Kaman Corporation

Good day, and thank you for standing by. Welcome to the Command Corporation second 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Rebecca Staff, Vice President of Accounting. Please go ahead.

Good morning. I'd like to welcome everyone to Command's second quarter 2021 earnings call. Conducting the call today are Ian Walsh, Chairman, President, and Chief Executive Officer, and Jamie Coogan, Senior 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 the 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 statement due to many factors, the most important of which are described in the company's latest filing with the Securities and Exchange Commission, including the company's second quarter 2021 results included on Form 10-Q and the current report on Form 8-K filed yesterday evening together with our earnings release. We also expect to discuss certain financial measures and 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.

Good morning, everyone, and thank you for joining our second quarter 2021 earnings call. I would like to begin today's call with a brief summary of the quarter and our revised guidance, which reflects improved profitability for the year, followed by updates on operations and several of our key R&D growth initiatives. I will then turn the call over to Jamie for a more detailed discussion of our financial results. Before jumping in, I would like to first congratulate Jamie Coogan on his recent promotion to Chief Financial Officer. Since joining Command, I've had the opportunity to get to know Jamie quite well. and work closely with him on key initiatives. I believe his strong knowledge of our company and relationships with our external stakeholders, coupled with his training and financial skill sets, will prove invaluable as we move Command forward and execute on our strategic priorities. Jamie has a great work ethic and strategic mindset, as well as a strong reputation and history with Command. I'm excited to have him on our leadership team, and he has already hit the ground running. Turning to our results, halfway through the year, we are running ahead of our internal projections, which gives us confidence in raising our full-year outlook for adjusted EBITDA and diluted earnings per share. Our quarter was driven by performance across most of our product lines, primarily our engineer products portfolio, as we continue to position ourselves for the recovery of the commercial aerospace market. Sales in the second quarter were $182.4 million, which was up 2.5%, or 5.4% organically compared to the prior year. Adjusted earnings per diluted share of $0.56 was also higher than the prior year, and we continue to see sequential improvement as business conditions start to normalize in many of our end markets. Our second quarter adjusted EBITDA was $26.9 million, or 14.8% of sales, up 480 basis points sequentially and up 140 basis points from the prior year period. our stronger profitability was mostly related to better volume for high-margin products. More specifically, strength in our springs, seals, and contacts, a favorable mix weighted toward DCS and our fused business, and improved leverage as a function of our new operations excellence model across the company. We saw sequential improvement for total bearings demand in the quarter. This improved volume stems from very strong performance from our miniature medical bearings, which ran above pre-pandemic levels in the quarter, and solid order rates of our traditional bearings in engine aftermarket solutions. These improvements were partially offset by the timing of the recovery this year of our self-lubricating bearings in the commercial aerospace end market. As commercial airline traffic continues to rebound, we anticipate a significant ramp in sales for our commercial bearings products in the second half of the year. Turning to springs, seals, and contacts, volume and performance continued to improve sharply in the second quarter. I am pleased to report that we are now running ahead of pre-pandemic levels. These results speak to the resiliency of our portfolio of highly engineered products within the medical and industrial end markets. With higher volume, we also posted improved margins and profit, and this performance was one of the primary drivers of our improved results against the prior year sequentially and our internal plans. Absent any further impact from the COVID variants, we expect growth to continue through the balance of the year into 2022. For our joint programmable fuse program, we delivered 8,200 fuses during the quarter. Our financial performance for all fuse and precision products was roughly in line with the prior year, as a higher mix of DCS orders offset volume. For the full year, we are on track to deliver 30,000 to 35,000 fuses, consistent with historical delivery levels for this product. Looking at our KMAX program, we have shifted the delivery of our second KMAX in the second half as a function of end customer timing and financing of their fleet. We continue to expect to sell four aircraft within the year as we see strong interest and we remain optimistic about the prospects for both the manned and unmanned KMAX. During the quarter, we continued the development of our commercial unmanned system and we are working closely with the Marine Corps on the retrofit of their unmanned KMAX aircraft. Finally, in our structures programs, sales were pressured in the quarter as a result of lower commercial aerospace demand and some challenges related to workforce levels in some of our facilities. We continue to focus on employee training and retention as a function of our talent strategy to support our businesses. We anticipate these challenges will ease as we progress the second half of the year. Before turning the call over to Jamie, I would also like to provide an update on some of our important R&D initiatives that we discussed last quarter. I am very pleased to announce that during the period, we completed the design, fabrication, and assembly of a half-scale, purpose-built, medium-lift autonomous aerial vehicle and achieved several successful test flights. We expect to demonstrate this half-scale aerial vehicle in the upcoming quarter and are excited to share this innovative product with customers, investors, and stakeholders. This new platform leverages the technology developed on our unmanned autonomous KMX Titan and broadens its missions and addressable market to medium lift requirements in both defense and commercial applications. As we noted last quarter, to support this effort in coordination with our customers, we have committed additional R&D spend in 2021. On our proprietary titanium diffused hardening process, or TDAH, we continue to work with target customers on this application and assess the total addressable market for this solution. In addition to winning new positions on commercial aircraft in the second quarter, the TDH technology was utilized in a successful human space travel mission in July. The lightweight, high-performance, low-friction bearing system solutions provided by TDH were a great fit for this mission. In addition to commercial space travel, this technology is perfectly suited for new land, sea, and air platforms, as well as our traditional commercial, business, and general aviation market. We are also eager to expand its capabilities into the medical and industrial end markets as we work closely with our customers to provide creative solutions. We believe this type of innovation will prove to be a meaningful driver and strong differentiator for Command in the future. In addition to costs associated with our R&D, we incurred modest expenses in the quarter for efforts on several specific acquisition targets. We have a meaningful and strategic pipeline of targets, that we will continue to assess that align with our strategy and our new vision, which is to propel our customers forward by imagining and delivering highly engineered solutions. Furthermore, we have recently been approached by multiple leading eVTOL companies who are seeking manufacturers like Command to industrialize their manufacturing process and assist in the complex certification process for these types of aircraft, We believe our legacy as a precision designer, builder, and certifier of vertical lift solutions positions us well to capture market share in this space. Overall, we are very pleased with our financial results and the progress we have made year to date against our strategic goals. Most of our end markets are recovering from the lows of the pandemic, and we are beginning to see the underlying earnings power of our business at higher volumes and the power of our new operations excellence model taking root. As we look to the back half of the year, we are well positioned to deliver on our commitments. Now I want to turn the call over to Jamie for a closer look at the numbers.