Kaman (KAMN) 2 Nov 232023 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Kaman Corporation Q3 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Matthew Petterson, Chief Accounting Officer and Controller. Please go ahead.

morning. Good Third Call. Kaman's XXXX Quarter to Earnings Welcome Leading and Lane, Chief today are Senior Chairman, President Ian Walsh, Officer. Executive Financial President Interim the and call Vice Chief Officer; and Carroll

regarding company other will some begin, or events. we information today's statements, Commission, with earnings current and with the include management, current please are materially including forth factors, company's underlying to company's the that respect and results many objectives future consist Before projections financial third on actual business, indicated and XX-Q items, described evening of latest These to the report its with most forward-looking of earnings economy the statements Securities note and could discussed the company's Form assumptions during yesterday our statements important filings XXXX expectations other of setting future and Form due of the call of revenue, in of from included the company the the filed its together statements which differ and economic the in on plans and on business. The of performance Exchange those results quarter statements any release. these X-K forward-looking our our

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

supplement, performance. Finally, which additional financial an our we provides posted earnings context call on

the website. this of find our in presentation section Presentation can You Investor

Walsh. Ian Now over I'll turn to call the

our earnings for Good morning, today. call joining everyone, and you thank

return optimizing cost overall execution and objectives, consistent are against remain and free third on focused drive the Our strong structure invested capital. into performance quarter profitability, flow to our which cash our on improved as continued we

EBITDA the of performance, million. in now on for Our results adjusted segment. Engineered $XXX.X to of million expect year the the million, full and continued revising and this led strength range by outlook our $XXX are sales higher to we $XXX in million Based in Products were range our expected $XXX

for XX% Net $XXX period Products These grew program from wind by approximately contribution million, and and organic over anticipated primarily prior factors year sales were was the Engineered period, from this growth the JPF the to as Aircraft reflecting Brake segment. lower our sales down. offset to quarter Wheel continues the which X.X% during

Continuing and Commercial, growth better a from than well in quarter, saw quarter. the the quarter trend third third end perform year-over-year. XX% second general markets business to our the continued aviation in the

commercial specialty continued bearings demonstrate overperform business demand. to as Our robust markets continue to

notably the of Industrial relatively miniature with volumes third double-digit end year, for to flat markets compared volume solutions. industrial for organic growth the improved sales bearings driven growth quarter, first by in the in half

medical Our in markets and mid-single low to end digits. the grow continued to defense

in business. We historic investing efforts our high-margin the within high-growth, adjusted dollars and third report variation areas EBITDA to margin remain our of of the focused eliminating sources results to optimizing quarter our meaningfully transformational on period. continue business, the over structure in and strategy, cost I'm the these which yield that prior our pleased improving includes with

$XX.X of of quarter year. or prior XX.X% EBITDA of third we the achieved million in $XX.X compared sales, adjusted sales million XXXX, XX.X% the of to In or

our continued year progress to fourth in performance and the have for into company. Beginning we consolidated reposition far made segment, move margin invest Engineered we opportunities with still favorable as we we remaining objectives are the quarter, growth and to we drive our organic to Products this mix As so pleased results. accomplish to have with

partnerships fostering generation on developing and innovation for focuses next strategic also the of strategy investment Our products.

programs XXXX. of disclosed. in production we production million down half have remain Products track to we facilities of reduction following rightsize realize $XX wind complete to program and on savings $XX JPF that our of XXXX the progress cost previously In We from to the to operations consolidation of in million first and a cost made significant Precision segment, the expect our K-MAX our the JPF

Engineered were our growth the to segment XX.X%, self-lubricating traditional Turning third and with performance approximately strength PMA demonstrate in led which our organic. continued aftermarket programs. of and performance across business Higher was to beginning we overall Products. sales with In strong sales by units, quarter, of bearings XX% volumes broad-based

be to capacity, with our rollers. continues load a for flat high us, track Gulfstream wonderful ] self-lubricating [ customer

and in We continue propulsion innovation, to make the applications. Titanium medical space Hardening Diffusion both on progress or our TDH,

tested, We XX replacement parts. to in many results a patients surgery, where orthopedic showing and of allergic promising we're plated cobalt-chrome being applications have over TDH as are

generated sales by profit, stronger XXX EBITDA basis Products leverage level points This $XX.X to demonstrated increasing Engineering expanded the business XX.X% segment adjusted operating to Higher our stronger also volume with as in XX.X%. million. margins year-over-year

attributed was in In anticipated the year. our segment, decline declined Precision to to compared volume to $XX.X XX.X% Products JPF million prior the which sales

partially the of Excluding million, sales completed of our delivery FireBurst FireBurst higher sales segment recently and units period. driven K-MAX overseas JPF, We deliveries, the effects lower higher our in by by of offset sales fuzing legacy increased aftermarket level $X.X first customer. to programs tranche during

the programs. we facility $X.X leverage and segment work legacy program down negative of result as $X.X Segment remaining Lower rightsize EBITDA for level wind to adjusted footprint a year. JPF the compared adjusted in our EBITDA prior million was to operating lost was million our

consolidation footprint. have for is us our a of is and million focus As cost $XX of area million to meaningful a our from identified $XX this portion savings of we noted, generated the

Turning to Structures segment. our

the $XX.X year in partially lower Black deliveries, prior a primarily were A-XX and UH-XX year. higher the by volume. and sales Hawk was from $XX.X Rolls-Royce decline result million The to modest of quarter offset Sikorsky prior million Third compared

XXXX Airbus as a track new profitable facility Trent more LXHarris as contract Rolls-Royce fan radomes grow Vermont for such our defense and to a Our the ground-based they with win for and continues benchmark programs, be new liners new their midcourse AXXXneos.

results $X.X breakeven year negative to adjusted prior period. segment EBITDA in quarter Third the level million compared was

have driven in have we our legacy to our production guidance, segment. throughout variability and year optimize working reflected As programs we historical the that noted in of are this

continue year full at level segment breakeven year. We profitability the anticipate around for to

we final of have As pleased company. the XXXX, across progress we our with quarter we enter made are measurable the

be overall Our attributed ongoing high-performing to positive the momentum our investing of earnings. initiatives, of execution to can our strategic the our and operations our enhance in streamlining businesses quality

several objectives. maintain forward, our Looking to we key commitment

the First, most capital our growth Engineered we segment. opportunities are resources in deploying to disciplined Products promising within our

fostering margin flows. cash Our continues on achieve innovation emphasis to and be generate substantial improvement strong organic growth, to year-over-year drive

to making by in investments Precision next-generation and prudent In business the transitioning are products. Products segment, targeted committed our we

Products to enhancing our units growth production operational Our consolidate and are These will years. conclude facilities reducing decisions K-MAX future in and reposition profitable JPF Precision aimed actions performance for business at variability.

We a UAV customer to from and purpose-built has which continuing being addressable also expect requirements medium a commercial benefit market. system, lift vehicle, logistics targeted in our in the investments autonomous KARGO made military end large

receive excited of distances with are Army Near demo at the to loads We partners UAV flying XXX by a of pounds U.S. Earth contract our miles. moving Futures recently capable KARGO XXX Autonomy a and to in over XXXX Command

a has is to UAV XXX KARGO range and being pounds XXX of max designed Our carry miles.

ensuring with a diligently aim consistently to segment, X continue in Structures the practices best operate we manner. of implement our healthy all Structures of that Within businesses our

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

Ian. everyone. through our you, walk quarter right. outlook you All morning, before for results Thank Good turning third I'll our XXXX. to

of were sales acquired $XXX year. million. $XX.X Third in contributed the Aircraft quarter from Brake, which sales X.X% mid-September million, XXXX, we up prior Wheel and

XX%, Organic sales anticipated, were government organic which wind-down a to our relatively in sales by segment was of sales Precision our flat revenue reduction approximately strong growth and in across slight our with the offset previously discussed segment JPF in Products Structures Products lower segment. the U.S. program, Engineered of related

to $XX.X $X.X cost the profitability Brake. XX $XX.X was that operating Aircraft increased mostly XX% to leverage the was measures Operating enhance $XX.X greater EBITDA to year million, the That's sales over EBITDA basis increase a are growth, the saving increase of $XX.X margin stemmed quarter past in including loss year. our operating from and compared in million, of third income in from of benefits an quarter an points compared Adjusted operating months slight from million performance. third higher XX.X%. Higher to the the of intended and organic prior taken prior XXX million million. almost Wheel

XXXX. We million execute $XX announced initiatives, on savings continue to $XX to in with over of previously XXXX, and our cost to we realized savings be total in $XX million million expect

XX.X%, to and Turning our initiatives. was higher This margin to and our Brake, Gross basis from savings cost Wheel compared Aircraft addition attributable points our to was organic Engineered which increased the in benefits of segment the back volume year. prior results. Products XXX

in of $XX.X associated absence decrease were corporate to expenses Brake. which prior the of million, were year, and Aircraft costs Wheel administrative development general Selling, XX.X% acquisition the due and incurred of the a with

As lower corporate operating a cost percentage on and SG&A costs. of was due lower sales, higher development leverage measures control volume, to

the Interest the Aircraft acquisition. expense a result the and million Brake additional year was million in interest to from prior in compared higher $X.X quarter rates as the Wheel of $X.X debt and

year in we quarter our As of deleveraging flexibility us providing refinanced our the maturity our quarter, plans. second and debt ample we XXXX, this to last noted through extended

agreement. with expect cash and available cash We convertible capacity flow our is Third our year-to-date to credit $X.X million free was currently quarter free $X.X notes million. under borrowing flow settle

to May However, options we these scheduled other prior XXXX. instruments in assess potential of continue their refinancing the for maturity to

notes maintain our this requirements. extension the convertible facility use working credit proceeds and to we of sufficient the satisfy our repay agreement, from capital to With capacity

net $X.XX quarter, prior per in of to share $XXX,XXX of a That GAAP diluted loss $X.XX loss income third we diluted the or $X.X compares a period. share. year During or the reported million per

year during million earnings was and diluted XXXX expense, stronger higher partially per by $X.XX income to in that net diluted was offset diluted or million attributable share $X.X in Lower Adjusted the compares interest period. results. share, $X.X prior share to period or per operating the per $X.XX

For our press review of to a full earnings please earnings, non-GAAP GAAP release. our reconciliation

to Now our turning outlook.

in revising to segment. are for XXXX full year our outlook Engineered We Products strength account we are the seeing our

highlighted, demonstrating overall Ian we're our markets our and our performance, backlog As market robust. strong successfully Engineered are in Products increasing share remains end

Our requirements primary us the to substantial be At size returns. generate growth more of our optimizing structure time, highest and focus we're with enabling our same align to to business. continues our cost businesses, the expanding

we X with the results in of of JPF of year as from of of expectations, are to program XXXX. the EBITDA a our $X.X this commitments Our million half our performance portion attributable first against in first delivered ahead months

volumes total seeing Engineered in not we Products. million, revenue fourth the in significant we driven to While range strength million JPF of the quarter, we're in $XXX expect $XXX now the do expect by

to with $X.XX for million, We've share, per and drop-through $XX.X interest driven This the million EPS on net share adjusted $X.XX by or our our share $X.XX to per per $X.X Products our $X.XX expectation increased an segment, offset primarily expectations coupled earnings partially efforts, per to by Engineered optimization of diluted is expense. cost of share basis. from increase to

adjusted reduction incremental improved expectations in is drop-through and to Our also Products Engineered $XXX.X EBITDA Products strength million. and range Engineered Structures the our outlook outlook, some to is of both million which of considers $XXX and This risk driving related cost Precision the in segments. updated Products now

improvements our million support operating Products that as expectations consistent to in $XX to of investments continue our will we free and $XX with remains Engineered outlook, $XX for future $XX our cash million million segment to growth cash Structures million flow segment. Our of make flow in and prior

transparency, to previous excluded historically reminder, the a have discrete variation. sources which and improve of of our reliability As our outlook items, outlook improve been

JPF of held and unawarded in Specifically, orders sales these DCS aircraft the X included K-MAX uncertain remaining inventory. or

considers outlook currently of the as as now K-MAX in delivery backlog. a sale limited of an aircraft in JPF current Our the QX, volume of additional well orders

closing over for back I'll remarks. that, call the With turn to Ian

and our results, Carroll. X see sources continue quarters to XXXX, variation in our left With level by go strategy quarter that is with aligning of Thanks, historical producing our reducing transformational to expectations. better we strong our loading

value. remains team on strategy shareholder deliver long-term our Our to to focused maximize

Engineered the This remains potential. highlights and its our Products power investment. of quarter exceptional third growth earnings substantial ongoing performance key focus The segment, our emphasizing for a segment

Products while reducing debt Precision positioned We confident we our will be growth, achieve Structures well that make in earnings burden. segments, are as we our improvements steadily future to significant and

customers' execution on solve transformation as cultural future core our values reflect and the success our most important, of dedication as workforce progress high-performance with to We strive of believe thrilled a Just consistent desire and the capabilities we depends becoming with founder, company our I'm our their deep our Charles problems. the toward on innovation. our team of and difficult Kaman, to that

contributions colleagues by collaborative XXXX. of teamwork truly the shown many been journey. our our It's X We in and quarters transformational through instrumental first the are appreciative of

questions. I'd With we that, to May our open please. line for have like the first question,

Instructions] from KeyBanc from Markets. Our [Operator question comes Barger Capital Steve first

Our next Bancroft question Tony GAMCO from Investors, comes Inc. from

Nice job in the quarter.

Just the Carroll at just maybe in I late, the refinance term you -- and refinancing. is convertible -- the discussing to interest your the what the the very going just -- what missed what mechanics, end increase through one so in for came question. increase I is heard going just I be in the mind Would plan rate debt? just

particularly what anything think not said I Look, new. really we is probably

reason those not under to path. capacity notes. We revolver have we agreement prime here no our that's believe today, sit against And deploy convertible there's credit as enough our our refinance to

benefits convertible our economic getting from we're said, notes today. That

to evaluate area. have, we that But there's with anything got different good do capacity today, would I a in think sit that that's as comfortable the we we option we if to feel we've us. time for credit here want

options probably we I'm here rates us. got the of into in to about feel the not that So going call, on terms and but good front get

Steve Capital Barger Markets. from We have KeyBanc

me hear you now? Can

and clear. loud Yes,

is Moore on Jacob Steve. call the for This

on So first, the change. ones here X quick guidance

segments? not? I that expect a XQ segment, the sales to you what step-up. if all sequential Or happen think X in implied Do maybe dynamics are have by

driver and issue really we us us economic year-to-date. but the has yes, heard Engineered in strength talk you Well, about don't for the generally outlook, segment-level been Products that

We in we've helicopters the continue mention our K-MAX got to that QX. did outlook. that of expect one We in

helicopters those our sit know Products in You Precision segment.

on it's our year-to-date allows elevate all our elevate Engineered confidence sales, to to EBITDA when flow. the seen outlook, But X really segment outlook flow, our about our hold progress the and that our Products think you and really, on of on EBITDA cash elements we've outlook free outlook in and sales our the us free cash

time, -- add on Precision businesses. confident is early Products the feel little focus this on a continue Jacob, done just get on we bit healthy to to Ian. to maybe. work a we've work material this the this the correct We of Structures for Yes. flow, to all more H-XX, issues, manpower getting takt doing of Wichita start challenges. movement all themselves in all fourth just that color that back example, we've I'll Structures our Jacks, lot quarter manifest in from deliveries year to heavily really year, and as result really Like very and earlier A-XX good a to done

good. that's So

really work of down quality transitioning like And that programs fuzing transitioning, and out Precision thing, effort K-MAX said, the getting to our JPF Products a from and lot on cost our and I wind KARGO, for same business. of signature

I good So in think we're shape.

in step-up is to my that was flows into flow. it. cash Got coming The answer free which kind right? Understood. K-MAX Confidence implied next the big of question, sale, the that there XQ in from is

coming flow really opportunities. got We and sight aircraft segments, our K-MAX contributes of we've obviously, outlook. risks so to pathways Yes, We're range, cash good line outlook. all the our is the Engineered the confidence got there. a X again, free get the from to we've to also multiple and segment, consider expressing Well, Products sale

you tell Ian I segment talk cash just bit it We the about to the cash a in fourth year-to-date. been a a level, but on Structures. a cash has expect at that can about But lot on little flow quarter. flow be drag don't is drag We don't talking Structures

strength flow. free expect in more to of through seeing cash Products Engineered we're we of form the real so out And of drop the

Okay.

it. Got Okay.

quarter. there prevent starting similar Or Moving segments, growth is How to there? just something growth you margin Do XQ? could that? pretty in expect that good sustainable are this margin variables Products, looks Engineered on the -- sustainable

environment your I Engineered the you the margin mean in remains there. demand outlook can range sales the based can you Yes. is kind what into EBITDA and robust tell back of on range But expectation outlook Products. I

have been orders very We're up as X.X. book-to-bill strong I sales of running been, north XX%. organic The at think, As have the year-to-date strong.

we've over through actually of shops the the year. the seen velocity increased And that seen has our even side, sold unit, course it in largest Engineered Products with overdue Kamatics, business materially our the increase

other through us waiting in we are So there them customers fulfill that to the our shop. just for orders and are words, get to need

So to to necessary. labor the get with challenge it's of supply these been COVID, the for us working has and and chain out need volumes. Coming really the the volumes our to the trend, get suppliers hit getting we labor been process to an industry the support

of story, see, adequately. but the So OEM and get covering of a fully we as just ensure macro commercial not growth our on back exposure, value given price/cost full equation look aftermarket we beyond, to us. the ahead QX in that we intend the that And fact and we pricing solid for have ahead pretty mix also aerospace to we're

pretty feel solid. So

Got it. sense. That makes

Moving Precision Products. to

I there R&D UAV related to think dragged by program. being KARGO the margins are down

is that first, how So then does if And correct? I that long mean, so, persist?

It's Precision it sits KARGO got Products segment. within I you Yes. right -- the that our mean,

lot, the winds JPF the substantially big U.S. government to -- have about in know, Now as the the as down well a volumes down. Precision we've talked program this is come story our JPF you segment, Products volumes relative

and a lot that. cost challenge And We're so of signature maintaining solid business. is the legacy around really effort fuse in a quality the putting

government does prototype attacking program You you're on our our to the though proportion in And over let I'll Products KARGO Products. consolidation of to bit a the of Precision and disclosures site facility. But associated KARGO aware the our about company-funded Middletown R&D a sits we talk there underway, sort within prior funding through flow we the accounting significant consolidation little trajectory contracts but line. of sort have Ian the -- the that cost it. U.S. with around get JPF that and hand the are from of that's R&D see to that Precision we there, the of KARGO any contracts, the of more right, I'll

exactly. Yes,

important KARGO So program underway. with we obviously a have very

and New As talked the partners we up, about program first said about which U.S. is we that. It obviously, flight. as which strategy is we weeks very or know away, is We've interested from are with is the were ramped months just our we're exciting. Army, in Autonomy, We got I also exciting. talked with contract away, days are we've beginning, people -- investment very milestone-based. the away, Earth now

perspective, think I going R&D very market very, the milestones a what's only thoughtful, investment the and get hit also, in KARGO with from really, year, an But and around the things underneath we're program. But Products. certain Engineered fuzing mindful rest being competitive fly-offs our to next and obviously, with balance very for of necessary not to on it's

a very have has customer Engineered segment share and Our healthy perspective segment or perspective. things pipeline businesses All attacking R&D very a a budget. we're a that from Products sit also that robust in innovations those of

we So KARGO Products. best Engineered really with balancing can and

That's Okay. helpful. it. Got

the program, larger planning within basically on a the or you design? a can line model then MULS-A maybe scale the to KARGO program is And we're you're that that, current the While demonstration milestones just of this just follow-up hit? Army to time remind MULS-A maybe the us

Okay.

Corps year, year. but MULS-A, towards a milestone being half with fly-off. which the are No in it for the X Marine Yes, we things. next anticipate from we U.S. is next on yet set So tracking is perspective, of later time One a

typically, it is be So from be I've one there, schedule And we're could or as happens the tracking it then winner, expressed there. could others. what before, the

over And That contracts that's to or X.X get be be years follow-on next so. year, build variants then multiple a right? would to the step. We field-tested,

prototypes different kind You to use customer a environments, low-rate environment, feedback collect of all these in that a time 'XX then data, production would get that frame, be and in 'XX, typically. go you which

same little a Army, bit different. but

invited been is which, by to, we've way, invite-only. that demonstration the the So

demonstration. some submit to an have just competition You It's or proposals. not open-ended

a requirements to be The there, capability that as Army have lift you platform, the So have, we hits platform. is medium MULS-A the looking what autonomous invited. mentioned, for, the for same I

is been you that Corps the is really the they look Marine same has, have Futures extended is this which in ARMY how to So demonstration a move do Command. technology problem battlefield. things This they've hosting around at because

So extend that. things logistics, like contested logistics,

milestone, the by you we bit just process. after little where know go demand It's in that of a unmanned probably what can services largest there. they So don't what the yet from tell is But do. they capability KARGO I Army for nature different the the Army's is

side. path milestone those service programs the So X of with that's our kind and on

[Operator time. over am back this no questions showing for to I conference Petterson I would turn Instructions] like remarks. closing to at further now Matthew the

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

conference This call. participating. you concludes for Thank today's

disconnect. now may You