Kaman Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Command Corporation Q1 2022 earnings 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 need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, Carrie Bear. You may begin.

Good morning. Welcome to Command's first quarter 2022 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, please 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 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 2022 results included on Form 10Q 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 of defined and applicable SEC rules and regulations. Reconciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K. Finally, we posted an earnings call supplement on our website which provides additional context on our financial performance and our outlook for 2022. You can find this presentation at www.command.com slash investors slash quarterly earnings calls. Now, I'd like to turn the call over to Ian Walsh.

Thank you, Carrie. Good morning, everyone. It's nice to have you all with us today for our first quarter 2022 earnings call. I'll start by providing highlights on the quarter and then share some operational and business updates along with some respective innovations in each segment before passing the call over to Jamie to for a more detailed discussion of our financial results. Results for the first quarter were in line with our expectations with lower sales, earnings, and EBITDA relative to both last quarter and the first quarter of 2021. This was primarily due to the timing of K-Max sales and mix of JPF sales. Gross margin for the company increased 120 basis points to 32%, driven by the significant improvement in year-over-year sales and margins for the engineer products segment. Overall, we remain on target to meet our guidance for the full year. Our first quarter, we saw strong demand across the commercial, business, and general aviation markets, led by meaningful order intake for our bearings, springs, and seals, contacts products. In fact, sales to Boeing and Airbus were higher for the third quarter in a row, a solid indicator that airline demand is rebounding. These order increases have contributed to a 23% improvement in our backlog for engineer products since the beginning of the year. The activity seen in the first quarter is encouraging and gives us confidence in the higher sales and improved margins we anticipate over the balance of the year. One of our strategic pillars is to become the best in class at what we do every day as a function of deploying more training and executing against our operations excellence model. I am pleased with the efforts of our highly capable leadership team and workforce to implement the model, which is grounded in rigorous lean and Six Sigma tools. They have worked to improve many of our value streams inside several of our business units, such as our targets for safety, quality, delivery, and cost-out, while improving our working capital. In fact, we have seen promising progress at one of our structure segment sites, where we have achieved double-digit EBITDA margins for the third quarter in a row. There is still significant progress to be made as we focus on delivering improved performance. Now let me highlight the performance for each of our segments and also share some of their respective innovations that will continue to help us grow organically. Our engineered products segment delivered outstanding results with year-over-year sales, adjusted EBITDA, and margin growth in the first quarter, driven by our seals, springs, and contacts products. This strength in medical and industrial demand is expected to continue in 2022, and we have increasing confidence in incremental recovery in commercial aviation. Our employees continue to provide innovative solutions that push the boundaries of application engineering and materials science to meet the needs of our customers. One such technology in our engineered product segment is our miniature bearings for turbo molecular pumps. These highly customized bearings provide superior precision and quality for customers in high-tech industries where ultra-clean environments are required, such as those used in production of semiconductors and solar panels, analysis using laboratory equipment, and application of surface coatings. They are a superior solution for applications that have challenging aspects, such as those with high vacuum, high vibration, limited thermal dissipation, or low dry power. Command aspires to be the global leader in this highly profitable and specialized market within this decade. We talked last quarter about our proprietary titanium diffused hardening process, which provides the benefits of titanium alloys, like extending service, improving hardness and durability, and wear characteristics for a wide range of end markets outside of aerospace and defense. Our team continues to make meaningful progress exploring a variety of medical and industrial applications for this technology in markets such as orthopedic surgery, weapon accessories, and even Formula One racing. Additionally, our ball seal business continues to break internal records relative to their growth and market expansion with their proprietary candid coil springs and seals in applications from the F-35 Joint Strike Fighter to neuromodulation therapies used in the human body. Our precision product segment continues to transform. and we pivot to new technologies and markets. Regarding GPF, we expect lower sales and impact from Mix over time. We continue to focus on filling our DCS funnel and are pursuing several meaningful opportunities that are expected to increase our backlog and extend the life of the program. As we have said during prior quarters, we anticipate offsetting the reduced volume with organic growth in other areas of our business, as well as accretive acquisitions. We've increased our R&D investment within this segment primarily for our air vehicles and are making substantial progress on our autonomous logistics technologies, cargo UAV unmanned aerial system, and KMAX Titan aerial system. We're working closely with the U.S. government and are pleased with the recent support of $7 million in new funding for our autonomous logistics system as part of the 2022 government funding package. We are on track for a demonstration of a full-scale cargo UAV unmanned aerial system the second half of the year. This purpose-built, fully autonomous, medium-lift logistics vehicle is designed to provide cost-effective cargo hauling and be easily deployed inside a standard connex box. Our initial adjustable market is the U.S. Military and Special Operations Commands. In longer term, the vehicle can be used in a wide range of commercial applications, such as servicing oil platforms, search and rescue, humanitarian relief, and middle-mile delivery for logistics companies. We are continuing to seek initial orders for this program through our military customer, and we are evaluating several partnerships with other commercial companies. Our structure segment continues to focus on strengthening their operating margins and seeking new, more profitable work scope that fits our core capabilities. Results for the quarter were lower than both last quarter and the first quarter of 2021. However, we expect sales and margin to improve over the course of the year. As I mentioned, we have seen positive signs of improvement at one of our sites and believe there is significant opportunity for further enhancement. Our team in Jacksonville, for example, continues to make noble progress on the consolidation from four manufacturing plants down to two in order to optimize capacity, manufacturing floor space, and flow. During the quarter, our Vermont facility expanded their medical imaging program through a new partnership with a major new medical equipment manufacturer, and our Wichita facility was recently awarded a prototype contract for sophisticated composite panels to demonstrate our capability for the next generation satellite communication company. Looking ahead, we feel confident that the commercial aerospace market is rebounding. We are seeing durable demand in key end markets, especially in aviation, medical, and industrial, which are expected to benefit our high margin engineer products segment. Precision products will continue to transform. We are streamlining the organization, improving our processes, in advancing new product development efforts in precision manufacturing, sophisticated measuring equipment, and fully autonomous flight. Our structure segment is focused on getting healthier, where we will begin to see the benefits of our operations excellence model. We are enthusiastic for several of our new innovations as we position the company for best-in-class performance. Lastly, we remain disciplined in our approach to M&A and capital allocation. We are in our 52nd consecutive year of dividends, And in April, we announced a new $50 million share repurchase program replacing our prior authorization. Our first priority for this program is to limit future dilution from the issuance of shares under employee stock plan and new compensation structure. We remain focused on making strategic investments. And now, the optionality for share repurchases coupled with the continuation of dividends puts Command in a great position to execute on the path that provides highest return for our shareholders. Now I'll turn the call over to Jamie for a more detailed discussion over financial results.