Moog Inc.

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

Good morning and thank you for joining Moog's fourth 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 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 will share an update on our financial and operational performance, reporting both on the full year and the current quarter. We've matured and strengthened momentum in our pricing and simplification initiatives. We're building on our strong reputation with customers to open new growth opportunities. Consequently, our results show strong sales growth, record 12-month backlog, strong margins, and improved cash flow. Our success is driven by our employees' commitment to making this a strong company and a great place to work. And for that, I want to thank all those who have contributed to our performance over the last 12 months. Before we get into the detail of the quarter, let me first reflect on what has been another exceptional year for our company. We delivered record sales. We have a record 12-month backlog. We expanded adjusted operating margin and produced improved free cash flow. We grew revenue by 9% to $3.6 billion. Commercial aircraft led the growth, reflecting strong market demand for our current platforms. Military aircraft contributed through new programs with a ramp of FLARA engineering and new production starts. Space and defense captured business across a broad range of application domains with notable success in Europe. Industrial held relatively flat despite a reduction in our industrial automation business. We expanded adjusted operating margin by 150 basis points from 10.9% to 12.4%. This is a really satisfying result, given that 110 basis points of the improvement is the direct result of our margin expansion initiatives. Adjusted earnings per share grew substantially due to our sales growth, and our improvement initiatives. And free cash flow was better than the prior year. While it was modest, as planned, it was stronger than prior year and on a path to further improvement. Overall, this was another year of excellent financial performance. From our FY22 base year, we have now delivered 9% CAGR growth, expanded adjusted operating margin by an impressive 180 basis points, grown earnings per share, and delivered modest cash as planned this year. These results mean that we're in great shape delivering against our investor day goals. We've achieved this remarkable performance through unrelenting focus on our pricing and simplification initiatives. We have made great progress, we continue to learn, and we continue to improve our approach. 8020 has become central to our transformation. It is now widely deployed and is positively impacting results. We've demonstrated a couple of years of excellent financial results and we're confident that this will continue in FY25. Now let me provide further detail on our operational initiatives that are driving this exceptional performance. Firstly, customer focus. As an integral part of our 8020 approach, we've completed an independent voice of customer analysis that covers approximately one-third of our business. Over 120 detailed interviews provided us with detailed thematic analysis, customer experience, and net promoter scores. It is gratifying that our customers see us as a partner who can be relied upon to apply our breadth of technical capabilities to solve their difficult technical challenges and to consistently deliver quality products. We're well-positioned with our customers and know where to drive improvement to further strengthen our relationships. In this context, it was fantastic to see a successful Certification 2 flight of the United Launch Alliance Vulcan rocket. ULA has already recognized us for our innovation, and we are proud to be the supplier of thrust vector controls for Stage 1 and Stage 2. We look forward to Vulcan becoming a frequent flyer. In addition, I'm delighted that recent ASA 9100 and FAA audits for both commercial aircraft and military aircraft here in East Aurora completed with no findings and positive comments on the level of staff engagement. Furthermore, our performance in delivering for our customers has put us in a great position to pursue once-in-a-generation opportunities. arising from broad-based defense demand. In the quarter, we made excellent progress in securing our position on several generational pursuits. For example, our space business secured a letter subcontract for an opportunity of $100 million cost-plus development program to design and produce a liquid chemical propulsion system. This is for a specialized defense application that could have substantial production follow-on. Our ground-based defense business made great progress on significant U.S. and international pursuits. This included additional orders for RCH 155, howitzer, bringing our bookings on that program to over $40 million. We see significant future demand on this and other European platforms with rising European defense spend. Next, turning to people, community, and planet. Extreme weather events delayed customer shipments and resulted in lost production at multiple locations around the world. In the quarter, our Japanese and Chinese facilities were both hit by typhoons, our Murphy, North Carolina facility was hit by Hurricane Helena, and our Tewksbury facility was flooded due to extreme weather. In the case of Japan, China, and North Carolina, We have suffered just short interruptions to production, a few days at most. However, the damage to our Tewkesbury commercial aircraft facility was severe and we expect that it will take us several months to regain full capacity. In all cases, we have robust business continuity plans and the commitment of our staff to mitigate the impact on our customers is truly remarkable. Our commitment to the planet includes our goal announced last year to reduce Scope 1 and Scope 2 equivalent CO2 emissions by 40% by 2030. We have a multi-year plan to deliver this goal, and I'm happy to share that we are already seeing a positive impact from these initiatives. We will soon release our next sustainability report, which will detail the impact on emissions and further commitments relating to water consumption and hazardous waste. We're further developing and maturing our business processes, and it is good to see that our Taikang facility in China achieved ISO accreditation for energy management, environmental management, and occupational health and safety, adding to its existing business management system. To date, seven sites have pursued several of these additional certifications. Finally, turning to financial strength. We are continuing to make excellent progress on driving margin enhancement through pricing and simplification. Pricing activities are now firmly embedded in how we work, and simplification continues to drive transformative change. We're making fantastic progress. Our commitment to deliver has resulted in strong momentum and a good pace of change. We're executing in line with our investor day commitments. We completed the sale of our Brno Motors facility, and of our Luxembourg Hydraulics manifold facility just after year end as part of portfolio shaping. We exited a couple of small European manufacturing sites as part of our footprint consolidation. We deployed 8020 to five additional sites, now covering 70% of our business by sales, and trained more than 80 more leaders, bringing the total to over 840. We are maturing 8020 at deployed sites, shifting from the initial profitability actions to detailed resourcing decisions as we strive for higher performance. We've established clear links between 80-20 and other continuous improvement activities such as lean and advanced product quality planning, all of which have a role to play in driving sustainable improvement. A look at multi-year trends helps illustrate the profound impact of simplification on our business. From fiscal year 22 to fiscal year 24, we have driven an almost 20% increase in sales, while managing headcount increases to be just 6% and reducing factory space by more than 10%. Our simplification work will continue to deliver on financial and operational improvements throughout fiscal 25. Now turning to macro, economic, and end market conditions. Given the industry-wide discussion on Boeing, let me start with commercial aerospace. The demand for air travel continues to strengthen, and the backlog of aircraft orders is significant. We recognize that there are significant challenges that need to be resolved in industry. Whilst Boeing is our largest customer, our book of business is weighted 80-20 to their wide-body aircraft. And therefore, our exposure to the current strike in Seattle and the FAA production rate cap is limited. We have moderated our production rate for 787 to align with Boeing's current plan. As a result, our build rate will be lower in fiscal 25 than we had first assumed in our investor day plan. Now, turning to defense, the ongoing conflicts in Ukraine and the Middle East continue. Consequently, the US, many European nations, and Australia have committed to increased spending on national security. We continue to support existing customers and platforms at an increased rate. We are actively pursuing new opportunities that exploit our unique capabilities as we work to strengthen national security. Fiscal 25 will be another year of strong growth within our defense businesses. Finally, industrial markets continue to be soft. The purchasing managers index for manufacturing has indicated contraction in the eurozone economies for most of the last two years. and our industrial automation orders have, as a consequence, been soft. We expect industrial automation sales to continue at roughly the current quarterly rate through fiscal 25. Turning to 2025, our performance in 24 was outstanding, demonstrating our effectiveness at executing against our strategy on pricing and simplification. We will continue to drive these activities with the same vigor in fiscal 25. For that reason, I am confident in our guidance for 2025, which includes continued solid revenue growth, strong adjusted operating margin improvement in line with our plan, and significant free cash flow improvement. Our revenue growth will be driven primarily by broad-based defense needs and commercial aircraft demand tempered by Boeing's challenges and our Tewkesbury recovery. This is offset by a decrease in our industrial business due to market conditions and divestitures. Our margin enhancement will be in all segments except commercial, where there is a mixed shift towards original equipment production. In all cases, simplification initiatives, portfolio shaping, and pricing are contributing to margin expansion. Our free cash flow will improve significantly. Following a couple of years in which physical inventory growth placed a high demand on cash we will reach a turning point in fiscal 25. We intend to fund capital expenditures at an elevated level through fiscal 25 in support of significant business capture now anticipated. Now, let me hand over to Jennifer for a more detailed breakdown on the quarter and on our guidance.