CIRCOR International, Inc.

Greetings, and welcome to SERCOR International's second quarter 2022 earnings conference call. If anyone should require operator assistance during today's call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the conference over to Scott Solomon, Senior Vice President of the company's investor relations firm, Sheryl Merrill Associates. Thank you, sir. You may begin.

Thank you, and good morning, everyone. Before we begin, let me remind you that our earnings release and presentation are available on CIRCOR's website at investors.circor.com. If you'd like to receive copies of these materials, please email CIR at investorrelations.com, and our IR team will provide them for you. Turning to slide two, today's discussion will contain forward-looking statements that represent the company's views only as of today, September 30th, 2022. These expectations are subject to known and unknown risks, uncertainties, and other factors, and actual results could differ materially from those anticipated or implied by today's remarks. While SERCOR may choose to update these forward-looking statements at a later date, the company specifically disclaims any duty to do so. You can find a full discussion of these factors in SERCOR's Form 10-K, 10-Qs, and other SEC filings also located on our website. As referenced in slide three, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures are available in our earnings press release. Please turn to slide four. Joining me on today's call are Tony Najjar, SIRCOR's President and Chief Executive Officer, and A.J. Sharma, Chief Financial Officer and Senior Vice President of Business Development. Tony will begin with a strategic overview and the highlights of our second quarter performance. AJ will review the financials and discuss our guidance for full year 2022. Tony will provide our market outlook, and then management will be happy to take your questions. Now please turn to slide five as I hand the call over to Tony.

Thank you, Scott. Good morning, everyone, and thank you for joining us to discuss our second quarter 2022 financial results. A lot has happened since we last spoke with you in this forum. including the completion of our financial restatement, the board's initiation of a review of strategic alternatives, the exit from our loss-making pipeline engineering business, and the appointment of a new executive leadership team. As president and CEO of CIRCORP, I am committed to ensuring we maintain a culture of value creation across the company. This starts with our most important assets, our people. We are investing in their development and providing a diverse, inclusive, and engaged workplace that allows them to leverage their unique backgrounds and experiences. During the past several months, I have had the opportunity to visit 12 of our 14 manufacturing sites in Europe and the U.S. and to interact with our teams at all levels. Additionally, I have had the opportunity to interact with our teams across the globe through virtual all-hands meetings. As you can see from our first half 2022 results, our team remained resilient and executed well in the face of macroeconomic headwinds and a challenging geopolitical environment. In addition to meeting with our teams, I continued to spend significant portion of my time engaging with current and potential customers. Over the past several months, I have had the opportunity to meet with over 20 of our top customers. These interactions have only reinforced the value of our products and services and the strength of SOAR course brands across our A&D and industrial businesses. Before we get into the specifics of Q2 and our full-year outlook, let me take a few minutes to reacquaint you with our company and discuss the progress we are making on our strategic priorities. We supply flow control solutions that support severe service and mission-critical applications in two large and growing segments, industrial, which in 2021 accounted for about two-thirds of of roughly $759 million in revenue, and A&D, which made up the balance. The third core family of brands, including Aerodyne Controls, a leading supplier of critical products to the defense market, Allweiler, a market-leading German pump supplier, Warren Pumps, a critical supplier to the US Navy, as well as others shown here on slide five, are leaders in their respective markets. Our industrial products serve a range of critical applications in various end markets, including commercial marine, power generation, various general industrial markets, including chemical processing, machine tools and automotive, and midstream and downstream oil and gas. Our aerospace and defense segment is relied on by commercial and military customers across the globe, and we have strong positions on key platforms in both categories. Our products are used for mission-critical applications on commercial aircraft, submarines, aircraft carriers, fighter jets, and various missile programs. Turning to slide six, we are focusing on three strategic priorities to drive growth and profitability across our businesses, margin expansion, organic growth, and delivering the balance sheet. Starting with margin expansion, we are driving actions in four key areas, value-based pricing, simplification, best-cost country manufacturing, and factory modernization. For the past few years, we have successfully used value-based pricing in our A&D segment to drive growth and margin expansion. We are now implementing the same philosophy and 80-20 principles in our industrial segment with positive results. I'll cover our near-term expectation regarding value-based pricing in just a minute, but we expect to see a significant price-cost benefit in our industrial segment in 2022. Looking at simplification, we continue to evaluate our cost structure across the company and identify opportunities to simplify operations while aligning our teams closer to our customers. These initiatives have already resulted in structural costs out in the first half of 2022 of about $12 million on an annualized basis, and we have identified additional opportunities for future implementation. In addition, we are continuing to drive sourcing activities from best-cost countries, as well as increasing capacity of our manufacturing sites in Morocco, India, and China. Moreover, we are making selective capital investments in our factories focused on improving productivity and supporting growth, and we expect these investments to generate significant savings when fully implemented. Moving to organic growth, our strategy to increase connectivity with our customers is critical to our ability to drive organic growth. Our engineering, product management, and sales teams are working closely with current and potential customers to leverage our products and technologies into growing markets like hydrogen, lithium batteries production, medical equipment, and space while continuing to drive growth in our core markets. The key growth engine across our businesses is our aftermarket, which accounts for an increasing share of our revenues and profitability. Our revenues from the aftermarket represent about 40% to 45% for our industrial segment and about 25% to 30% for our R&D segment. Leveraging our aftermarket position has been one of the key drivers in the solid margin expansion that we have achieved in our A&D business over the past few years. We are leveraging the playbook from A&D along with the 80-20 principles into our industrial segment to drive growth and margin expansion. Our third strategic priority is de-levering the balance sheet. In addition to the continued focus on improving cash flow from operations, we have leveraged selective sale-leaseback opportunities to pay down debt, and are continuing to evaluate additional options. AJ will provide more details on the sale leaseback initiatives and leverage in his prepared remarks. I also want to touch on our strategic alternatives review, which our board announced back in March. The process is ongoing, and the board and management team are committed to pursuing all possible options to maximize shareholder value. We don't intend to comment further on the process unless and until the Board has determined that such disclosure is appropriate or required. Turning to our second quarter highlights on slide seven, our team executed well, navigating ongoing supply chain challenges, the inflationary environment, and labor shortages. Organic orders were up 5 percent for the quarter, and our backlog heading into the second half of the year was a robust $477 million, up 9 percent from prior years. Our revenues in the quarter were up 2% reported and 8% organically. Adjusted operating margin was up 280 basis points as a result of our margin expansion actions. Additionally, we estimate that global supply chain disruptions delayed approximately $6 million of revenue in the quarter, which translates into about three points of organic growth. The demand environment for our products continue to be positive, and we feel good about our business as we move through the second half of the year and into 2023. Moving to slide eight, I'll provide some additional color on two growth opportunities where we are leveraging our core technologies and manufacturing capabilities in new and adjacent markets. First is the fast-growing hydrogen market. We introduced two critical products late last year, a balanced isolation valve and dome regulator for application on hydrogen tube trailers. These products were subjected to rigorous testing for certification to European transport directives. Since we launched these products in late 2021, we have captured over $8 million in orders that we are currently executing. Additionally, we captured another $3 million in hydrogen-related applications that we have been pursuing. We expect to continue to see growth in this developing market as we move into 2023 and beyond. In medical, we are leveraging our design and manufacturing capabilities to supply critical products used in blood collection devices and cardiac assist equipment to leading medical equipment OEMs. The medical product line has contributed about $24 million of orders year-to-date with potential for further growth. Before I turn the call over to AJ, I would like to discuss our value-based pricing initiative since it has and we expect it will continue to have a significant and positive effect on our margin expansion priority. On slide nine, you can see the effect we expect value pricing to generate in 2022. In A&D, this includes 100 basis point improvement in price as a percentage of sales from our well-established pricing process, leveraging NAFTA market and price escalations on long-term contracts. In industrial, this includes an expected 330 basis point improvement as a percentage of sales, leveraging our strong position in the aftermarket, and selected pricing actions in the for-market. Now, let me turn the call over to Ajay to cover the financial results in more detail.