Greetings and welcome to the Astronics Corporation Third Quarter Fiscal Year 2021 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. As a reminder, this conference is being recorded. I'd now turn the conference over to Deborah Pawlowski of Investor Relations. Thank you. You may begin.

Thanks, Darryl, and good morning everyone. We appreciate you joining us here today. On the call with me are Peter Gundermann, our President and CEO; and Dave Burney, our Chief Financial Officer. You should have a copy of our third quarter 2021 financial results which we released earlier this morning, and if not, you can find them on our website at astronics.com. Let me mention first, as you're likely aware, that 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 our earnings release, as well as with other documents filed with the Securities and Exchange Commission. 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 in evaluating our performance. You should not consider the presentation of this additional information in isolation or 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. With that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie, and good morning everybody. Our agenda this morning is to review the third quarter again, which was a mixed quarter. If you've read the press release, sales were light as was the income statement. On the other hand, bookings were very strong, with the consolidated book-to-bill of 1.37. So our discussion will basically vacillate between reviewing the income statement, which is disappointing to us, and bookings, which we're very pleased about. Also, sprinkled throughout the conversation will be a couple of significant cash events. Dave will go through the details, but we have an AMJP award which happened late in the quarter and had a minor impact on our income statement. It'll have a bigger impact in the fourth quarter, in the first quarter. And also, subsequent to the third quarter, we sold a facility which will be reflected in our fourth quarter results as another kind of worthwhile cash event to spend some time on. We'll close with some expectations of the fourth quarter, as far as we can see, and a little bit of discussion on 2022, although we're not going to be at a point today where we can provide much guidance going forward at this point. So Q3 summary, sales were disappointing at $112 million. We guided with our second quarter release to sales of $115 million to $120 million. So, we obviously missed our own target. The big challenge, frankly, is supply chain related, probably a recurring theme that you've heard about from a bunch of companies. And secondly, personnel challenges or shortages. We figured the supply chain hit for the quarter was somewhere in the $8 million to $10 million range. And we can talk through the specifics of how that plays out. But long story short, we use a lot of electronic assemblies and a lot of smaller components in our products. And lead times are extended and unpredictable and leaves us less able to respond to short-term requests for changes from customers. So, there's a constant churn among our customer base over the course of the quarter. Sometimes they want to push things out a little bit. That's not a problem, but when I want to pull things in, we can't respond these days the way we normally could, if our supply chain was acting normally. So, if you accept that $8 million to $10 million number, that puts us at or above the predicted range, and that's, I guess, the frustrating backwards look at our third quarter. In terms of personnel, across the company, we are at about 2,200 people right now. We would like to be about 2,400, and we're actively trying to bring up our resources. That shortage had some impact on our revenue levels in the third quarter, but it pales in comparison to what the supply chain problems were. Weak revenues hurt the income statement obviously, but the bottom line does show some improvement over comparable revenue in previous quarters. The second quarter had comparable revenues of $111 million and adjusted EBITDA just above breakeven in the most recent quarter. On similar revenues, adjusted EBITDA of about $2.8 million, that has more to do with mix than anything, more Aerospace and less Test, we feel drove the positive EBITDA in the third quarter.

It was worked on for that period of time, signed it in September.

Right. But we got the award at the end of September. Dave will talk a little bit about what the requirements are. But we basically got our full application amount of $14.7 million. There was a small benefit in the third quarter of $1.1 million and a reduction of cost of goods. It'll be a much more significant impact in the fourth quarter and the first quarter as this has a six-month period of performance. The bright spot in the quarter, for sure, was bookings, consolidated of $153.5 million, book-to-bill of 1.37. That continues a very positive trend over the last four quarters. And I'm going to throw out a bunch of numbers, which are evident in the table on the last page of our press release. The last four quarters, total bookings have trended very positively, $116 million to $120 million to $126 million to $154 million over the last four quarters. Total for the last four quarters, $516 million, a book-to-bill of 1.16 over shipments over the last four quarters. The numbers are driven by a very positive Aerospace trend and a negative Test trend. So a real mix change in business. In terms of bookings, aero bookings in this most recent quarter were $142 million for a book-to-bill of 1.49. So, 50% higher than shipments. And again, the sequence over the last four quarters, if you look at that table, is very noteworthy from our perspective, $74 million to $100 million to $118 million to $142 million, that means the total for the last four quarters in our Aerospace segment was $435 million, a book-to-bill of 1.22. One caveat in there is that in the most recent quarter, we did get a significant amount of bookings that are categorized in our aerospace group, but when they ship, they will appear as in the other category, which we expect to happen over 2022. That total is somewhere in the neighborhood of about $17 million. The aerospace news is driven by pretty good, a pretty solid set of good news across most of the industry that we service. Narrowbody activity in particular is very strong. Flights are up. Load factors are up, and production rates are ramping primarily driven by 737 MAX. We're shipping in the mid to high teens these days, or we were through the third quarter in terms of ship sets per month. And retrofit activity is picking up noticeably. So, we think that's been a major driver, not only for the strength in the last quarter, but looking forward, we see a target-rich environment there that we expect will drive us very positively for the foreseeable future. Widebody activity, on the other hand, remains pretty subdued. But we are encouraged by the current easing of international travel restrictions, particularly in the U.S., which should pick up or should promote widebody utilization as we close out 2021 and enter 2022. Similarly, business jet demand for the OEMs has been very strong. I'm sure you've all read about the book-to-bills that the major OEMs are reporting. We should benefit from that in terms of higher production rates forecast for 2022. We aren't necessarily seeing that in our production yet. There's a lag between their orders from their customers and their orders to us. But we're sitting on that and looking to see what our 2022 production rates are going to be like. We expect them to be higher. And finally, military aircraft, about 10% of our business in a typical year, is stable, remains strong, mostly driven by F35 these days, and a few other premier programs. While discussing the aerospace market and industry, I want to take a moment to highlight an emerging opportunity that we are quite excited about. Many of you may have noticed the trend of startups and established companies developing electric aircraft. These aircraft are often referred to as eVTOL, or electric vertical takeoff and landing planes, as well as conventional aircraft using electric propulsion. Based on our development efforts and a thorough review of the industry, we believe some of our skills are directly applicable to these types of aircraft. Although we haven't focused on this topic much in recent years, we have been actively developing a franchise for electrical power distribution, primarily aimed at smaller planes. Some of you have heard me discuss programs like the Textron Denali, Pilatus PC-12, and Bell 525 more recently. We have also been involved in the FARA and FLRAA competitions for the U.S. Army Future Lift. Our capabilities and expertise are increasingly relevant to this emerging electric or eVTOL segment of the industry. I don’t have many predictions to make today, but I wanted to provide this introduction as we anticipate that this area of our business will garner attention as we finish this year and head into the next, and we believe it holds promise for our future plans. Our Test business has faced challenges recently, experiencing a downward trend in both sales and bookings over the last few quarters. We consider it an $80 million-plus business and need to average at least $20 million per quarter in bookings to maintain a healthy operation. Unfortunately, our recent bookings have been about half of that target. In the second quarter, we recorded approximately $8.2 million, and in the third quarter, $11.1 million, which is significantly below our expectations. We have previously discussed these issues, and our assessment remains the same. We believe the delays in orders are primarily due to the COVID-19 pandemic and the work-from-home situations many of our customers are facing. We do not think we have lost any competitive ground, and we are starting to see some positive signs. In October, our bookings for the first month of the fourth quarter reached nearly $12 million, outpacing both the third and second quarters. This has given me some optimism that things could be turning around, and I anticipate our fourth quarter bookings will help us return to a healthier trajectory. In total, we ended the quarter with a backlog of $354 million, an increase from $283 million at the beginning of the year, which we believe sets us up well for future expectations. Now, I will hand it over to Dave to discuss specifics of the income statement, our banking arrangements, and some cash events.

Thanks, Pete. Consolidated sales in the third quarter were $111.8 million, lighter than we expected, but up 5% from last year's third quarter and flat sequentially with the second quarter of this year. Going into the quarter, we were expecting higher revenues, but material shortages had a larger impact than expected. At the end of the quarter, we had about $8 million to $10 million of backlog. As Pete mentioned, we could have shipped if we had the inventory to complete the work. Aerospace segment sales continued to improve, with sales up 16% over last year's third quarter and up 7.3% sequentially from the second quarter and up 17.6% from the first quarter of this year. Most of the improvement this year has been in the commercial transport market, which had sales of $57.5 million, a 30.6% increase compared to the third quarter of last year and up 20.4% sequentially from the second quarter. Driving the increase is increased volume of our seat and passenger power products. As activities with the airlines have increased, additionally, volume increases for passenger service units primarily for the 737 MAX have increased. In the Test segment, revenue declined by about 33% compared with last year's third quarter, driven by decreases in defense and transit areas. Operating margins improved compared with last year's third quarter, reflecting the higher sales volume and the recognition of $1.1 million of AMJP money. We received the proceeds for about half of the $14.7 million grant during the quarter, but we'll recognize the income from the grant over a six-month period that started near the end of September when the grant agreement was signed. We expect that we'll recognize about $7 million as a benefit to gross profit in the fourth quarter, with the remainder recognized in the first quarter of 2022. We expect a second cash installment of approximately $5 million to $6 million to be received in December of this year. And the balance upon final reconciliation of the allowable labor costs in mid-next year. AMJP is a grant program administered by the Department of Transportation that provides grants to eligible aerospace companies to support those companies in retaining jobs in the area of commercial aerospace. Grants are based on an estimate of eligible labor costs over a six-month period and require grantees to retain those jobs. Switching over to a little bit of a forward look. We're forecasting near-term margin headwinds as we move into 2022 due to increased raw material costs and shortages, as well as a tight labor market. The supply chain situation is complicated and changing on a daily basis and difficult to predict. Regarding the tax rate. Some of you will notice that we have a bit of a strange tax rate, typically in a period of loss, you see a tax benefit. Ours continues to look a little strange as we fully reserve, and we'll continue to reserve all of our deferred tax assets. We fully expect to be able to realize these and utilize these assets to offset future income tax expense, but the guidance for accounting for such assets when the company has had several years of losses requires us to fully reserve them. We do not expect we will have any federal cash income tax expense or GAAP income tax or benefit through the 2022 and into 2023 periods. In terms of liquidity and debt, we were in and continue to forecast to be in compliance with our debt covenants. For covenant purposes, we were slightly below our maximum leverage limit of six times adjusted EBITDA for the quarter. Forecasted top line growth in the coming quarters, as well as some positive one-time items, such as the AMJP grant, sales of the Fort Lauderdale building, and tax refunds will help. The Fort Lauderdale building sale was concluded at the beginning of October, so it was a fourth quarter event and it was part of a planned facility consolidation. The consolidation is expected to be completed by the end of the second quarter in 2022. We're forecasting rolling four-quarter EBITDA margin improvements as we move through 2022, with the goal of moving our leverage below 3.5 times adjusted EBITDA. Our maximum leverage for the fourth quarter of this year is 5.5 times based on net debt as a reminder. Short on cash flow. Cash flow from operations for the third quarter was poor and was driven by an increase of about $21 million in net working capital in the quarter. The larger pieces of the working capital changes during the quarter were accounts receivable, which increased by $10 million, inventory increased by $4 million, and payables were down by $6 million. Having an impact on the receivable balance was increased sales to customers with payment terms of 90 days during the quarter. So that is driving a lot of the receivable increase that you see on the balance sheet. And that concludes my remarks, Pete.

Looking ahead, we are forecasting fourth quarter revenue of $115 million to $118 million. We took into account supply chain constraints when we made this estimate. At the beginning of the quarter, our backlog was $354 million, with $113 million set to ship in the fourth quarter. One might expect that moving from $113 million to a range of $115 million to $118 million shouldn’t be too difficult, and I agree. Under normal circumstances in a typical book and ship business, starting with $113 million, we would anticipate being in the mid-120s at least. However, due to the supply chain constraints, it is challenging to rely on achieving that. There are factors on both sides of the estimate, but our most accurate projection is currently between $115 million and $118 million. We are not yet prepared to make predictions for 2022. We hope to provide more clarity when we discuss our fourth quarter results. However, we do expect strong double-digit growth for the year. Everything seems to be aligning, barring any unforeseen developments, and we are optimistic about a robust double-digit growth year ahead. I’m looking forward to 2022 and am eager to move forward. That concludes our prepared remarks. Darryl, let’s open it up for questions now.

Thank you. We will now be conducting a question-and-answer session. Our first question has come from the line of Jon Tanwanteng with CJS Securities. Please proceed with your questions.

Hi. Good morning, guys. Thank you for taking my questions. My first one is on Pete. I was wondering if you'd give us a little more color regarding that bit of aerospace booking to go into tests. I'm not sure what exactly that means or what kind of product line that was?

Can you say that again, Jon? I'm not sure I followed.

I think you said that you booked something into aerospace that you said would have gone into the other segment. I'm not sure I quite understand.

Other revenue is categorized into military, business jet, commercial, and other segments, and it will be reflected in the other category.

Understood.

In the Aerospace segment.

Okay. Got it. That makes more sense now. Okay. And I caught the comment that you had planned for supply chain disruptions in Q4. I was just wondering if you meet $8 million to $10 million or pushed out that much into Q4 from Q3, is there an expectation of the same amount as you go into Q4 and roll into 2022, or is that number going to increase or decrease? I'm just wondering how you tried to handicap that going forward.

That's a great question. We believe the situation may worsen in the future. We conduct regular reviews with our business units, and I often ask whether the supply chain situation is improving or declining. Currently, with around 12 or 13 operating units, no one is reporting an improvement. Some indicate that conditions are stable, but no one is saying it is getting better. This suggests that overall, the situation is likely deteriorating, which is disappointing. We have taken this into account when predicting our performance for the fourth quarter. We will share specific numbers when the time comes, but we anticipate that the figure of $115 million to $118 million is a reasonable estimate.

Got it. Thanks for that color. I was just wondering what your thoughts are on widebody production and retrofits going into next year now that these travel restrictions are lifting and frankly, everybody was hoping and waiting for this. So, is it in line with expectations, or do you think there might be some upside? Just help us understand how much has been made now versus how much you expect to get to next year?

I don't expect production rates necessarily to move much next year. I think the well-publicized rates by Boeing and Airbus probably take this into account, but we would hope that there would be activity on the retrofit side for our main products, for commercial transports, which are mostly in-flight entertainment related. And I guess I would tell you that if the narrowbody trends are any indication, when it comes back, it should come back pretty strong. So, production rates nice, but aftermarkets nice also. I'd expect to benefit from an aftermarket pickup before production rate pickup.

Okay. Great. Thanks. I'll jump back in queue.

Thank you. Our next question is coming from the line of Michael Ciarmoli with Truist Securities. Please proceed with your questions.

Hey, good morning guys. Thanks for taking the questions.

Good morning.

Maybe Dave first, can you clarify if you are making any adjustments or adding anything else back to the EBITDA to reach the covenant level? I think you mentioned that the rolling four-quarter leverage should improve to below two times, but are there any other factors to consider?

No, no. I don't think if I said the rolling four-quarter EBITDA leverage improved to two times, that was a mistake.

No, no. I said that 3.5 times.

I said that's what our goal is as we move into 2022.

Got it. Okay.

No. To get to the covenant adjusted EBITDA number, you need to adjust your traditional EBITDA calculation for the non-cash expense items that you have on the top part of the income statement. That's the largest. And we did utilize about $6.6 million of excludable legal expense for the quarter to increase our adjusted EBITDA.

Okay. Okay. Got it. Got it. Helpful. And then maybe just more on the supply chain, Pete, I guess, looking at aerospace, you had that little bit of $1 million, $1.1 million tailwind, but you were just about at breakeven operating margins, probably could have been significantly better had you had that extra $8 million to $10 million drop through in there. When we think about the pressures from the supply chain and maybe inability to get product out the door, can you specify as this all electronic components, chips, and then can you maybe talk about the pricing environment as well? Are you having to pay significantly more for some of your raw material inputs and whether there's freight, logistics and how we should think about that going forward in terms of impacting segment margins?

Sure. We are seeing pressures in a wide range of commodities that we buy. I would say the biggest general areas in electronic components because we build a lot of electronics and a lot of assemblies that require chips and diodes and capacitors and components that come primarily from Asia. So that has definitely been a point of pain. But we're also seeing it in things that you might not expect, like plastics or even paint. We do have some parts of our business that are heavily dependent on electric molding and die-casting things like that. And even those kinds of materials have been problematic. So, it's pretty widespread. And in part of the frustration, frankly, it's unpredictable. You get your bid on a program and you refresh your suppliers and you get pricing and lead times, and you relay that to your customer. And then the customer gives you an order and you go to place an order. And something they said was eight weeks is now 30 weeks. That kind of thing can really screw up delivery schedules. We are seeing some price pressure, primarily in the area of going out and doing spot buys because our blanket arrangements with existing subcontractors are falling short. They're just not delivering on time. So, we are seeing some of that. I think it's not something that we would consider permanent at this point, but certainly troubling and problematic. I mean, it's going to play through our income statement in the beginning of next year. We're still trying to figure out exactly how to quantify it. But our perspective is that our customers want parts, and we have a history of servicing them to a certain standard, and we're going out and buying some components over and above what existing backlog justifies in anticipation of being able to support those orders when they come in. So, it's a little bit of a guessing game to some extent, but when you're looking at customers that expect things in 12 weeks maybe, and suppliers that are now pushing things out to 20 or 30 weeks, you've got to kind of take proactive action. So, I'm going to turn it over to Dave to see if he wants to augment that discussion at all.

Yeah. It's particularly hard to quantify, because you can take one group of materials, say the resistors, and some are available and some aren’t available. Some have had 20%, 30% price increases, and some have not. So, it's not a straight-across-the-board situation on all similar components, and it's difficult to project.

What about pricing? Are you increasing prices for your customers? With your significant market share globally, it seems likely that you could successfully implement price increases, whether for airline customers, OEMs, or IFE providers. Any insights on this?

I think you are correct. Compared to many companies, we likely have a bit more flexibility in pricing and short-term ordering patterns that will enable us to adjust accordingly. However, I emphasize that this will enable us to do so, rather than implying we have already made those adjustments. In some areas of our business, we have raised prices to account for increased costs or a decline in volume. Additionally, we have blanket agreements with several key customers that are dependent on volume, and those volumes have decreased due to the overall pandemic impact on the industry. In certain parts of our business, we are also implementing innovative strategies like temporary surcharges to address what we believe are short-term cost increases. This approach has been somewhat effective, as we haven't encountered significant pushback on it. We are certainly monitoring the situation closely. However, I should mention that the price increases we've experienced thus far are surpassing the prospects we have for raising prices for our customers. Eventually, things will balance out, but this process may take three to four months, or possibly as long as six months to a year before everything stabilizes.

Got it. All right. Perfect. I'll jump back in the queue.

Okay.

Thank you. Our next question is coming from the line of Dick Ryan with Colliers Securities. Please proceed with your question.

Thank you. Hey, Pete, what is the status of the earn-out on the semi-business sale? Where does that stand at this point?

No real change in that. We're hoping to get that resolved here. We have opportunity perhaps later this month where something may break loose, but we don't have anything new to report on that at this point, Dick.

You've received strong orders for the AeroSat, the satellite tail-mount, and the satellite antenna. What is your outlook for those products? Additionally, you've had two bulk orders; how do you see the tail-mount performing as we move into 2022?

That's a solid outlook. In terms of percentage, this is likely to be one of our fastest-growing product lines, although it's still relatively small. We anticipate revenues in the mid-$20 million range, which represents a 30% to 50% increase. This is one of the areas where we could potentially deliver much more if we were able to secure the parts, but the assembly is quite complex and has a long supply chain, which presents challenges. However, this is an example of how we could, especially in the fourth quarter, potentially achieve double what we are currently planning if we could just obtain the necessary parts.

Okay. And can you comment on the down-select, maybe timing as you see it for FARA and FLRAA and how you're playing into either one of both?

FARA is still some time away and is behind FLRAA, so I will focus my comments on FLRAA. We believe that the architecture desired by the army strongly supports our technology. We anticipate a down-select between the Lockheed, Sikorsky team and the Bell team around late first quarter or the end of the second quarter of 2022. We are a key member of the Bell team, and our role there is well-defined, though still evolving. We're also optimistic about potential opportunities with Sikorsky if their team is successful, but that seems less likely at this moment. If the Bell team is selected, it could lead to a significant program for us in the latter half of next year from a development standpoint. The corresponding shipments would likely represent the largest volume we’ve ever seen in that kind of product, specifically the electrical power distribution system. We will share more details as the situation develops, but this is essentially an event projected for the first half of 2022.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Hi. Thank you for the follow-up. Dave, I was curious about the use of networking capital and the slight increase in revenues, as well as the potential margin challenges for the next quarter. Do you anticipate staying in line with your covenant next quarter, and what are the factors influencing that, particularly regarding some of the one-time items you've mentioned?

We expect to remain compliant and improve our leverage ratio in the fourth quarter. We anticipate an additional $5 million of AMJP cash coming in during this period. We received nearly $9 million from the sale of a building at the start of the fourth quarter. Additionally, we expect about $10 million in tax refunds to arrive in the fourth quarter. This totals around $20 million to $24 million in cash inflows from non-operating sources, which will be beneficial. Furthermore, we are projecting top line growth from $111 million in the third quarter, increasing by $4 million or $5 million in the fourth quarter, which will also contribute to margin improvement.

Thank you. As we approach next year, Pete, you mentioned feeling confident about strong double-digit growth. I am curious about the headwinds related to inflation, such as plastic and labor costs, and the challenges of hiring and retaining staff. What kind of EBITDA margins can we anticipate in that scenario? Are you considering this on a full-year basis, or do you expect improvements as we progress through the quarter? How should we view the growth potential next year if you achieve the targets you have in mind?

Well, there are obviously a lot of big unknowns and we don't typically give bottom line guidance. So, if we're reluctant to issue top line guidance at this point, it's the bottom line is even that much more complex. But if we can do strong double-digit and I would expect if things were to work halfway reasonably, we're going to be well into double-digit growth. It ought to have a very strong positive impact on our income statement. I don't think we're set up to get back to a 15% EBITDA number at this point, but we should take some pretty solid steps in that direction. And I think we need to table the discussion before we get into any more detail until we can talk about revenue confidently. But certainly, we would expect to start to see stronger adjusted EBITDA numbers at that higher revenue level. Dave, I don't know if you want to comment.

No. I agree. I agree. I think it's the top line. And we're going to have the additional contribution margin from that strong sales growth we're expecting, but there'll be some offset to it with the inputs on cost going up a little bit there. But I think we'll start the process of working our way back. We won't get into those double-digit EBITDA multiples next year. I don't think. But certainly, as we move into 2023, that's something that is within range. But I do think we'll improve steadily as we move through 2022.

Okay. Great. And then last one for me. Just regards to the new orders in the quarter, $153 million. Does that mean you have a line of sight to a quarter that's about that big in revenue terms within the next two or three quarters or is the timing or lumpiness of that going to preclude that from happening as you see it, help me understand what's the timing and lumpiness in the backlog was like?

It's a good question. I think we do have line of sight trending in that direction. I mean, you look at the last four quarters cumulatively, we have bookings of $516 million and that's with $280 million or so in the last two quarters. And if we get any kind of continued improvement, we ought to be able to push that forward quarter moving total up to the close to the $600 million level. So sooner or later you got to ship that stuff, right? So, we're obviously going to struggle. We think for a while with supply chain, like everybody else in the world. And I don't know where all the workers went, but hopefully some people start coming back into the labor market. But the best takeaway from our position right now, looking backward at the third quarter and even the early days of the fourth quarter is that demand picture is really strengthening nicely. And so, we think that's a very positive trend. Dave and I were talking this morning and we both feel that you'd much rather have supply chain problems and very strong demand rather than demand problems and no supply chain or supply chain working normally. So, if you have to have problems in one place or the other, we like it where it is, I guess.

Sure. I got it. And good luck. Thank you.

Thank you. Our next question comes from the line of Michael Ciarmoli with Truist. Please proceed with your question.

Hey. Thanks for the follow-up. Pete, could you clarify what types of products the $17 million in bookings for aerospace are going into?

They are not related to aerospace. You might remember, Michael, that when the pandemic began, we redirected some of our facility and personnel resources to our contract design and build programs, which are now yielding significant volumes. We mentioned one project recently, specifically a hand-wash station utilizing oxygenated ozone. This has proven to be very popular among organizations and facilities concerned about COVID-19, leading to strong orders that represent a large portion of that $17 million. I should mention that there are additional projects in the pipeline, although it's challenging to predict their outcomes at this time. The growth of these initiatives has taken longer than we anticipated since we launched them in response to COVID, but we expect them to generate solid business throughout 2022 and to be a key driver for us.

Got it. Two other quick ones. F35, how are you guys thinking about that into next year? Is that going to be a potential headwind, just given the rebate funding of that program?

Yeah. It's an evolving picture, isn't it? F35 is a pretty important program for us. We have shifts that content, off the top of my head, somewhere in the neighborhood of $80,000 or so on that airplane. And it's an important program for us. I guess rates are expected to drop a little bit next year, but there are other things in terms of upgrades and changes that we think might compensate. So, we don't think that's going to be a serious headwind for us next year.

It seems like you're asking about the breakeven point for the company, previously mentioned around $115 million. Given the current challenges with the supply chain and rising costs, do you have an updated perspective on whether we should still consider the breakeven level to be in the range of $115 million to $120 million?

In terms of EBITDA breakeven?

I was thinking operating income.

Yeah. For the reasons you said it's tough to predict there. It's probably moved up a little bit from there, and changes from day to day, given kind of where the material costs are going. But the breakeven point is definitely gone up a little bit from where we were say a year ago in that regard.

Got it. Perfect. Thanks guys.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Gundermann for any closing comments.

No comments. Thank you for your attention today. We look forward to talking to you again. Have a good day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.