Kaman Corporation

Good day and thank you for standing by. Welcome to the Command Corporation Q3 2023 conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Matthew Pedersen, chief accounting officer and controller. Please go ahead.

Good morning. Welcome to KVAN's third quarter 2023 earnings call. Leading the call today are Ian Walsh, Chairman, President, and Chief Executive Officer, and Carol Lane, Senior Vice President and Interim 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 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 third quarter 2023 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 Form 8K. Finally, we posted an earnings call supplement, which provides additional context on our financial performance. You can find this presentation in the investor presentation section of our website. Now I'll turn the call over to Ian Walsh.

Good morning, everyone, and thank you for joining our news call today. Our strong performance continued into the third quarter as we remain focused on optimizing our cost structure and consistent execution against our objectives, which are to drive overall improved profitability, free cash flow, and return on invested capital. Our results were led by continued strength in our engineer product segment, Based on this performance, we are revising our outlook for the full year and now expect higher adjusted EBITDA in the range of 102.5 million to 110 million, unexpected sales in the range of 765 million to 775 million. Net sales for the quarter grew 6.4% over the prior year period to 183 million, reflecting the contribution from aircraft wheel and brake and approximately 21% organic growth from our engineer product segment. These factors were offset primarily by lower JPF sales during the period, which is anticipated as this program continues to wind down. Continuing the trend from the second quarter, our end markets continued to perform well in the third quarter. Commercial, business, and general aviation in the third quarter saw better than 30% growth year over year. Our specialty bearings business continued to overperform as commercial markets continued to demonstrate robust demand. Industrial end markets improved notably in the third quarter with double digit organic growth compared to relatively flat sales volume for the first half of the year, driven by growth in manager bearings volumes for industrial solutions. Our medical defense and markets continue to grow in the low to mid single digits. We remain focused on our transformational strategy, which includes investing in the high growth, high margin areas of our business, optimizing our cost structure, and eliminating the historic sources of variation within our business. I am pleased to report that these efforts continue to yield results in the third quarter with adjusted EBITDA dollars and margin improving meaningfully over the prior period. In the third quarter of 2023, we achieved adjusted EBITDA of 25.2 million or 13.8% of sales compared to 19.5 million or 11.3% of sales in the prior year. As we move into the fourth quarter, we are pleased with the progress we have made so far this year. and still have remaining objectives to accomplish as we reposition our company. Beginning with engineered product segment, we continued to invest in opportunities for organic growth to drive favorable mix and margin performance to our consolidated results. Our investment strategy also focuses on fostering innovation and developing strategic partnerships for the next generation of products. In our precision product segment, we have made significant progress to right-size our operations following the wind down of the JPF and K-Max production programs and expect to complete the consolidation of our JPF production facilities in the first half of 2024. We remain on track to realize 22 to 25 million of cost savings in 2024 from our cost reduction programs that we previously disclosed. Turning to our segment performance and beginning with engineer products, in the third quarter, we continue to demonstrate strong performance with overall sales growth of 34.3% of which approximately 21% was organic. Higher sales volumes were broad-based across our business units, led by strength in traditional self-lubricating bearings and PMA aftermarket programs. Gulfstream continues to be a wonderful customer for us with our high-load capacity, self-lubricating flap-track rollers. We continue to make progress on our TDH, or titanium diffusion hardening innovation, in both the medical and space propulsion applications, We have over 30 applications being tested, and we're showing promising results of TDAH as a replacement in orthopedic surgery where many patients are allergic to cobalt chrome plated parts. Higher segment level sales generate a stronger profit, with engineering products adjusted EBITDA increasing 76.5% to 38.4 million. This stronger volume also demonstrated the operating leverage in our business. as margins expanded by 740 basis points year-over-year to 31.1%. In a precision product segment, sales declined 41.5% to 27.1 million, which was attributed to the anticipated decline in JPF volume compared to the prior year. Excluding the effects of JPF, segment-level sales increased 9.7 million, driven by higher KMAX aftermarket sales and higher fireburst deliveries, offset partially by lower sales and legacy fusing programs during the period. We recently completed delivery of our first tranche of fireburst units to our overseas customer. Segment level adjusted EBITDA was negative 2.5 million compared to 6.1 million in the prior year. Lower segment adjusted EBITDA was a result of lost operating leverage as we wind down the JPF program and worked to right size our facility footprint for remaining legacy programs. As we have noted, this is a focus area for us, and a meaningful portion of our $22 to $25 million of cost savings identified is generated from the consolidation of our footprint. Turning to our structure segment, third quarter sales were $32.3 million compared to $33.7 million in the prior year. The modest decline from the prior year was primarily a result of lower A-10 and UH-60 Black Hawk deliveries. partially offset by higher Rolls-Royce and Sikorsky volume. Our Vermont facility continues to be our benchmark as they grow and win new, more profitable programs, such as a new contract with L3 Harris for their new ground-based mid-course defense radomes and our Rolls-Royce Trent 7000 fan track liners for the Airbus A330neos. Third quarter segment level adjusted EBITDA was negative 2.2 million compared to breakeven results in the prior year period. As we have noted throughout the year and reflected in our guidance, we are working to optimize production of legacy programs that have driven our historical variability in this segment. We continue to anticipate full year segment level profitability at a round break even for the year. As we enter the final quarter of 2023, we are pleased with the measurable progress we have made across our company. Our positive momentum can be attributed to the ongoing execution of our strategic initiatives, streamlining operations, and investing in our high performing businesses to enhance the overall quality of our earnings. Looking forward, we maintain our commitment to several key objectives. First, we are disciplined in deploying our capital resources to the most promising growth opportunities within our engineered product segment. Our emphasis continues to be on fostering innovation to drive substantial year-over-year organic growth, achieve margin improvement, and generate strong cash flows. In the precision product segment, we are committed to transitioning our business by making prudent and targeted investments in next-generation products. Our decisions to consolidate our JPF facilities and conclude CAMEX production are aimed at enhancing operational performance and reducing variability. These actions will reposition Precision Products business units for profitable growth in future years. We also expect to benefit from the continuing investments being made in our cargo UAV system, a purpose-built, autonomous medium-lift logistics vehicle. which has targeted military and commercial customer requirements in a large adjustable end market. We are excited to recently receive a contract with our partners at Nearest Autonomy by the U.S. Army Futures Command to demo in 2024 a cargo UAV capable of moving loads 800 pounds and flying distances over 100 miles. Our cargo UAV is being designed to carry 800 pounds and has a max range of 500 miles. Within our structures segment, we continue to diligently implement best practices. with the aim of ensuring that all three of our structures businesses operate consistently and in a healthy manner. Now I'll turn the call over to Carol for a closer look at the numbers. Carol.