Circor International (CIR) 14 Nov 222022 Q3 Earnings call transcript

Greetings, and welcome to the CIRCOR International’s Third Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the conference over to Mr. Scott Solomon, Senior Vice President of the company’s Investor Relations firm, Sharon Merrill Associates. sir. you, Thank

begin. You may

and good you, everyone. morning, Thank

that Before and release investors.circor.com. you CIRCOR’s we let me begin, our presentation at earnings website remind are on available

you’d for you. materials, of our If team receive cir@investorrelations.com, IR them e-mail and the provide will to like please copies

under These expectations X. and only Private defined Securities subject statements Act today, XXXX. Safe to differ Litigation they as Slide XX, XXXX. uncertainties forward-looking represent implied factors of as and of known other materially These views or risks, discussion Reform Today’s Turning actual Harbor are the contain provisions unknown today’s will statements are the U.S. company’s the anticipated November to could remarks. by from and those results of

these the later update to at While any duty choose forward-looking company so. disclaims CIRCOR date, do to a specifically statements may

You CIRCOR’s a located in of XX-K, filings the our XX-Qs website. can factors also full SEC on other find discussion and

to As earnings referenced non-GAAP measures X, call, The on available financial comparable today’s on will Slide release. of our non-GAAP in the measures GAAP are measures. GAAP to and press reconciliation the refer management

to Slide X. turn Please

then full third be of will for will and XXXX. year financials Joining Chief President your Chief outlook overview management Officer AJ today’s and Executive guidance Senior President our take quarter our Sharma, with the Tony me and and CIRCOR’s Tony highlights and Officer; our call are Tony Vice will performance. Development. AJ of the on will happy discuss strategic review questions. Business provide and begin Financial to Najjar, market a

to hand I the Now over please turn as X to Tony. Slide call

everyone, third XXXX us morning, financial Good results. thank and Scott. joining our you quarter to discuss you, for Thank

our the sales and teams globe with Petroleum of Conference. having I want QX of team spent customers focus our the global face Abu earnings our my to Paris, their industrial Before in International call, customers, a the at for and time and thank at I opportunity continued in time Euronaval to we team spend their macroeconomic teams challenging Since including across resilience customers and and results, environment. our exhibition defense the with our on Exhibition execution have for review our Dhabi sales most with and

be we level family of customer by serve. to the by are our of brands CIRCOR delighted driving continue teams I throughout that the strength industries the intimacy the of and

Our X% XX% costs rising disruptions, the performed chain and well third excellent on and or expansion. We environment the XX% basis in extremely well organic revenue quarter to growth delivered basis XXX an energy results. ongoing navigated of inflationary growth, quarter’s as deliver team organic margin supply points as

our strong AJ we prepared monetization through in details QX outlook more adjusted Our aftermarket on EBITDA second, continued our leverage provide through portfolio. in position; results estate will strategic and and further third, reducing and include: growth which remarks. and our accomplished real our first, on of improved pricing, our factory of value modernization; priorities. organic margin simplification, success executing development manufacturing expansion, and and underscore best-cost These his product new sourcing leverage, in growth leverage country includes which

continued over missile third our by were Turning driven the the versus programs, X. was growth in segments. Orders medical both by A&D Organic quarter aftermarket and to highlights aerospace in pricing. products, strong, recovery year in prior increased orders driven Slide commercial exceptionally XX% in growing defense strength organically. various on A&D The XX%

$XXX and of primarily downstream of million, the capital XXXX. from the the in QX from was of same at year well Backlog organically, up the into the us in up end aftermarket were which provide. orders India. and focus team’s and positioning products Pricing pricing aftermarket projects and maximizing to we indicative both gas, the for X% brands our and in XX% segments, was our strong oil on Industrial our by of the power value strength period supported remainder in services year and is last

On on organic and up high We the A&D the some year-over-year industrial with XX% X% up businesses mid-single an we larger growth in continued chain the the challenges, or basis, this of reported our top-line, digits. of supply quarter. which accomplished impacted despite teens revenue in

segment, and driven Our by AOI XX% gas. downstream business oil in by our increase was supported and primarily our industrial core Industrial

quarter cost our the and remarks. products backlog. AJ and margin demand margin corporate. in driven the be teams sustained to positive prepared and our executed our his The The color in order pricing environment strength heavily healthy evidenced expansion that at have value the by on drivers was by will out our continue businesses during initiatives actions additional as provide for

positive about business move are fourth and of the XXXX. our quarter through as look into XXXX We we ahead

adjacent team highlight X. that on Slide QX, technologies markets our core are team to we quarter, are Moving capabilities. A&D I’ll couple growth and our In areas Today, growth driving. specific that and Each industrial of pumps and EMEA areas highlight we focused like I’d where manufacturing to driving. our a leveraging new teams key are

are AMD lines applications. for we two missile product In highlighting

response kinetic First, applications motion and safe extreme switches for and used impact. are conditions. used bomb missile and These our to reliable, mechanical switches fuzing in acceleration to designed and sustain arm quick sense

well with line expect the fusing this We continue are hypersonic we to developing. applications as new of applications for for that as products currently product growth missiles

we have missile our for various in new brushless several currently programs, various of development. where won applications stages motors, DC are which Second,

missile control world, to and its expected the used motors control heightened around defense of defending in With and a U.S. the the tension is geopolitical important air technology control Our an increasingly which is advanced in are actuation play missile allies. system. the system, part core guidance

these the as well expect We that part pursuing. critical are as programs we to of supporting are be we working future current with applications applications

we almost have million XX% from these over year-to-date In over $XX year. products total, last generated up

to year, development in modest of segment. deliver long-term current A&D early in significant the our stages growth revenues for expected Some programs with the these of are they are still but

growth a enjoy second strong APAC, business is EMEA from that position. like would in pump to The where our aftermarket I we area highlight and largest

team aftermarket has various and to initiatives principles drive and leveraging dedicated value-based XX/XX expand pricing Our margins. growth driving been

forecasting year-over-year, We growth pricing. portion with from this over significant coming a XX% of growth are

this continue the growth provide. we team’s and with focus in the services expect area continued our value to We maximize to products from

Before strategic like on I turn would to quick a the review AJ, I provide update call over to our you process.

the to Board management external by advisers supported review. with and continues progress Our the team our

any in the time, to in formal the near details. future. are launch to expect for stages we additional this final We this preparing not able happen provide the At in and are

the Now, to detail. to over AJ the cover results in me call turn more let financial

Thank you, Tony, and good morning, everyone.

third Let’s turn financial on X. in quarter to performance Slide step-change highlights XQ. delivered We

posted we industrial AOI in backlog and at Excluding the highest margin previously AOI the past least years. consolidated half divested margin a three businesses, and

off the benefits year. was to transformation in kicked early are We the see of financial that beginning the

stages We’re in margin this and the expansion. continued and transformation see early of strong for runway growth

our aftermarket our orders which up driven across We by speaks the market. and and to power most Organic broad-based of brands both saw regions trend and supported orders were orders A&D industrial. growth by of markets remains technologies. in for primarily XX%, robust, in the The and strength of and the growth the

disruptions business sales Aerospace across of & top-line, the Each one to teams Industrial posted our organic the growth constraints labor and chain organic quarter. growth. mitigated supply Defense deliver our businesses On in and revenue double-digit

expansion. adjusted We generate margin and execute cost. points in to growth cost AOI continue helped of We of EPS, basis to million. up maintain XX% value adjusted and EBITDA increase corporate $XX income drive grew and XX% These adjusted $X.XX controls, XXX pricing, reduce XXX% year-over-year efforts a operating delivered

cash Our Navy capital our related business. was negative select FX to adjusted pumps free and restatement performance. flow contributed the our million. to strategic flow primarily Cash by review flow headwinds and cash impacted in investments the industrial and $XX also working ongoing in was expenses negative

large medical, Aerospace to in segment in saw highest missile results. X Defense Navy past by supplemented orders spares. orders and for quarters. $XX XX all the A&D across quarter At our Organic orders Turning XX%. & up marked and markets, our switches broad-based million, were Defense Slide QX We Aerospace programs growth &

Organic margins XXXX. X% quarter. again dollar growth revenue compare On mix expect posting difficult both prior strong year & grew basis, revenue AOI XX% basis growth improved margins a compressed a sequentially particularly and Sequentially, businesses of AOI in QX improve we all to Aerospace a Defense with due points. reflected in against margin in to QX. the XXX AOI

our organic traction of growth continued by European industrial Slide XX%. all across adversely aftermarket, momentum The which five Industrial to to good Moving aftermarket, Pipeline markets were pleased in especially XX. up X% points. segment regions. and exit Organic posted orders XX%. Within growth We Engineering orders pumps our were see aftermarket industrial impacted orders with from grew results our orders on

take our growing this We and opportunity leverage business see pricing of laser-focused tremendous are and to share. on part high-margin value

of business saw of second organic This successive quarter the downstream orders Our growth. growth orders is XX%.

We starting to activity. and sales more funnel see are project robust

we order year flat full expect the for in to now post growth While and remain outlook, intake increasingly optimistic we expect lumpy, to are the of orders downstream.

solid Pipeline a cost constraints grew than the strength of Organic basis with Engineering. on the and margin growing execution. broad-based by Industrial exceptional X% AOI from optimization, of expansion made XXX% The more performance supply exit margin pricing, focus headwinds posted and aftermarket XXX growth revenue and possible AOI was points. offset chain of across that platform lenses

XX. X.X to continued and of This of to high expansion at Turning leverage expect any in net exit transactions. leverage our to than leverage continued year. and expectation net Net times, leverage compliance We which of sale-leaseback leverage improve five turns we lower throughout Slide not with ended EBITDA times. have the With mid-Xs XQ. the closing subsequent compliance include debt XQ the now XXXX does paydown, and in Xs was

for increasing momentum, guidance full strong the XX positive to and XXXX. full we for Based Slide expectations are XQ year. on and Turning our performance year our our

recovery aftermarket growth We commercial on in benefit defense orders the and in continue see position and and our aerospace from platforms. medical industrial to

organic previous AOI XQ, up remain the growth a With of our will revenue midpoint and we margin expansion. expectation X%. our of range, X% driver expect backlog exiting record Pricing of at of growth strong now from

signs are and supply constraints moderating We of of chain pressures. easing seeing inflationary

The Two simplify million savings year labor wage this million and seeks regional the negotiation industry walkout the expect to cost by XXXX. our potential guidance and in of impact affected benefits of are or factories to account representatives. in $XX to realize cost unions $X annualized end carryover for between and of continue low Germany in We slowdown. our structure of our the now

consistent Looking segment at the XQ with to be exceptional AOI is XQ, expected performance. performance

Corporate expected of result a to and higher We flat benefits and sequentially. largely costs expect audit Industrial A&D XQ consulting. be to XQ as to cost, in to fees be are improve up

year prior from year, full into to to and expect the For however, down corporate we further cost reduce be XXXX.

As our of at accounting a range, supply pricing, for growth, continuation of now constraints, and the optimization volume expect of previous our chain up AOI midpoint from full result year OpEx XX% of growth midpoint of XX%. we growth

by losses impacting Engineering full are are our $X.X range. in of be of performance $X.XX, AOI expect continue the the improving million we $X.XX. Overall, increase about at the an for bullish in EPS $X FX AOI Pipeline headwinds EPS And full delivering a XXXX. a $X.XX strong XX% EPS quarter year and year to build midpoint foundation by by by million We to adjusted fourth and impacting and range $X.XX. the to of are

Slide XX. to on the our for to back discuss Tony hand call market I’ll orders outlook

and expect an our expected about of X% earnings X% grow products. you, year. of At Based of core in and organic expect orders provided growth range to our downstream represents outlook relatively now increase by the year. the previous the X% range are we in growth for industrial Driven XX% X% Thank industrial QX This performance on to compared we level, year-to-date Core and oil to with segment orders X% to AJ. orders gas QX, from X% on being now organic the call. Industrial flat. prior AMD our we to

and power by and general to expect X% our and we both midstream compared oil XX% aftermarket. In for gas business pricing growth new prior activities year, as business, to well as generation, our driven Industrial in organic market

book North significantly by that a expect in to the now decline for In about in mostly pursuing our XX% QX. expect be relatively in gas, by a downstream our expect due has that QX weeks compared oil by We improved we call. communicated America orders is not improvement Navy. The to utilization since prior been QX has compared to defense and Commercial outlook large our multiyear supported the call XX% earnings large driven to XX% decline few our year repeat segment, Marine, XX% team earnings expect to and pricing. ago. of now to driven orders XX% flat we Elsewhere and aftermarket, to increased growth, organic the the In U.S. we order a to about in order XX%

that XXXX, Turning orders organic XX% defense to full to the we devices of Aerospace our Defense communicated earnings growth by new and and higher some we we pricing increased segment. driven in fusing large XX% significantly growth our In XX% in growth products & the than is expect applications which the timing the to about year to call. Defense XX% space for expect is offset during activities with QX This from for aftermarket XX% the now orders. missile XX% business, organic

the pricing Elsewhere in XX% new business. primarily increased the for as the for Boeing XX% growth, the rebound about aftermarket the the market we segment, Aerospace, in increased supported expect and and growth, at in driven activity by single-aisle activities Commercial in travel. driven products well medical In the by Airbus air platforms our organic and to about recovery XX% market to as XX% expect hydrogen organic we by

Slide the year the through and strong XX. with XXXX we summary, advancing quarter the pleased with In nine of of through to months results are very Turning our momentum. are final first

and segment macroeconomic in principles to ahead the pricing We current margin leverage expect value-based climate. despite strong to deploy our continue inflation the of XX/XX aftermarket our organization, our generating position expansion Industrial across and and staying

momentum our to from benefit by rebound cost strive creation parallel a market value-based for the the the product the growth value aftermarket. and our for to continue business, while at new same out transaction. of in commercial driven and new strength pursuing pricing, We revenue product pursuing path simplification key further through aerospace actions the and shareholders the margin ongoing in development, maximize on look potential our defense strategic time, We positions platforms, organic of development and

benefit as Our strategy about XXXX pricing value-based pricing and we to driven and is drive to in deliver we expected Industrial value our margin XXXX, of expect core to beyond. look pricing and our heavily to expansion growth initiative million continue segment $XX by ahead

Our simplification deliver initiatives opportunities evaluated million with being will of implementation. annualized more $XX savings about future for

impact rising and disruptions, within energy be supply focused by to to the on the While remain our from control industry inflationary affected continues areas environment, our these chain costs we headwinds. the minimize

Now for Operator, and your be happy I AJ would take to Q&A. questions. please open line the

Hammond Please Thank is Instructions] Jeff [Operator Capital your with KeyBanc you. Our question Markets. proceed from first questions. with

Good Mitchell on guys. Moore Hey, for morning. Jeff. This is

morning. Good

was out some headwinds. if morning. price if the inflation by some wondering color here? cost on you parse I And could commodity just Good segment of you could give

from for with positive we’re we’re seeing with material all from logistics, the perspective, But in is inflation. The headwind So year, basically what from from of overall, But offsetting which benefit a logistics from A&D, the including more to overall, primarily sourcing seeing pricing is benefit. our cost. the savings a is net be expect sourcing than the perspective. price material inflation, offset taking some we full away

there side, do is industrial material the we’ve but the some we savings impact. do what have material On in accomplished, have – inflation. some We

offsetting significant impact So expansion, but from margin logistics, discussed impact in and there’s the pricing and prepared obviously from is then the that net all material there’s some to also freight we our quite adding and remarks. a – as of

better great wondering, kind broad a was Great. then of order just is driving chain most things based? just get in Okay. any Or Thanks. vein, was of improvement? & It Aerospace like A&D. in starting there And bit helpful. single Europe? orders particularly seems Defense. kind similar for of have in a And of quarter That’s that a seen that little large are get outside you to better, supply I a particularly

The our levels. medical numbers. growth the in A well, not order still The Defense naval our Commercial reported XXXX Yes. as in of is Aerospace programs. & activities specifically broad-based. with aftermarket, at defense to continues was recover, aerospace the was which divest strong lot

that lot is more So there, room to a recover. there but continued

On some castings. it’s chain that the really biggest & our side naval recur our the primarily Defense and around and quality the of very the buy is supply challenge And on of castings challenging Aerospace with side, programs. these

in customers with So on been for our are to supply working we in did and starting we Europe. looking Where see improvements. have was solutions, some aerospace challenges – we see chain

the to up Our manageable. but supply struggling base with it not is was keep in meaningful. Europe was It recovery, very

Thank great. Okay, you.

you. Thank

Group. is Citi from with Our your Kaplowitz next question questions. Please with proceed Andy

morning everyone. Hey, good

Andy. morning Good

Andy. morning Good

morning. Good

QX, a how going impact into now, in all terms how initiatives your us deliver So margin transformational can into of thinking you as obviously, initiatives but color that low on in your simplification Specifically about of more good XXXX? you’re margin segment? tailwind, mid-teens the expansion you in could give go margin know I XXXX? could that teens but margin displayed industrial in to mentioned you little and you consistently them low

probably availability, as headwinds XX% lot a There’s well pricing. inflation then So to for pricing in factory such side year and material for a it This can drop you the lot really as labor it’s pricing that’s inefficiency performance the full year, the us. is to are One two as the against to offsets of an year-to-date And segment. on expectation keeping Andy, well at XX% looking leverage specific for we Industrial in and QX industrial, of trend, to And and seeing AOI. OpEx, OpEx see flat availability. through of things down. we’re the as

QX in sustainable performance good being feel about margin we So pretty QX. the in

and expansion keeping into see terms year, minimizing as And perform expect QX, of that we reasonable with in and XXXX. we pricing in and on again flat both down, AOI in then Again, both next offsets Industrial barging against OpEx principles to of performance. to AOI the dollars in line margins dollars, We driving same pricing. look

Got it. helpful. That’s

you last or expected is this you by about so see in think of we’re going any talk could geographic Tony, And industrial, in of XXXX. China see sort to down your you to about see could And what weakness in In particular? downstream decelerating get. was you order you you not that bigger talked markets? Maybe some quarter, to to any suggested maybe starting into Have I do obviously, just meaningfully. order in headed and were you’re Europe you growth region be going started

activities So on order customer as quote continued expect and orders into QX XXXX. as the current based we and discussions, our well activities growth do in

indicated it’s Our measurable not compared some that’s be still to but prior segments. in and the any to aftermarket And anywhere commercial continues in our for I have year. did market slowdown see we quite teams, We slowdown sustainable. believe strong, growing

year, this As expect as to regions, to Europe far we year. grow prior to XX% the XX% about compared

It’s in quite little So a bit a strong It’s us, little North still strong strong but as down business huge prior China, in a quite compared it’s quite exposure Europe, But year. Europe. bit for America. to our not industrial down. well. in

seen And what some in Europe, yet Tony, saying? you haven’t deceleration you’re

haven’t. No, we

we I to Can you cash improve Got little can then your generate AJ, cash how us you you sort cash a to it. on cash think would conversion? flow? color about more drags about And And into when and expect the give flow. of maybe ask

Yes.

million special drag these One and way the review So about project there are is I million all cash Collectively, of for classify as impact expenses the $XX Russia tied the year. would FX this And this year. cash and account these impacting restatement of the to the one-timers. negative to are unwinding the of process. in the $XX strategic two attributes

million our capital, in also The two and that’s through areas. the pumps One specific $XX business. building year – to we’re about and ties working is

investments So disruptions. inventory, of selectively we’ve these a could at capital, we against in about businesses and that safeguard to percentage pumps working chain teens so run had supply low our customers of make as sales

supply we’re where area built the both mentioned in capital and Navy other constraints the into to And Navy, is order Tony but chain working growth also response. seeing as we’ve his tied just in the up that’s

pump those two sales, grow on it’s customers we working the side up side. the Navy So safeguard capital and our also building as on but to

should one-timers generally As into converts year, when of eats I flow. see our away. And on with flat say, XX% speaking, then net go sales, about that growth working grow we look in growth free sales And how adjusted next to in in would the a we capital. line cash income into you year-over-year, depending

helpful you. AJ. That’s Thank

with next Instructions] question with Funds. proceed [Operator Kearney questions. is Please Brett Our Gabelli your from

morning. for taking Thanks guys. my Hi question. Good

Good morning, Brett.

Good morning, Brett.

quarter, the in Aerospace Defense. in performance Good particularly &

think Could missile the help You on market seeing space lot about opportunities I in, you’re the private a defense fusing a you color what for guys provide sector in is applications kind area. deck, parts us space Also mentioned growth guess device of the and in CIRCOR products for there? from involved of standpoint of the the great and the slide in company CIRCOR.

we business, primarily We’re both still defense of good part space the Island. last upside stages have market. year developing see We and to ahead. in And we our it. of commercial the we looking It’s that some so pedigree. on valves of part in out business a a It’s our see meaningful early year, not late this business, did lot the expect product continue cryogenic-type of of products, still the development Long that do with of and areas in and

we We’re pedigree activities continue and develop activities, customers. to good with that our that product see both every improving from

Tony. Great. Thanks much

are Thank time. no today’s This you. at concludes this There further conference. questions

You have may for Thank participation, your lines your you a this time. and disconnect great day. at