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Astronics (ATRO 1.55%)
Q1 2022 Earnings Call
May 06, 2022, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings and welcome to the Astronics Corporation's first quarter fiscal year 2022 financial results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] Please note that this conference is being recorded.

I will now turn the conference over to our host Deborah Pawlowski, investor relations for Astronics Corporation. Thank you. You may begin.

Deborah Pawlowski -- Investor Relations

Thanks, Diego, and good morning, everyone. We appreciate your joining us here today. On the call with me are Pete Gundermann, our chairman, president, and chief executive officer; and Dave Burney, our chief financial officer. You should have a copy of our first quarter 2022 financial results, which we released earlier this morning.

If not, you can find the release on our website at astronics.com. As you are likely aware, we may make some forward-looking statements during the formal discussion, as well as during the Q&A session. 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 release, as well as with other documents filed with the Securities and Exchange Commission.

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You can find the documents on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful when evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release. So with that, let me turn it over to Pete to begin. Peter?

Pete Gundermann -- President and Chief Executive Officer

Thanks, Deborah, and good morning, everybody. Thanks for tuning in for our call here. Our agenda is as follows. I'm going to start by talking about a couple of prominent forces which have been affecting our company for some time but have really come to heavier in the first quarter.

And then, I'm going to turn it over to Dave to talk through our financials, including some pretty strong cash results over the course of the quarter. I'll take it back. And we will talk about a forward look for the remainder of 2022 and revisit our guidance and some of the issues affecting that. And then go to Q&A at the end.

So the two prominent forces affecting our company, one negative, one positive. If you read our press release, you've seen them both pretty prominently displayed. The negative one is supply chain struggles. We're not unique here, and I don't intend to present a thesis, but I do want to describe how the supply chain is affecting our performance.

It was pretty significant in the first quarter and it's something that's been growing. The positive force is continued strong demand from the market for our products and for our services. Bookings were really strong, backlogs set another record and it's setting up for what will undoubtedly be a pretty exciting second half of 2022. So the supply chain, this is something that's become more and more of an issue over the last six to nine months.

Basically, as demand started picking up for us, that's when supply chain struggles became more and more apparent. In the first quarter, it was, as bad as ever. We went into the quarter thinking that we would have revenue somewhere north of $130 million, and we ended up at $116 million. And the reduction occurred kind of steadily over the course of the quarter when we realized that necessary components that we needed to build our products were not coming in as expected or as really agreed to by our suppliers.

It's a very unpredictable situation. Products that we buy and have bought forever have pretty standard and stable lead times of maybe three, or four, or six weeks, or whatever the case may be. All of a sudden concerned in 20, or 30, or even longer. And it's really kind of across the board, although the worst situations for us are in the area of electronics.

A large percentage of what we build and produce for customers involves electronic components, and electronic components seem to be the sweet spot of the worldwide supply chain shortage. And that is the case with us. I think it's the kind of thing that affects pretty much everybody in business these days who produces a product. But, it's especially bad for companies that have to buy chips and other electronic components which are designed in the products that they produce.

Again, I don't want to turn it into a thesis, but I do have to say that as far as we can tell, the situation is not really improving. I keep asking our people every time I can, and nobody is willing to step forward and say that the situation, in general, is getting better. We've gotten a lot better at identifying problems early and responding to them as proactively as possible. Sometimes that involves spot buy and special purchase techniques, which can be expensive.

So there's always a little bit of a reality check as to when a problem pops up. What are the possible solutions and how expensive will it get? But it's obviously a worldwide problem that's affecting a lot of companies, and it got us in the first quarter. We'll talk about the rest of 2022 later. But we have incorporated, what we know, as best we can with reasonable buffers into our revenue guidance going forward.

So we are sticking with the revenue guidance that we issued in our last call. And there is some margin for supply chain problems that may raise there. That being the case, however, these things are unpredictable. It's a little bit difficult to know for sure how things are going to work out with any particular product or any particular period.

But more on that later. The positive force continues to drive our business bookings. We had bookings of 175 million in the first quarter. That's a book-to-bill of over 1.5.

And it's our second quarter in a row. And the fourth quarter of last year, we had a book-to-bill of 1.53. So two very strong booking orders. In a world have left us with a record backlog for the last 12 months, bookings have totaled 633 million.

That's over sales of 455 million. So for a rolling 12-month interval, our book-to-bill has been 1.39. It's important to note that in these bookings totals, there's really nothing special in terms of new, significant big chunks of business, so far. It's really been kind of a groundswell of orders from across our product line, which is especially encouraging.

It means our markets are coming back and the demand that used to exist for our products pre-pandemic is increasing, back and play. Aerospace in particular has been really strong. Our aerospace book-to-bill in the first quarter was 1.59. Aerospace amounted to 90% of our bookings over the last year.

And if you look at the rolling 12 months for the book-to-bill, it was 1.48 for our aerospace business. All these numbers, by the way, are being taken off the table on the back of a press release, the last page of our press release, I should have mentioned that earlier. For aerospace, again, very strong terms quarter-to-quarter over that rolling 12-month period. Basically bookings quarter by quarter went from 118 million, to 142 million, to 148 million, and now to 161 million.

So aerospace bookings are definitely going the right way. One of the interesting observations in the bookings is that we are seeing some evidence of a widebody, resurrection, I guess I would call it. Some kind of resumption of widebody orders. Some of our products are specific to narrowbody applications and some of them are specific to widebody applications.

And we're seeing early signs of some kind of rebirth of widebody demand, which has really been dormant for most of the time of the pandemic. Our Test business demand has been a little bit weaker with lower bookings in early 2021, resulting in low sales now. Our quarter 1 backlog consolidated, as I mentioned, the new record of 475 million. That's an increase from early 2021 when our backlog was at 283 million.

So obviously the bookings have positioned us well in terms of work to be executed. We need to have our supply chain cooperate, so we can do the work and turn the backlog into revenue. The last time we had a backlog anywhere near current levels was really late 2018. At that time, our annual sales level was running at around $800 million a year.

So those are the two big forces that I think about when I think of our first quarter supply chain struggles and strong demand from the market. And, I'm going to pass it over to Dave to talk through the specifics of our income statement. And, I'll take it back and we'll talk about our forecast for the rest of '22 at the end here.

Dave Burney -- Chief Financial Officer

All right. Thanks, Pete. Our consolidated revenue was $116 million in the quarter, up almost 10% from last year's first quarter flat sequentially from the fourth quarter of 2021. It's still not where we need to be to get to breakeven, which is around $160 million per quarter in revenue to hit GAAP breakeven.

We don't expect to get to breakeven until the second half of the year. As Pete mentioned, we're expecting some significant growth on the top line in the third and fourth quarters of this year. As well as improved top-line growth in the second quarter, although not expected to get to the point where we'll be GAAP breakeven in the second quarter. Aerospace revenue was $101 million and Test revenue was $15 million for the quarter.

And consolidated gross margin was $19.9 million or 17.2%, with a loss from operations of $4.2 million. And a slightly adjusted EBITDA loss of $353,000. After removing the impacts of the AMJP grant and the gain from the earnout for the sale of the semiconductor business. Margins continue to be compressed as a result of the lower revenue in the quarter and increased cost of raw materials.

Roughly $3 million of raw material cost in the quarter relates to what we call spot buys as we source materials outside of our typical supply contracts to meet customer demand. Outside of the spot buys, we've experienced general inflation relating to our materials and labor of between 5% and 10%. As Pete mentioned, the supply chain continues to be our biggest challenge as lead times are continually moving around, making planning a challenge and limiting our ability to book and ship orders quickly, but we're managing through it. We've had about $140 million of backlog scheduled for delivery in the second quarter.

But we anticipate some of that may push out into the second half of the year. And we have about 220 million backlogs scheduled right now for the second half of the year. As Pete mentioned, we will need to get some book and ship orders, which are within our typical range for the second half of the year. The quarter was not as noisy as the fourth quarter of last year, but we did have some atypical income and expense items.

We recognize $6 million of the AMJP grant as a reduction of the cost of goods sold. We recognized and received earnout income, which is below operations of $11.3 million for the 2021 earnout period. We also received $10.7 million for the 2020 earnout period, which was recognized in the fourth quarter of 2020. We have a bit of an odd income tax expense rate which reflects the new tax treatment for R&D expenses.

That requires these expenses to be amortized over a five-year period rather than expenses incurred. This is part of the Tax Reform Act of 2017. This would typically create deferred tax assets as a shift to timing difference and has no impact on the tax rate. But because we have a cumulative trailing three-year loss, we fully reserve our deferred tax assets at this point.

That's all reversed when we produce a cumulative trailing three-year income in the future. There's a lot of speculation regarding the treatment of the R&D tax expense that may be rolled back or pushed out later this year. If that happens again, will reverse the impact of this. Bookings and backlog continue to be strong.

Bookings for the quarter were $176 million and a book-to-bill ratio of 1.5 times with $161 million in aerospace and a book-to-bill of 1.59 in aerospace. Test bookings were $15 million and a book-to-bill about one time. And the backlog at the end of the quarter, again, as Pete mentioned, was a record of $475 million. Turning to the segments, the aerospace segment, while not profitable absent the impact of the AMJP program, shows measurable improvement compared to the first quarter of 2021.

Sales were up significantly as were bookings, backlog, and our pipeline of opportunities. The segment's operating margin benefited from $6 million relating to the AMJP grant program, which is an offset in operating costs and cost of goods sold. It offsets higher wages, and benefits in costs of materials that we experienced in the quarter compared to the first quarter of last year. The commercial transport market continues to strengthen for us and sales were up $64 million, up 10% sequentially from the fourth quarter and up 68% from last year's first quarter.

The military market and business jet markets remained sequentially steady. The test segment continues to be somewhat sluggish, with sales down $9.7 million from last year's first quarter, resulting in an operating loss of $1.8 million. The sales drop was primarily in the military market. Orders continued to be light in the segment, but there are several large opportunities that we're pursuing in that, in both the transit area and the military area in the Test segment.

Turning to the cash in our balance sheet and debt. We had a strong quarter with respect to cash taking in $36.4 million related and $5.2 million of that was related to the AMJP grant, $9.2 million was from tax refunds, and $22 million were from earnout payments. Our net debt is now $113 million, down from $133 million at the end of the 2021 fiscal year. Cash flow from operations was slightly positive at $316,000.

Cash used by operations reflects. Increases in networking capital assets were offset by the tax refunds of $9.2 million and the second AMJP grant installment of $5.2 million. Proceeds from the earnout of $22 million were received in the quarter and reflected in cash flows from investing activities. At the end of the quarter, we were compliant with our debt covenants, with our leverage ratio calculated in accordance with the credit agreement of 3.78 times adjusted EBITDA versus a maximum leverage limit of 4.75 times.

The maximum leverage covenant will remain at 4.75 times through the second quarter, then drop to 3.75 times going forward. We continue to forecast compliance even as our maximum leverage covenant drops to 3.75 times in the third and fourth quarters. And we're forecasting profitability to increase as we move through the year. A revolving credit facility expires in May of 2023 and we're working to replace the revolver over the next few months with the goal of having a new long-term facility in place before we report it in the second quarter.


Pete Gundermann -- President and Chief Executive Officer

OK. Looking ahead, we are maintaining our revenue guidance for the rest of 2022, which calls for revenues of between $550 million and $600 million. We have an internal forecast that actually exceeds that range slightly. So you can see what kind of margin we're building in for potential supply chain disruption.

And supply chain, as I said earlier, is likely to remain a factor as we move through the remainder of 2022. The midpoint of that range, $550 million to $600 million would represent about 30% growth over 2021, with sales of about $450 million. The high end would represent growth of about 35%. Are those numbers realistic? That's a big step forward.

We think so, of course. A reminder, I talked earlier that the trailing 12 months of bookings were 632 million. So a forecast of 550 to 600 seems to jive with that number pretty well. Also, our first quarter backlog was a record 475 million with 364 million scheduled to ship and the remainder of '22.

That would suggest we need another approximately 100 million of kind of book and ship business, which in the normal course should be pretty achievable for our business. We expect the second quarter to be somewhere in the neighborhood of 125 million to 135 million. If you run the numbers and add it to the midpoint for the first quarter, that would show 40-plus percent, 42% of 2022 volume in the first half, and much more, maybe 58%, 60% in the second half. So we're obviously expecting a ramp.

And again, if you use midpoint to make some assumptions, this implies quarterly revenue of about $165 million on average in the third quarter and the fourth quarter, although we expect the third quarter to be a little bit lower and the fourth quarter to be a little bit higher. So some big ramps, some real accelerations compared to where we've been. Our backlog demands the supply chain holds up and performs in the second quarter -- the second half should be much more positive from a financial perspective than the first half. We'll also continue to watch demand in the second half.

I described earlier that the amount of our bookings so far in recent times has really been from a groundswell of business kind of across the business without any kind of real big special items in there. But I also want to tell you that we are pursuing a number of significant pieces of business which collectively will drive us not necessarily in 2022, but where, if you look at the calendar already almost halfway through, now's the time where we start building our business activity list for 2023 and beyond. And over the next few months and over the rest of this year, I am hopeful that we're going to have some pretty significant new wins to talk about. I've been with this company for many, many years.

I don't -- Dave and I, we're talking last night, I don't think we've had a time in this business where we've had such a wide array of significant opportunities in both segments near-term playing out, and many of them are undisclosed at this point. I can't talk about them in detail too much, but some of them, maybe a couple of them are well, a significant opportunity for us has to do with the Army's Future Lift competition, which is playing out right now in FLRAA. Many of you know what that is. It's a competition between a team led by Bell and a team led by Sikorsky.

And we are a solid member of the Bell team playing a significant role. That sounds like supposed to happen in late summer or early fall. And, we're doing the electrical power generation distribution system for that airplane, for Bell. It's a franchise or a product line, which we trademarked something called for CorePower, it's flight-critical electrical power for smaller aircraft primarily.

And it's a position that we've been building for quite a few years now, and I'm not going to go into too much detail about it. But it's a franchise that I think will become a very prominent part of our business going forward. And certainly, if Bell wins FLRAA, that'll be a big deal for our company immediately. Also, we did a press release this morning again, back to CorePower and flight-critical electrical power, and the position that we have developed with respect to electrical power distribution -- flight-critical electrical power distribution of small aircraft, and the advent of electrical aircraft, which is happening in various parts of the industry.

Many of you know, that electric -- more electric is becoming a big deal in aerospace in an effort to reduce carbon footprint, noise pollution, and create new business models. And one of the terms being thrown, a lot of electric vertical takeoff and landing is eVTOL. We have found that our CorePower expertise applies very well to this emerging eVTOL market. And the eVTOL market is something that's getting a lot of attention, not only from the main OEM airframe businesses that exist in the world today but also a bunch of entrepreneurial start-ups that have raised significant amounts of money in the stock market primarily or also in the public debt market.

And there are some pretty wild forecasts out there. Reasonable people can support those forecasts or disagree with them. But the important thing for today for this group is that our CorePower franchise has been, or is being adapted to address the needs of the eVTOL market. And we are having pretty interesting and fruitful discussions with a wide range of participants, and I expect that we will play a role in this market of some significance going forward.

So you can expect, though, we don't have specific announcements to make today, I expect that we will over the course of the next 6 to 12 months and we'll see how all this plays out in the future. But I've seen some of the aircraft, I've talked to some of the companies doing this kind of work. And it's -- I think, pretty interesting to be a part of -- we're excited to be a part of it. So I think that ends our prepared remarks.

Diego will open it up for questions at this point.

Questions & Answers:


Thank you. [Operator instructions] Our first question comes from Pete Osterland with Truist. Please state your question.

Unknown speaker

Hey, good morning. This is Keith on for [Inaudible] this morning. Thanks for taking our questions. So first, I wanted to ask on the 737 MAX, what monthly rate are you currently producing to? Are you aligned with the underlying production rates at Boeing or are there any differences in your rates that are driven by inventories or availability of materials?

Pete Gundermann -- President and Chief Executive Officer

No, we've seen-- well [Inaudible] was around a little bit, but we are, as best we can tell, pretty well aligned with what Boeing is doing. We think the -- we had an inventory buildup that happened when the [Inaudible] shut down, but they've pretty much chewed through that. So they've got us at the same rate that they're producing at this point, which is the high 20s, trending in the 30.

Unknown speaker

OK. Great. And then just a follow-up on aero, you mentioned in your release that you're seeing signs of a pickup on the widebody market as well. Could you give a little color on the main improvements you're seeing there and maybe whether you're seeing any incremental headwinds from the delays on the 787? And if you could, just as a reminder, what about is your revenue mix currently in terms of widebody versus narrowbody?

Pete Gundermann -- President and Chief Executive Officer

A lot of questions there. I'd say the 787 slowdown has kind of flown through the system already. So, we're not we're not hurting anymore there. It's all upside from here, I would say.

As far as products, I can tell you that there are certain types of in-flight entertainment systems which are standard in widebody and not so present in narrowbody. And we make components that go into those systems and we've noticed an increase in order for some of those products. They only go on widebodies. So widebody demand must be improving, maybe not on the production line because as you point out, 787 for example is not increasing at this point.

But maybe more on an aftermarket may be pulling airplanes out of storage and getting them ready to fly. Our business mix in our commercial transport business before the pandemic was pretty evenly divided. We were, for practical purposes, 50/50 widebody, narrowbody, and 50/50 [Inaudible] in the aftermarket. That has skewed heavily, especially when the MAX was shut down toward narrowbody aftermarket.

Widebody was kind of down on both sides. Aftermarket [Inaudible] and narrowbody [Inaudible], and the MAX being down. The MAX coming back has really helped us a lot and it's a big part of why we think we're going -- 2022 will be a significant year of improvement for us. We're not counting on widebody production rates coming back in the near term future.

I mean, Boeing can't comment on that very accurately. We're not going to comment on it. But we have noticed these increases in sales. Another product, to give you an idea, we make motion systems for high-end aircraft seating, typically found in long haul widebody first in business class sections.

And we've noticed an uptick in orders for those kinds of programs, too. Again, that's for the most part, those products don't find a place on narrowbody airplanes. So it's early and it's not really significant. But, there's a lot of industry prediction that widebody recovery will happen over the course of 2023 and 2024.

And just like we're seeing strong demand and growing demand over the last 12 months, it's primarily been narrowbody driven, as narrowbody airplanes have resumed flying. And it's interesting to me to watch the beginnings of widebody order also. So hopefully that's a sign for the widebody are going to be -- if production rates don't increase are the ones that are in storage are going to be brought out and maybe airlines are starting to think about what they want to do with them in terms of fleet upgrades, or refurbishment, or recovery in advance of increased flying, as early -- maybe this summer. That answered your question?

Unknown speaker

Yes, it does. Thanks a lot for the color. I'll jump back into the Queue.

Pete Gundermann -- President and Chief Executive Officer

OK. Thanks.


Thank you. [Operator instructions] Our next question comes from Jon Tanwanteng with CJS Securities. Please state your question.

Jon Tanwanteng -- CJS Securities -- Analyst

Hey, good morning. Thank you for taking my questions.

Pete Gundermann -- President and Chief Executive Officer

Good morning.

Jon Tanwanteng -- CJS Securities -- Analyst

My first one is, if you're not seeing so much improvement in the supply chain, what's really giving you the confidence that you can actually increase sales, to the high levels through the second quarter and the second half? Are those -- are your suppliers telling you they can beat those volumes? And what's a [Inaudible] than being able to do at this point.

Pete Gundermann -- President and Chief Executive Officer

Well, it's a very fair question. It is a little bit tricky to explain what we went through in the first quarter and then talk about that kind of ramp in the second half. But the reality is that we have that work scheduled and we've gone out and sourced those components and we have them on order. So, if things -- if the supply chain performs, we should see a ramp.

The question is, will we continue to see surprises and slips? And we think we will, but we don't know exactly which parts are going to slip and we don't know cumulatively what the effect is going to be. But the overall velocity is going to increase, no matter what, unless the world falls apart, because we have these orders and we've gone out and put the orders on our supply chain so we can accommodate a reasonable amount of slippage, so to speak, and still have significant ramps in the second half. And that's how we've constructed that revenue guidance, that revenue forecasts, that make sense? We can withstand quite a bit of slippage and still be in that range.

Jon Tanwanteng -- CJS Securities -- Analyst

Yes, it does. Thanks for clarifying that. And then second, just in terms of your own internal capacity, have you made progress at all in closing that labor gap that you've been talking about in prior quarters? And can you meet that production level internally?

Pete Gundermann -- President and Chief Executive Officer

It's another big question. The reality is if our supply chains snap too, right now. I'd probably be telling you about a labor shortage because I think I talked on the last call that we were a couple of hundred people below where we wanted to be. We're at 2,200, I think, at that time, and we wanted to be at 2,400.

We're making pretty good progress, though, on the labor side. I mean, it's not -- the pressures aren't gone for sure, but we are seeing a little bit of improvement in various markets that we operate in. Not all markets and not all positions, but the production ramp that we're talking about is really production floor, kind of labor where we're where we need it. And we are seeing a general loosening there.

We're seeing more applicant flow, for example, for new positions. So it's possible that that becomes more and more of a pressure point as we start to ramp up volume in the second half. But at this point, we're more concerned about the supply chain than about labor.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Great. That makes sense. If I could slip in one more, you talked about these Test projects that could be awarded mid-year.

What's the relative scale of those? And what would that mean for your growth? As you had the '23 [Inaudible].

Pete Gundermann -- President and Chief Executive Officer

I guess, let me do -- it's significant Jon. I mean, the programs are, over the life of the program very easily, over $500 million. I mean, I'm just given the numbers in my head. I'm looking at it.

But there are probably six, seven, eight of them in both segments. And of course, FLRAA, if we were to be successful, that's going to run for 20 years. Who knows, and can be a couple of thousand airplanes. I mean, you could easily stretch those numbers to -- if you include that one, especially well over $1 billion, frankly.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. That seems like a great opportunity. Good luck there.

Pete Gundermann -- President and Chief Executive Officer

Thank you. Good luck to Bell.


Thank you. [Operator instructions] Our next question comes from Pete Osterland with Truist. Please go ahead.

Unknown speaker

Hey, guys. Thanks for taking the follow-up. I just have one quick one. On cash flow generation, just with the guidance for sales to improve sequentially through year-end, do you think it's feasible that you'd be able to get to break even on a free cash flow basis over the course of the year? Or are there any other working capital or other considerations that might keep free cash flow negative even as the top line improves?

Dave Burney -- Chief Financial Officer

Yeah. I don't think we'll create significant free cash flow as we ramp through the second half of the year. The inventory component, the working capital stuff is just kind of -- is where we're most inefficient right now. And on one hand, we have more inventory than we would typically have.

If you go back to the pre-pandemic days, maybe as much as $40 million more inventory than we have with the sales level right now. But you can't turn around inventory either. You don't want to slow that down. And so I expect we'll kind of tread water as we move through the year in terms of free cash flow there.

I think our -- as our margin picks up, I think what we'll see is increased working capital components there. But then at some point, it'll flip around to be a tailwind as we move through a normal supply chain environment into next year. As I said, our inventory is turning much, much slower than it used to turn prior to the pandemic. And it's because of these supply chain challenges where you can have 99 out of 100 parts that you need to ship something and you're missing a washer and you can't ship it, it affects everything.

But I think, cash flow-wise, I think we should be able to -- depending on where the working capital and the inventory goes, be able to kind of tread water on that.

Unknown speaker

Great. Thanks a lot.


Thank you. Our next question comes from Jon Tanwanteng with CJS Securities. Please go ahead.

Jon Tanwanteng -- CJS Securities -- Analyst

Hi. Yes, thanks for the follow-up. Just one on pricing. I was wondering because we've seen a lot of companies do this in the quarter.

If you've been able to pass on some of the more extraordinary inflationary costs that you've been seeing, that 3 million excess spot cost that you talked about in the first quarter? If your customers have been amenable to that, I think, being transparent with that has helped a lot of other companies [Inaudible] covered? I'm wondering if you've seen any receptivity at all?

Pete Gundermann -- President and Chief Executive Officer

We have seen that. And yes, we've been passing on price increases where we can, when we can. And frankly, for the most part, we're pretty surprised with how cooperative everybody is about it. I mean, everybody's experiencing the same things, but it never comes as a surprise.

That doesn't mean that customers are happy to pay more, but for the most part, we have seen and taken taking advantage of that ability to the extent that we can. At the same time, we do have long-term contracts on certain things where that's not easy to do. But even in those cases, we are initiating conversations with Katie occasionally and trying to keep the situation from spiraling out of control. But at this point, we're -- we don't view that as our biggest headache.

Our bigger headache is just getting parts in here in the first place and executing the demands the customers are placing on us.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. One more follow-up. Just you mentioned the big projects that were in the pipeline, but I was wondering if there are actually any general thoughts on military spending? Just given the high-security concerns that we're seeing throughout the world. Not on new programs, but existing programs, and kind of how that makes through you guys?

Pete Gundermann -- President and Chief Executive Officer

I'm not sure the -- well, I think the Army's Future Lift initiatives probably become more of a priority, right? That's one thing I would say. Not too long ago, people were saying there was never going to be another ground war. So why do we need -- why do we need a ground force? I think the recent events have probably changed the thinking on that significantly. So I expect spending there to be up.

I'm not sure that translates much to an increase in joint strike fighter fighting, for example, or most other aerospace applications. But I think the helicopter programs probably become more important, not less important with the army's version of the future battlefield.

Jon Tanwanteng -- CJS Securities -- Analyst

Understood. Thank you.


Thank you. There are no further questions at this time. I'll hand the floor back to management for closing remarks.

Pete Gundermann -- President and Chief Executive Officer

Well, thank you for your attention and time today. Obviously interesting times for our company and we look forward to reporting second quarter results probably early August. Thanks for your time. Have a good day.



[Operator signoff]

Duration: 43 minutes

Call participants:

Deborah Pawlowski -- Investor Relations

Pete Gundermann -- President and Chief Executive Officer

Dave Burney -- Chief Financial Officer

Unknown speaker

Jon Tanwanteng -- CJS Securities -- Analyst

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