Moog Inc.

Good morning and welcome to the Moog second quarter fiscal year 2023 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Aaron Astrakhan. Please go ahead, sir.

Good morning and thank you for joining Moog's second quarter 2023 earnings release conference call. I'm Aaron Astrakhan, Director of Investor Relations. With me today is Pat Roach, our Chief Executive Officer, and Jennifer Walter, our Chief Financial Officer. Earlier this morning, we released our results and our supplemental financial schedules, both of which are available on our website. Our earnings press release, our supplemental financial schedules, and remarks made during our call today contain adjusted non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials. Lastly, our comments today may include statements related to expected future results and other forward-looking statements. These are not guarantees, as our actual results may differ materially from those described in our forward-looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings. Now, I'm pleased to turn the call over to Pat.

Good morning, and welcome to the call. Today, we will share our update on a quarter marked by record sales, solid earnings, and a cash commitment to support the growth. We reiterate our full year guidance for margin and reflect a heavier demand on cash. Before getting to the details, I'd like to briefly remind you of several broad themes that I shared during my first earnings call and highlight how these are driving change in the organization. Every day, our motivated employees are driven to improve the lives of millions across the globe through the application of our deep technical capabilities in solving our customers' most difficult motion control challenges in applications when performance really matters. I described the three areas in which we are focusing our attention to improve the business, namely customer focus, people, community, and planet, and financial strength. And I highlighted simplification as key to enhancing the performance of our company. To advance this agenda, our board of directors, after the Q1 earnings call, appointed several new officers to the leadership of our company. These appointments are the result of a clear focus on talent development over the last decade. These leaders bring the necessary experience and skill to deliver on the ambitious plans we have to grow our company to achieve great results in each of the areas of focus and to take us to the next level of performance. With these appointments, we have started to transform our organization and the way in which we work. Over the next few months, we will separate the commercial and military business within our current aircraft segment. Fundamentally, the business models for commercial and military aircraft are completely different. I want these businesses to have the flexibility to more effectively respond to the needs of these two distinct end markets. When the separation is complete, each business leader will have direct responsibility for the focused factories, the dedicated engineering and manufacturing staff, and the production resources for their respective business. They will be fully accountable for the operational and financial performance of the business. We've taken a big step forward in our simplification journey by moving away from a matrix structure in aircraft controls towards two separate businesses. This change will drive greater clarity and performance. There should be no doubt that we are following a clear philosophy to align our organization around the end markets we serve and the specific business model we need to succeed and to give our leaders the dedicated resources they need and the accountability to deliver so that they can make the best decisions to run each business. We will apply this philosophy throughout the organization. I am confident that this approach will enhance customer focus through improved operational performance and drive improved financial results as we concentrate on value creation in each segment of the business. The separation process will be completed by the start of fiscal 2024. Now, there is a lot more that I would like to share, and I'm thrilled to let you know that we will host an Investor Day in New York City on June 6, 2023. I want to use that opportunity to provide more detail on the organizational change and many other initiatives that we are driving to grow our company and deliver stronger margin performance. Jennifer Walter, Mark Trabert, our Chief Operating Officer, and I will explain our exciting plans for the business over the next few years. And we will also be joined by other members of the executive team. Now, let me turn to the macro economy. Not much has changed in the last 90 days. Overall, the context continues to support the growth of the company in each of our end markets. Unfortunately, and tragically, the war in Ukraine continues as a war of attrition. Anticipation of a spring offensive is driving intense efforts to resupply the Ukrainian military with increased commitments from the U.S., NATO allies, and European countries. In addition, each of these countries are intent on rebuilding their own depleted inventories. This will drive defense spending for the next decade. In a significant political change, Finland was formally admitted to the NATO Alliance on April 4th, and we anticipate greater equipment commonality across these countries. The recovery in global air travel continues rapidly. Each of you who has traveled over the last month or so has experienced the busy terminal buildings, full flights, and travel delays. The commercial in-service fleet has almost recovered to the 2019 levels. This strength is predominantly in narrow-body aircraft on domestic routes. Long-haul travel, especially to Asia, still lags, but the opening up of China and increased travel through the Middle East are boosting wide-body utilization. Finally, Business jet flight hours are already above 2019 levels. We are already seeing the benefits of these factors in our commercial business. Industrial markets continue to be more resilient than we anticipated. Bookings are solid with a strong backlog covering our fiscal year. Sentiment remains mixed with the March Purchaser Managers Index indicating contraction in our major markets. yet German industrial production is up sequentially. Now let me turn the focus to our company operations. We continue to invest in the growth of the business. We have building upgrades and expansion plans at several sites globally. Most notably, within this quarter, we acquired a 200,000 square foot building adjacent to our headquarters site in East Aurora to address immediate space needs. And we also started site clearance for the construction of 150,000 square foot advanced integrated manufacturing facility on our main campus. Within the next month, we will officially open a new purpose-built 200,000 square foot manufacturing facility in Tewkesbury, England that consolidates three existing buildings at that location. In all cases, our manufacturing teams are re-architecting machine layout material flow, and automation for improved production efficiency. We continue to drive operational improvement across all segments with a clear goal to simplify our business and eliminate waste. This drives operational performance to the benefit of our customers and drives financial performance to strengthen our company. It takes time and consistent management focus to build this continuous improvement muscle. Our Costa Rica facility has been at the forefront of these efforts. I'm proud to share that the Schengo Institute has recognized our journey with an award for our Costa Rica facility. This is a credit to the more than 600 employees that built this world-class facility from Greenfield site over 15 years ago. Costa Rica is our reference site that helps show us the way as we continue to build continuous improvement capability across the company. Finally, we continue to deal with supply chain challenges throughout this quarter. We expect that these pressures will continue for longer than we had previously assumed. Now, notable within the quarter, we're delighted that the Government Office of Accountability confirmed the award of the Future Long Range Assault Aircraft, or FLARA, to the Bell Textron team. This clears the way to progress the development of the V280 replacement for the Black Hawk helicopter. This will be a substantial program for Moog for years to come. On the commercial side, both Airbus and Boeing confirmed plans to increase production rates on narrow-body and wide-body aircraft over the next few years. Airbus announced their intent to increase A350 production to nine a month by the end of 2025. and Boeing confirmed their intent to ramp the 787 to 5 per month in late 2023, and to 10 a month in the 2025-2026 timeline. We continue to accelerate electrification and autonomy in construction equipment. At ConExpo 2023, the largest North American trade show, Moog Construction launched Terratech, which is our electrification solution for compact construction equipment, and also hosted a live demonstration of our autonomy software and hardware fitted to a Bobcat skid steer. There was strong interest in our offering. Now, turning attention to our financial performance. Our sales were remarkable in the quarter, a proud record for our company. Adjusted operating margin performance through the first half of the year was better than the prior year and will be yet stronger in the second half of FY23. We delivered sales of $837 million, up 9% on prior year, reflecting strength in each segment. These sales were particularly strong in several areas, in commercial OEM and aftermarket due to the aviation recovery, in defense, due to the ramp to full-rate production of our reconfigurable integrated weapons platform, and in space, due to our differentiated electronics and satellite components offering, and finally, in industrial, due to capital investment in automation applications. Our 12-month backlog now stands at $2.3 billion, up 1% year over year, and our bookings remain strong. Our adjusted operating margin was down 20 basis points on prior year. Strong operational performance was masked by charges on developmental programs and an unfavorable mix. At the bottom line, we delivered adjusted earnings per share of $1.42, exceeding the midpoint of our forecast. Our cash flow was clearly pressured in this quarter due to some atypical outflows and increased working capital requirements required to support the growth in our business. Now I'll hand over to Jennifer to review our financials in more detail.