Q1 2021 Circor International Inc Earnings Call

May 12, 2021

[music].

Greetings and welcome to the circle or International first quarter 2021 earnings conference call at.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I will now turn the conference call over to Alex Mackie, Vice President financial planning and analysis Investor Relations. Thank you Sir you may begin.

Good morning, and welcome to the third quarters first quarter 2021 earnings call.

And today by Scott <unk>.

<unk>, President and CEO and it'd be kind of all the company's chief financial Officer.

Before we start I'd like to remind you that today's presentation and press release are available on <unk> website at investors that circle or dot com.

Today's discussion contains forward looking statements and only represent the company's views as of today.

These expectations are subject to known and unknown risks uncertainties and other factors and actual results could differ materially from those anticipated or implied by today's remarks.

While third quarter may choose to update these forward looking statements at a later date the company specifically disclaims any duty to do so you can find a full discussion of these factors in <unk> form 10-K, 10, Qs and other SEC filings also located on our website.

On today's call management will refer to GAAP and non-GAAP financial measures.

The reconciliation of certain non-GAAP measures to the comparable GAAP measures are available in our earnings press release and slides.

With that I'll turn the call over to Scott.

Thank you Alex and good morning, everyone.

Circle delivered solid first quarter results as our portfolio of mission critical products continues to perform.

While our end markets are not fully back to pre pandemic levels strong orders performance in the quarter gives us the confidence to raise our 2021 earnings guidance.

Starting with some financial highlights on slide two we booked orders of $227 million in the quarter, which were up 34% sequentially and 7% versus prior year on an organic basis.

We saw strong sequential increases in demand in both businesses with industrial up 25% and A&D up 55%.

We ended the quarter with $421 million of backlog up 11% versus prior quarter.

Revenue in the quarter was $181 million down, 8% organically driven by lower industrial backlog entering 2021, the timing of large defense order shipments and slowly recovering demand in commercial aerospace.

Adjusted operating income was $12 million, representing a margin of six 9% up 110 basis points from prior year.

We expect strong margin expansion as we progressed through 2021, driven by higher volume in virtually all regions and end markets. Our continued actions on pricing ongoing simplification across the company from <unk>.

<unk>.

The company delivered 24 cents of adjusted earnings per share and generated free cash flow was negative $21 million both in line with our expectations.

Our cash performance in the quarter is consistent with typical seasonality due to the concentration of annual disbursements in the first quarter.

Now, let me turn the call over to <unk> to discuss our first quarter results in more detail.

Thank you Scott and good morning, everyone.

Starting with industrial on slide three.

Industrial organic orders were up 11% versus last year and 25% sequentially.

We're seeing recovery in virtually all of our end markets regions.

Regionally, we saw particular strength in EMEA, and China and rest of Asia.

Notably we booked two large international downstream orders in the quarter.

Which we will deliver over the next 12 months.

We delivered a strong book to bill ratio of one three in the quarter.

Industrial revenue was $121 million.

Down 6% versus last year and 9% from prior quarter.

The year over year decline was a result of starting the year with a lower backlog.

And some COVID-19 related customer issues.

The sequential decline was largely driven by normal seasonality.

Adjusted operating margin was eight 1% an improvement of 380 basis points versus last year.

The margin improvement was driven by the non repeat of a COVID-19 related write off from Q1 2020.

Partially offset by lower sales volume.

Adjusting for the impact of this receivable write off.

Organic decrementals in the quarter were 32%.

We expect industrial margins to expand through the year as volume increases in our price and productivity initiatives to cut it.

Turning to slide four.

Our aerospace and defense segment booked orders of $73 million in the quarter.

Versus last year and up 55% sequentially.

Versus prior year favorable defense orders offset the ongoing COVID-19 impact from our commercial business.

The sequential improvement was driven by the timing of large defense program orders for.

For the joint strike fighter.

As well as the <unk> 80, and 81 aircraft carriers.

Revenue in the quarter was $60 million down 10% year over year and 23% from prior quarter.

Versus prior year sales were down due to lower commercial revenue.

Sequential sales were lower due to seasonality and the timing of defense shipments for the joint strike fighter.

Dreadnought submarine and F 16 spares.

Other than revenue in our defense business will continue to be lumpy, but we have a strong backlog.

And we are well positioned on growing platforms.

We're excited about the growth trajectory of the business.

Finally, operating margin was 18% in the quarter.

130 basis points year over year.

The margin decline was driven by lower sales volume and unfavorable mix.

Organic decremental margins in the quarter or 29%.

We remain confident in our ability to expand operating margins throughout the year with higher volume ongoing price actions and productivity.

Turning to slide five.

Our free cash flow was negative $21 million in the quarter.

As Scott mentioned this was in line with the typical seasonality of our cash flow and timing of annual disbursements.

While capex was relatively flat our cash flow from operations improved versus prior year as a result of our exit from upstream oil and gas.

We ended the quarter with $461 million from net debt up slightly driven by our cash flow in the quarter.

In 2021, we will continue to use free cash flow generated from operations to further pay down debt.

We expect to improve net debt to adjusted EBITDA leverage by growth in one turn by end of the year.

Please turn to slide six.

Now I'd like to share our expectations for second quarter and update our outlook for the full year.

In the second quarter.

We expect revenue to be down 2% to 4% organically.

Scott will cover this in more detail in the upcoming slides, but let me provide the key highlights.

While we are seeing industrial demand recover across virtually all of our end markets.

We expect deliveries to be heavily weighted to Q3 and Q4.

Similarly in aerospace and defense, we expect a large portion of our recent orders in backlog to.

To ship in the second half of the year.

Commercial aerospace will continue to recover slowly.

As aircraft production rates and fleet utilization improves throughout the year.

We're expecting adjusted earnings per share of 30% to 35 from the second quarter.

Which implies approximately 75% of our full year earnings are expected in the second half.

This earnings profile is Directionally in line with last year and is driven by the natural seasonality in our businesses.

Markets recovering from COVID-19 through the year.

And project shipment timing in aerospace and defense and industrial.

Finally.

Duke your free cash flow is expected to be breakeven to slightly negative driven.

Driven by the timing of milestone payments from large projects.

Based on our first quarter performance and expectations for second quarter, we have high confidence in delivering our 2021 commitments.

Now expect organic revenue growth at the high end of our original guidance.

And higher adjusted EPS of $2 10 to $2 30.

The increase is mostly driven by industrial.

Which is not expected to grow low to mid single digits in.

And increased confidence in our aerospace and defense outlook.

Free cash flow generation remains a top priority and we still expect to convert 85% to 95% of adjusted net income into free cash flow for the year.

Now I'll hand, it back to Scott.

Let's start with our industrial outlook on slide seven.

As <unk> mentioned, we saw recovery in the first quarter across virtually all industrial end markets with orders back to pre COVID-19 levels.

Geographically, we saw sequential improvement in North America, and EMEA, while orders growth in China, India and rest of Asia remains strong.

We saw strong sequential and year over year orders growth in our short cycle end markets.

In addition, we saw strength in our long cycle businesses with activity, increasing overall and several large project orders across the portfolio.

So far in Q2, we continued to see momentum in our end markets with quoting activities at high levels and strong orders so far in the quarter.

For Q2 industrial revenue, we expect a moderate improvement year over year with growth ranging between 1% and 4%.

We continue to see improvement across our short cycle end markets as consumer demand increases.

In addition, the aftermarket remained strong with a mid single digit increase expected in the second quarter.

Our longer cycle end markets, including downstream commercial marine and midstream oil and gas are showing positive momentum and we are encouraged by our deal pipeline and quoting activity.

Finally pricing is expected to be a benefit of roughly 1% consistent with prior quarters.

Moving to aerospace and defense.

Orders in Q1 were up sequentially and flat versus prior year, driven by timing of large defense program orders, which are inherently lumpy.

For the aftermarket we expect improvements in defense spares and MRO activity through the year.

In our commercial aerospace business, we saw a modest improvement sequentially and expect a slow recovery to continue.

Revenue in the second quarter is expected to be flat to down 5% versus prior year.

Defense revenue is expected to be up zero to 5% with strong volume on our top OEM programs.

Revenue from our other OEM programs and defense spares is expected to be relatively flat in the quarter.

Based on customer orders and timing of requirements, we expect stronger shipments in all major defense categories in the second half of the year.

Commercial revenue is expected to be down between 10% to 15%.

Our market position with Boeing and Airbus remained strong and we expect revenue to improve through the year in line with aircraft production rates and fleet utilization.

Finally pricing is expected to be a benefit of 3% in the quarter with additional price increases coming in the second half, we expect full year pricing to be in line with last year.

Before we get into Q&A I'd like to close by providing an update on the strategic priorities that have shared for 2021.

Investing in people accelerating growth expanding margins and allocating capital effectively these.

These strategic priorities guide what our team works on every day and I wanted to take a moment to highlight some actions we've taken in the first quarter.

We remain focused on investing in growth in the first quarter, we launched eight new products, including our new canopy seal regulator for the U S Air Force, TX trainer jet and a high speed impact kinetic switch module for next generation missile system for the U S Navy.

On the industrial side, we launched the <unk> Smart App, our first mobile application and the startup of significant digital solution offering for our customers.

The mobile App allows a customer to scan a QR code or fixed to the product pull up performance data user guides and contact information for technical support and aftermarket orders.

Over time, we will add more capabilities to the app.

We expect more than 50% of industrial product shipments to have a QR code attached by the end of the second quarter.

This enhances the customer experience and provides an opportunity for incremental high margin aftermarket growth.

We're expecting to launch 45, new products in 2021 with revenue generated from new products launched in the last three years accounting for approximately 10% of our total 2021 revenue.

We're also expanding our aftermarket presence in aerospace and defense. We are in the process of opening a waterfront service center in Virginia.

This will improve customer support and increase our operational efficiency.

Finally, the circle or operating system is driving operational improvements across the company. For example, I recently visited one of our aerospace and defense sites, which produces components for the joint strike fighter.

Implementing the <unk> operating system. The team has improved on time delivery to 95% improved product quality and cost and significantly lower working capital as a percentage of sales.

Over the last three years, the business has grown 55% and expanded operating margins by 670 basis points.

This is just one example of the power of the <unk> operating system and our efforts to enhance operations.

Continued execution on our strategic priorities will deliver long term value to our customers employees suppliers and shareholders with that P&I, we'll be happy to take your questions.

Thank you we will now be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like you have a question from the queue from participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for your questions.

Our first question comes from the line of Jeff Hammond with Keybanc capital markets. Please proceed with your question Hey.

Hey, good morning, guys.

Good morning, Jeff.

Just on industrial one just help us kind of what surprised you negatively in the quarter versus kind of your <unk> framework. I think you just mentioned COVID-19 issues and then just talk about what specifically you're doing on the pricing side and industrial given kind of all day inflation.

<unk> pressures, we're hearing things.

Okay.

I'll start.

Thanks, Jeff I think on the industrial side.

The quarter came in more or less where we expected. The top line was at the lower end of what we guided for the quarter.

We had a couple of points of impact driven by some COVID-19 issues with customers. We have we have certain orders that debt that we complete and customers are required to come pick it up from our factory.

And we had a couple of situations, where the orders weren't picked up until after the quarter that we didn't expect and so that hit us for a couple of points but.

<unk> came in for industrial largely as we had expected outside of that.

The second part of your question on pricing. We are we're doing a lot of the things that we've talked about in the past on pricing in aerospace and defense were now doing on.

On the industrial side, so we we.

We segment, our orders based on aftermarket versus OEM.

And aftermarket orders based on level of urgency.

And position with the customer things like that to determine if and when and how much we might be able to increase the price based on the value we're creating for the customer. So we're.

We're being more surgical about pricing and on the industrial side of the business than we have in the past and we're seeing improved results.

As a result of that so regarding inflation in pricing right now.

I think the easiest way to answer that is the pricing initiatives are independent of inflation and we.

We guided the price that we're expecting for the year. So you know what we're expecting here on price at this point for on the inflation side, we're reading what everybody else is reading about inflation and what's happening in the world with commodities.

So far we're not seeing an impact as third core on inflation.

We typically generate net productivity, meaning we generate more savings than the inflation we absorbed.

And so far that's what we're doing this year, but we are being very careful as we look forward on inflation, we are monitoring it closely.

Revised guidance that we gave for the fuel for the full year contemplates a situation where.

Place the risk that inflation gets it gets a lot worse as the year progresses, but right now we're not seeing that.

We have been effectively managing the supply chain such that we're still delivering net productivity on the materials side.

Okay, Great and then <unk>.

Get aerospace, but the industrial side.

Had I mean had really really a lot of it was kind of the peak of COVID-19 in <unk>. So I'm just it looks like the organic is kind of flat to down in.

It seems like Youre getting some momentum in the short cycle. So just help me understand the debt.

The timing dynamics.

On the cadence from recovery in industrial because it seems a little bit you know at least out of the gate a little more a little more subdued.

Right. So so we.

You are right. The shorter cycle is certainly leading on the recovery of the shorter cycle parts of our business are certainly leading.

But we're seeing a lot of activity on the longer cycle and if you. If you actually look underneath the service on the strong orders. We had we had quite a few large project orders in the first quarter.

We had a number of blanket orders that are net that extend beyond the short cycle book and book and shift and so when you look at the profile of revenue and win the strong orders cut in Youre going to see the jump in revenue really start to cut in in Q3 and in Q4, So it's still modest.

Honest revenue through the second quarter, and then Youll see the strong orders that we saw in the first quarters cutting in in Q3, and Q4 and I think it's worth noting that through the quarter. In Q1 February was better than January March was better than February and even into Q2 April was very strong.

We're seeing our orders.

Growth accelerate.

And the timing of revenue is largely driven by the mix of orders. We have received year to date and so that's why you see the the backend loading on the revenue, but we're obviously highly confident about.

About the revenue it's in the backlog you saw that we raised are we raised our expectations on EPS and we put the topline growth for from.

For industrial we raise that up a little bit as well based on what's going to happen in the second half the only thing I'll add to what Scott said, even if you compare our earnings profile to last year based on what Scott just said.

Last year, we did the same thing it was about 28% earnings in the first half, but with the balance in the back half and if you look at the profile. This year. It's in the same it's in the same order of magnitude. So we feel pretty confident about the earnings profile in the window.

The way the year has laid out.

Okay, and then just last one.

I think Scott in the past you've given some color on kind of how you think the orders shape sequentially.

Obviously <unk> got.

Almost half of the quarter and like how should we think about industrial orders in Aero orders sequentially.

As you look at it today.

Okay sure so.

Looking at Q2, four for orders and we will talk let's talk about industrial first.

We are we are anticipating.

That industrial orders will continue to grow sequentially as we go into into Q2.

One other things to note on the on the order side in Q2 is that we do get lumpy orders, particularly in downstream.

So it's not always exactly easy for us to give you exact guidance from one quarter. The next because a big.

Big $10 million to $15 million order in downstream can skew that but were seeing markets are improving.

Globally really in every region sequentially into Q1 and that's it.

It's still happening as we go cut cut into April so sequentially orders are going to continue to.

<unk> to grow.

Okay.

On the on the aerospace and defense side.

It is lumpy and so you should you saw a nice sequential growth in orders in Q1, that's really largely driven by Lumpiness. We had some large orders that came in one for the joint strike fighter. We had a couple of <unk> orders come in as well so.

The orders the orders in Q1, the strength in Q1 is really needs to be looked at in the context of our full year as opposed to just one quarter to the next so as you look at the next quarter on orders in an aerospace and defense I would expect it to dip from Q1 into Q2 that could change.

<unk> there were some big orders that might fall into Q2, but right now we're expecting lower orders in Q2 for aerospace and defense.

Okay. Thanks, guys.

Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Nathan Good morning Nathan.

I wanted to follow up on Jeff's question on industrial load is can you quantify that.

Impact of the downstream in blanket orders.

In the first quarter and then just talk about the.

Pipeline for downstream motors, I know that can be lumpy, but I know you'd be pretty bullish on the outlook for that so just any color you can give us some nice things.

Sure so.

I think.

Yes.

Women's segmented the orders in such a way that I can give you exact numbers on how much or large projects that are that.

That have a certain flow in terms of revenue and blanket orders, but it was significant I would say the mix of orders that came in in the first quarter was.

More biased towards the longer lead time types of orders than we would normally get.

Which is encouraging given given the.

The longer cycle nature of those orders so.

I don't have an exact breakdown for you Nathan on that.

What was the second could you repeat the second part of your question yes.

Yes, just the.

I guess the Frontload the order pipeline on the downstream business I know you guys have been pretty confident on getting some larger orders did we get all of that is in the first quarter or are there more in the pipeline that you think you can generate throughout the next couple of quarters.

So we did not get all of them and no far from getting all of them in the first quarter. We did have strong orders in downstream in the first quarter.

Theyre all international orders, we had strength in <unk>.

India as well as in as well as in Russia. So we're seeing good strong.

Project orders.

We're expecting right now based on the timing of the pipeline, we are expecting a dip in orders in downstream in Q2, and we expect the back half to be to be much stronger. So I think I think the activity level has ramped up quite a bit.

And we're still.

I'd say were increasingly bullish on what's happening in the downstream business right now, but probably youll see the bulk of those orders start to cut in in Q3, and Q4, probably a dip in Q2.

Okay, and then I wanted to ask one or two about free cash flow.

The free cash flow was.

$506 million better in the first quarter primarily.

The lack of distributed valves being in there, but you did have a $10 million headwind year over year free cash flow on these prepaid and other assets.

Lyne can you talk about if that's just timing we should get some of that back through the rest of the year and then what.

The specific pages of cash flow that you expect a step up in the second half of the year, given we're going to be negative in the first half to get to that 80, 595% conversion.

Perfect. Thanks, Nathan So look first of all the free cash flow in Q1 was in line with what we expected.

You're right, it's got better year over year, driven by the exit of the upstream oil and gas business. When you think about the prepaid and other asset line.

It's driven by the project business and the timing of payments and how the how they come through throughout the year. So so so as you think about the back half of the year and the free cash flow conversion that we have laid out first of all if you think about the back half the earnings significantly ramp up our trade working capital has improved.

And we have a plan in place by side to drive that sequential improvement throughout the year. If you take that coupled with the milestone payments tied to big large projects that you mentioned tied to the EBIT, that's how we get to the 85% to 95% conversion.

Great. Thanks for taking my questions.

Thank you Nathan. Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Hey, good morning, guys.

Good morning, Andy.

I just wanted to follow up on the sort of larger long cycle project orders that youre getting in industrials.

You did mention that you raised your guide for industrial which is interesting when you start out kind of slow as you talked about so maybe just talk about the confidence level to convert these orders is it more about converting these large downstream or is he had is it more sort of broad based recovery.

Gives you this confidence to raise your revenue forecast there.

So it's the latter.

Andy It's broad based we're seeing a global recovery in industrial in every region that we that we sell into in the first quarter saw a sequential increases in orders and Thats continuing.

Into April and even if you look if you look by.

By short cycle versus long cycle same thing all both businesses showed increased order activity going into into Q1 and that and that is continuing and so even even aftermarket. If you breakout aftermarket aftermarket continues to continues to grow sequentially. So it's very broad based.

And so we're pretty bullish that we have got a robust recovery happening here in industrial and that gives us a lot of confidence for the full year.

Scott that's helpful and to be clear <unk> not seeing you know there are obviously, some COVID-19 hotspots out there still you're not seeing any sort of interruption in places like India and such.

So India for US right now, we're still operating both our factories in India at the levels of demand. So so.

Obviously, there is an impact in the market in India, right now and we're going to we expect to see.

Lower orders going forward as a result of that but so far.

We're able to keep our employees safe, we have a lot of discipline around around social distancing and PPE and all other things that we've talked about in the past to keep everybody safe and so far our factories.

Laser safe and we're still operating at levels of demand. So we've been able to keep that going so right now I would say the impact from COVID-19 in India is largely just going to be on the top line orders in India itself.

Helpful. And then we already talked about price versus cost any other commentary around sort of temporary cost coming back puts and takes in margin as you go through the rest of the year any other commentary that would be helpful for us on that front.

Yes, yes, I can jump in this is <unk>. So let me start by recapping last year. So we talked about $45 million of cost out last year 20 of debt was structural 'twenty was temporary and fiber cost avoidance right. So the structural costs. That's already a part of the run rate in Q1, we saw about $2 million of cost carryover from the structural piece.

On the temporary side, the $20 million I'd say half of that is back in 2021 and that have been tied to employee related benefits Debbie cut in 2020, and the impact of debt is about $2 $5 million a quarter for the rest of the year now that said as you think about the circle operating system.

In the index and the continuous improvement that we drive through productivity through two sourcing savings that will continue to come into the business on a quarterly basis on a yearly basis, but from a structural standpoint have a debt special cost has come back and the other half will come back as the volume starts to ramp up throughout the year.

I think I would add to that.

Andy I would add to that on the on the puts and takes as we go through the year.

The margin expansion as you well know is there's a big volume component to this so so as the revenue starts to cut in in the back half Youll see Youll see a good contribution margin is.

As the revenue cuts in we're also raising price if you look at the profile of price that we have.

We've communicated through the first half versus the second half Youll see that were expecting more price in the second half than in the first half and as <unk> said, we're driving productivity every day so.

As of now we're still generating material productivity and so inflation hasnt hasnt hit us in a material way, yet and we're always generating productivity in the factories as well, yes. So last thing I'd add to that actually one other Scott mentioned that is the leverage component of it as the volume starts to ramp back up you will start to see industrial margins get better because the leverage component of the top line.

Scott those price increases that you talked about in the second half of your already pushed those through is that something youre expecting to do just any color there.

So yes, we have.

We pushed we push some through and more cutting in now as we speak but there's also a mix component to price. So we're expecting higher volume in aftermarket and aerospace and defense in the back half of the year versus what we've seen in the first half of the year. So aftermarket volume is where we get a lot of the price in aerospace and defense.

There's also there's also a mix component for the smaller programs in aerospace and defense, where we have where we don't have long term contracts and so based on the mix of revenue through the year, you'll see a heavier weight in the back half on price in aerospace and defense and is on the industrial side is.

Largely driven by volume.

Helpful guys. Thanks.

Thank you.

Our next question comes from the line of John <unk> with Sidoti <unk> Company. Please proceed with your question.

Morning, guys.

Good morning.

I'd like to start with us.

Mercer Aerospace can you talk a little bit about how much inventory do you think.

The channel, but it needs to be blood flow.

And maybe a little bit about your current capacity utilization and staffing.

How does that look in parallel look for the balance of the year.

Sure.

<unk>.

Okay. So I can I can I can start on that so and commercial in our commercial business we are.

We're still we're still down on orders so as we mentioned orders were down around 15%.

In the first quarter, but we are seeing sequential improvement in orders and then of course that turns into revenue. So we're still expecting.

A similar profile to what we've communicated in the past which is a slow.

Slow recovery sequentially, each quarter, and that's largely what we saw in the first quarter and Thats what were forecasting for the second quarter, it's difficult for us to know exactly how much how much inventory is is in the channel so to speak.

But on the OEM side, it's usually not a lot.

737 would be an example of an exception where there's still there's still shipping planes that are that were built a while ago, but for the rest on the OEM side, we don't see a huge impact from from from inventory. So we're seeing steady improvement as production rates start.

Start to improve regarding your second part of your question capacity utilization at <unk> core.

We've got two primary factories that support R. R.

Our commercial business.

Neither one of them is operating in 2019 levels of capacity our European factory is running at right now are three days a week and.

And thats consistent with the whole supply chain customers as well as suppliers. Our U S factory that supports commercial is also below capacity, but also has defense work. So we've been able to manage through furloughs and reallocation of resources into the growing defense side of the business.

Factories still running five days, a week, but at lower capacity levels than it was than it was in 2019.

Got it thanks, Scott and just back to the industrial sales business.

Other downstream can you just talk a little bit.

Examples of other large projects that are coming back.

Aren't seeing say three months ago, and all of those projects expected to be completed in 2021.

So.

So the.

So the industrial business, we get we get projects in downstream as you mentioned, but if I set that aside.

We get projects in other parts of industrial as well so it's not uncommon for us to get midstream oil and gas projects in the four to $5 million to $7 million range.

<unk> Marine we can get projects as well depending on the type of business and then of course of course downstream, we do have a little bit of.

Navy business that is sitting inside of industrial will occasionally get projects linked to navy business as well, so theres quite a mix with regard to Q1 orders.

We did get projects in midstream oil and gas we saw some recovery in commercial Marine and then as we mentioned we saw a lot of projects fall into place in the first quarter in downstream.

So it's really across the board debt.

That we're seeing project orders and then I mentioned earlier, we get blanket orders on occasion with some of our OEM customers in industrial so we have some some manufacturing customers that we supply pumps to they'll give us an order and the order will be good for.

Shipments for the next 12 months and so we've got a few of those in the first quarter as well and that would be in.

And.

That's largely in machine machinery manufacturing, so more shorter cycle type of business, but blanket orders.

Got it got it and the Navy orders is that deliberate deliverable this year or is that going into next year also.

That will be deliverable this year.

Okay, but it wont Scott those deliveries will start in the back half.

Got it okay. Thanks, Scott for taking my questions.

Okay. Thank you.

Thank you. Our final question comes from the line of Brett Kearney with Gabelli funds. Please proceed with your question.

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

Good morning, Brian Good morning, Brett how are you.

Doing well just had one question I guess, maybe for Avi can.

Can you help me just thinking through the fixed floating breakdown of.

Debt structure right now I believe you all have a.

Swap our debt.

That runs through Q1 of next year covers the majority of the term loan amount just want to make sure I have that right and then how youre thinking about that looking forward, whether there's plans to roll that forward or your view on that portion of the capital structure.

Yeah, So Brett Youre right, there was about $400 million of debt.

Interestingly enough we are in the process of evaluating debt as we speak.

And plan to make a decision in the back half of the year. So we're still and still work in progress, but youre absolutely right income was about $400 million of debt.

Okay, great. Thank you very much.

Thank you.

Thank you ladies and gentlemen, there are no further questions at this time. Thank you for joining US today. This does conclude our conference call. You may now disconnect. Your lines. Thank you for your participation and have a wonderful day.

Thank you.

Okay.

[music].

Yeah.

[music].

Greetings and welcome to the third core International first quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Good morning, and welcome to <unk> first quarter 2021 earnings call.

And today by Scott Buck out so of course, president and CEO and it'll be kind of all the company's chief financial Officer.

Before we start I'd like to remind you that today's presentation and press release are available on <unk> website at investors that circle or dot com.

Today's discussion contains forward looking statements only represent the company's views as of today. These expectations are subject to known and unknown risks uncertainties and other factors and actual results could differ materially from those anticipated or implied by today's remarks.

I'll circle or may choose to update these forward looking statements at a later date the company specifically disclaims any duty to do so.

Can find a full discussion of these factors and so of course form 10-K, 10, Qs and other SEC filings also located on our website.

On today's call management will refer to GAAP and non-GAAP financial measures the.

A reconciliation of certain non-GAAP measures to the comparable GAAP measures are available in our earnings press release and slides.

With that I'll turn the call over to Scott.

Thank you Alex and good morning, everyone.

<unk> delivered solid first quarter results as our portfolio of mission critical products continues to perform.

While our end markets are not fully back to pre pandemic levels strong orders performance in the quarter gives us the confidence to raise our 2021 earnings guidance.

Starting with some financial highlights on slide two we booked orders of $227 million in the quarter, which were up 34% sequentially and 7% versus prior year on an organic basis.

We saw strong sequential increases in demand in both businesses with industrial up 25% and A&D up 55%.

We ended the quarter with $421 million of backlog up 11% versus prior quarter.

Revenue in the quarter was $181 million down, 8% organically driven by lower industrial backlog entering 2021, the timing of large defense orders shipments and slowly recovering demand in commercial aerospace.

Adjusted operating income was $12 million, representing a margin of six 9% up 110 basis points from prior year.

We expect strong margin expansion as we progress through 2021, driven by higher volume in virtually all regions and end markets. Our continued actions on pricing ongoing simplification across the company from <unk>.

<unk>.

The company delivered 24% of adjusted earnings per share and generated free cash flow was negative $21 million both in line with our expectations.

Our cash performance in the quarter is consistent with typical seasonality due to the concentration of annual disbursements in the first quarter.

Now, let me turn the call over to <unk> to discuss our first quarter results in more detail.

Thank you Scott and good morning, everyone.

Starting with industrial on slide three.

Industrial organic orders were up 11% versus last year and 25% sequentially.

We're seeing recovery in virtually all of our end markets regions.

Regionally, we saw particular strength in EMEA, and China and rest of Asia.

Notably we booked two large international downstream orders in the quarter.

Which we will deliver over the next 12 months.

We delivered a strong book to bill ratio of one three in the quarter.

Industrial revenue was $121 million.

Down 6% versus last year and 9% from prior quarter.

The year over year decline was a result of starting the year with a lower backlog.

And some COVID-19 related customer issues.

The sequential decline was largely driven by normal seasonality.

Adjusted operating margin was eight 1% an improvement of 380 basis points versus last year.

The margin improvement was driven by the non repeat of a COVID-19 related write off from Q1 2020.

Partially offset by lower sales volume.

Adjusting for the impact of this receivable write off.

Organic decrementals in the quarter were 32%.

We expect industrial margins to expand through the year as volume increases in our price and productivity initiatives got it.

Turning to slide four.

Our aerospace and defense segment booked orders of $73 million in the quarter.

Flat versus last year and up 55% sequentially.

Versus prior year favorable defense or offset the ongoing COVID-19 impact from our commercial business.

The sequential improvement was driven by the timing of large defense program orders.

For the joint strike fighter.

Relative to <unk>, 80, and 81 aircraft carriers.

Revenue in the quarter was $60 million down 10% year over year and 23% from prior quarter.

Versus prior year sales were down due to lower commercial revenue.

Sequential sales were lower due to seasonality and the timing of defense shipments for the joint strike fighter.

Dreadnought submarine and F sixteens spares.

Oregon revenue in our defense business will continue to be lumpy, but we have a strong backlog and we are well positioned on growing platforms. We're.

We're excited about the growth trajectory of the business.

Finally, operating margin was 18% in the quarter.

130 basis points year over year.

The margin decline was driven by lower sales volume and unfavorable mix.

Organic decremental margins in the quarter or 29%.

We remain confident in our ability to expand operating margin throughout the year with higher volume ongoing price actions and productivity.

Turning to slide five.

Our free cash flow was negative $21 million in the quarter.

As Scott mentioned this was in line with the typical seasonality of our cash flow and timing of annual disbursements.

While capex was relatively flat our cash flow from operations improved versus prior year as a result of our exit from upstream oil and gas.

We ended the quarter with $461 million of net debt up slightly driven by our cash flow in the quarter.

In 2021, we will continue to use free cash flow generated from operations to further pay down debt.

We expect to improve net debt to adjusted EBITDA leverage by greater than one turn by end of the year.

Please turn to slide six.

Now I'd like to share our expectations for second quarter and EBITDA outlook for the full year.

In the second quarter.

We expect revenue to be down 2% to 4% organically.

Scott will cover this in more detail in the upcoming slides, but let me provide the key highlights.

While we are seeing industrial demand recover across virtually all of our end markets.

We expect deliveries to be heavily weighted to Q3 and Q4.

Similarly in aerospace and defense, we expect a large portion of our recent orders in backlog to.

To ship in the second half of the year.

Commercial aerospace will continue to recover slowly.

As aircraft production rates and fleet utilization improves throughout the year.

We're expecting adjusted earnings per share of 30% to 35 in the second quarter.

Which implies approximately 75% of our full year earnings are expected in the second half.

This earnings profile is Directionally in line with last year and is driven by the natural seasonality in our businesses.

Markets recovering from COVID-19 through the year.

And project shipment timing in aerospace and defense and industrial.

Finally.

Duke your free cash flow is expected to be breakeven to slightly negative driven by the timing of milestone payments on large projects.

Based on our first quarter performance and expectations for second quarter, we have high confidence in delivering our 2021 commitments.

Now expect organic revenue growth at the high end of our original guidance.

Higher adjusted EPS of $2 10 to $2 30.

The increase is mostly driven by industrial which is now expected to grow low to mid single digits.

And increased confidence in our aerospace and defense outlook free.

Free cash flow generation remains a top priority and we still expect to convert 85% to 95% of adjusted net income into free cash flow for the year.

Now I'll hand, it back to Scott, Thanks, Amit, let's start with our industrial outlook on slide seven.

As <unk> mentioned, we saw recovery in the first quarter across virtually all industrial end markets with orders back to pre COVID-19 levels.

Geographically, we saw sequential improvement in North America, and EMEA, while orders growth in China, India and rest of Asia remained strong.

We saw strong sequential and year over year orders growth in our short cycle end markets and.

In addition, we saw strength in our long cycle businesses with activity, increasing overall and several large project orders across the portfolio.

So far in Q2, we continue to see momentum in our end markets with quoting activities at high levels and strong orders so far in the quarter.

For Q2 industrial revenue, we expect a moderate improvement year over year with growth ranging between 1% and 4%.

We continue to see improvement across our short cycle end markets as consumer demand increases.

In addition, the aftermarket remained strong with a mid single digit increase expected in the second quarter.

Our longer cycle end markets, including downstream commercial marine and midstream oil and gas are showing positive momentum and we are encouraged by our deal pipeline and quoting activity.

Finally pricing is expected to be a benefit of roughly 1% consistent with prior quarters.

Moving to aerospace and defense.

Orders in Q1 were up sequentially and flat versus prior year, driven by timing of large defense program orders, which are inherently lumpy.

For the aftermarket we expect improvements in defense spares and MRO activity through the year.

In our commercial aerospace business, we saw a modest improvement sequentially and expect a slow recovery to continue.

Revenue in the second quarter is expected to be flat to down 5% versus prior year.

Defense revenue is expected to be up zero to 5% with strong volume on our top OEM programs.

Revenue from our other OEM programs and defense spares is expected to be relatively flat in the quarter.

Based on customer orders and timing of requirements, we expect stronger shipments in all major defense categories in the second half of the year.

Commercial revenue is expected to be down between 10% 15%.

Our market position with Boeing and Airbus remained strong and we expect revenue to improve through the year in line with aircraft production rates and fleet utilization.

Finally pricing is expected to be a benefit of 3% in the quarter with additional price increases coming in the second half, we expect full year pricing to be in line with last year.

Before we get into Q&A I'd like to close by providing an update on the strategic priorities that I have shared for 2021 investing in people accelerating growth expanding margins and allocating capital effectively.

These strategic priorities guide what our team works on every day and I wanted to take a moment to highlight some actions we've taken in the first quarter.

We remain focused on investing in growth in the first quarter, we launched eight new products, including a new canopy seal regulator for the U S Air Force, TX trainer jet and a high speed impact kinetic switch module for next generation missile system for the U S Navy.

On the industrial side, we launched the <unk> Smart App, our first mobile application and the startup of a significant digital solution offering for our customers.

The mobile App allows a customer to scan a QR code or fixed to the product pull up performance data user guides and contact information for technical support and aftermarket orders.

Over time, we'll add more capabilities to the app.

We expect more than 50% of industrial product shipments to have a QR code attached by the end of the second quarter.

This enhances the customer experience and provides an opportunity for incremental high margin aftermarket growth.

We're expecting to launch 45, new products in 2021 with revenue generated from new products launched in the last three years accounting for approximately 10% of our total 2021 revenue.

We're also expanding our aftermarket presence in aerospace and defense. We are in the process of opening a waterfront service center in Virginia.

This will improve customer support and increase our operational efficiency.

By implementing the <unk> operating system. The team has improved on time delivery to 95%.

Crude product quality and cost and significantly lower working capital as a percentage of sales.

Over the last three years, the business has grown 55% and expanded operating margins by 670 basis points.

This is just one example of the power of the <unk> operating system and our efforts to enhance operations.

Continued execution on our strategic priorities will deliver long term value to our customers employees suppliers and shareholders with that of Eni will be happy to take your questions.

Thank you I will now be conducting a question and answer session. If you would.

To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to your other question from the queue from participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.

Our first question comes from the line of Jeff Hammond with Keybanc capital markets. Please proceed with your question.

Hey, good morning, guys.

Morning, Jeff.

Just on industrial one just help us kind of what surprised you negatively in the quarter versus kind of your <unk> framework I think he just mentioned COVID-19 issues and then just talk about what specifically you're doing you know on the pricing side and industrial given kind of all day inflation.

Inflationary pressures were here index.

Okay.

I'll start so thanks, Jeff I think on the industrial side.

The quarter came in more or less where we expected. The top line was at the lower end of what we guided for the quarter.

And we had a couple of situations, where the orders weren't picked up until after the quarter that we didn't expect and so that hit us for a couple of points but.

<unk> came in for industrial largely as we had expected outside of that.

Regarding the second part of your question on pricing. We are we're doing a lot of the things that we've talked about in the past on pricing in aerospace and defense were now doing on.

On the industrial side, so we we.

We segment, our orders based on aftermarket versus OEM.

And aftermarket orders based on level of urgency.

And position with the customer things like that to determine if and when and how much we might be able to increase the price based on the value we're creating for the customer. So we're we're being more surgical about pricing and on the.

Industrial side of the business than we have in the past and we're seeing improved results.

As a result of that so regarding inflation and pricing.

Right now.

I think the easiest way to answer that is the pricing initiatives are independent of inflation and.

We guided the price that we're expecting for the year. So you know what we're expecting here on price at this point.

On the inflation side.

We're reading what everybody else is reading about inflation and what's happening in the world with commodities.

So far we're not seeing an impact at third core on inflation.

We typically generate net productivity, meaning we generate more savings than the inflation we absorbed.

And so far that's what we're doing this year, but we are being very careful as we look forward on an inflation. We are monitoring closely the revised guidance that we gave for the fuel for the full year contemplates a situation where the contemplates the risks that inflation gets.

It gets a lot worse as the year progresses, but right now we're not seeing that.

We have been effectively managing the supply chain such that we're still delivering net productivity on the materials side.

Okay, Great and then <unk>.

Get you know aerospace, but the industrial side.

Had I mean had.

Had you know really a lot of you know it was kind of the peak of COVID-19 in <unk> 'twenty. So I'm just it looks like the organic kind of flat to down and it.

It seems like you're getting some momentum in the short cycle. So just help me understand the debt the timing dynamics.

And the cadence of recovery in industrial because it seems a little bit.

At least out other gained a little more a little more subdued.

Right.

So we.

You are right. The shorter cycle is certainly leading on the recovery of the shorter cycle parts of our business is certainly leading.

And we had a number of blanket orders that are net that extend beyond the short cycle book and book and shift and so when you look at the profile of revenue and win the strong orders cut in Youre going to see the jump in revenue really start to cut in in Q3 and in Q4, So thats still modest modest revenue.

Through the second quarter, and then you'll see the strong orders that we saw in the first quarter is cutting in and Q3 and Q4 and I think it's worth noting that through the quarter in Q1.

February was better than January March was better than February and even into Q2 April was very strong and so we're seeing our orders.

Growth accelerated.

About the revenue it's in the backlog you saw that we raised are we raised our expectations on EPS and we put the topline growth for from.

Last year, we did the same thing it was about 28% earnings in the first half with the balance in the back half and if you look at the profile. This year. It's in the same it's in the same order of magnitude. So we feel pretty confident about the earnings profile and the weather.

The Windows you already laid out.

Okay, and then just last one.

I think Scott in the past you've given some color on kind of how you think the orders shape sequentially.

And you know obviously <unk> got you know.

Almost half the quarter and like how should we think about industrial orders in Aero orders sequentially.

As you look at it today.

Okay sure. So looking at Q2 four for orders and we will talk let's talk about industrial first.

We are we are anticipating.

That industrial orders will continue to grow sequentially as we go into into Q2.

One other things to note on the on the order side in Q2 is that we do get lumpy orders, particularly in downstream.

So it's not always exactly easy for us to give you exact guidance from one quarter. The next because a big.

Big $10 million to $15 million order in downstream can skew that but were seeing markets are improving.

Globally really in every region sequentially into Q1 and that debt.

It's still happening as we go cut cut into April so sequentially orders are going to continue to.

<unk> to grow.

On the on the aerospace and defense side.

It's lumpy and so you shouldn't you saw a nice sequential growth in orders in Q1, that's really largely driven by Lumpiness. We had some large orders that came in one for the joint strike fighter, We had a couple of Cvs and orders come in as well so.

The orders the orders in Q1, the strength in Q1 is really needs to be looked at in the context of a full year as opposed to just one quarter to the next so as you look at the next quarter on orders in Aerospace and defense I would expect it to dip from Q1 into Q2 that could chew.

<unk> there were some big orders that might fall into Q2, but right now we're expecting lower orders in Q2 for aerospace and defense.

Okay. Thanks, guys.

Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Nathan Good morning Nathan.

I wanted to follow up on Jeff's question on industrial orders can you quantify the impact of the downstream in blanket orders.

In the first quarter and then just talk about debt.

Pipeline for downstream motors, I know that can be lumpy, but I know you've been pretty bullish on the outlook for that so just any color you can give us some nice things.

Sure so.

I think.

Women's segmented the orders flow in such a way that I can give you exact numbers on how much your large projects that are that.

That have a certain flow in terms of revenue and blanket orders, but it was significant I would say the mix of orders that came in in the first quarter was.

More biased towards the longer lead time types of orders than we would normally get.

Which is encouraging given given the.

The longer cycle nature of those orders so.

But I don't have an exact breakdown for you Nathan on that.

What was the second could you repeat the second part of your question yes.

Just a day.

I guess the Frontload the order pipeline on the downstream business I know you guys have been pretty confident on getting some larger orders did we get all of that is in the first quarter out of their current pipeline that you think you can generate throughout the next couple of quarters.

So so we did not get all of them in far from getting all of them in the first quarter. We did have strong orders in downstream in the first quarter.

Theyre all international orders, we had strength in <unk> and <unk>.

India as well as in as well as in Russia. So we're seeing good strong.

Project orders.

And we're still.

I'd say were increasingly bullish on what's happening in the downstream business right now, but probably youll see the bulk of those orders start to cut in in Q3, and Q4, probably a dip in Q2.

Okay, and then I wanted to ask one or two about free cash flow.

The free cash flow was.

$506 million better in the first quarter primarily.

The lack of distributed valves being in there, but you did have a $10 million headwind year over year free cash flow on these prepaid and other assets.

Lyne can you talk about if that's just timing we should get some of that back through the rest of the year and then what are the specific pieces of cash flow that you expect a step up in the second half of the year, given we're going to be negative in the first half to get to that 80, 595% conversion.

Perfect. Thanks, Nathan So look first of all the free cash flow in Q1 was in line with what we expected.

You're right, it's got better year over year, driven by the exit of the upstream oil and gas business, we think about the prepaid and other asset line.

It's driven by the project business and the timing of payments and how the how they come through throughout the year. So so so as you think about the back half of the year and the free cash flow conversion that we have laid out first of all if you think about the back half of the earnings significantly ramp up our trade working capital has improved some.

<unk> and we have a plan in place by side to drive that sequential improvement throughout the year. If you take that coupled with the milestone payments tied to big large projects that you mentioned tied to the <unk>, that's how we get to the 85% to 95% conversion.

Great. Thanks for taking my questions.

Thank you thank.

Thank you. Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Hey, good morning, guys.

Good morning, Andy.

And I just wanted to follow up on the sort of larger long cycle project orders that youre getting in industrials.

So it's the latter.

Andy It's broad based we're seeing.

A global recovery in industrial and <unk>.

Every region that we that we sell into in the first quarter saw a sequential increases in orders and that's continuing.

Into April and even if you look if you look by.

And so we're pretty bullish that we've got a robust recovery happening here in industrial and that gives us a lot of confidence for the full year.

Scott that's helpful and to be clear you're not seeing you know there are obviously, some COVID-19 hotspots out there still youre not seeing any sort of interruption in places like India and such.

So India for US right now, we're still operating both our factories in India at the levels of demand. So so.

Obviously, there is an impact in the market in India, right now and we're going to we expect to see.

Lower orders going forward as a result of that but so far.

We're able to keep our employees safe, we have a lot of discipline around around social distancing and PPE and all the things that we've talked about in the past to keep everybody safe and so far our factories.

Toys are safe and we're still operating at levels of demand. So we've been able to keep that going so right now I would say that the impact from COVID-19 in India is largely just going to be on the top line.

There's in India itself.

Helpful. And then we already talked about price versus cost any other commentary around sort of temporary costs coming back puts and takes in margin as you go through the rest of the year any other commentary that would be helpful for us on that front.

Yeah, Yeah I can jump in this is a b. So let me start by recapping last year. So we talked about $45 million of cost out last year 20 of debt was structural 'twenty was temporary and five was cost avoidance right. So the structural cost that's already above the run rate in Q1, we saw about $2 million of cost carryover from the structural piece.

On the temporary side, the $20 million I'd say half of that is back in 2021 and that half is tied to employee related benefits that we cut in 2020 and the impact of debt is about two and a half million dollars a quarter for the rest of the year now that said as you think about the circle operating system.

In the end and the continuous improvement that we drive through productivity through two sourcing savings that will continue to come into the business on a quarterly basis on a yearly basis, but from a structural standpoint have a desperate youll buses come back and the other half will come back as the volume starts to ramp up throughout the year.

I think I would add to that.

Andy I would add to that on the on the puts and takes as we go through the year.

The margin expansion as you well know is there's a big volume component to this so so as the revenue starts to cut in in the back half Youll see Youll see a good contribution margin is as the revenue cuts in we're also raising price. If you look at the profile of price that we've.

We've communicated through the first half versus the second half Youll see that were expecting more price in the second half than in the first half.

And as <unk> said, we're driving productivity every day so.

As of now we're still generating material productivity and so inflation hasnt hasnt hit us in a material way, yet and we're always generating productivity in the factories as well, yes. So the last thing I'd add to that actually one other Scott mentioned that is the leverage component of it as the volume starts to ramp back up you will start to see industrial margins get better because the leverage component of the top line.

Scott does price increases that you talked about it in the second half of your already pushed those through is that something youre expecting to do just any color there.

So yes, we've we've pushed we've pushed some through and more cutting in now as we speak but there's also a mix component to price. So we're expecting higher volume in aftermarket and aerospace and defense in the back half of the year versus what we've seen in the first half of the year. So aftermarket volume is where we get a.

Lot of the price in aerospace and defense. There's also there's also a mix component for the smaller programs in aerospace and defense, where we have where we don't have long term contracts and so based on the mix of revenue through the year, you'll see a heavier weight in the back half on price in aerospace and defense and.

And it's on the industrial side, it's largely driven by volume.

Helpful guys. Thanks.

Thank you.

Thank you. Our next question comes from the line of John <unk> with Sidoti <unk> Company. Please proceed with your question good morning, guys.

Good morning.

I'd like to start with our commercial.

Commercial aerospace can you talk a little bit about how much inventory do you think.

Channel, but it needs to be bled through.

And maybe a little bit about your current capacity utilization and staffing.

How does that look and Harold will look for the balance of the year.

Sure.

Okay. So I can I can I can start on that so in commercial and our commercial business we are.

We're still we're still down on orders. So as we mentioned orders were down around 15% in the first quarter, but we are seeing sequential improvement in orders.

And then of course that turns into revenue so we're still expecting.

A similar profile to what we've communicated in the past, which is a slow a.

Slow recovery sequentially, each quarter, and that's largely what we what we saw in the first quarter and Thats what were forecasting for the second quarter, it's difficult for us to know exactly how much how much inventory is is in the channel so to speak but.

But on the OEM side, it's usually not a lot.

Start to improve regarding to your second part of your question capacity utilization at <unk> core.

We've got two primary factories that support R.

Our commercial business.

Neither one of them is operating in 2019 levels of capacity our European factory is running at right now at three days a week and.

Factories still running five days, a week, but at lower capacity levels than it was than it was in 2019.

Got it thanks, Scott and just back to the industrial side of the business.

Other downstream can you just talk a little bit.

Examples of other large projects that are coming back.

Arent seeing say three months ago, and the oldest projects expected to be completed in 2021.

So.

So the.

So the industrial business, we get we get projects in downstream as you mentioned, but if I set that aside.

We get projects in other parts of industrial as well so it's not uncommon for us to get midstream oil and gas projects in the four to $5 million to $7 million range.

<unk> Marine we can get projects as well depending on the type of business and then of course of course downstream, we do have a little bit of a navy.

<unk> Navy business as debt is sitting inside of industrial will occasionally get projects linked to navy business as well, so theres quite a mix with regard to Q1 orders.

Did get projects in midstream oil and gas.

We saw some recovery in commercial Marine and then as we mentioned we saw a lot of projects fall into place in the first quarter in downstream. So it's really across the board that.

Shipments for the next 12 months and so we got a few of those in the first quarter as well and that would be in <unk>.

Yeah.

That's largely in Michigan machinery manufacturing, so a shorter cycle type of business, but blanket orders.

Got it got it and the Navy orders is that deliberate deliverable this year or is that going into next year also.

That will be deliverable this year.

Okay, but it wont Scott those deliveries will start in the back half.

Got it okay. Thanks, Scott for taking my questions.

Okay. Thank you.

Thank you. Our final question comes from the line of Brett Kearney with Gabelli funds. Please proceed with your question.

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

Good morning, Brett Good morning, Brett how are you.

Doing well just had one question I guess, maybe for I'll be can you help me just thinking through the fixed floating breakdown.

Debt structure right now I believe you all have a.

Swap that runs through Q1 of next year covers the majority of the term loan them out just want to make sure I have that right and then how youre thinking about that looking forward, whether there's plans to roll that forward or your view on that portion of the capital structure.

Yeah, So Brett Youre right, there was about $400 million of debt.

Interestingly enough we are in the process of evaluating debt as we speak and plan to make a decision in the back half of the year. So we're still it's still work in progress, but you're absolutely right that was about $400 million of debt.

Okay, great. Thank you very much.

Thank you.

Q1 2021 Circor International Inc Earnings Call

Request a DemoDemo

CIR

CIRCOR International

Earnings