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.