Kaman Corporation

a day, and thank you for standing by. Welcome to the Command Corporation first quarter 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the conference over to your speaker today, Jamie Coogins. Vice President, Investor Relations, and Corporate Development. Please proceed.

Good morning. I'd like to welcome everyone to Command's first quarter 2021 earnings call. Conducting the call today are Ian Walsh, Chairman, President, and Chief Executive Officer, and Rob Starr, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to note that some of the information discussed during today's call will consist of forward-looking statements setting forth our current expectations with respect to the future of our business, the economy, and other future events. These include projections of revenue, earnings, and other financial items, statements on plans and objectives of a company or its management, statements of future economic performance, and assumptions underlying these statements regarding the company and its business. The company's actual results could differ materially from those indicated in any forward-looking statements due to many factors, the most important of which are described in the company's latest filings with the Securities and Exchange Commission, including the company's first quarter 2021 results included on Form 10-Q and their current report on Form 8-K filed yesterday evening together with our earnings release. We also expect to discuss certain information that are non-GAAP measures, as defined in applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8K. With that, I'll turn the call over to Ian Walsh.

Thank you, Jamie. Good morning, everyone, and thank you for joining our first quarter 2021 earnings call. I'd like to begin today's call with a brief summary of the quarter, followed by operational updates in our key product categories and an update on a couple of our R&D efforts. I will then turn the call over to Rob for a more detailed discussion of our financial results for the quarter. Relative to our internal plan and the guidance we detailed on our fourth quarter call, we are off to a good start in 2021 with sales of 171.6 million and earnings per diluted share of 29 cents. These results ran modestly ahead of our expectations, particularly on the profit line, which benefited from the timing of customer deliveries, a favorable closeout of option 14 of our JPF-USG contract, and strong cost control efforts. Compared to the prior year, net sales declined 17.2%, with organic sales down 14.5%. This was expected as we anticipated fewer deliveries this quarter for our JPF program, and our commercial aviation products faced a tough comp versus Q1 2020, which was minimally impacted by the pandemic. These declines were partially offset by recoveries in demand for our medical industrial products. Our first quarter adjusted EBITDA with 17.1 million, or 10% of sales, up 70 basis points sequentially, but down 260 basis points from the prior year period, which again was minimally impacted by the pandemic. The lower year-over-year profit performance was largely the result of lower sales volume on our higher margin commercial and general aviation products coupled with an unfavorable mix of JPF deliveries in the current quarter. Recall that in 2020, first quarter JPF volume was weighted to our higher margin DCS orders. Despite lower sales, our first quarter results benefited from our comprehensive cost control efforts with adjusted SG&A as a percentage of sales remaining flat sequentially. Turning to our product offerings and beginning with our specialty bearings products. As anticipated, sales were down compared to the first quarter of 2020 due to the impact of COVID-19. Our self-lubricating bearings continue to be impacted by pandemic as they are sensitive to commercial aerospace volumes. This headwind was partially offset by recoveries in our industrial bearings led by strong performance from our miniature bearings and engine aftermarket components. And we expect the strength in these two product categories to continue through the remainder of 2021. Furthermore, as commercial airline traffic begins to rebound and as vaccination rates rise in the United States, we anticipated significant ramp in sales for our commercial bearings products, which will be weighted towards the second half of the year. Sales for our springs, seals, and contacts remained relatively flat this quarter when compared to the prior year, but are well ahead of the pandemic lows as evidenced by sequential increase in sales of 36%. Importantly, medical sales in the first quarter of 2021 for these products are now at or approaching pre-pandemic levels, and our order rates support an expected increase and elective surgeries, which we expect to benefit our medical and plannable products through the balance of the year. Similar to bearings, we continue to expect improved performance for these products through the balance of 2021, particularly in the second half. Turning to our joint programmable fuse program, we delivered approximately 8,100 fuses during the quarter. Below the 10,000 units we delivered in the prior year with less favorable profit contribution due to the mix of USG and DCS fuses. We are on plan to deliver 30,000 to 35,000 fuses this year, consistent with historical delivery levels for this product. Looking at our KMAX program, we delivered one aircraft during the period, and for the full year, we continue to expect to sell four aircraft in total. We remain optimistic about the prospects for both our manned and unmanned KMAX programs, and in April, we completed the first test flight of our new unmanned helicopter, the KMAX Titan. Our results for the first quarter represent a strong start to 2021. As we look ahead, we have continued confidence in our performance with an expected ramp up as we move through the year based on a meaningful recovery in our commercial aviation business in the second half. Before turning the call over to Rob, I would also like to provide an update on some of our R&D initiatives. As we outlined initially as part of our industrial distribution divestiture in 2019, we saw a tremendous opportunity to refocus our efforts to build a lean and efficient command that drives shareholder value through innovation, which has been at the core of our culture throughout a rich 75-year history. We have diligently been investing in various R&D projects, and I'm pleased to provide an update on two exciting opportunities we have been working on. First, during the quarter, we opened our new production cell for products manufactured using our proprietary titanium diffused hardening process, or TDAH. With our unique TDAH process, we're able to provide highly efficient, high-load components using this lightweight material that provides both improved durability and weight reduction for our customers. While our initial efforts are focused on marketing this technology to our core aerospace and defense customers, we are encouraged by initial feedback from prospective industrial and medical customers. We believe this type of innovation will prove to be a meaningful driver and strong differentiator for Command, and I would like to congratulate our development team for its incredible efforts in bringing this product to market. Second, we continue to make investments in the development of our unmanned autonomous cargo technology. As mentioned earlier, we completed the first test flight of our new unmanned autonomous K-Max Titan in April. This system is designed for rugged applications with lift capability of up to 6,000 pounds. This test advances our position as a leader in unmanned lift, allowing both our commercial and military customers the ability to operate autonomously in any location or weather. In addition to our heavy-lift aircraft, we recognize the opportunity we have to leverage our core software technology, and we've begun development of a new airlift application, which will serve a much wider addressable market. This next-generation, purpose-built UAS addresses medium-duty lift requirements and is expected to provide a potential for substantially higher unit volumes. To support this effort in coordination with our customers, we have committed an incremental 3.5 million in additional R&D spend in 2021. Although it is a bit early to disclose specifics, we believe each of these initiatives has the capability to be meaningful contributors to our overall product portfolio in the coming years, and we look forward to updating investors on developments in the coming quarters. Now I will turn the call over to Rob for a closer look at the numbers.