ASTRONICS CORP

Astronics Corporation is a leading provider of advanced technologies to the global aerospace, defense, and electronics industries. The Company has two reportable segments, Aerospace and Test Systems. The Aerospace segment designs and manufactures products for the global aerospace and defense industry, while the Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries. The Company has principal operations in the United States, Canada, France and Germany, as well as engineering offices in Ukraine and India. The commercial transport market is the Company's largest end market, with sales driven by new aircraft production and aftermarket airline retrofit programs. The commercial aerospace market is a global duopoly where Boeing and Airbus SE serve as the OEMs, and their production health is vital to the Company's performance. Sales to the commercial transport market totaled approximately $599.3 million or 69.5% of consolidated sales in 2025 ¹. Sales to the military aerospace market totaled approximately 13.5% of consolidated sales and amounted to $116.3 million in 2025 ². Sales to the general aviation market totaled approximately 8.1% of consolidated sales in 2025 and amounted to $69.8 million ³. Sales by the Test Systems segment accounted for approximately 7.5% of consolidated sales in 2025 and amounted to $64.8 million ⁴.

The Company experiences considerable competition in the market sectors it serves, principally with respect to product performance and price, from various competitors, many of which are substantially larger and have greater resources. Success in the markets served depends upon product innovation, customer support, responsiveness and cost management. The Company has a significant concentration of business with one major customer, The Boeing Company. Sales to Boeing accounted for 10.4% of sales in 2025, 10.2% of sales in 2024, and 11.0% of sales in 2023 ⁵. Sales to Boeing are primarily in the Aerospace segment. The Company's strategy is to increase its value by developing technologies and capabilities either internally or through acquisition, and use those capabilities to provide innovative solutions to its targeted markets where its technology can be beneficial.

The Company generates revenue through the design and manufacture of products for the global aerospace and defense industry, as well as automated test systems. The majority of the Company's revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product. For contracts with customers in which the Company promises to provide a product that has no alternative use and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time. The Company also recognizes revenue from service contracts over time. For the year ended December 31, 2025, fixed-price contracts represented almost all of the Company's sales ⁶.

The Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products. During 2025, this segment's sales were divided 75% to the commercial transport market, 15% to the military aircraft market, 9% to the general aviation market and 1% to other markets ⁷. Aerospace segment sales by product line for 2025 included Electrical Power & Motion of $410,382 thousand ⁸, Lighting & Safety of $208,897 thousand ⁹, Avionics of $123,422 thousand ¹⁰, Systems Certification of $29,069 thousand ¹¹, Structures of $13,641 thousand ¹², and Other of $11,908 thousand ¹³. The Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications. Test Systems segment sales for 2025 were $64,809 thousand ¹⁴, with sales to the aerospace and defense market of $35.4 million ¹⁵, sales to the mass transit market of $5.3 million ¹⁶, and sales to the radio test market of $24.1 million ¹⁷.

The Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products. During 2025, this segment's sales were divided 75% to the commercial transport market, 15% to the military aircraft market, 9% to the general aviation market and 1% to other markets ¹⁸. Aerospace segment sales by product line for 2025 included Electrical Power & Motion of $410,382 thousand ¹⁹, Lighting & Safety of $208,897 thousand ²⁰, Avionics of $123,422 thousand ²¹, Systems Certification of $29,069 thousand ²², Structures of $13,641 thousand ²³, and Other of $11,908 thousand ²⁴. The Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications. Test Systems segment sales for 2025 were $64,809 thousand ²⁵, with sales to the aerospace and defense market of $35.4 million ²⁶, sales to the mass transit market of $5.3 million ²⁷, and sales to the radio test market of $24.1 million ²⁸.

On June 30, 2025, the Company purchased the membership interests of Envoy Aerospace, LLC, located in Aurora, Illinois, for a total purchase price of approximately $8.3 million, net of cash acquired and the estimated closing adjustment ²⁹. Of the purchase price, $4.5 million was paid at the closing date ³⁰. Payments of $2.0 million and $1.8 million will become payable following the first and second anniversary of the closing date, respectively, based on the achievement of certain milestones ³¹. On October 13, 2025, the Company acquired all of the issued and outstanding capital stock of Bühler Motor Aviation, located in Uhldingen-Mühlhofen, Germany, for a total purchase price of approximately $18.0 million, net of cash acquired and the estimated closing adjustment ³². On October 22, 2025, the Company entered into a $300.0 million senior secured cash flow-based revolving credit facility that replaced its previous $220.0 million asset-based revolving credit facility ³³. On December 3, 2024, the Company issued $165.0 million of 5.500% Convertible Senior Notes due 2030 ³⁴. The Company repurchased 80%, or $132.0 million, of the 2030 Convertible Notes during the third quarter of 2025, and $33.0 million remains outstanding at December 31, 2025 ³⁵. On September 15, 2025, the Company issued $225.0 million of Convertible Senior Notes due 2031 ³⁶. During 2025, the Company initiated simplification activities in the Aerospace segment, including costs related to footprint rationalization and portfolio shaping, and recorded $5.8 million and $0.4 million in simplification initiative charges to Cost of Products Sold and Selling, General and Administrative Expenses, respectively ³⁷.

Consolidated sales for 2025 were $862,128 thousand, compared to $795,426 thousand in 2024 ³⁸. Gross profit was $258,158 thousand in 2025, compared to $220,428 thousand in 2024 ³⁹. Gross margin was 29.9% in 2025, compared to 27.7% in 2024 ⁴⁰. Net income for 2025 was $29,359 thousand, compared to a net loss of $16,215 thousand in 2024 ⁴¹. Diluted earnings per share for 2025 was $0.81, compared to a diluted loss per share of $0.46 in 2024 ⁴². Bookings were up 14.4% to $924.4 million with a book-to-bill ratio of 1.07:1 in 2025 ⁴³. Backlog as of December 31, 2025 was $674.5 million, compared to $599.2 million at December 31, 2024 ⁴⁴.

The Company expects growth in the commercial transport market, with aircraft build rates expected to continue to ramp during 2026 and 2027 from current levels as production of both the 737 MAX and A-320 are expected to increase, and the aftermarket is expected to strengthen over the course of the year as aircraft utilization and load factors increase. International travel utilizing primarily widebody aircraft has returned to pre-pandemic levels and the Company believes widebody aircraft production rates will continue to directionally match air traffic volumes. The Company expects that new aircraft will be equipped with more passenger and aircraft connectivity and in-seat power than previous generation aircraft which drives demand for its avionics and power products. The satellite communications industry is experiencing significant ongoing disruption, as customers evaluate the benefits of lower-cost, low Earth orbit solutions, challenging the traditional geosynchronous satellite-based systems, which represents both a risk to portions of existing products and an opportunity to evolve offerings to align with the growing demand for LEO products and services.

The Company continues to look for opportunities in all of its markets to capitalize on its core competencies to expand its existing business and to grow through strategic acquisitions. The Company's strategy is to increase its value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to its targeted markets where its technology can be beneficial. The Company expects to continue to evaluate acquisition opportunities in the future.

The Company's main challenges include varying levels of supply chain pressures, material availability and cost increases (including costs associated with the imposition of tariffs by the United States and other countries), labor availability and cost, and improving shareholder value through increasing profitability. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company's ability to pass cost increases along to customers and control operating expenses, and to identify means of creating improved productivity. The Company will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of it.

The Company continues to face varying levels of supply chain pressures, material availability and cost increases (including costs associated with the imposition of tariffs by the United States and other countries), labor availability and cost. The Company is monitoring the production levels and anticipated ramp-ups at Boeing and Airbus, and continues to align its operations with their production expectations. The Company is monitoring the ongoing conflict between Russia and Ukraine, as well as other geopolitical tensions and conflicts around the world, and the potential impact of related export controls, financial and economic sanctions, and other restrictions imposed by the U.S., the U.K., the European Union, and other countries.

Capital expenditures for 2025 were $31,673 thousand, compared to $8,428 thousand in 2024 ⁴⁵. The higher level of Aerospace capital expenditures in 2025 is related to ongoing facility expansion activities and growth and maintenance expenditures that had been previously deferred during the pandemic. The Company expects its cash flow from operations and available capacity under its credit facilities will provide for these capital expenditures. The Company has the capacity under the currently authorized share repurchase program to purchase additional shares of its common stock with a maximum dollar value of $41.5 million ⁴⁶. As of December 31, 2025, the Company had remaining capacity under the ATM Program to sell shares of Common Stock having an aggregate offering price up to approximately $8.2 million ⁴⁷. The Company has no plans to pay cash dividends in the future as it plans to retain all cash from operations as a source of capital to service debt and finance working capital and growth in the business.

The Company faces structural headwinds including the cyclical nature of the markets it serves, which are sensitive to fluctuations in general business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies, national and international conflicts, and economic conditions and events. The commercial airline industry is highly cyclical, with significant downturns in the past and sensitivity to such things as fuel price increases, labor disputes, global economic conditions, availability of capital to fund new aircraft purchase and upgrades of existing aircraft and passenger demand. The Company is also subject to risks related to the loss of Boeing as a major customer, as sales to Boeing accounted for 10.4% of sales in 2025 ⁴⁸. The Company faces risks from the highly competitive nature of its industry, with competitors including larger, more diversified corporations and vertically integrated companies that may have greater financial, marketing, production and research and development resources.

The Company faces execution risks including the potential for increased or unexpected costs relating to its fixed-price contracts, which represented almost all of the Company's sales for the year ended December 31, 2025 ⁴⁹. The Company also faces risks related to supply chain constraints, labor availability and cost, and the ability to successfully manage its indebtedness, including restrictive financial covenants under its Revolving Credit Facility and the risks related to its outstanding 2030 Convertible Notes and 2031 Convertible Notes. The Company is subject to risks from the ongoing Lufthansa Technik AG patent infringement claim, with a judgment in the UK quantifying the amount payable in aggregate in respect of the profits derived from infringing Lufthansa's UK patent by the defendants as $11.9 million ⁵⁰. The Company is also subject to risks from changes in tax laws and regulations, including the One Big Beautiful Bill Act signed into law on July 4, 2025, which restored the ability to deduct research and development expenditures immediately in the year incurred for tax years beginning in 2025.

The loss of Boeing as a major customer, which accounted for 10.4% of sales in 2025, would significantly reduce sales and earnings ⁵¹. The Company's fixed-price contracts, which represented almost all of its sales for the year ended December 31, 2025, subject it to losses from cost overruns ⁵². The ongoing Lufthansa Technik AG patent infringement claim poses a material risk, with a UK judgment quantifying damages at $11.9 million and additional amounts of $5.7 million for interest and $3.5 million for legal costs ordered in 2025, and appeals scheduled for March 2026 ⁵³. The Company's Revolving Credit Facility contains financial covenants, including a total leverage ratio not to exceed 4.50 to 1.00 and a consolidated interest coverage ratio not less than 3.50 to 1.00, and failure to comply could result in acceleration of indebtedness ⁵⁴. As of December 31, 2025, the Company had approximately $343.0 million of debt outstanding, which could reduce funds available for operations and make it more vulnerable to economic changes ⁵⁵.

Management's message emphasizes that the Company is a leading supplier of advanced technologies and products to the global aerospace and defense industries, with a strategy to increase value by developing technologies and capabilities either internally or through acquisition. Management highlights that growth in sales was driven by continued strength in demand for the Aerospace segment primarily from the Commercial Transport market, with Aerospace sales increasing $90.6 million, or 12.8%, which more than offset the $23.9 million decline in Test Systems sales ⁵⁶. Management notes that consolidated net income of $0.81 per diluted share improved from a net loss of $(0.46) per diluted share in the prior year from the strength in operating profit and lower interest expense ⁵⁷. Management states that the Company expects its cash flow from operations will provide sufficient cash flows to fund operations, including payment of any further amounts related to the Lufthansa matters. Management also notes that the Company may evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections.