Kaman (KAMN) 10 Nov 192019 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Kaman Corporation Third Quarter Conference Call. [Operator Instructions]

I would now like to hand the conference over to Vice President, Investor Relations, James Coogan.

Good morning. I'd like to welcome everyone to Kaman's third-quarter 2019 earnings call. are Rob Chairman, and Starr, Officer. today Executive and Chief call and Officer; Executive the Neal President, Keating, Chief Financial Conducting Vice President

we the forward-looking future statements some forth our and note during Before other with events. call our setting like respect business, expectations information economy to today's of the of discussed that consist will current I'd begin, future of to the

are company and or and other the the and included management, filed forward-looking These The the filings together include report and with differ objectives Commission, described Exchange on items, latest on those current statements third-quarter in could on economic Form of the revenue, to its of materially results on in the underlying Form regarding factors, indicated due future company's projections of XXXX any financial Securities many plans the the assumptions including these with its statements release. statements earnings business. X-K company's and the most actual and from of our performance results earnings company's evening XX-Q statements company which yesterday important

transaction. press can was website, anticipated In Seal announcing which Bal the morning. the presentation just with release along overview be transaction The the addition, announced an company's acquisition the found of Engineering, on this company's we discuss will of the provides that

announcing setting forth underlying expectations the release for discussed the the information forth are assumptions in current on today's forward-looking call, our of which the statements consist respect Some proposed and will to therefore, with transaction. risks transaction, the press set of

non-GAAP to financial SEC in the GAAP certain are the rules release included yesterday's expect are and to We measures defined and X-K. Reconciliations with discuss applicable filed information earnings measures in company's regulations. as also measures that

of of discussion the light company. of the the of segment, focus be in the that will the of continuing today's sale the operations earnings recent distribution note on please Finally, results

Neal to the call I'll that, Keating. over With turn

Thank our and earnings thank you everyone, joining you, Jamie. for XXXX quarter third Good morning, call.

a with moving of call of relating a balance to I Bal discussion of the I'd operations to year. like of Engineering from our for before the discussion anticipated Rob of morning's expectations then for results announcement will discussion recent events. this pass to the and call over a more begin the to acquisition the quarterly results continuing today's financial Seal and detailed

business. seals, XX, an the an provider a And company completed last a of we've being Over a months, and today, are acquire on we provider highly Bal solely signing engineered announcing transform number springs few of steps Kaman of leading of taken the our we distribution focused On August of highly contacts. Engineering, to the products. sale agreement engineered to industry-leading Seal into

globe the around XXX-plus combination patented with in customers industrial, Bal the work markets, premier and team aerospace employees Seal's technologies. medical, management and a and of proprietary unique defense strong closely leveraging

demanding and environments. highly used most industrial and innovative leading of cash medical Bal as margin in expansion applications enhances science and position markets components both products from material end The proprietary provider enabling of and manufacturing addition critical Bal and a one. as high-growth broadens such of year Seal to access technologies products, our delivers our engineered accretion engineering, Seal's result precision in operating the Seal manufacture to in decades solutions create know-how, Bal the

the a transaction fourth-quarter is process but during Kaman, call the subject to regulatory expect our close transform and closing step fourth all last to early meaningful XXXX. the information to providing the conditions look and we late quarter, This in earnings more not it about to customary We next in deal is approvals, forward step. a in

cash future current appropriate integrate provide to We direction. strengthen acquire debt long-term and current our to and that with available to position well companies improved financial have capacity million capabilities and that in the opportunities. fit seek our competitive we will and deploy, $XXX opportunities M&A continue With will approximately growth

And disciplined and approach our as opportunities patient our internal to identifying fit strategy, in culture we you in that expect, and will return come remain have metrics.

are excited the growth. look While family, in operations drive about Bal Seal to we continue portfolio we adding their welcoming our our employees core to to to forward investment to and Kaman organic increase

our a investments armed customer in well meet us demand laser-guided, to as composite We specialty and products have new investments These expansion current next-generation technologies for our development and sensor future of unmanned of height-of-burst engineered new rotor bearing and and and safe products. for the capabilities include facility expansions K-MAX, position increased the new and growth. blades as

in In in upgrades the Republic Germany facility lead meet U.S., times invest improve addition, to efficiency. future Czech the we demand, and and and reduce expansions to continue

Finally, we to in operations million our to $XX we in annualized in order $XX started million achieve have last call. streamline our to the highlighted savings

planning expect to additional divestiture. strategic we the associated today, able process. that based of distribution be identify process end was high range estimate at to for This we savings anticipate as the the with And through our be will initial the opportunities and on we move

XX.X% stronger discussion our we increase was from by bearing quarter to largely $XXX.X a our of JPF results of a continuing third of sales products. strong volume were performance with and sales operations, deliveries our total with growth driven million. DCS to very Turning pleased higher of This

Profitability earnings in increased a an $X.XX. $X.XX yielding share adjusted share to million prior year. compared doubled highlight per quarter, quarter diluted $X.XX and operating diluted as $XX.X the income basis, the in $XX.X the operating income in than to million was adjusted per On million, increased earnings $X.XX $XX.X also in more to to our

compared for the higher period. During significantly million initial we in to JPF to and our made contract. units enabled X,XXX on the XX,XXX to JPF and to $XXX units received DCS us year, mix profitability deliveries export quarter, third in an prior license DCS the deliveries improved This the led increase

adding backlog in and received high, JPF order remains quarter, JPF $XX during the this to significant second the our for million Demand September. we year, DCS

second bearings, bearing record specialty sales we've where was single and considerable incoming digits growth our aftermarket orders, led in in had of high spite our products. and quarter product of consecutive self-lubricating by FX our headwinds was Our

compared The continued operational the for year. increase these led in higher volume trend incoming Year-to-date the margins for we bearing experienced our XX% the strong the when orders self-lubricating quarter to improved order the gross an half rates products, these execution prior year. in have products and strong increased of while products, to with in first

we backlog Turning orders new pleased two bringing during quarter, to three aircraft. to the to total K-MAX, receive our were the

of on we aircraft In the K-MAX. new addition make the to systems orders, progress continued to unmanned

first quarter, our commercial operators, we demonstrating operations. the five for orders received K-MAX see from opportunities the during they And unmanned

optimistic We that K-MAX for are to fleet remain the and the long-term to applications. military continue we very encouraged add

optimize Moving taken actions had up modestly and structures savings to revenue restructure period, result we our a anticipated production. actions programs, in annual Initially, while of the the substantially we have to these of profitability $X was improved million. result our as in would

quarter, continued programs. a and $X improvement to note profitability third achieved will in finish are result of XXXX. now the have savings XXXX quarter the of we of momentum the to these for sales our to in With will $X.X a year structures in on which and programs in have million in excess deliveries the significant left contribute due expect XXXX savings million, year-over-year through However, full improved the K-MAX business, profitability in positioned one in these strong our year, the anticipated levels higher scheduled we bearings JPF, in actions for

its a us portfolio a has engineered Kaman is remarks, thank my turning an capital also marked as all focused during growth. for long-term result. we This outstanding but meaningful solutions. time opening more efficient I foundation as and to point are profitable our enhance for and mentioned congratulate exciting structure operating that workforce our company would for of the to of teams their an And our implementing demanding refined third-quarter this year and at hard our more and focused deploying on in employees for work setting like

at Rob? the Rob a Now call look I'll to turn closer numbers. over the for

everyone. morning, Thank and you, Neal, good

the I XX.X EBITDA $XXX The and price expect Sales Seal benefits including in discuss want touch with the performance key this of values our I for XXXX purchase Bal will and when the terms at the our the cash Bal on Before morning. to of expected of million quarter, consolidated fund transaction and announced tax times we Seal of hand. transaction on to expand $XX margin million estimated EBITDA synergies, be of we are business. to

million we and still will transaction, $XXX to approximately capacity cash growth have our after organic deploy and Neal toward initiatives. debt of As inorganic mentioned, this

engineered highly identifying a in significant portfolio continue strategic toward will to to growth expand product of our objectives. capacity expect portion deployed long-term of acquisitions, with will line we and on this be opportunities additional focus We our products

the product on our increase XX.X% quarter to of for resulting the performance sales update from of commercial products. continuing JPF million, from XXXX Net when $XXX.X sales to and turn increased and will prior for quarter I increased to outlook. an compared Now a operations year, of an the finish second discussion with this bearing our DCS

XX.X% DCS mix basis XXX over by increased charge On JPF basis, at operating period was which by year million prior to of profit program operations. was year million million intangible our the to impacted and of to or of bearing adjusted profit XX.X%, margin period, million benefiting from X.X% sales largely of or year sales. $XX.X million compared specialty Gross Operating over adversely $X.X impairment $XX.X prior the products. increased the driven favorable points the period $XX $XX.X prior our an U.K.

several products sales structures we in weighted of year was initiatives. performance a restructuring increase a DCS profit benefits the significant improvement result toward JPF factors, in of bearing favorable specialty and operating as The programs including realize adjusted our a prior and from mix

EBITDA per loss diluted XX.X% in $X.XX. third in the of XX.X% across stronger $XX.X results EBITDA $X.XX operations of quarter million Higher sales operating a share the compared was or million from prior our of XXXX. or of The of result of quarter Adjusted to third the over increased number product of was earnings continuing adjusted $XX.X offerings. sales significantly the year

resulted The of initiatives associated reduction charge impairment increase absence with the $X development our spend efforts. million the consultant in G&A expense recorded prior income intangible in by increased from the M&A offset a resulted increased and period-over-period, year, corporate pension from

continuing from other from speaks which compared operations to share to earnings strength operations and the items, the diluted year the was our these quarter. for adjusting per period, of prior XXX% After the in up $X.XX, adjusted results similar

line designed items quarter, business. additional agreement sale of this identify to services transition and distribution the the the we relating statement the included upon that are entered Beginning into in we income segregate activity to

from the resources transition Kaman shared as tax, during such terms services provide pursuant of human period we So, away the the Distribution agreement, of treasury, the certain IT agreed to services. to business have and

activities While income these quarterly most fully basis. services of been cost a approximately will and will have to one report year to both continue take separate, IT and transitioned, already we the on

total, agreement. expense I like we $X XXXX generation our total of expect a net approximately now net of million of the life over the $XXX,XXX to and performance approximately the quarter. In a incur $X to discuss for cash million expense would to in

Our the for $X inventory of quarter and balance cash million is the product XXXX. that buildup bearing primarily approximate during of sales ramp projected use resulted for in as through the specialty the we of steep prepare JPF of lines from the

in was Also certain anticipated a that delay third in quarter. had cash the receipts we impacting

clear the to of year collect on flow in to earlier begun deliver the path accounts the strong full for receivable a year. some have We and cash have outstanding generation from

outlook. our to Moving

for discussed operating And and Distribution, with announcement we of we sale income for guidance balance the of the of sales segment year. in the our June the exception the as Aerospace our of suspended

full in to We year, through XX.X% on calls fulsome now million, of operating which outlook $XXX the Aerospace in million we performance the a more year margins first months expect of maintaining the to our are with $XXX of range Aerospace range provide the XX.X%. sales at X to beginning XXXX. outlook, Based the in

will the turn over back that, with I Neal. to call And

Rob. Thanks

our of complete like the would thanking our across quarter required move proud to with distribution by team sale of acquisition our third I Seal. in the forward efforts Kaman. despite the execution of the segment extraordinary and Bal close to I'm

of our term. and long power the employees our as us the path the for of of maximize invest of all us is to for shareholders, and ahead clear business earnings Kaman, to For

Jamie? We are look our everyone excited opportunity ahead and forward on updating progress. to the continued about

the have we may Operator, please? first question,

comes line Seifman Our JPMorgan. first from with question the Seth of

Your line now is open.

kind kind implies the of kind kind like that of just of quarter, just in - opportunities maybe some and out? little So where like of Aerospace in about there are the a puts and quarter the saw seems the yes, kind maybe takes the guidance determine math, of Could margin doing what a was that fourth the will it third what better. talk we - comes bit you that of

- a strong quarter. we deliveries our will at When is that's premise key Seth. as expecting JPF driver. fourth year, on the we question, That fourth we have No, the very significant we're about during that really talked look a good quarter, DCS all quarter

We improvement expect continued the our we of that. good & up group very and ahead lines. also of structures have in Engineered quarter to has a Products Bearings them, aero, Also, really Specialty very group product strong lined visibility

outlook. what's really the that's driving implied So

you're think I right.

great to a execution and team implied XX%. prepared is us, The That's and the to going we down that. to do it's who's and margin range going between have come for range, somewhere be to XX%

And getting $XX the of high the that level the $XX of the of baseline the guys to of on and initiatives expense should undertaking high those kind as that we assess you to there corporate as think to million which XXXX, in savings? that from XXXX you the being end and XXs the kind base cited, are million

yes. I that Seth. think that as to out, effort, would in integrating these we as correct, to point that's a noise But base I you support there and we continued number, that would acquisitions. imagine, as underlying expect the through think go want just I can about you calculation, number do be

the size tax contribution and benefit now, And me deal? then right guys one from you to the synergy maybe can just last

two to synergies of that I'll give is About that talked higher XX% about expect. than attributable turns the operating two. is we We unadjusted multiple, to the the difference XX.X. the you that cost rest tax,

Your KeyBanc from next line question Steve Capital Barger Markets. comes the with of

open. Your line is

for This for Thanks taking Steve. is Ken questions. on my Newman

deal bit a to and it you And to in take missed could little Bal last hear as talk was good see you if integration the step a it, is meaningful how but about once Sorry the I maybe long expect just the Seal step Bal of you that M&A. closed? Seal not

back look give how you maybe of us long of idea an step into and integrate then M&A kind this to So the would pipeline.

six-month us the with Ken. team. part Neal, very that so experience of period it The about continue move is time active obviously as through in Rob integrations, commented the Sure. - This we is team M&A, would be that of would we for have expect doing And to likely prepared Seal kind be process to remarks. of a his Bal in

you in that that think expect the valuations. that maintain in I historically demonstrated engineered will we of have again, we products and will that we And areas can the focus highly discipline the

profiles? in you different margin that similar we think announced targets smaller As or are as there, I maybe other one M&A either or terms of about think about last size deals there that your or pipeline, to the you've comment just larger are are there today -

Rob come sizes. expect, as broad have to And start would when a they're acquisition you at acquisitions that or into certainly small can phase, I'll analysis range. opportunities that, We're think as going I smaller to There's opposed that lines. you all of product and companies of be chime various that not in.

and out very may there group. also scale operations. there are our are certainly, that offer we It customer today all available And we would larger currently would companies nicely being significant to end fit with know to up that what our that add

we And I so open to that think are either.

balance size, step certainly the with with could ability sheet. of now current our that Seal do strength to we've acquisition, we Bal the demonstrated up in think and I the again

How maybe for is margins overlap go-forward think synergies talk customer do how My about we the industrial. question bit little margin for a and And here on forward business? A&D and EBIT Bal improve basis about that can about medical, for Seal. the follow-on a mix just

analysis, some at a talk markets. through gone in even fourth or whether certainly as they're detail we'll defense, and customers But opportunities that see for sales Ken, we've joint our more industrial obviously, about the call. today, increased lot aerospace, the medical on quarter we

if we a highly think different certainly that we bring Bal that that with can that strong to we there of Seal. be the base are what expect we will today, Kaman will, relationships the do have And leverage because very lot don't although from products customer But cross-selling, you will complementary.

And achieve GRW acquisition. similarly, with to Bal customer Seal able been relationships that really to will to bring hope very we exploit. some strong we've We'd to back Kaman what the look

the sales area, that their about only Bal They the XX% did ago years time remember, in a defense Seal about the had As X acquisition. or we exposure medical. had now, and similar that - in was of you XX% we aerospace to a at them, acquired very it and bigger

for very with now really pleased seven with been about even but seven years their just the at not really that sales in today, aerospace though how serve for initially We've A&D in the as the Bal area, it's long, they we've today. in relationship leverage well. to they've GRW looking growth been drive years and And in and able to medical and increase to increasingly Seal entered we've with A&D and markets been able today known been we've forward that we and ago pleased defense been mind, medical underlying that now

with Bal pleased the and So ability an management we to were the Engineering. agreement to at team with really Seal come Balsells Peter

next with Sidoti And the Company. line from question Marshall Edward the & comes of

Your line is open.

guess juries day today. I about no talk want election that's just I I skipped out. - so to - there's

not say to think might business? the hard - that be you're some first might margin that Seal. I it's you to hard should But that kind the integrate - think expansion looking something that it the of think unusual probably that, we in at but math, of be the kind year. something still in about to about Bal about far if there deal as unusual And didn't EPS that Seal So going deal as how the is Bal and through flow and into accounting, accounting accretive be. go is we of of - kind It's there discussions of cash you were would aware

would transaction Yes. working need great we're say And will the Ed, appreciate, call question. accounting is, the purchase with that I I limit that GAAP not make. year yes, a still would carry potentially, wouldn't adjustments a we'll X. way, accounting to accretion would feature unusual, what the it because purchase it, bad through, you This in as I'll and - EPS in to

This basis, deal based GAAP in then just kind is of to two, math. early significantly gate. cash-accretive on right we of it year mid-single-digit out the would type expect our a on accretion And be a

adjusting right accounting out some the year clearly, gate So of adjustments, of the GAAP-accretive for in one. purchase

and So provide think able we as as partner be we're a to Seal. but with transaction very pleased benefits Bal lot Seal, not just for well of this Bal of to Kaman shareholders will employees our

had the and date, generally pretty XX,XXX the question at math suggests high carry at fuzes that looking to I was XX,XXX roughly Q shipped second seeing And fourth in the you've which the XX,XXX quarter, margins. to

it the little looking for guidance margin So, light. looks at a aero,

thing something maybe to fuze. that is as get that might So your movement implied just the from I to with through - wanted on or a be going it sense mix

USG in No, on particular Yes. that's mind, keep side, in And Ed. overtime an question, the calculation. good

in in a not the there's delivered, when particular talk USG, the correlation about always what's we impacting between So revenue. units

good deliveries you portion fourth deliver significant I we're of recognized revenue. is quarter, the to fourth DCS portion what also in a going can is where a in expecting tell while that USG, we've of what that quarter still we're the So

we place. in for deliver for where be margin to guide, Sure, trying Do again, potential And if that once trying to forecasting really we to the it. is given so are of to be in quarter we're But think year. the we're what terms just balanced all given things we in have just we're fall balanced the execute into there upside?

Funds. Gabelli the Tony [Operator of Bancroft question with next Our Instructions] comes from line

my Thanks for taking questions.

interested the mentioned opportunities be of core have what you in Could a unmanned heavy - strip M&A potential are that space? there you in couple lift they interested talk sort a would what - just about where more times in talking that - level And high of like? - of space? area maybe You've look would What about you maybe you're competency. be sort M&A out to potential doing And drive there? do you behind

that a to logistics logging at range military Tony, applications it's K-MAX think We a from whether firefighting. or air the of construction capability today unique proven good broad very we in that's in a question. vehicle to quite relief its it's to We look often. commercial applications, humanitarian have

on five really are on get that, commercial pleased capability currently, our system to operators. we working obviously, We or orders unmanned were own our from and put first

focused on where and that But the for aircraft what is market on right that both might now. the a expansion clearly, complementary what we further us airframe We're our think informs of or capability fit.

that opportunities we ahead and acquisitions think experience or I in we capabilities is thing that internal bring that can capitalize about development the have do what So the that both that area. might right for we want that to and applications have really we us us any and biggest then inform of learn now and the

the Chris our line of with question And comes Dankert from Research. next Longbow

Your line is open. now

here. jumped $X My the million. bit some deal? pretty a here Is to right numbers, it synergies says I in the ballpark little through math significant. of for apologies, on $X back million Walking of seems like are the My that late envelope the

be to that Chris, we to the when details able this on what's call provide numbers onto get closed implied the don't at the more go north. that to we've you're that also once fairly in what but transaction. say given. length well number No, Yes. I of is, we've north want We'll is year-end in well

step-up of is expected opportunity implied in XX% significant benefit. is really multiple the difference the about tax But - really around that tax the

it's is will. what if on you really why - low-hanging the So - now We're a dialed we've in modest. side, fruit, pretty operation

But a then really right. anyway. - it's That's for bit number, give impressive early, look shipments, into Should big to this this stab as any it remembering I'm is us? thoughts give repeatable track can JPF sense Just next there we year, a very year? picture? shipments kind you is it a be I'll any of a JPF if similar this record And XXXX, but Is on figure? Obviously helpful. maybe on XXXX a

Chris, a would expect little be We us. early that a it we in would similar we is bit - range. for

more fourth We that team quarter But call. good I combine we will talk that at see there's think that with the about have a two backlog doing things, can and you strong very production. really

support we again, talk that So range about think the detail we call. at fourth-quarter in can next this volume more But in into year. we'll

the Any program, Thanks then autonomous update autonomous Marine appreciated. firefighting? work kind update final on for be the though. Any that around of Just one color, me. any that on one for either going? would is program how And thoughts

is them customers from we five And are that. all orders firefighting be primary orders, goal for we're those commercial today. authorization orders Chris, actually the unmanned when able capability mentioned, to as received get do to of to that we for prepared

the teaming meet that the are to demand both within U.S. program sure it we that looking with are prepared So remain encouraged and them very our occurs. operators and ahead, we're unmanned And also, they we when make to with

Corps as well. Marine

and are the unmanned - got coming for for together hard but quite work both of So things we'd like K-MAX. ahead programs that there's the a of commercial few military to nicely lot we a us,

the from of Global. Pete line comes question with next our And Skibitski Alembic

open. now Your line is

I and conversion net on some fourth Rob. and the to maybe flow. for year? guess on the here? XXXX? that. Do you the that's been Does how that think to year-to-dates, inventory Or a in to income cash start for quarter wash I wondering carry to Rob, a into going going you are bearings full out get one-time start, to JPF free inventory build the part have of Just

our based of Yes meaningful how hung the of - in no, depending fourth in of on December on we payment on to What would that much time I you at is of terms. given up in likely this, the tell on inventory into number of expect see terms depending quarter improvement expected do can the end the shipments. some I cash conversion, the this say be will year, sales, just AR the those moves a

I sight. we tell of you can What is line have

call with some have outstanding on We some receivables of foreign of customers. collected the, our and it,

some term, So are we seeing cash terrific in flows, Long visibility here the progress and really delivering quarter. Pete, early good we yes. fourth have in strong confidence

I about way of to to is looks of of Is of sales a couple A sticky, but just consumer Is I'm Seal. are questions the medical typically type margins the growth there kind that expert, on to being staple is digits. where market It characterize around guys historical for seen pretty kind the XX% curious, like here? not solid. Bal of anything of low right mid-single and performance have kind But exposure, turn me, a what Bal when think think it's in pretty the not medical you consistent. to volatile Seal? particularly I

an I'll company design, design extraordinarily place. impressed whether extraordinary processes the absolutely capability a is every phase, and it's We This is have sales at Pete, saying it that by have certainly only their their that manufacturing, organization. in turnaround. not world-class not were with they start, they the marketing but

team, management employees. terrific great So

particular, mid-single the profitability XX% growth be think ownership. that in strong demonstrates under that range yes high - bit rightly - that to help of in across and historically, how those we recovery little in Actually, in digits the we single a we they've And such you they digits, all said, get been private of So of are that the company can if in markets, our the over facet we've X% time. to operation. as strong

feel we'll together. good we a course, this business with we very about of help with over need but in time come as industrial, strong growth So little recovery

And that's great it. color. That's great. I appreciate

one a Just stand-alone quick to Is unit as guys operate just that follow-up. Aerospace? kind it intend right? within Do you of

our within closely with how the that through teams private operate to say Bal we're portfolio the Seal the are a time - ownership. doing toward to of they've sure management have working integrated management from would I a it's our team are But place whole Aerospace in employees team, lot good appropriately and needless been working make we're say, the to to attention still it going under of companies. the doing work that going to continue

showing questions I Coogan, back for am Investor to the turn James remarks. of this time. at will I no closing VP over now further Relations, call

conference today's our on again us we call. fourth look report with joining you for you Thank quarter We when speaking results. to forward

and today’s now conference may for this you you gentlemen, disconnect. call. concludes and Ladies Thank participating