Kaman Corporation

Good day and thank you for standing by. Welcome to the Command Corporation Q2 2023 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jamie Renau, Assistant Comptroller. Please go ahead.

Good morning. Welcome to Command's second quarter 2023 earnings call. Leading the call today are Ian Walsh, Chairman, President, and Chief Executive Officer, and Jamie Coogan, Senior Vice President, Chief Financial Officer, and Treasurer. 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 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. Additionally, the company revised its prior period results due to errors identified related to inventory, which were determined not material to our previously issued financial statements. These items are described more fully in the company's latest filings with the Securities and Exchange Commission, including the company's second quarter 2023 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-GAP measures as defined in applicable SEC rules and regulations. Reconciliations to the company's GAP 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 forward slash investors forward slash quarterly earnings calls. Now I'll turn the call over to Ian Walsh.

Good morning, everyone, and thank you for joining our second quarter 2023 earnings call. Performance in the quarter was very strong, and we're delivering on our commitments to drive improved profitability and cash flow performance. Based on this performance, we are revising our guidance for the full year and now expect higher adjusted EBITDA in the range of $97.5 million to $107.5 million on sales volumes consistent with our prior expectations. Net sales grew 21.4% over the prior year period to $195.2 million, benefiting from the contribution of aircraft wheel and brake and organic growth of 8.2%. Results in the quarter demonstrate the continued strength we are seeing across our engineered product segment, which posted top-line growth of 48.7% or 25.1% organically over the prior year. We are pleased to report that all of our end markets have performed well during the first half of the year, led by commercial, business, and general aviation, where we benefited from the aircraft wheel and brake acquisition and organic growth, which was particularly strong across our engineer products portfolio, with the most meaningful growth coming from our engine aftermarket products. We see momentum in the defense end market with double digit growth in both the quarter and first half of the year. The success is primarily attributed to the strength of our core defense portfolio, which helped to offset softness in our safe and armed devices related to the wind down of the JPF program. In the medical end market, we remain in a positive trajectory with growth in the first half exceeding 10%. Stronger medical sales were attributed to higher volume on our miniature bearings and springs, seals, and contacts used in medical implantables and devices. Last year, industrial end market sales remained steady, with modest organic growth in the period. We also continued to work diligently to reduce our costs and improve efficiency, and I am pleased to report that these efforts led to an improvement in our net earnings for the period, and a meaningful improvement in both adjusted EBITDA dollars and margin. We achieved adjusted EBITDA of $32 million, or 16.4% of sales in the second quarter of 2023, compared to 16.1 million or 10% of sales in 2022. We've outlined and continue to execute on our strategic initiatives aimed at improving our profitability and streamline operations to reduce variability. First, we disclosed our plan to consolidate our JPF operations into a single facility. This will enable us to maintain operational readiness while significantly cutting down program costs as the volumes wind down. We remain on track to our plan for the facility closure and have begun to realize cost savings for these actions. We continue to deliver on a remaining JPF backlog and have recognized approximately $7 million in EBITDA related to this program in the first half of the year, which is not expected to repeat in the second half. We continue to pursue direct commercial sales of our JPF to allied countries and will provide further information when we receive these orders. As we've disclosed previously, we have made the hard decision to discontinue production of our K-Max aircraft. We successfully sold one aircraft during the second quarter, and we are actively pursuing a sale of the two remaining helicopters, which could provide incremental cash flow for the year. Our air vehicles team continues to work to pivot to higher margin growth opportunities going forward. Delivering our cost reduction commitment remains an important focus for the team. To date, the actions we have taken are expected to provide annual savings between $22 million and $25 million by 2024. And through the second quarter, we are on track to deliver these savings. Additionally, we're working to identify additional cost savings and margin enhancement opportunities that could provide benefits in excess of our previously announced programs. Turning to our segments and beginning with engineered products, we are extremely pleased with a strong segment performance that continued through the first half, leading to overall sales growth of 48.7% or 25.1% organically. We saw growth across our engineered products portfolio in the second quarter as we are recovering back to pre-COVID levels for our commercial aerospace and defense products and are benefiting from our additional market share wins. Higher sales led to improved profitability with operating margins of 23% adjusted EBITDA margin in excess of 30%. Organic growth in the quarter was primarily driven by higher demand for our self-lubricating bearings and engine aftermarket products. Our segment-level backlog remains robust as a result of strong demand and addition of aircraft room and break. We expect to see continued strong performance for this segment in the second half of the year, given the year-to-date strength and the continued demand for our products. Over the long run, we expect this segment to grow in the high single-digit to low double-digit range. In our precision product segment, sales declined 32 percent, which is almost entirely due to the anticipated wind down of the JPF program. Segment operating income and adjusted EBITDA were negative 1.9 million and negative 1.1 million, respectively, as we continue to make investments in next-generation technologies. The segment continues to be an area of focus for us to improve costs through the footprint consolidation project and working capital improvements with the succession of K-Max production, which we anticipate will drive improved operating results in the coming quarters. In our structure segment, sales of 33.6 million improved both sequentially and year-over-year by 1% and 13% respectively. Segment-level profitability continued to be pressured as we reported a small operating loss of $106,000 and adjusted EBITDA of $675,000. Segment performance in the quarter benefited from the receipt of an insurance claim settlement for costs incurred in the prior year related to a fire at one of our suppliers. As we move into the second half of 2023, we are pleased with the progress we have made so far this year. The positive outcomes can be attributed to our transformational strategy to reduce the variation in our business and improve our quality of earnings, free cash flow, the strong growth momentum in our engineer product segment, and the successful execution of planned actions initiated in 2022. As we look ahead, we remain focused on several key objectives. Our first objective is to ensure ample capital resources are allocated to capitalize on the most promising growth opportunities within our engineered product segment. We continue to foster innovation and strategic partnerships with customers to drive robust year-over-year organic growth, high margins, and strong cash flow generation. We are dedicated to transitioning our precision product segment by making thoughtful and targeted investments in next-generation products. The JPF facility reduction plans and the conclusion of KMAX production were all strategic moves to improve our operating performance. These actions will reposition the segment for more profitable growth in our remaining programs as we seek to benefit from the investments we are making in future autonomous components and the unmanned cargo UAV platform. In our structures segment, we are diligently implementing best practices, aiming for all three of our structures businesses to operate in a healthy, consistent manner. Our focus also includes reducing our leverage and interest expense after the acquisition of aircraft wheel and brake. In the quarter, we successfully refinanced our credit facility. I am proud of the hard work the team put forward in securing the $740 million commitment with the amendment of our revolving credit agreement, extending the maturity to 2028 while providing sufficient access to capital to repay our 2024 convertible notes and meet our working capital requirements, which Jamie will detail later. Our company has successfully navigated some difficult challenges over the past few years, and I am proud of the progress our team has achieved in a short time span. Our employees' dedication, resilience, and ingenuity have been instrumental to supporting the transformation of Command. Now we'll turn the call over to Jamie for a detailed analysis of the numbers. Jamie?