and order flow.