Kaman Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Command Corporation Q2 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 11 on your telephone. I would now like to turn the call over to your host, Carrie Bear. You may begin.

Good morning. Welcome to Command's second quarter 2022 earnings call. Leading 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 second quarter 2022 results included on Form 10-Q and the current report on Form 8K 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. Finally, we posted an earnings call supplement on our website which provides additional context on our financial performance. You can find this presentation at www.command.com slash investors slash quarterly earnings call. Now I'll turn the call over to Ian Walsh.

Thank you, Carrie. Good morning, everyone, and thank you for joining us for our second 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 for a more detailed discussion of our financial results and outlook for the remainder of the year. Results for the second quarter were in line with our expectations with sales, earnings, and adjusted EBITDA higher than the last quarter, but lower than the second quarter of 2021. We continue to expect stronger sales and margins in the second half of the year. Gross margin for the company decreased slightly to 32.4%, 150 basis points lower than the second quarter of 2021. Compared to both periods, JPF sales and associated gross profit were lower, while sales and margins improved our engineer product segment. Since joining Command, I've worked with the board and our new leadership team on positioning our company for organic and inorganic growth in our highly engineered and precision parts businesses, and improved profitability across all our businesses, with the goal of achieving top-quartile performance in the markets we serve over time. In May, we were extremely excited to announce that Command signed a definitive agreement to acquire the Parker Hennepin Aircraft Wheel and Brake Division. This transaction, which is expected to close before the end of the year, offers a unique opportunity to expand our highly engineered product portfolio by investing in a high-margin quality asset with potential for growth. For more than 80 years, Aircraft Wheel and Brake has been a trusted provider of mission-critical wheel and brake technology products and solutions. They have a strong OEM and aftermarket portfolio of more than 100 platforms, specializing in wheels, brakes, and related hydraulic components for helicopters, fixed wing, and UAV aircraft. They have an installed base of approximately 450,000 aircraft, globally serviced by distribution and longstanding global relationships with leading defense and general aviation customers. They provide customized proprietary designs protected by intellectual property. Aircraft Wheel and Brake operates out of one centralized facility in Avon, Ohio, providing a full suite of capabilities, including design, development and qualification, as well as manufacturing, assembly, product support, and repairs. The complementary strengths of Aircraft Wheel and Brake will advance our strategy by expanding the breadth of our product offerings, increasing our exposure to attractive, high-margin aftermarket products, and driving meaningful near-term margin and cash flow accretion. Now let me return to our business discussion. Demand across the commercial, business, and general aviation markets continues to show signs of improvement through additional orders for our bearings, springs, seals, and contact products. Sales to Boeing Airbus were higher for the fourth quarter in a row, a solid indicator that airline demand is indeed rebounding. These increases support the higher sales and improved margins we anticipate over the balance of the year. I'd like to highlight the performance for each segment and also share some of their respective innovations that will continue to help us grow organically. Our engineer product segment delivered outstanding results with both sequential and year-over-year sales, adjusted EBITDA and margin growth. Quarterly sales increased by more than 10% and adjusted EBITDA increased more than 25% compared to both periods. Not only was medical and industrial demand strong, but sales of commercial bearings also improved. Order rates for these products remain very robust. Backlog has increased 33% since year end to $225 million. In addition, we are well positioned to meet our sales target in the second half of 2022 as a significant portion of our expected sales volume is already in backlog. These trends provide confidence for our expected performance in the back half of the year. 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 engineer product segment is an opportunity to expand into medical devices for vascular circulation. We are developing a solution for high RPM pumps used in blood circulation. This solution provides superior quality for a minimally invasive option that can be used directly in the heart while allowing doctors to reduce surgical time and have more flexibility during procedures. We are working with our customer as they move through the certification process and we anticipate commercial readiness in 2024 to 2025. In addition, our engineering products team has built a great relationship with Gulfstream over the years, providing bearings for this G650 and G700. Their family of business jets is expanding into the G800 and G400 and will be using the same landing gear, wing and fuselage, which will provide a step up in bearing sales beginning in 2023. Additionally, We've been working with Gulfstream on a new bumper design to replace the current bronze bumper in their wing, which could be used to retrofit their entire fleet. Our precision product segment continues to transform as we pivot to new technologies and markets. Sales and margin in the first half of 2022 for the segment were low compared to the prior year. However, we do expect a meet plan for the full year. In the near term, we continue to pursue JPF opportunities for DCS orders that are expected to increase our backlog and extend the life of the program. Longer term, we anticipate offsetting the reduced volume with organic growth in other areas of our business. We are excited about the opportunity we have to expand autonomous technology in this segment with our purpose-built cargo UAV unmanned aerial system and KMAX Titan optionally piloted aerial system. In June, we announced an equity investment of $10 million in near-Earth autonomy, which will accelerate the development of our autonomous technology and help to establish an industry standard in autonomous cargo solutions for the next generation of aviation. We've been working with Near Earth for several years and are excited to be part of a growing autonomy market. This partnership also leverages Command's core competency in precision parts manufacturing, as we are now the preferred manufacturer of autonomous parts and components for Near Earth. We are on track for a demonstration of a full-scale cargo UAV unmanned aerial system later this year. Our initial adjustable market, this fully autonomous medium lift vehicle, is the US military and special operations commands, along with a wide range of commercial applications such as servicing oil platforms, search and rescue, humanitarian relief, and middle mile delivery for logistics companies. Our structure segment continues to focus on strengthening operating margins and seeking new, more profitable programs that fit our core capabilities. Sales in the first half of 2022 were low compared to the prior year. However, we do expect both higher sales and margins for the remainder of the year. We continue to see positive signs of operational improvement at each of our structure sites while taking the necessary cost-out measures to right-size those businesses. For example, we are continuing to make progress on our facilities consolidation plan at Jacksonville and just recently signed a definitive agreement to sell our Mexico facility, lowering the operating costs while moving the volume back toward Jacksonville sites. In addition, we continue to see improved performance from a Vermont facility. During the quarter, the team successfully applied lean tools and process improvements to several product lines, including medical imaging panels used in equipment at cancer treatment facilities, resulting in a 1,500 basis point improvement in gross margin. We're also focusing on winning new profitable business. Recently, Gulfstream recognized command for our quality and manufacturing performance of parts for the G700 engine, which is driving more opportunities with Rolls-Royce. I am pleased with the progress we have made in all our businesses with safety, quality, delivery, and cost out. This is a multi-year journey, and there is still significant progress to be made as we continue to focus on customers' needs, our operations, our supply chain, and the communities in which we serve. None of this would be possible without relentless focus of our leadership teams and employees around the world on implementing our operations excellence model designed to deliver improved operational performance and gross margin expansion. Looking ahead, we feel confident that the return of the commercial aerospace market and the durable demand in aviation, medical, industrial markets will benefit our high margin engineer product segment. Precision products will continue to transform and our structures segment will continue to see the benefits of our operations excellence model and the addition of new, more profitable programs. We're also 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 very excited about the strategic investment in aircraft wheel and brake and look forward to closing with Parker and integration of their high-performance team with Command. We will continue to identify and assess strategic opportunities that provide the highest return for our shareholders. Now I'll turn the call over to Jamie for a more detailed discussion of our financial results.