Q1 2020 Earnings Call
The Command Corporation first quarter 2020 earnings conference call at this time, all participant lines are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask the question. During the session you only need to press Star then one on your telephone.
Please be advised that today's conference is being recorded if you acquire any further assistance. Please press Star then zero.
I would now like to handle the topics over to your speaker today Mr. James Cogan. Please go ahead.
[music].
Okay.
Good morning, I'd like to welcome everyone to commands first quarter 2020 earnings call conducting the call today, our Neal Keating, Chairman, President and Chief Executive Officer, and Rob Star Executive Vice President and Chief Financial Officer.
Before we begin I'd like to note that somebody information discussed during today's call will consist of forward looking statements setting forth our current expectations with respect to the future of our business the economy and other future events.
These include projections of revenue earnings and other financial items statements on plans and objectives of the company or its management.
Statements, a future economic performance and assumptions underlying these statements regarding the company and its business.
The company's actual results could differ materially from those indicated in any forward looking statements due to many factors. The most important which are described in the company's latest filings with the Securities and Exchange Commission, including the company's first quarter 2020 results included on form 10-Q, and current report on form eight.
K filed yesterday evening together with our earnings release.
We also expect to discuss certain financial measures and information that are non-GAAP measures as defined in applicable FCC rules and regulations.
Reconciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K.
Finally, we posted an earnings call supplement to our web site that we will reference in this call and is designed to provide additional context on our financial performance key events for the period additional information on the makeup of our sales and the steps we've taken as a result of the cobot 19 outbreak you can find this presentation at www.
Dot command Dot com slash investors slash presentations.
With that I'll turn the call over to Neal Keating.
Thank you Jamie good morning, everyone and thank you for joining our first quarter 2020 earnings call.
A lot has changed since our last call. So I'll start my remarks, with a short summary of the quarter before providing an update any impact cobot 19 has had on our operations and the steps, we're taking as a company to mitigate its effect.
We had very strong results for the first quarter.
Net sales increased 24.6% to $207.3 million with organic sales from continuing operations, increasing 10.5% due to growth across all of our major product offerings.
Additionally, all seal, which we acquired at the beginning of the year contributed $23.4 million and sales in line with our expectations.
Even with the significant growth in sales backlog at the ended the quarter of $802 million was relatively flat with year end as we added backlog from ball seal and saw a nice order activity for our bearing products and the Sikorsky Blackhawk in combat rescue helicopters.
Diluted loss per share from continuing operations was one cents compared to diluted earnings per share in the prior period of 20 cents.
The loss per share was driven by a number of significant discrete nonrecurring items, including approximately $8.5 million in ball Seo acquisition costs.
$6.9 million of purchase accounting costs for ball seal.
$1.8 million of costs associated with our corporate development activities and $1.8 million of restructuring and severance expense.
When adjusted diluted earnings per share from continuing operations more than doubled to 48 cents from the prior year adjusted result of 21 cents.
Our first quarter performance speaks to the ability of the new command to generate strong operating results and the ability of our team to execute despite the challenges they face as the quarter progressed.
With the addition of balls feel we've strengthened our portfolio of highly engineered proprietary solutions, serving defense commercial medical and industrial end markets positioning us for long term growth and allowing us to navigate the near term challenges ahead.
As I mentioned in my opening remarks, the global backdrop has changed substantially since we spoke in February.
The effects of covert 19 have affected our employees customers and the way we conduct business.
We share in the greed and tragic loss experienced across our global Society and our primary focus during this difficult time is on the support and safety of our employees customers suppliers in communities.
Substantially all of our production facilities are deemed essential and we have adopted comprehensive strategies to ensure safe and continuous production.
These actions include Implementers, social distancing enhanced cleaning and sanitizing practices at our facilities.
Use of appropriate personal protective equipment.
Instituting temperature screenings at all locations.
Segregating work groups to enable more effective contact treating while limiting interactions within the facility.
In transitioning to a work from home strategy for our office and non manufacturing employees.
We are seeing the benefits from our cross training efforts for our production employees as we work to minimize the impact from lower staffing levels.
Despite this we have experienced and continue to expect some level of inefficiency as a result of the steps we have taken to respond to covert 19 and to address the needs of our employees as they and their families navigate through these challenges.
We're also taking a number of steps to mitigate the potential financial impact on our business, including our production levels to meet changing demand requirements, reducing our discretionary spend reducing salaries across our senior management team and our board of directors have temporarily reduced their quarterly cash retail.
Tainer payments.
Additionally, recognizing the speed at which the situation changes we have increased the cadence it which our senior management team needs to review the status of our operations, including the health and safety of our employees the impact of Cobot 19 on our customers suppliers and communities and we are providing frequent.
Dates to our board of directors on our response.
Due to the volatility of current market conditions, primarily across commercial aerospace we have made the decision to withdraw our full year guidance.
However, we believe our first quarter performance highlights the benefits of our efforts to diversify our products and end markets.
Our defense programs contribute approximately 50% of our sales and are expected to remain strong with opportunities emerging for additional growth over the remainder of the year.
Commercial aerospace at approximately 30% of sales presents the biggest risk to our performance in this end market. Our sales split is approximately 80% OEM and 20% aftermarket.
We are adjusting our manufacturing plans to meet the expected decline in new commercial aircraft production rates. However, the impact to our aftermarket business is more difficult to predict.
The remaining 20% of our sales is primarily focused on the medical and industrial end markets, which we anticipate to have pockets of strength and weakness, particularly given the range of customer applications.
While the depth and duration of the downturn in these end markets, it's difficult to predict we expect them to be less impacted and to recover more quickly than commercial aerospace.
For example, the deferral of elective procedures is a near term headwinds for our medical device offerings. However, as pressures on hospitals East, we expect a quicker recovery in the demand for these products.
Looking at the impact of the downturn by product and beginning with our specialty bearings in engineered products. We note that our first quarter volume for these products was very strong with the contribution of high single low single digit organic growth.
During the quarter, we all new content on a number of new applications, including the Apache helicopter and we're seeing increased orders at a number of defense platforms, including the Virginia class submarine joint strike Fighter F 18, and typhoon aircraft.
As we look forward, assuming minimal disruption to our supply chain and the ability of our customers to accept the product the strength of our defense business should partially offset the expected pressure from the lower commercial aerospace volume.
Turning to our J.P.F. program, we shipped 10150 fuses during the first quarter and continue to expect to deliver 45000 to 50000 fuses for the full year.
Demand for the GPF has remained robust and we closed the quarter with total backlog of over $300 million.
Looking forward, our fuse production may experience some modest challenges from coated related disruptions. However, we do not currently anticipate a meaningful impact to our facilities or to our fuse delivery schedules.
Previously we expected to deliver for new came acts in 2020, and we continue to make inroads with a number of customers looking to add capabilities of became acts to their fleet.
While we remain optimistic we are reducing our expectations for 2020 deliveries to two aircraft due to the current economic conditions.
The first quarter marks our first report with ball seal and the first quarter results for the business were in line with our expectations and we work diligently in the first quarter on our integration efforts.
On the cost side, we've taken actions that will allow us to exceed the cost synergies we expected at the time, we announced the transaction.
To achieve these results we incurred approximately 500000 in restructuring costs associated with a workforce reduction which is expected to yield approximately $1.2 million in annualized savings.
More importantly, our teams continue to work collaboratively and have identified a number of meaningful opportunities to drive future sales growth.
I'm proud of the command team members around the globe and thankful for their efforts and continued execution through this challenging time.
As Rob will detail in our financials, we are fortunate to be supported by strong balance sheet and we believe we have ample liquidity to face challenges that may lie ahead.
Through continued innovation, which is core to the command team. We will continue to find new ways to work safely and to support our customers through this unprecedented time.
Now I will turn the call over to Rob for a closer look at the numbers Rob.
Thank you Neil and good morning, everyone.
Net sales from continuing operations for the first quarter.
Increased to 207.3 million.
Increase of 24.6% when compared to the prior year, resulting from a 10.5% increase in organic sales and the contribution of 23.4 million of sales, resulting from our acquisition of ball sale.
Gross margin for the quarter was 32.7% relatively flat with the prior year period. This included 1.2 million of inventory step up costs, resulting from the ball seal acquisition.
Adjusting for this item gross margin for the period would have increased by approximately 40 basis points.
This performance was driven in part by the addition of the higher margin product portfolio I fall seal and the mix of JP of sales in the quarter offset by higher volumes of sales from our lower margin structures programs.
SDMA as a percentage of sales increased to 29.4% for the quarter from 25.2% in the prior year.
The increase in SDMA was primarily due to the inclusion of 1.8 million and nonrecurring third party costs associated with our efforts to reduce general and administrative expenses.
3.5 million and nonrecurring costs associated with the acquisition of ball seal and 8.6 million in additional SDMA from the ball seal acquisition, which includes 1.7 million of intangible asset amortization expense.
Absent these costs SGN, a as a percentage of organic sales was 23.0% and over 200 basis point decrease from the adjusted performance in the prior year period.
This improved performance is largely due to our gene a reduction efforts, which continued in the first quarter 2020.
The additional actions we took during the quarter will generate 4 million of annualized savings and as another step and driving improved efficiency across our organization.
With these actions total annualized savings as 9 million and we will continue will continue to prioritize these initiatives through the remainder of the year.
Internal research and development expenditures are expected to increase in 2020 over 2019 during the quarter, we incurred 4.9 million to support these programs compared to 2.8 million in the prior year period.
On a consolidated basis, we recorded an operating loss of 4.4 million compared to the operating income of 12.4 million in the first quarter of the prior year.
This result was driven by higher corporate development costs costs associated with the acquisition of Walsall.
Costs related to the TSA.
An increase in restructuring costs, and 6.9 million and costs associated with the purchase accounting for the ball seal acquisition, which includes 5.7 million in expense in the quarter related to the acquire employee retention program.
Adjusting for these items operating income increased approximately 32% to 16.7 million from 12.6 million in the prior year period.
Adjusted EBITDA margin from continuing operations in the first quarter was 26.2 million or 12.6% of sales compared to 18.8 million or 11.3% of sales in the first quarter 2019.
During the period, we have a diluted loss per share from continuing operations of one cents a 21 cent decrease over the prior year period diluted earnings per share of 20 cents.
This was due to the lower GAAP operating income we recorded in the period.
Adjusted diluted earnings per share 48 cents increased 27 cents from the 21 cents. We earned in the first quarter 2019.
You will also note.
For 2020, we will add a temporary line item to our income statement for the fall seal employee retention program.
This is part of the 330 million purchase price pay for ball seal and is related to an employee retention plan that is scheduled to be paid out 12 months after the close of the transaction.
As a result of the retention component of the plan. This portion of the purchase price is required to be recorded as an expense.
The total expense related to this item will be approximately 23 million in 2020 and is treated as a reduction in our purchase price for fall sale.
Additionally, the inventory step up costs for ball sale are now expected to be 2.4 million and will be fully expense by the end of the second quarter 2020.
In total we expect these nonrecurring costs related to the ball sale purchase accounting to total 25.2 million in 2020.
As a reminder, pursuant to the terms of the distribution sale. We have agreed to provide certain services such as tax treasury human resources and during the transition period.
While most of these activities have already been transitioned we expect to complete the ITC services transition during 2020, and we will continue to report both the costs and income on a quarterly basis.
We incurred 4.1 million and costs associated with the TSA in the three month fiscal period ended April Threerd 2020.
These costs are partially offset by 3 million an income earned from the provision of these services, which is below operating income on our income statement.
Free cash flow usage in the quarter was driven by an increase in receivables due to lower collections in the quarter.
Increased working capital as we prepare for deliveries over the course of 2020 and employee related cash payments such as a 10 million pension contribution made in February.
Given the uncertainty in the markets as a result of Corbett 19, we wanted to take a moment to touch on our balance sheet and liquidity position.
At the end of the first quarter, we held $271 million unrestricted cash on our balance sheet and has significant capacity under our existing 800 million dollar revolving credit facility and we have no maturities on our debt until 2024.
All of these metrics give us considerable financial flexibility as we progressed to the ongoing challenges related to covert 19.
In addition, we have reduced discretionary spending and capital expenditures across the organization.
However, as Neal mentioned command was built on innovation and in this vein, we will continue to execute on our growth investments, including R&D projects and growth capital expenditures.
Moving to our outlook for 2020, given the on demand uncertainties, primarily in the commercial aerospace markets. We serve we've elected to withdraw our full year guidance.
In lieu of full year guidance, we want it to provide some metrics and data points to help frame business conditions for the remainder of the year. Please note. The percentages reference are in relation to the midpoint of our previous sales outlook for 2020.
Our defense business, including safe unarmed devices accounts for approximately 50% of our sales and our expectation for these programs remains largely unchanged with opportunities for increase performance relative to our prior outlook.
For J.P.F., we continue to expect shipments of 45000 to 50000 fuses in the current year with a majority of these deliveries to our DCF customers also unchanged from our prior forecast.
Our commercial aerospace OEM business, reflecting the anticipated production rate declines recently announced by Boeing Airbus and other Oems will drive lower sales volume in 2020.
And our commercial aftermarket business. We currently do not have enough visibility to provide a reliable forecasts.
In total our commercial aerospace business accounted for approximately 30% revenue and our mix of OEM to aftermarket in this space is approximately 80 20.
With the information we have today, we expect adjusted EBITDA margins in 2020 to be negatively impacted by lower overall volume unfavorable mix and inefficiencies related to social business and reduced staffing levels.
Despite these headwinds our adjusted EBITDA margin should hold up reasonably well due to the diversity of our product portfolio. The cost actions, we've implemented to date and the efforts of our operations team to mitigate the financial impact while meeting customer requirements.
Finally, we will remain focused on maintaining our ample liquidity and strong balance sheet as we move through the year and as we look ahead free cash flow is expected to show improvement through the balance of the year as we begin to convert our working capital build in the first half to cash over the remainder of the year.
Before I turn the call back to Neil I wanted to note that the framework. We just provided assumes minimal disruption to our production facilities and supply chain as well as the ability and willingness of our customers to accept product.
With that I will turn the call back over to Neil.
Thanks, Rob.
In closing I want to thank our employees for their dedication during this difficult time and reemphasize our commitment to their safety and wellbeing.
We are proud of the results that we've achieved thus far and we're committed to delivering for our customers that rely on our critical parts and services.
Commence business portfolio has evolved significantly in the past 12 months and as a result, the new command is more focused and better position to navigate through this time period and deliver consistent growth in the long term Jamie.
Operator may we have the first question. Please.
Thank you as a reminder to ask a question you only need to press Star then one on your telephone off first question comes on the line. That's the Wagner with Keybanc capital markets. Your line is now open.
Hey, good morning, guys.
Steve Martin States.
Rob I hear you when you say you can offer reliable forecast for commercial after market, but can you just broadly talk to the magnitude of what you expect just to help us frame up the model a little bit or are you thinking that that OE or aftermarket could be down 30%, 50% just any broad numbers.
Yes, no Steve appreciate that and clearly that is an area, where our visibility is constrained just given market conditions, but I think if you were to kind of put a broad handle around that.
If you're looking at 30% to 50% decline that that's not unreasonable.
We certainly are aware that the aftermarket is going to got softer as the year progress. It's just based upon.
Market conditions on commercial airframes.
Yep.
I was trying to write the numbers down but I think you said there will be about 25 billion of nonrecurring costs related to ball seal how much of that was one Q and what is the cadence for the rest of the year.
Sure I mean for the first quarter as it relates to the purchase accounting that was about 7 million 6.9 million.
I would expect a similar amount in the second quarter Steve.
For the for the balance of the year it'll be about 5.7 million a quarter.
Relating to the retention agreement. So that's the first the inventory step up which is 2.4 that that rolls off after the second quarter.
Got it and so I guess, how should we be thinking about recurring SGN a on a dollar basis into Q given all the cost actions that you've taken.
Yeah. So if you take a look at our fourth quarter.
If you kind of look at the base business, if you kind of adjust for some of the items.
We were running around in the low fortys.
In terms of Martin in terms of dollars for that for the base business.
So you can kind of plug for the rest and figure out where roughly were ball steelcase came in in the first quarter right.
We do have a number of initiatives as you can imagine saved to manage our cost of the balance of the year, but I don't think thats necessarily a very bad run rate to go with okay.
One more and I'll jump back in line.
Free cash flow was negative 61 million for the quarter.
And I know, there's a lot of moving parts around that but do you expect to generate positive free cash flow for the full year or is this first quarter two big of a headwind to overcome.
When you annualize.
Sure No. Good question, Steve and no. Our current expectation remains that we will generate positive cash flow for the balance of the year.
For a net basis on the back for the full year.
Okay perfect. Thanks.
Thank you.
Thank you. Our next question comes on the line of Pete Dubinsky with and the Global Your line is now open.
Good morning, guys I Trust, everyone is healthy and safe.
Hey, Rob on the working to part in the room.
[laughter], that's a great best practice.
Hey, Rob on the the large use of working capital in the first quarter I think in some of the text you called out the GPF Dcs contract was that a pretty meaningful driver and it it sounds like maybe it started to reverse already in the second quarter.
Yeah, a couple of things, yes, the increase as it relates to both our inventory as well as they are.
Our Dcs program is definitely a significant contributor to that.
We have.
A couple of items were working through with one of our customers that we expect to resolve without an issue.
That's driving part of that on the a our side so.
So really when we look at the customers, where theres not a contractual or.
How would you want to say hey, administrative matter they paying depending very much on schedule. So we have a great relationship with these customers and.
We certainly have been kept current on our recent shipments and.
Expect this issue to resolve as we work through the balance of the year.
Okay, and the inventory just building for deliveries the balance of the year, yes. So when you look at the inventory JP F. once again important contributor to that but also a lot of our overtime programs, which are largely defense. We are getting ahead of the curve because there is increased demand. So when you look at programs such as you age 60.
Blackhawk.
You know in combat rescue helicopter and others.
We expect to have increased shipments year over year, and so we're getting a good head start on that.
Okay, Okay that sounds great maybe one last one for me.
You know I guess the revenue was a little surprising so I feel like typically you guys are a little little light in the first coring. Thanks, Bill you know more in the second half of the year and anything different this year with a strong first quarter.
Well I Oh.
I would say this.
We've been working very hard with our unit to try to more level load I mean as everyone. On the call is aware are usually our fourth quarter is we outperformed quite a bit so our business unit that made a lot of progress.
Really we saw increased sales across really virtually all of our businesses in the first quarter.
Very good results.
Generally speaking our structure firms were up 15, 20% across the board and bearings are bearing franchise had a tremendous quarter up 10% year over year. So.
I was just overall really good execution on the part of the team in light of the issue that we're working through as that covered 19 crisis began to unfold.
And Pete I would I'd just add that.
I would reinforce what Rob said about the team really doing an excellent job. The other thing is that as you remember in that.
Through through 2019, we talked about strong incoming order rates. So we've had very very strong backlog and and we actually and we had very strong orders in the first quarter.
An organic basis, our orders were up 24% and when you add in ball seal orders were up 46%. So we were.
We were really pleased with.
Well the team was able to achieve.
But we were also really pleased with the incoming order rates in the third and fourth quarter of last year and continued very strong orders in the first quarter of this year.
Now grandberry expect that to tail off some.
In the second quarter, but starting from a strong position.
Great. Thank you for color guys, yes, thanks Pete.
Thank you next question comes on the line of Seth Seifman with JP Morgan.
Let's now open.
Thanks, very much and good morning.
Uh huh.
Okay. Thanks.
So.
The good performance in the defense area.
If there.
Is there some share gain.
You guys have experienced on it.
On each 60 over the past over the past year, so thats, helping to drive it or is it just kind of the overall overall volumes on the program.
Yes that this is Rob yes, we are based on the market intelligence. We have said, yes, we've seen an increase in the market share as it relates to the usage 60 program and and also set on that combat rescue helicopter. We have more we have more content that combat rescue helicopter so as.
A little bit of the volume mix shifts to that it's positive as well.
Okay.
And then on the.
So in the slides.
I'm sorry, the other thing that we probably should have talked about.
I'm glad you asked the question is that we have very good content on the P. Eight.
And that continues to do very well for Boeing for both us and Fms sales. So we.
We actually have it really.
Really nice content on aircraft, so that helps us as well from a military perspective.
Suddenly there.
Okay. Okay.
South or your mute maybe.
We have our operators still yeah operator.
Thank you.
Next question comes from the line of Chris Dankert with Longbow Research. Your line is now open.
Chris.
Yes.
Right.
Okay.
Hi, Thank you as a reminder to ask the question. Please press Star then one on your telephone.
Our next question come from the line of Steve Lager with Keybanc capital markets. Your line is now open.
Hey can you guys Jeremy.
Yeah Boy, that's a little bit if.
We were a number so glad to get a question from you [laughter].
[music].
Neil in your prepared remarks, you mentioned new opportunities you've identified to drive future sales growth of ball CL can you talk more about that.
Sure It it's been interesting because.
We're very excited as we said from the outset about the opportunity for some of the synergies across ball feel Ed and we we knew that working yet common customers both in the medical and aerospace industries.
That it would enable us to gain some some synergies there we thought from a sales perspective, although we don't work those into our economic models because were too old for that.
But I.
I think that the steps that we took early on and.
And actually that team lead that we have for the integration program.
Was that our head of business development, so sales and marketing for our specialty bearings group ad.
Action with a number of units to Gary and Brent and Rick and the team that a ball seal have really jelled around taking full advantage of these opportunities and it's not just medical where we expected it but.
Some of the technologies that they have that are in the aerospace and defense area about 18% to 20% of their area was there their business was aerospace and defense before when we acquired GW, we were able to ramp that up pretty quickly because of just the context of and and application knowledge we have.
And we're seeing that on the aerospace side as well so.
We couldn't be more pleased.
And I think a lot of it goes down to the.
The people that we have doing that work in the trenches day to day.
Yeah, if I go back to the original ball slides.
There was something in industrial that specifically cited food good seals and food grade detachable tools does that make the industrial business, while still a little more defensive or how big is the defensive side of industrial for them.
I think it's.
We look at the profile of their business. They don't have very much in commercial aerospace. We think we can help them with added maybe gain some share there in this downturn.
But.
More than 50% or business was medical now aspect that we will have some impact from their implantables business being down in the near term because of the deferral of elective procedures, but we think that that will certainly rebound quickly and also I think your point about the.
Industrial market being defensible is a good what because they are predominantly in the food and beverage industry at least to date in industrial so.
Everybody's everybody's got to eat and.
So so we like that market exposure as well.
All right great.
In the past I know you've talked about having some lights up manufacturing capacity does all this get you to invest more in automation.
Across the platform.
It's a good question, Steve I think that we we have had a track record of investing in automation and it's one of the things that we've talked about.
On a lot of our calls.
Well it caused us to do some things differently it it probably will.
But I.
I just want to make sure that that.
He recognizes that.
We've got a great workforce that that they are able to to manage the automation that we bring in extraordinarily well and we have had a great track record of increased output with relatively flat headcount for years. So.
What we do more.
Probably but a lot of that will be because at the advancements in whether its robotics flexible automation or other.
Managements in machine tools, but.
We I think we.
We do pretty good today.
So when that will soon facility guys are back in line.
All right how much inventory visibility do you have for commercial OE I guess with just lower build rates coming do you expect a lag before the supply chain or the customer start pulling product through again or how are you thinking about kind of the.
Work in progress inventory in the system.
That's that's one of the questions to be perfectly honest, we struggle with two is trying to assess.
How much inventory there isn't the pipeline and where it is because as we commented I think on the fourth quarter call. We have something between 23 and 26 different customers that we ship to on the 737, Max and we were still shipping in the fourth quarter in deed shipped in the first quarter of this year.
But across the board, we have customers at all different levels and all different set backs from final production. So it's hard to say do we expect that we will see some orders tail off you're in the near term without question.
And I think on the next couple of calls is when we'll be able to to report back a little bit more add what we're seeing from incoming order rates and what the requested delivery time is for those orders and from that we'll be able to triangulate somewhat on the inventory, but I wish we had a better answer for you today because it would mean we.
At a better answer for ourselves Yep understood. Thanks for the time.
Yes, Thank you Steve.
Thank you. Our next question comes from the line as Seth Seifman with JP Morgan. Your line is now open.
Okay.
Hey that only welcome Paul.
Pop up both Bob.
While.
Okay.
So a couple of quick follow up the.
The OEM aftermarket, where you give a five Boeing and Airbus flat I guess, the implication in half of the OEM.
Sales or not for Boeing and Airbus platform is.
Correct.
So.
What are the core.
I think that that would be correct Seth and if.
One of the things that we talk about is the diversity of products and platforms and the balance goes across the rotorcraft industry. We have we do a lot of business with Sikorsky, we do a lot of business with Bell, we do a lot of business with Airbus.
Helicopter, we certainly have all the regional and business jet.
Platforms in there as well and actually we had very very strong incoming order rates in the first quarter for both business and regional aircraft. So again and also in there.
We have our.
Well the Driveshafts business for helicopters as well, which again is go back to prior.
Prior earnings calls you would.
See that we were we had been investing quite a bit in our flexible drive shaft business and now we've done quite well new platforms for helicopters with that and have gained share and also.
We do a fair amount of work with Rolls Royce so.
In some of the engine other engine folks. So that's that's really the balance of that business.
Okay cool.
Hello.
Maybe.
Paula.
In terms of the OE aftermarket.
If you if we put.
Onto.
The bearings both.
Would that be a little bit more people eating or would it be predominantly.
But maybe maybe not 80 20, maybe.
40.
Yes, so SAP I mean, I think if you if you were to look at the.
The bearings business than than I think you're right I mean, what's helped a little more towards the aftermarket relative but but not a lot.
I would say.
I wouldn't I wouldn't take it any lower than in like a 70 30 split.
And that can shift that can shift quarter to quarter, depending on the order book.
No.
Okay.
Great.
Uh huh.
Thank you Donna.
Thanks Seth.
Thank you. Our next question comes from the line of Chris Dankert Longbow Research. Your line is now open.
Hey, good morning, guys, sorry, I dropped off their first second.
Good to have you.
Yes.
Sorry, if I missed it.
Thinking about K Max just wanted to circle back there I guess, we're now looking for two airframes for the year I guess, where those were those cancellation driven or those just were slowing production down.
And then I guess, if we could also comment on.
Are we delivering those those five unmanned kits still this year just any commentary there would be great.
Yes, a couple of things.
We.
We just looked at the economic conditions, and that's really what's driving us to reduce our expectation for sales from four to two for the year.
We'd we'd like to get a surprised and be able to restore that for.
The pipeline that that that the air vehicles team is working on is.
Is very strong right now and we feel good about that and in fact, even just this morning the department of Forestry.
Issued their emergency use contracts.
And the number of Pmax went up from year to year from eight to 11. So we actually have 40% of the fleet that the department of Forestry has this year.
Under contract for emergency use.
And.
The the kit is on schedule for flight in 2020, but we would probably not deliver that customers until 2021.
Got it got it that's that's good news.
And then just to get circle back to structures for us for a moment, obviously, we touched on the Black Hawk wins. There I guess is the eight Henry wing program is that fully ramp at this point or we're going to see the production rates keep keep growing through the year.
Actually it's really going to start to ramp much more so next year.
So we were very excited and pleased to get that get that contract and.
We're just in a very very early stages of that.
And Chris if I could one of the things you'll see is from a from an inventory perspective. There are some long lead items, there that we will be starting to acquire towards second half of the year.
To make sure that we're ready for production.
2021.
And okay. Good news period.
That's one of the areas, where we've seen really nice improvement from year to year.
As you know, we completed our manufacturing footprint consolidation across our composites in aerostructures businesses in 2019 and.
The additional volume that we have running through those facilities when combined with the new order wins. They have is really driving a nice improvement in their performance from year to year, we're really pleased to see it.
Got it got so so there's still a lot of runway there and that's booked glad to hear that.
I think that's really all I had ill turn it back a little bit. Thanks, so much for the call. This morning, guys. Yes sure. Thank you first.
Thank you. Our next question comes on the line of Pete Skibitski with Alembic Global Your line is now open.
Hi, guys, Yeah, just one more kind of broad brush question.
I imagine international business development is pretty challenging right now, but I. Just was wondering if you could update us on you had wanted to book I think SH two support contract in Egypt.
Just maybe an update on that and also kind of JP, new GPF Dcs opportunities how the market there is going.
You know.
You're right.
International business development face to face is is down.
But like all of US they are are adapting to the new environment and doing a lot by video and phone, it's not as effective as being their face to face there Theres no question.
We do we continue to make progress.
And are pleased with the progress that we're making on our JPS Dcs opportunities.
And the Egypt.
SH two is is moving a little bit more slowly.
And we would like so I know those are broad brush characterizations, but thats really all I can provide.
Okay fair enough thanks, guys.
Okay. Thanks.
Thank you we do have a follow up question from the line the Seth Seifman with JP Morgan. Your line is now open.
Oh, it's just really quick one as I was going through the model here.
The final payment for ball steel is that it did you say that would be in the first quarter of 2021.
Yes, so the.
The payment for the retention agreement will happen in the fourth quarter 2021.
But there is it's really a non.
Cash flow item I mean, we have I mean, it's in restricted cash on our balance sheet. So when you look at our balance sheet Roderick.
At the restricted cash so that's the difference between the three or four.
In the on the cash flow statement, and the 330 or so purchase price that's correct.
Okay, Okay got it kind of cool thank you.
You're welcome thank you.
Thank you. This concludes today's question and answer session I would now like to turn the call back to James So then for closing remarks.
Thank you for joining us on todays conference call. We look forward to speaking with you again, when we report our second quarter results.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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