Moog Inc.

Good morning, and welcome to the Moog second quarter fiscal year 2024 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Aaron Astrakhan. Please go ahead, sir.

Good morning, and thank you for joining Moog's second quarter 2024 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 slides, both of which are available on our website. Our earnings press release, our supplemental slides, 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, which are not guarantees. 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 happy to turn the call over to Pat.

Good morning and welcome to the call. Today, we report on an exceptionally strong second quarter of fiscal 24 and our progress in driving performance improvements across our businesses. Sales were at a record level in the quarter, well ahead of expectations and delivering double-digit growth relative to prior year. In addition, our backlog hit record levels. Commercial aircraft recovery and defense demand are fueling this growth. Adjusted operating margin for the quarter came in very strong relative to prior year due to our margin enhancement plans and an employee retention credit. Earnings per share grew due to profit associated with our sales growth and the employee retention credit. It was well above our guidance range. Our strong business growth contributed to the use of cash in the quarter. With two very solid quarters behind us, we remain confident that we will deliver adjusted operating margin enhancement for the full year that is in line with our investor day plan, and we're increasing revenue, adjusted operating margin, and earnings per share guidance. Now, I'll provide some highlights on our operational performance. Starting with customer focus, I'm happy to announce that our construction business recently received an innovation gold medal at the Intermat construction exhibition in Paris, France. Our Terratec electric ecosystem received the top award in the decarbonization and energy transition category. I'm also pleased to share that our first four meteorite space vehicles were launched from Cape Canaveral on February 14th and are now on orbit. The satellites flew as part of U.S. Space Force Mission 124. This is a very significant milestone for our business as we move from being a space component supplier with 50 years of heritage to a flight-proven space vehicle provider. Now, back on Earth, we received a Best in Class Performance Award from Applied Materials. They are a leader in materials engineering solutions used to produce semiconductor chips, and advanced displays. Our recognition is part of their supplier excellence awards that acknowledge outstanding technical and operational performance in areas including quality, service, lead time, delivery, cost, and responsiveness. Now, moving to people, community, and planet, we focus on being a great place to work at our locations throughout the world. I recently had the opportunity to visit and see firsthand our operations in India. In a highly competitive labor market, our culture helps us attract and retain a very stable and highly engaged workforce. Whether delivering engineering solutions for commercial aircraft programs or developing and producing world-class electric motors, our teams relentlessly pursue continuous improvement. This has been recognized by numerous national awards from the Confederation of Indian Industry including several platinum awards. Our focus on supporting the communities in which we operate continued with the donation of a kidney dialysis machine to a local hospital for the underserved in Bengaluru, India. This donation is immensely important in this community, and it adds to our prior year donations of both dialysis machines and anesthesia machine. On the environment, we're making progress towards our greenhouse gas emission reduction targets. We used baseline emission data from all our manufacturing facilities to prioritize detailed energy audits. These have been completed at six of our top sites. Renewables form part of the solution, and we've completed installation of solar panels at three facilities, namely Tewkesbury and Wolverhampton in the United Kingdom, and Tai Chiang in China. We're in the final stage of planning for Baguio in the Philippines. These actions are important initial steps in reducing our greenhouse gas emissions. And finally, financial strength. We continue to drive margin enhancement through both pricing and simplification, which each contributing equally to our operational improvements this quarter. We are excited to see the growing traction around 80-20, which is central to enabling us to systematically reduce unnecessary complexity and to make better business decisions. Our business leaders continue to work through the remaining book of business in pursuit of pricing that reflects the value we create. To this end, 80-20 is helping as they drill down through the organization. highlighting specific customer and product lines in need of attention. We expanded our 8020 implementation by adding two more sites, bringing the total to 14. Collectively, these sites account for approximately 40% of our revenue. We expect the coverage to increase to about 50% in the next quarter. Additionally, We've continued to invest in our leaders, training more than 80 this quarter, which brings our total to over 550 leaders. Also, in further support of this deployment, we moved staff into full-time 80-20 champion roles. We are proactively addressing customers and products that are no longer commercially attractive. Our military aircraft group sold our C-5 transport aircraft aftermarket product line. It is notable that Lockheed ended production of this aircraft over 25 years ago. We anticipate that this simplification will have a positive impact on our operations, allowing us to focus resources on more impactful lines of business. Our work on portfolio rationalization, footprint, and focus factories continues at pace. we've launched a sales process for our motor manufacturing facility in Brno the Czech Republic we are aiming to complete this and the previously announced sale of our hydraulic manifold business in Luxembourg within the coming quarter we will close our motor manufacturing facility in Radford Virginia within the next nine months and transfer the product to other existing locations also we have started to notify staff and customers of our intent to wind down production of a legacy hydraulic pump product line and close our pump manufacturing facility in Nuremberg, Germany during 2026. These consolidations and divestitures, when concluded, are on target with the footprint rationalization plan outlined at investor day. Now turning to macroeconomic and end market conditions, the geopolitical environment has become even more tense over the past months. The war in Ukraine appears to be without end in sight, and the conflict in the Middle East risks expanding to a wider regional war. Investing in our defense is a clear and pressing priority for the US and its global allied nations. Consequently, we're seeing a broad-based increase in demand across our defense applications, notably missile components, space components, and space vehicles. And this demand is not just U.S.-based. Our European defense business is growing strongly with positions on new and established artillery and turret systems, such as Krauss-Maffei-Wegmann, Nextel, Nextair defense systems, remote-controlled howitzer 155. that the German government is sending to the Ukraine. In addition, the shift in defense posture is pushing the development of new capabilities in our core business. Although the Department of Defense 2025 budget increase by just 1%, it does protect strategic investment in next generation air defense, collaborative combat aircraft, and hypersonics. In addition, The recently approved foreign aid package funds additional near-term production. The cancellation of future attack and reconnaissance aircraft enables a redeployment of resources to programs such as the future long-range assault aircraft, or FLARA, and potentially greater aftermarket on existing platforms. Commercial aviation continues to recover strongly. Increased fleet utilization and limited availability of new aircraft is driving higher aftermarket activity, which we expect to continue at elevated levels for some time. In addition, wide-body production plans from Boeing and Airbus continue to drive significant growth in our OEM business. Industrial output in Europe continues to soften. The Purchasing Managers Index for both the Euro area and especially Germany has indicated contraction since as far back as June 2022. our industrial automation orders have slowed, although later than anticipated. We are now beginning to see revenues slow following a period of high demand in which our revenue was a billion dollars over the last four quarters. We've adjusted our business in response to these demand changes, and we continue to monitor the situation. Other industrial subsegments, such as flight simulation and energy, are stronger. Now turning to guidance for 24 and considering our second quarter performance and the current end market conditions, we're increasing our full year guidance for revenue, adjusted operating margin, and earnings per share. Now let me hand over to Jennifer for a more detailed breakdown of the quarter and our guidance.

Thanks, Pat. I'll begin with our second quarter financial performance. I'll then provide an update on our guidance for all of FY24. It was an exceptional quarter from a sales and earnings perspective. Sales of $930 million were at a record high. Adjusted operating margin of 13.6% was well above plan, and adjusted earnings per share of $2.19 significantly exceeded the high end of our guidance range. We recognized a $14 million benefit from government incentives associated with the CARES Act. The employee retention credit contributed 150 basis points to our adjusted operating margin and 33 cents to our adjusted earnings per share this quarter. Excluding this benefit, our adjusted operating margin was still above plan despite 50 basis points of pressure from disruptions to our operations at our headquarters site during a winter storm early in the second quarter. Our adjusted earnings per share without this credit was above the high end of our guidance and reflects earnings associated with our very strong sales this quarter. Sales in the second quarter of $930 million were 11% higher than last year's second quarter with each of our segments contributing to that growth. The largest increase in segment sales was in commercial aircraft. Sales of $208 million increased 26% over the same quarter a year ago. Growth in wide-body platforms for both the OE production ramp and growing aftermarket demand drove the sales increase. Sales in space and defense of $267 million increased 9% over the second quarter last year. There's strong defense demand across our portfolio, with new defense work ramping up, including on ground vehicles serving European defense needs, as well as emerging defense priorities in the U.S. Military aircraft sales of $203 million were up 11% over the second quarter of last year. Activity on the FLARA program continued to ramp up over the past four quarters, driving OE sales higher. Aftermarket sales included the sale of a mature product line as part of our simplification efforts. Industrial sales of $253 million increased 4% over last year's second quarter. Demand for flight simulation systems continues to be strong and is associated with recovery in commercial aircraft flight hours and the related demand for pilot training. Energy sales also grew over the same quarter a year ago. Industrial automation sales declined from the record high of the same quarter a year ago, reflecting the slowdown in orders we've seen in recent quarters. Now, shifting over to operating margins. Adjusted operating margin of 13.6% in the second quarter increased 320 basis points from the second quarter last year. Adjustments this quarter were $14 million of asset impairment and restructuring charges, largely in our military aircraft segments. We took charges associated with our decision to discontinue a product development effort, the write-off of a minority interest investment, and the cancellation of the FARA program. Adjustments for last year's second quarter were $3 million of restructuring and other charges. Adjusted operating margins increased over the second quarter of last year in each of our segments. In space and defense, operating margin increased 420 basis points to 15.9%. This increase is associated with improved performance on space vehicle programs and the benefit associated with the employee retention credit. The operating margin for military aircraft was 13.4%, up 400 basis points. The increase was driven by the sale of a mature product line that we exited as part of our simplification effort and, to a lesser extent, the employee retention credit. Commercial aircraft operating margins was 12.0%, up 250 basis points over the second quarter last year. We saw benefits from pricing as well as higher volume across our entire book of business. Industrial operating margin was 12.5% in the second quarter, up 210 basis points. This increase was attributable to the employee retention credit and, to a lesser extent, benefits from pricing initiatives. Non-operating expenses are also impacting our financial results this quarter. Interest expense and corporate expenses were up a combined $6 million over the same period last year. Interest expense increased due to higher average borrowings and, to a lesser extent, higher interest rates. Corporate expenses increased due to the timing of certain expenses. Putting it all together, adjusted earnings per share came in at $2.19, considerably above the high end of the range we provided a quarter ago. Removing the benefit of the employee retention credit, earnings per share was up 31% over the same quarter a year ago. Operating profit associated with increased sales, partially offset by increased interest in corporate expenses, drove the increase in earnings per share. Let's now shift over to cash flow. Free cash flow for the second quarter was an $84 million use of cash. Our use of cash this past quarter was driven by growth in networking capital. Build receivables increased due to timing, as we had accelerated collections late in the first quarter and experienced delayed collections late in the second quarter. Customer advances also used cash, with a workdown of advances across several defense programs. Growth in physical inventories, which is associated with our very strong level of sales, also contributed to the increase in working capital. Capital expenditures were $40 million in the second quarter and include investments in our facilities to support our growth. Our leverage ratio, calculated on a net debt basis as of the end of the second quarter, was 2.3 times which is within our target range. Our capital deployment priorities, both long-term and near-term, are unchanged. Our current priority continues to be investing in organic growth. We'll now shift over to our updated guidance for this year. We're raising our sales, adjusted operating margin, and adjusted earnings per share guidance for FY24 based on the strong sales level we achieved in the second quarter and the incorporation of the employee retention credit into our operating margin and earnings per share results. Fiscal year 2024 is shaping up to be another great year of financial performance, and we're on track to achieve our long-term financial targets. This year, our sales will grow by 7%, adjusted operating margin will expand by 150 basis points, and adjusted earnings per share will increase by 18%. We're projecting sales of $3.55 billion in FY24, with sales growth in three of our four segments. Commercial aircraft sales will grow related to the production ramps on Widebody and other programs. Military aircraft sales will increase due to having a full year's worth of FLARA sales. Space and defense sales will increase due to strong defense demand. Sales in industrial will decrease associated with a softening industrial automation market. We're increasing our guidance for FY24 sales by $50 million from 90 days ago. we're increasing our sales guidance for military aircraft by $30 million to reflect the current run rate of sales for the segment. For industrial, we're increasing our sales guidance by $25 million to reflect the strong level of sales in the second quarter while still allowing for the expected softness in industrial automation in the back half of the year. For commercial aircraft, we're increasing our sales guidance by $10 million to reflect the strength of our aftermarket business. We're reducing our sales guidance for space and defense by $15 million due to program timing and supply chain constraints. Let's shift over to operating margins. We're projecting our operating margin in FY24 to be 12.4%. We're increasing our guidance by 40 basis points to reflect the benefit associated from the employee retention credit. We're also adjusting our guidance between segments with a lift in commercial aircraft due to a more favorable sales mix offset by a decrease in space and defense to reflect current financial performance. This results in operating margins of 13.4% in space and defense, 12.0% in military aircraft, 11.1% in commercial aircraft, and 12.6% in industrial. For FY24, we're projecting adjusted earnings per share of $7.25 plus or minus 20 cents. We've increased our guidance from 90 days ago by 35 cents, of which 33 cents relates to the employee retention credit. Our earnings per share guidance also reflects earnings associated with now higher forecasted sales, partially offset by increases in non-operating expenses. For the remaining quarters this year, on average, earnings per share will be roughly in line with that of the second quarter after adjusting for the benefits associated with the employee retention credit and the sale associated with a mature military aircraft platform, as well as pressures from the winter storm. We're projecting third quarter earnings per share to be $1.70 plus or minus 10 cents. Compared to FY23, earnings per share will be up 18%. This reflects growth in the business, strong operational performance, and the employee retention credit, partially offset by higher non-operating expenses and a higher effective tax rate. Finally, turning to cash. We're projecting free cash flow for FY24 to be modest as previously guided, though the situation is more pressured than it was 90 days ago. In the back half of the year, we'll see relief in physical inventories with increased billing opportunities. in particular within commercial aircraft. This will put pressure on billed receivables. We'll continue to work down customer advances, and we're not anticipating significant advances from customers in the remainder of this year. For all of FY24, we're projecting capital expenditures of $165 million, down somewhat from our previous guidance. Overall, our second quarter financial performance was strong, and we're confident in our outlook for the year. And now I'll turn it over to Pat.

Thank you, Jennifer. I am really very pleased with our exceptional performance this quarter, and I look forward to continued strength through the year. We continue to deliver improved financial performance. Now, let's take your questions.

Thank you. If you would like to signal with questions, please press star 1 on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. And our first question today will come from Michael Chiamoli with Truist Securities.

Hey, good morning, guys. Thanks for taking the questions. Nice results. I guess... Maybe, you know, you talked a lot about the 80-20. Can you kind of put that maybe or give us a little bit more tangible detail or quantify what you're seeing, learning, or realizing? And, you know, I guess, you know, you called out the credit as a driver to margins, but maybe on that core margin expansion, is there any way to attribute, you know, what's coming directly from 80-20, what's coming from pricing, or any additional detail you could provide us there?

Yeah, absolutely, Michael. Welcome. Thanks for the question. I've used the language in the call that 80-20 is central to what we're doing in our improvement activities, and I think it influences our business decisions and our use of other tools to drive improvement within the organization. If I think about this quarter, and aside from the ERC boost that we had in the quarter, the rest of the improvement I can contribute to equally about pricing and, on the other hand, simplification. So it is making a real impact on our business. If I think about some of the business decisions we've made based on it, the decision to exit the C5 transport aircraft aftermarket is a result of taking a look at the business through an 80-20 lens and defining know which are the customers that were really impactful and important to us as a business and the product lines that they are driving demand for and then trying to make sure we are able to put the resources we need into those a customers and a products and in this case it meant that we decided to sell that c5 product line so I think that's one example of a business decision arising from taking an 80-20 lens to look at the business I think in other parts of the organization as we've deployed 8020 it has allowed us to create segmented PNLs where we take a look at the operations within that facility and without having to do activity based costing we are actually beginning to attribute cost much more accurately to the product lines and the customers that we're supporting and in some cases identifying opportunities to highlight areas of weakness maybe that we didn't see previously with our cost allocation system. So we're getting a truer reflection of what it actually costs to support businesses, and then we're making decisions on those. That, I think, is helping drive our margin improvement.

Got it. That's really good color. And then just shifting onto commercial aircraft and production rates, Obviously, you're not as exposed to the max given your ship set, but any color you can maybe provide us in terms of where you're shipping. It certainly sounds like in the near term, maybe 787 is a bit weaker. I think we've got some positive signals out from Airbus yesterday on where they want to take A350 rates, but maybe any color you could provide us on current shipping rates and if there's any risk of maybe just some near-term inventory build as some of these issues are kind of sorted out between maybe on the narrow-body side in that 8-7?

Yeah, you're right. Our exposure is more weighted towards the wide-body side on the 787-8350. We're continuing to manufacture in alignment with the schedules that oil flowing and Airbus have provided to us. We haven't seen any communications from Boeing at this point as to a change in our plans. We're currently running at rate 5 on the 787, and we've said previously that we intended to ramp that up towards 8 in the current fiscal year. So that's the path we're on. Should Boeing decide at some point that they want to adjust their rate, there needs to be conversations, obviously, with the supply chain about that. And I think Boeing have already acknowledged that they don't want to create supply chain instability. And we want to be able to ramp up to the level they want to get. They still want to get 10 by fiscal 26. So yeah, we're pretty stable at home. We don't see any impact on our fiscal 24 numbers.

Got it. Perfect. I'll jump back in the queue.

Thanks, guys. Thank you, Michael. And we'll take our next question from Jack Ayers with TD Cowen. Hey, guys. How's it going? Good morning.

I'm on for Kai today. Nice results. I just wanted to ask about, you know, free cash flow. I think in the quarter it came in a little bit light relative to street expectations. So, Jennifer, I just wanted to see if you could maybe unpack that a little bit, talk about some of that unwind in the back half, and maybe just sequentially where we go from here, maybe we can just reset expectations a little bit. And to your point about 24 moderate free cash flow, is that still positive or negative? Any color on cash in 24 would be helpful. Thanks.

Of course, Jack. Yeah, we definitely had pressure on our free cash flow in this quarter. It all came through our working capital. So our working capital grew and that's the source of our pressure. There's three main areas that we had pressure this quarter. One was in our billed receivables. So that pressure that we saw in Q2 was due to the timing of collection. So back in the first quarter, we had very favorable collections where some collections that were going to be in Q2 moved into Q1. So that actually put us at a little bit tight squeeze to start the quarter. And then we had the opposite thing happen this quarter where there's some things that we expected to receive at the end of this quarter got pushed out into the beginning of Q3 that we collected in the first week. So those are things that we got pressure on receivables, build receivables. It's really a timing issue. and those collections that we had expected at the end of the second quarter actually came in very early in the third quarter, so we know that that is coming back and normalizing. So that's a timing issue that we saw. Physical inventories is where we saw some real pressure. Our strong level of sales contributed to that, especially on areas where we do our long-term contracts, which is most of our businesses with the exception of industrial in general. So our strong level of sales there essentially It drove up our sales and it drove up our unbills, which gets into our physical inventories. So with that record level of sales came a high level of pressure on our unbilled receivables and our physical inventories. The other source of pressure in our working capital was in our customer advances. In the first quarter, we received very strong receipts. Those started to work down. This part was expected, worked down in our defense programs. We saw that work down happening in military aircraft and the defense part of our space and defense segment as well. So we saw that work down, so that's again pressure that we had. As we look into the second quarter, we're going to continue to work down our customer advances. We don't have anything planned to come in from a customer advances standpoint as a receipt from customer in the back half of the year. However, we will have some billing opportunities in commercial, also in our military business, and that's going to move our unbilled receivables down, so our physical inventories are going to go down in the back half of the year. Some of that is going to turn to pressures in our billed part of our business due to the terms that we have in the commercial side, though other parts will actually come through as cash. The other thing that we'll get a benefit on in the back half of the year is the timing of our compensation payments. That's just a timing thing. It's happened. It's easily predictable as far as where that goes. So as we look into the back half of the year, we are looking to have some relief in our physical inventories, but to have some pressure in our billed receivables and our customer advances. We are still projecting that our free cash flow for FY24 will be modest. Modest means a low level of free cash flow inflow, so a positive number, something above zero. So we are still projecting that, but based on our Q2 sales growth that really put pressure on our second quarter working capital, it's more pressured than it was 90 days ago.

Okay. Perfect. Thank you. I really appreciate all the building blocks there. And just as a follow-up, if I may, and this could be for Pat or Jennifer, I think there was maybe a news release a couple weeks ago about your space vehicle program and maybe a potential suit with one of your customers. Like, I'm wondering if you can maybe just give us an update on there. I saw there were no sort of major charges there this quarter. Um, so if you could maybe unpack that, you know, how we move forward, um, and any, you know, next steps with respect to, um, that, that lawsuit from your customer. Thanks.

Okay. Thanks, Jack. I'll take that question. Uh, so yeah, we're aware of the suit obviously filed by L3 Harris. Uh, we're not gonna publicly comment on the allegations, the specifics of those, uh, during the call. We will vigorously defend ourselves, of course, against those allegations. But I'd like to point out, looking forward, that we continue to support L3Harris on their important work that they're doing. And we have a number of other space vehicle programs running with them at the moment. I refer to the large book of business we had on space vehicles on previous calls. That work continues despite this issue that we're working through.

Got it. Thank you. And Jennifer, the unbilled in the quarter, was that related maybe? Or could you maybe give some specifics there, whether it wasn't or was?

The growth in the unbilled receivables is really due to the strong sales that we had throughout our book of business. So we had record levels of sales. And because most of our business is on long-term contracts, that's actually sitting in unbilled until we were able to build those for them to shift into build receivables and then collect them on their level of term. So it's really related to our sales growth.

Okay. Thanks, guys. Nice results.

I'll pass it on.

Thanks, Jack. Thank you. And once again, if you would like to signal with questions, please press star 1 on your touchtone telephone. Again, that's star 1. And we'll take our next question from Tony Bancroft with Gabelli Funds.

Thanks so much, Pat and Jennifer. You guys have done a great job. You know, I'm trying to see, you know, where do you see sort of the next phases? You know, obviously you've just excelled in pretty much everything you're doing here. Is there something that you see as transformational in your business, either that you own now and want to focus more on, or somewhere, something out there that another business that you think would make sense if combined with you, you know, could sort of take you to the next level of growth or, you know, a bigger, more robust business?

Yeah. Tony, welcome to the call. Thanks for the question. Our focus and our priority is to deliver on the margin enhancement work that we outlined at the Investor Day meeting in last June. And I think we're demonstrating we're making good, solid progress against that. We've got more work to do. I mean, we said we could increase the margins 100 basis points per year from now through fiscal 26. That's still the path we're on. The results are demonstrating we can do it. We have more work to do, and I don't want to distract from that. So, to be honest, it's my priority at the moment to continue to deliver on what we've already promised.

Perfect. Thank you so much. Great job. Thank you. And our next question will come from Christine Lawag with Morgan Stanley.

Hey, this is Justin. Thanks for taking the question. Back on free cash flow, maybe just looking beyond this year, you have the 75% to 100% conversion target out there from yesterday for FY25. Do you see any new risks here that might take a little bit longer now for some of the working capital pressures to roll off at all?

Generally, I think it's going to be somewhat, there's not a significant change in our assumptions as everything goes. Obviously, any changes in market conditions can certainly affect that. We'll be providing our more detailed guidance of FY25 in the October-November timeframe along with our earnings release for the fourth quarter.

Okay, that makes sense. And Pat, you mentioned up front about the backlog growth. Can you just talk maybe a little bit about the biggest contributors there? And then you also mentioned that supplemental defense spending packages. Is there anything specific in there to call out that, you know, is a driver potential upside for you guys?

thanks for the question Justin if I look to the backlog I mean the change in our backlog is really the strengthening on the commercial airspace side and the defense businesses over the course of the last year I think slight weakening on the industrial side as well reflective of the slowdown in orders that we have described as well so it's commercial and defense up industrial slightly down so that's on the backlog side and in terms of the budgets that were mentioned The DOD fiscal year or calendar year 25 budget going up, that's really highlighting and supporting some of those strategic programs, you know, next generation aerial defense and CCAs and things like that. I mean, we are a leading provider of flight control systems, and we have a role to play in all of those long-term programs. how they actually pan out. You know, we are committed to supporting whatever is required in those. And also general industry support as well. As the funding has started to come through now for Ukraine and the Middle East, we are responding to the increased level of demand that that is enabling. And so we've talked previously in some of our calls about the pickup, the broad-based pickup we're seeing in the defense businesses. That is continuing for sure.

Got it. And then just a last clarifying question. You mentioned the CCA, and we saw this award earlier this week for the increment one. Are you partnered with any of those prime providers on the program at this stage?

We are not on either of those two. Okay, great. Thanks a lot. We do see other interesting opportunities.

Great.

That makes sense. Thanks. One thing that we probably should reflect is that there's a lot of once-in-a-generation type activity going on, and we are spending more of our time and effort and our bid responses in responding to those opportunities that are out there.

Got it. Thank you. Thank you.

And that does conclude the question and answer session. I'll now turn the conference back over to Mr. Aaron Astrakhan for any additional remarks.

Hi, this is Pat. Actually, I'll conclude the call. Thank you for taking your time and joining us. I think, as I said earlier, we had an exceptional quarter. We think we have really good momentum built for this fiscal year, and we'll continue to deliver on the improvement activities that we've been describing. So thank you, and I look forward to meeting you again on the next investor call.

Thank you. And that does conclude today's conference. We do thank you for your participation, and have an excellent day.