Q2 2021 Kaman Corp Earnings Call

[music].

Good day and thank you for standing by welcome to the Command Corporation second quarter 2021 conference call them.

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

After the speaker's presentation, there will be a question and answer session.

I asked the question during the session you will need the press star 1 of your telephone.

Be advised that today's conference is being recorded.

Any further assistance please press star zero.

And I like to hand, the conference over to you speak of a day Rebecca staff Vice President of accounting. Please go ahead.

Good morning, I'd like to welcome everyone to command in second quarter of 2021 earnings call conducting the call today are Ian Walsh, Chairman, President and Chief Executive Officer.

And Jamie Coogan, Senior Vice President and Chief Financial Officer, before we begin I'd like to note that some of the 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.

8 minutes on plans and objectives of the company or its management.

<unk> of 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 of which are described in the company's latest filings with the Securities and Exchange Commission, including the Companys second quarter of 2021 results included on form 10-Q.

And the current report on form 8-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 SEC rules and regulations reconciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K with that I'll turn the call over to Ian Walsh.

Good morning, everyone and thank you for joining our second quarter 2021 earnings call.

I would like to begin today's call with a brief summary of the quarter and our revised guidance, which reflects improved profitability for the year, followed by updates on operations and several of our key R&D growth initiatives.

I will then turn the call over to Jamie for a more detailed discussion of our financial results.

Before jumping in I'd like the first congratulate Jamie Coogan on his recent promotion to Chief Financial Officer since joining command I've had the opportunity to get to know Jamie quite well and worked closely with him on key initiatives.

I believe it is strong knowledge of our company and our relationships with our external stakeholders, coupled with his training of financial skill sets will prove invaluable as we move command forward and execute on our strategic priorities. Jamie is of great work ethic, and strategic mindset as well as the strong reputation of history with command.

I'm excited to have him 1 of the leadership team and he has already hit the ground running.

Turning to our results halfway through the year. We are running ahead of our internal projections, which gives us confidence in raising our full year outlook for adjusted EBITDA and diluted earnings per share.

Our quarter was driven by performance across most of our product lines, primarily our engineered products portfolio, because we continue to position ourselves for the recovery of the commercial aerospace market.

Sales in the second quarter, $482, 4 million, which was up 2.5% or 5.4% organically compared to the prior year.

Adjusted earnings per diluted share of <unk> 56 times was also higher than the prior year and we continue to see sequential improvement as business conditions start to normalize in many of our end markets.

Our second quarter adjusted EBITDA was $26.9 million for 14, 8% of sales up 480 basis points sequentially and up 140 basis points from the prior year period.

Our stronger profitability was mostly related to better volume for high margin products more specifically strength inner springs seals in context of favorable mix weighted toward Dcs and refuse business and improved leverage as a function of our new operations excellence model across the company.

We saw sequential improvement for.

Total bearings demand in the quarter. This improved volume stems from very strong performance from our miniature medical bearings, which ran above pre pandemic levels in the quarter and solid order rates of our traditional bearings and engine aftermarket solutions.

These improvements were partially offset by the timing of the recovery this year of our self lubricating bearings in the commercial aerospace end market.

As commercial airline traffic continues to rebound, we anticipate a significant ramp in sales for our commercial bearings products in the second half of the year.

Turning to Springs seals, and contacts volume of performance continued to improve sharply in the second quarter I am pleased to report. The we're now running ahead of pre pandemic levels.

These results speak to the resiliency of our portfolio of highly engineered products within the medical and industrial end markets with higher volume. We're also posted improved margins and profit and this performance was 1 of the primary drivers of our improved results against the prior year sequentially and our internal plan.

Absent any further impact from the Covid variance, we expect growth to continue through the balance of the year into 2022.

For a joint programmable fuze program, we delivered 8200 fuzes during the quarter, our financial performance for all fused in precision products was roughly in line with the prior year as a higher mix of Dcs orders offset volume for the full year. We are on track to deliver 30 to 35000 fuzes.

With the historical delivery levels for this product.

Looking at the <unk> program, we have shifted the delivery of our second K Max in the second half is a function of end customer timing and financing of their fleet.

We continue to expect to sell for aircraft within the year as we see strong interest and we remain optimistic about the prospects for both the manned and unmanned K Max.

During the quarter, we continued the development of our commercial unmanned system and we are working closely with the Marine Corps on the retrofit of their unmanned K Max aircraft.

Finally in our structures programs. The sales were pressured in the quarter as a result of lower commercial aerospace demand and some challenges related to work force levels in some of our facilities.

We continue to focus on employee training and retention is a function of our talent strategy to support our businesses. We anticipate these challenges will ease as we progress for the second half of the year.

Before turning the call over to Jamie I would also like to provide an update of some of our important R&D initiatives that we discussed last quarter.

I am very pleased to announce that during the period, we completed the design fabrication and assembly of the half scale purpose built medium with Thomas aerial vehicle and achieved several successful test flights.

We expect the demonstrate this half scale aerial vehicle in the upcoming quarter and are excited to share this innovative product with customers investors and stakeholders.

This new platform Leverages the technology developed on our unmanned autonomous came ex tightened and broadens the submissions and addressable market to medium lift requirements in both defense and commercial applications as the.

We knew the noted last quarter to support this effort and coordination with our customers we've committed additional R&D spend in 2021.

Yes.

On our proprietary titanium diffuse hurting process or th, we continue to work with target customers on this application and assess the total addressable market for the solution.

In addition to win new positions on commercial aircraft in the second quarter. The Td's technology was utilized in the successful human space travel mission in July.

In addition to commercial space travel. This technology is perfectly suited for new land sea and air platforms as well as our traditional commercial business and general aviation market.

We are also eager to expand its capabilities into the medical and industrial end markets as we work closely with our customers to provide creative solutions.

We believe this type of innovation will prove to be a meaningful driver in a strong differentiator for command in the future.

In addition to costs associated with associated with our R&D, we incurred modest expenses in the quarter for efforts on several specific acquisition targets, we have a meaningful and strategic pipeline of targets that we will continue to assess the align with our strategy and our new vision, which is the propeller customers forward by imagining and deliver.

The highly engineered solutions.

Furthermore, we have recently been approached by multiple leading EV Tal companies, we're seeking manufacturers like command to industrialize, our manufacturing process and assist in the complex verification process for these types of aircraft. We believe our legacy is of precision designer builder in certifier of vertical lift solutions positions us well to capture.

Market share in this space.

Overall, we are very pleased with our financial results and the progress we have made year to date against our strategic goals. Most of our end markets are recovering from the lows of the pandemic and we are beginning to see the underlying earnings power of our business at higher volumes and the power of our new operations Excellence model, taking root as.

As we look to the back half of the year, we're well position to deliver on our commitments now let me turn the call over to Jamie for a closer look of the numbers Jamie.

Thank you Ian and good morning, everyone.

I will walk you through our second quarter results before turning to our outlook for the remainder of 2021.

We performed well through the first half of the year and are running ahead of our forecast as Ian noted.

Volume is largely recovered across most of our product categories, which includes growth in our medical and industrial business as expected sales into our commercial aerospace channels were soft as we continue to position ourselves for the recovery.

Consolidated second quarter sales from continuing operations were $182.4 million up 2.5% from the prior year period and up 6.3% sequentially orgs.

Organic sales, which exclude sales of associated with our former UK operation increased 5.4% year over year and 7.3% sequentially. The.

The improvement in organic sales was primarily driven by growth in our medical and industrial and other commercial products, partially offset by the softer volume and commercial business and general aviation.

Turning to our end markets defense sales were down slightly 1.4% in the second quarter of 2021 compared to the year ago period due to the sale of our UK composites business organically defense sales were up 2.3% year over year and 16, 2% sequentially driven.

Our precision products as a result of higher overall deliveries of our joint programmable fuze, the Dcs customers.

As expected sales for our commercial business and general aviation products were down slightly more than 14% relative to the year ago period in the prior quarter largely due to lower volume of our commercial bearings, particularly with OEM customers.

Compared to the year ago period. The second quarter was also impacted by the absence of the U K composites business volume.

We continue to forecast of strong second half of 2021 airline traffic continues to recover. However, we are monitoring COVID-19 related developments, which make it difficult to predict the exact timing and magnitude of this recovery.

Sales for our medical end markets increased 54, 8% and 11, 1% when compared to the year ago period and prior quarter respectively.

The increase was the result of higher volume of miniature bearing products and growth in products used in medical Implantables and analytical devices.

We anticipate the ongoing recovery to continue in this market over the balance of this year and we are encouraged by the order rates, we have seen through the first half.

Finally sales for our industrial end markets increased 28, 2% from the year ago period, and 15, 3% sequentially as demand improved for our miniature bearings and industrial seals Springs.

We continue to benefit from the ongoing economic recovery and expect to see strong order rates for these products through the balance of the fiscal year and into 2022.

Gross margin for the quarter was 34% compared to 31, 9% in the prior year period of 38% in the prior quarter.

The year over year sequential increase in gross margin was driven by the Dcs mix of our GPS products strong performance from our springs seals and contacts are FH 2 spares program.

And solid operational performance by many of our businesses.

During the quarter, we reclassified our research and development costs and intangible asset amortization expense out of SG&A to of discrete line item on the face of the income statement.

This reclassification provides greater visibility to our underlying G&A absent the cost of these investments that we're making to drive both organic and inorganic growth.

When looking at our results.

G&A as a percentage of sales for the period was 21, 2% down 40 basis points from the prior year period, driven by efficiencies as part of our cost reduction efforts.

On a consolidated basis, our operating income was 14, 8% compared to an operating loss of $2.8 million in the second quarter of the prior year.

Higher operating profitability stemmed from lower TSA costs, the absence of nonrecurring costs associated with our policy of acquisition and the benefit from our cost reduction and mitigation efforts, we substantially completed the TSA activities. During the second quarter of 2021 and expect final closeout of this agreement in the near term.

Adjusted EBITDA from continuing operations in the second quarter was $26.9 million for 14, 8% of sales compared to $23.9 million or 13, 4% of sales in the prior year period, and $17.1 million or 10% of sales in the previous quarter we.

We believe that the sequential and year over year increase of 480 basis points and of 140 basis points, respectively, and our adjusted EBITDA margin is a testament to our ability to closely manage our cost structure and remain agile in a dynamic environment.

We continue to aggressively target of our efforts at maximizing gross margin and controlling SG&A, while making smart R&D investments to drive for future growth.

Diluted earnings per share from continuing operations were <unk> 42 on a GAAP basis compared to zero cents in the second quarter of 2020 on.

On an adjusted basis diluted earnings per share from continuing operations increased 56% to 56.

From the 36, we earned in the prior year period the.

The adjustments in the current quarter include of discrete tax charge associated with the sale of the UK composites business restructuring and severance costs expenses associated with corporate development activities and the net cost related to the TSA activities.

During the quarter, we had free cash flow usage of $15.7 million.

Compared to $28 million in the prior year period.

Cash usage reflects the effects of higher working capital, partially offset by additional receipts on outstanding J P. F Dcs receivables.

Moving to the outlook, we are revising our full year guidance for 2021.

We now expect full year revenue in the range of $715 million to $735 million due to lower expected sales from our structures programs. However, we are raising our guidance for adjusted EBITDA to $87.5 million to $97.5 million and adjusted earnings per diluted.

Share to $1.70 to $1.95.

This reflects the continued strong performance expected in our medical and industrial end markets and the anticipated recovery of our commercial business and general aviation products in the second half.

It is important to note that we remain mindful of the potential impact from Covid variance to the timing of the recovery in the commercial aerospace market.

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

Thanks, Jamie we are pleased with the pace of the recovery demonstrated in the second quarter and remain intently focused on executing our strategic plan, which is first to invest in the organic growth of our highly engineered precision product offerings second to acquire accretive businesses that will improve shareholder value and third to drive best in class operation.

Excellence across our company <unk>.

Investments made over the past few years are beginning to drive our profitability and return to shareholders and we are excited about the strength of our R&D pipeline to drive future growth our.

Our future is dependent on our talent and I'm thankful to our work for us for more than 3000 dedicated employees, whose commitment has been instrumental in our success.

With that I'd like to open the lines for questions do we have the first question. Please.

Thank you as a reminder, task of the question. Please press Star then 1 of you touched on the telephone to withdraw your question press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from Steve Barger with Keybanc capital markets. Your line is open.

Hey, good morning, guys and congratulations Jamie thank.

Thank you Steve Good morning, Steve.

And I have to start with J P. F reading through the 10-Q, it seems like the fuse business could extend the 23, assuming option of 16 comes through but it looks like the program revenue will be decelerating can you talk about new product development efforts to make an electronic fuse or just.

Anything that you have on the outlook there.

Yes, no sure Steve.

The first of all late breaking positive news since you mentioned it literally last night, we just signed our option 16 deal.

Which is very exciting so that has come through nicely and that brings us into 'twenty to 2022.

We've got line of sight, I think very strong in 'twenty, 2 and 'twenty 3.

Relative to electronic fuse and what's going on there we're actually looking at a lot of different types of fusing technologies on different types of weapon systems.

Not to go into specific things I think the focus right now we've talked about how the burst in some other programs that we've got in the works, which are which are awesome working with the army.

And the Air Force of all bid on some of their new weapons systems. So I think there's some upside there of down the road in terms of of of electronic fuse to replace J P. F.

We've got electronic technology, but we're not really gone down that path, we're really looking at what the future holds for for future programs there.

Okay.

Gross margin was the highest in several years was that all driven by mix with medical and the industrial being strong and is that sustainable or what do you expect for the back half.

Yeah, I'll start and Jamie can also weigh in here is very exciting to see that gross margin come through.

Obviously, a little bit of a mix, which is nice, but I also say and we'll talk more about it if you want to but we're really seeing the the operations excellence model take root across all of our businesses Theres been a lot of effort and this is something we architected late last year kicked it off this year.

And the team and the Gms and the and the folks are really pushing hard and driving for a lot of new training and new tools and new applications. So that's also helping tremendously.

In terms of the back half of the year, we absolutely intend to maintain that margin. This is what it's all about which I mentioned is just about becoming operationally excellent in all of our businesses and it's a journey and we've just really kind of accelerated that path, but I am excited to see a full run rate of where we're going next year, which will be very exciting.

To add to that of lot of the actions we've taken Steve over the last year of through the through the pandemic as well as the first part of this year are really designed for us to try to maintain that margin rate as we move through move forward. We do see an acceleration of sales opportunities in the back half related to our commercial aerospace as well and so as that starts to pick up.

The leverage that we'll get from the actions we've taken.

We will start to meaningfully come through both through cost of sales as well as G&A.

Got it and Jamie I know, you've only had the seat for a minute and you've got a ton to do but what is your vision for what reporting I will look like going forward.

We get back to quarterly slides can we expect segment margins along the lines of the revenue breakdown you provide.

I think the answer to all of those questions at some point, yes in terms of the quarterly slides and others. We will make sure we get those up there for you guys for sure that's something we can do.

Right out of the gate, we'll make sure we have that up there.

As it relates to sort of some of the other reporting right..1 of the things that's important for US is that structurally we're set up in a way to support the reporting right that we put out there and I know as Ian kind of come through his first year here and is evaluation of the organization what it needs I know that that is part of the consideration here is to determine structure.

How we want to.

Have the the management of the business.

Set up that will then ultimately feed in right as you know that the accounting on this is pretty clear in terms of how we need to report.

So we want to make sure we don't get ahead of that.

With what <unk> has underway, but that is something that is currently in the works and Steve just to add to that I mean to your point, we're very comfortable the structure that we've got today, we are discussing it theres a lot of elements to consider so as we evaluate it will we'll keep you posted.

Very good thanks.

Thank you.

Our next question comes from C J.

J P. Morgan your line is open.

Okay. Thanks, Thanks very much.

Good morning, everyone and congratulations.

Jamie.

I guess.

I Wonder if you could talk.

A little about the <unk>.

Mix that you expect in the second half of.

On the.

The safety and arm.

For for Dcs versus.

Domestic and kind of how how helpful that 1 of them in the quarter.

Yeah, I know that's of Great question, as we think about J P. F over the back half and again, we haven't given specifics on this in the in the past.

As it as it relates sort of generally speaking Dcs orders will be weighted a little bit more towards the first half than they are towards the back half.

And but in overall for the full year, we do expect there to be a slight weighting advantage the dcs for the full year relative to the USG deliveries.

So in the period, we did deliver more J P of Dcs in the quarter than we did during Q1 of last of this of.

Of this year.

Okay. Okay.

And then.

I guess, maybe if you could talk a little bit more in about the the.

The M&A.

The environment.

And kind of how.

Coming out of the pandemic, how you think about.

When it makes sense.

2 to go ahead, and maybe pull the trigger on some M&A. How you think about evaluating valuations on what might be normalized numbers and kind of putting companies recent results into context, given all of the noise. We've had in terms of compares in different the.

Bottlenecks in the all of these different things as it kind of necessary to see things settle out a little bit more or can.

Can you can you go ahead of the more near term.

Yeah, No. It's a big Big question said I'll start by saying it is exciting to see the level of activity. That's out there and we are absolutely very active we've refined our filters. We know exactly the types of companies that we're looking for that of accretive that fit our strategy and where we're headed which is that kind of highly engineered precision products businesses.

We've assessed a bunch of deals so far we'll continue to do that.

We fully intend to move as aggressively as we can and if you look at the activity that's out there. It's interesting it's is very aggressive.

Pricing and multiples and all that stuff, but I think quite frankly, we've got to put our balance sheet to work. We're very excited about the opportunities. We have in our pipeline will continue to assess those opportunities and we'll keep you guys posted when we know more we'll share more.

Okay, great. Thanks, very much all of stop for now and I'll get back in the queue. Okay. Thanks.

Thank you as a reminder to ask the question at this time. Please press Star then 1 of your Touchstone telephone. Our next question comes from Pizza Kubicki with Alembic Global Your line is open.

Hey, good morning, Ian and Jamie.

Hey, good morning.

I'll Echo.

Steven Seth Jamie Congrats and best of luck in the new role.

Thank you.

Maybe just start with a couple of top level questions Ian.

Think back in May you guys were scheduled to have kind of your deep dive strategic reviews could you maybe touch on kind of what came out of that just kind of how youre thinking comp level.

Yeah, No I love that.

We are we went through our first what we call our command business system cycle, which was our strategic business reviews.

And what's really exciting the team here did a marvelous job.

Putting together a template that really allowed each of the business units to map out there.

They are 5 year trajectories and the beauty of the of what we just rolled out was not just a trajectory that they based on their own assessments, it's really about achieving top quartile performance in each of our segments over that time period, some of our businesses depending of the dimension of the metric are actually already there others, we of the gap to fill.

And the beauty of that is debt now each of the businesses the general managers and their teams working in concert with us and our support.

Have a real understanding deep understanding of what it takes to get to that point over that 5 year period. So those have all been mapped out and honestly I think this was a really again first time opportunity to stay with each of the businesses and walk through that process and understand the ins and outs in the competitive dynamic in the resources required to get there. So that was a very powerful exercise and.

Then in complement to that we just finished the whole round of talent reviews.

As the second cycle that debt of that business system and then at the end of the year, we'll be rolling into our annual operating plans and really understanding the and refining the targets for next year.

Got a lot going on.

Another top level, 1 Steve mentioned the fuse outlook. The other program that gets me a little concerned.

As the Black Hawk outlook.

Just as recently as yesterday Lockheed was talking about kind of the mid term Blackhawk decline and it's obviously been a pretty big program for you guys.

So are we all thinking that.

Mid term for command, we've got some fuse headwind, we've got Blackhawk headwind and so it's important to utilize the balance sheet.

M&A wise.

<unk> reshaped the company and kind of offset those kind of.

The headwinds from some of the legacy platforms is that am I on the same page as the way you guys are thinking.

I think it's yes, I think you're thinking of it the way we are although I just.

1 refinement, which is on the fuel headwind. It's to me, it's not a headwind we're kind of still in a very strong position relative to future prospects Dcs option 16, just came in.

We've got a nice window here and then other technologies, we're developing the Blackhawk program, we know they're shifting.

We're seeing that with some of the other Oems, but the beauty of that is there's a whole bunch of future programs are coming up that we're well positioned on so that we will replace that I think in a meaningful way.

And that's just the natural I think evolution of both of those programs and then the third part is yes, we know inorganically. There is theres a lot of stuff that we feel.

That would be really attractive and accretive debt will fill that gap in the in the future for us.

Okay, great Great, maybe let me sneak in 1 more of a <unk>.

VTOL thing.

And as you know Fascinates me.

Obviously, it's early days there is a ton of players out there are you almost lose track.

How do you how do you ensure you guys as you think about business opportunities. How do you ensure the you get an adequate return on that type of of program being that it's so hard to get a feel for the winners and losers.

And just you know.

Structures historically has been a lower margin program for you guys just to start out. So how are you thinking about that whole area and how it can be.

<unk> for command.

Yeah I'll start.

With.

It's evolving and I notice this this industry and I've been in it and around it and studying it for so long of saying, we've got a lot of folks out there some of whom we know we're getting phone calls like I just mentioned I.

I think theres several ways that it can go I think fundamentally for us.

We are not in the business of.

Of signing up for something that we don't feel is aligned with the strategy, we make precision things, we're moving towards higher margin businesses and so when you think about that type of level of manufacturing was providing parts to those EBIT tal folks or its actually having levels of manufacturing or assembly.

I think that that can be a very robust part of our business.

And because it's such I think in the next quite frankly, 20 years or so youre going to see this EV tall take real life and real for them.

As you said Theres a lot of players out there we're actually talking to some of the ones that we feel are going to be the winners.

But it's still early to say and I think it's important to make sure that whatever we do it fits nicely in our strategy and where we're trying to go as a company.

And I think not to bridge into AEP toll is a very unique application, but its really about the urban mobility movement, and then kind of bridges in towards the.

This is the time is capability, which is something that we are absolutely directly investing in and involved in and we feel very strongly that we've got some future. There, yes, just to just to add on to that a little bit Pete as we think about the opportunity. Yes by all means that the first thing that comes to mind is potentially supporting the structures aspect of that but investments we've made at our.

And our bearings technology, specifically THR self lubricated bearings and others I mean, that's about light weight rate, reducing weight and we know that that's very important for the EV Tal community as they try to.

Get a little bit of extra dividends get a little bit out of the extra out of that battery battery life, and we're able to support them.

Through some of our bearings technologies, but that ultimately with the ball seal and Theyre Springs and contacts we have very efficient means of which to maintain electrical contacts right for them, which are also very lightweight very very small.

Which are really supportive of these types of technologies. So we bring a broad range of capabilities to these 2 of these folks more than just our structures expertise right.

Okay, great. Thanks for the color guys I appreciate it I'll get back in queue.

Sure.

Our next question is the follow up Steve Barger with Keybanc capital markets. Your line is open.

Hey, Thanks, just a clarification on the fuse business. You said you have got a nice revenue window through 2023, which I agree with and there are other technologies, you're working on but in the electronic fuse isn't 1 of them did I get that right.

Well, yes, I mean, we're not trying to.

To replace right.

We're actually the cash.

Current views with the 139, we're not really competing necessarily there of that contract and we're all of Teekay as and those things. We know that that's very clear where we're trying to go is the nextgen.

And those are future things smaller munitions more precision munitions.

There is technology there that we're working on it that we can't talk about but there's some exciting opportunities there.

We're just being realistic about where the 139 is where we know our 152 is we know the current contracts, which like we said earlier the Dcs contracts.

We still plenty of opportunities out there that we continue to work on its of proven technology.

Moving to use very extremely reliable.

And again options 16, just came in we will see what happens really TK still coming online with their for users. So we'll see.

Any way for the next generation stuff any way to think about the timeframe I understand you can't talk about the technology, but just trying to.

Gauge, what how you bridge from 1 program to the other.

No I think it's too.

Too early to really kind of give you any kind of headline on the on the on the timing of those things.

But I will say from an investment perspective, and knowing our capability with safe and arm.

We are of very strong capability. There. So we're trying to assess is part of the strategic reviews, where we can go.

Okay.

Good day here your optimism about the back half for commercial Aero as you look at consolidated orders do you expect the backlog can start to grow again or will mix and youre just own ability to ramp production keep keep backlog, where it is even as revenue increases.

Yeah, Steve that's of Great question, we look at backlog specifically in those business units that have greater exposure to commercial aero.

Think about our bearings business in others, we actually saw growth in backlog from year end to where we are today. So we are seeing that backlog portion of the business grow.

Recall that that's much more of a short cycle business given the lead times that we have for those products.

Yes.

We are still.

Well within our lead times for the full year, our customers know what our lead times are right and so.

Bit of a double edged sword, because they take advantage of that when placing their orders.

But that also advantages us.

In the in the need that those customers have something they need urgently, we can provide that to them as well. So we still have a high level of confidence as we said in our prepared remarks right. We're continuing to monitor the more global situation around Covid as you would expect us to do but overall, we're still we're still pretty bullish on where we think that could be in the back half and from the market.

I mean just to ease.

1 of more clarity other than you guys know this too, but it's really for US industrial medical is really responding nicely, we're well positioned there general business aviation is actually up and rising it's really the commercial.

The market that we are well positioned on just want to see those those platforms and those sales once delivery start to really.

Increase and then again, we're going to see that drop through very nicely.

And as we watch Airbus and Boeing start to ramp production and I think the Max is going to they are targeting 31 ships per month by January of 'twenty 2.

But I think some of the wide bodies have actually started to slow down a bit how does command lead build rates as we as we watch the Oems.

Yes, so as we think about that sort of lead lag as you recall, maybe a little bit from last year.

We don't have the best visibility right necessarily into the inventory that Boeing and Airbus have for us, but as we looked at the way our sales trended over the course of last year right that might give us an indication. So we had a very strong Q1.

We had again a very nice Q2, given the global pressures as we sort of move through the course of last year.

Our sales continued to decline, but maybe at a pace that was a little bit behind where everybody else was.

And so ultimately what we're thinking is maybe 3 to 6 months is what that sort of lead lag time is going to be.

Clearly as we are seeing orders come up at a higher rate.

More so with Airbus, a little bit less with Boeing but.

But as we look ahead, we think it's likely 3 to 6 months and but we don't have again perfect clarity into that supply chain or the inventory levels.

Got it and the last 1 for me.

A lot of companies. This earnings season have seen issues around material cost supply chain disruptions and I think you've talked about some labor challenges just any broad comments on what that all of it looks like for you any risks of the back half.

Barring a COVID-19 uptick or do you think the supply chain is in decent shape.

Yeah, I'll start high level and at the Great question, because it's something on everybody's mind for sure and you know I was just talking to all of you all managers and we just went through a bunch of operating views I think at a high level. We're in it for in a good place right now.

We are seeing signs of lead times.

Turning a little bit it's still within our planning process. So it's not affecting production per se and we got little shortages here and there some small things sole source stuff, but that's not really a problem for us so on the materials side, whether its shortage or availability I think we are in decent shape on the labor side.

Honestly the same kind of situation, it's really kind of a case by case, depending on which business we're talking about.

I think overall with the caliber of usually just went through and the things that we've already done.

I think we're in relatively good shape, where we're going continue to monitor it because people are going back to work yet.

Still challenge with the whole stimulus and the unemployment and people.

Where they are sitting and when theyre going to actually get back to work and things like that but we're pretty aggressive on that I think we're feeling very confident that we're doing the right things to retain our people and attract the right types of people.

So theres really no I think concern at this moment, but again it's.

Manage it very closely and carefully with what's happening with the Covid the day variant coming out and things like that.

Just add to that in those areas, where labor might be more of a meaningful contributor to the cost that's where we have the greatest flexibility relative to pricing as well.

To kind of help protect some of that as well.

Appreciate it thank you.

Thanks, Steve.

Thank you our next follow up comes from.

Keeps dubicki with Alembic Global your line is open.

Yes, Thanks, guys a couple of a couple of quick follow ups.

We were talking about where we are kind of alluding to the follow on to the Blackhawk earlier.

Flora and borrow as well.

Is there a plan there are you guys kind of competing hard to get content on those 2 programs and would you like to have both bearings and structures or maybe only bearings could you maybe I know, it's very early but can you maybe share some thoughts about the strategy there yes.

Yes.

As we talked the teams a theyre already position on all of those platforms and yes to bearings and structures.

And again, it's early so it's hard to tell what's going to happen here, but.

Our teams have been relatively in some cases very aggressive on getting all of those new platforms. So we're again, depending on what happens here.

And that's just early production and they'll rip stuff for.

Stuff, we're going to be even better positioned I think in terms of technology that we're bringing to the table with some of these Oems.

Does it is it going to matter to who wins because I know you've worked very closely with both of the main competitors so well it.

Will the matter an awful lot of don't go too deep down that road. If you don't want to but I just thought I'd ask.

I actually.

I can't really tell I talked.

Talked about certain things, but I think again we're on.

All of those platforms. We're in really good shape. We have also very strong relationships with those Oems and strong track record of those Oems. So that's also plays to our advantage.

That's great that's great last 1 for me.

The medium lift projects seems to be coming along pretty quickly.

Just wondering if you have of first customer in mind, whether we should expect you know of defense customer first or commercial customer first and maybe kind of timing.

Yes, so like.

Like we talked about we're making our board is very supportive.

We've got of flying half scale model right now, it's doing very very well.

Right now with.

With the medium lift is we're going to go live here.

With the with the military side first this fall, which will be very exciting.

And then obviously over time, there's no question, there's commercial applications for this technology at the current state for them that we're in.

<unk>.

There's expansion capabilities in terms of the family of vehicles, because if you look what's going on out there and our capabilities in the software involved and being fully autonomous and remember this is a purpose built fully autonomous vehicle.

Very different than trying to make something that's currently manned autonomous K Max is doing very well, we've got a demo of coming up here of late August early September with the Marine Corps, but the focus really is where the need is right now and the poll is which is with our defence customers and then we know quite frankly, its a little different problems.

When you think about distribute logistics and point to point with the Thomas vehicles small medium and large different the commercial space, but thats going to happen. So we're really excited of kind of prove this technology out with the military customer first.

And then take it from there.

Okay. So on the commercial side, we're thinking about moving beyond.

Kind of firefighters and the type of applications.

The logging I should say Oh, yes, yes, yes, so I mean, we're talking about.

Multi mission sets multi applications for this type of technology.

Got it okay, great. Thanks, guys, yes, thanks, Steve.

Our next follow up comes from Seth <unk> with Jpmorgan. Your line is open.

Great. Thanks.

Thanks for the follow up Jamie.

Jamie just real quick on the guidance if I look at the midpoint of the sales for the second half assume can maintain the second quarter gross margin.

Assuming the the SG&A in dollars can stay of the second quarter level. It seems like might come in at the high end or slightly above the.

The high end for EBITDA.

Fair enough.

The potential for unforeseen things 1 of the little bit of cushion, but in all of those assumptions is there anything thats, particularly that you would say is.

You know of risk or something you'd highlight that might not be correct about making.

Those those assumptions in the second half.

No Seth and thanks for the question as we look at the back half we do have 3 K Max sales right that we are we are projecting in the back half of the year. We've got good line of sight to the potential customers there for.

For those 3 aircraft, we've got 1 customer who is actually looking to add 2 aircraft and again, we're working that really hard to bring those in as I think about that.

To me as the top line risk that's not necessarily of a huge profit driver for us and again.

Given any unforeseen issues or related matters associated with Covid right I don't think of your assumptions are necessarily incorrect.

Great. Thanks, Thanks very much.

Thank you and I'm currently showing no further question at this time ill turn the call back over to Jamie Coogan for closing remarks.

I just want to thank you all for joining us on today's conference call and we look forward to speaking with you again, when we report our third quarter results.

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

Alright.

For.

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Yeah.

[music].

Good day and thank you for standing by welcome to the Command Corporation second quarter 2021 Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question the answer session to.

Who asked the question during the session you will need the press star 1 on your telephone.

Please be advised that today's conference is being recorded every day.

Any further assistance please press star zero.

I'd now like the hand, the conference over to your Speaker today, Rebecca staff Vice President of accounting. Please go ahead.

Good morning, I'd like to welcome everyone's command the second quarter of 2021 earnings call.

The call today are Ian Walsh, Chairman, President and Chief Executive Officer, and Jamie Coogan, Senior Vice President and Chief Financial Officer before we begin I'd like to note that some of the information discussed during today's call will consist of forward looking statements setting forth our current expectations with respect to the future of our busy.

The economy and other future events.

These include projections of revenue earnings and other financial items statements on the plans and objectives of the company or its management statements of 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 of which are described in the Companys latest filings with the Securities and Exchange Commission, including the company's second quarter of 2021 results included on form 10-Q.

And the current report on form 8-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 SEC rules and regulations reconciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K with that I'll turn the call over to Ian Walsh.

Good morning, everyone and thank you for joining our second quarter 2021 earnings call.

I would like to begin today's call with a brief summary of the quarter and our revised guidance, which reflects improved profitability for the year, followed by updates on operations and several of our key R&D growth initiatives.

I will then turn the call over to Jamie for a more detailed discussion of our financial results.

Before jumping in I'd like the first.

Congratulate Jamie Coogan on his recent promotion to Chief Financial Officer since joining command I've had the opportunity to get to know Jamie quite well and work closely with him on key initiatives.

I believe it has strong knowledge of our company and relationships with our external stakeholders, coupled with the training of financial skill sets will prove invaluable as we move command forward and execute on our strategic priorities. Jamie is of great work ethic, and strategic mindset as well as the strong reputation of history with command and ex.

Great to have him 1 of the leadership team and he has already hit the ground running.

Turning to our results halfway through the year. We are running ahead of our internal projections, which gives us confidence in raising our full year outlook for adjusted EBITDA and diluted earnings per share.

Our quarter was driven by performance across most of our product lines, primarily our engineered products portfolio as we continue to position ourselves for the recovery of the commercial aerospace market.

Sales in the second quarter, $482, 4 million, which was up 2.5% or 5.4% organically compared to the prior year.

Adjusted earnings per diluted share of 56 cents was also higher than the prior year and we continue to see sequential improvement as business conditions start to normalize in many of our end markets.

Our second quarter, adjusted EBITDA was $26.9 million or 14, 8% of sales up 480 basis points sequentially and up 140 basis points from the prior year period.

Our stronger profitability was mostly related to better volume for high margin products more specifically strength inner springs seals and contacts of favorable mix weighted toward Dcs and refuse business and improved leverage as a function of our new operations excellence model across the company.

We saw sequential improvement.

For total bearings demand in the quarter. This improved volume stems from very strong performance from our miniature medical bearings, which ran above pre pandemic levels in the quarter and solid order rates of our traditional bearings in the engine aftermarket solutions.

These improvements were partially offset by the timing of the recovery this year of our self lubricating bearings in the commercial aerospace end market as.

As commercial airline traffic continues to rebound, we anticipate a significant ramp in sales for our commercial bearings products in the second half of the year.

Turning to Springs seals, and contacts volume of performance continued to improve sharply in the second quarter I am pleased to report. The we're now running ahead of pre pandemic levels.

These results speak to the resiliency of our portfolio of highly engineered products within the medical and industrial end markets with higher volume. We're also pool posted improved margins and profit and this performance was 1 of the primary drivers of our improved results against the prior year sequentially and our internal plan.

Absent any further impact from the Covid variance, we expect growth to continue through the balance of the year into 2022.

For a joint programmable fuze program, we delivered 8200 fuzes during the quarter, our financial performance for all fusion of precision products was roughly in line with the prior year as a higher mix of Dcs orders offset volume for the full year. We are on track to deliver 30000 to 35000 fuzes consist.

With historical delivery levels for this product.

Looking at our key ex program, we've shifted the delivery of our second K Max in the second half is a function of end customer timing and financing of their fleet.

We continue to expect to sell for aircraft within the year as we see strong interest and we remain optimistic about the prospects for both the manned and unmanned K Max.

During the quarter, we continued the development of a commercial unmanned system and we're working closely with the Marine Corps on the retrofit of their unmanned K Max aircraft.

Finally in the structures programs. The sales were pressured in the quarter as a result of lower commercial aerospace demand and some challenges related to work force levels and some of our facilities.

We continue to focus on employee training and retention is a function of our talent strategy to support our businesses. We anticipate these challenges will ease as we progress for the second half of the year.

Before turning the call over to Jamie I would also like to provide an update of some of our important R&D initiatives that we discussed last quarter.

I am very pleased to announce that during the period, we completed the design fabrication and assembly of the half scale purpose built medium with autonomous aerial vehicle and achieved several successful test flights.

We expect the demonstrate this half scale aerial vehicle in the upcoming quarter and are excited to share this innovative product with customers investors and stakeholders.

This new platform Leverages the technology developed on our unmanned autonomous came ex tightened and broadens the submissions and addressable market to medium lift requirements in both defense and commercial applications.

We knew the lap noted last quarter to support this effort and coordination with our customers. We've committed additional R&D spend in 2021.

Yes.

On our proprietary titanium diffuse hurting process or T. D. H, we continue to work with target customers on this application and assessed the total addressable market for the solution.

In addition to winning new positions on commercial aircraft in the second quarter. The Td's technology was utilized in the successful human space travel mission in July.

The lightweight high performance low friction bearing system solutions provided by T. D. H, we are a great fit for this mission.

In addition to the commercial space travel. This technology is perfectly suited for new land sea and air platforms as well as our traditional commercial business and general aviation market.

We are also eager to expand its capabilities into the medical and industrial end markets as we work closely with our customers to provide creative solutions.

We believe this type of innovation will prove to be a meaningful driver in a strong differentiator for command in the future.

In addition to costs associated with associated with our R&D, we incurred modest expenses in the quarter for efforts on several specific acquisition targets, we have a meaningful and strategic pipeline of targets that we will continue to assess the align with our strategy and our new vision, which is the propeller customers forward by imagining and deliver.

The highly engineered solutions.

Furthermore, we have recently been approached by multiple leading EV talk companies, we're seeking manufacturers like command to industrialize, our manufacturing process and assist in the complex verification process for these types of aircraft. We believe our legacy is of precision designer builder in certifier of vertical lift solutions positions us well.

The capture market share in this space.

Overall, we are very pleased with our financial results and the progress we have made year to date against our strategic goals. Most of our end markets are recovering from the lows of the pandemic and we are beginning to see the underlying earnings power of our business at higher volumes and the power of our new operations Excellence model, taking root as we look to the back half of the year.

We're well positioned to deliver on our commitments now let me turn the call over to Jamie for a closer look of the numbers Jamie.

Thank you Ian and good morning, everyone.

Today, I will walk you through our second quarter results before turning to our outlook for the remainder of 2021.

We performed well through the first half of the year and are running ahead of our forecast as Ian noted volte.

The volume is largely recovered across most of our product categories, which includes growth in our medical and industrial business as expected sales into our commercial aerospace channels were soft as we continue to position ourselves for the recovery.

<unk> second quarter sales from continuing operations were $182.4 million up 2.5% from the prior year period and up 6.3% sequentially.

Organic sales, which exclude sales of associated with our former UK operation increased 5.4% year over year and 7.3% sequentially. The.

The improvement in organic sales was primarily driven by growth in our medical and industrial and other commercial products, partially offset by the softer volume and commercial business and general aviation.

Turning to our end markets defense sales were down slightly 1.4% in the second quarter of 2021 compared to the year ago period due to the sale of our UK composites business organically defense sales were up 2.3% year over year and 16, 2% sequentially driven.

Our precision products as a result of higher overall deliveries of our joint programmable fuze, the Dcs customers as.

As expected sales for our commercial business and general aviation products were down slightly more than 14% relative to the year ago period in the prior quarter largely due to lower volume of our commercial bearings, particularly with OEM customers.

Compared to the year ago period. The second quarter was also impacted by the absence of the U K composites business volume.

We continue to forecast of strong second half of 2021 airline traffic continues to recover. However, we are monitoring COVID-19 related developments, which make it difficult to predict the exact timing and magnitude of this recovery.

Sales for our medical end markets increased 54, 8% and 11, 1% when compared to the year ago period and prior quarter respectively.

The increase was the result of higher volume of miniature bearing products and growth in products used in medical Implantables and analytical devices.

We anticipate the ongoing recovery to continue in this market over the balance of this year and we are encouraged by the order rates, we have seen through the first half.

Finally sales for our industrial end markets increased 28, 2% from the year ago period, and 15, 3% sequentially as demand improved for our miniature bearings and industrial seals Springs.

We continue to benefit from the ongoing economic recovery and expect to see strong order rates for these products through the balance of the fiscal year and into 2022.

Gross margin for the quarter was 34% compared to 31, 9% in the prior year period of 38% in the prior quarter.

The year over year sequential increase in gross margin was driven by the Dcs mix of our GPS products strong performance from our springs seals and contacts are S. H 2 spares program.

And solid operational performance by many of our businesses.

During the quarter, we reclassified our research and development costs and intangible asset amortization expense out of SG&A to of discrete line item on the face of the income statement.

This reclassification provides greater visibility to our underlying G&A absent the cost of these investments that we're making to drive both organic and inorganic growth.

When looking at our results.

G&A as a percentage of sales for the period was 21, 2% down 40 basis points from the prior year period, driven by efficiencies as part of our cost reduction efforts.

On a consolidated basis, our operating income was 14, 8% compared to an operating loss of $2.8 million in the second quarter of the prior year.

Higher operating profitability stemmed from lower TSA costs, the absence of nonrecurring costs associated with our policy of acquisition and the benefit from our cost reduction and mitigation efforts, we substantially completed the TSA activities. During the second quarter of 2021 and expect final closeout of this agreement in the near term.

Adjusted EBITDA from continuing operations in the second quarter was $26.9 million or 14, 8% of sales compared to $23.9 million or 13, 4% of sales in the prior year period, and $17.1 million or 10% of sales in the previous quarter we.

We believe that the sequential and year over year increase of 480 basis points and of 140 basis points, respectively, and our adjusted EBITDA margin is a testament to our ability to closely manage our cost structure and remain agile and of dynamic environment.

We continue to aggressively target of our efforts at maximizing gross margin and controlling SG&A, while making smart R&D investments to drive for future growth.

Diluted earnings per share from continuing operations were <unk> 42 on a GAAP basis compared to zero cents in the second quarter of 2020 on.

On an adjusted basis diluted earnings per share from continuing operations increased 56% to 56.

From the 36, we earned in the prior year period the.

The adjustments in the current quarter include of discrete tax charge associated with the sale of the UK composites business restructuring and severance costs expenses associated with corporate development activities and the net cost related to the TSA activities.

During the quarter, we had free cash flow usage of $15.7 million compared to $28 million in the prior year period.

Cash usage reflects the effects of higher working capital, partially offset by additional receipts on outstanding J P. F Dcs receivables.

Moving to the outlook, we are revising our full year guidance for 2021.

We now expect full year revenue in the range of $715 million to $735 million due to lower expected sales from our structures programs. However, we are raising our guidance for adjusted EBITDA to $87.5 million to $97.5 million and adjusted earnings per diluted.

Share to $1.70 to $1.95.

This reflects the continued strong performance expected in our medical and industrial end markets and the anticipated recovery of our commercial business and general aviation products in the second half.

It is important to note that we remain mindful of the potential impact from Covid variance to the timing of the recovery in the commercial aerospace market.

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

Thanks, Jamie.

We are pleased with the pace of the recovery demonstrated in the second quarter and remain intently focused on executing our strategic plan, which is first to invest in the organic growth of our highly engineered precision product offerings second to acquire accretive businesses that will improve shareholder value and third to drive best in class operational excellence across our company.

Investments made over the past few years are beginning to drive our profitability and return to shareholders and we are excited about the strength of our R&D pipeline to drive future growth.

Our future is dependent on our talent and I'm thankful to our work for us for more than 3000 dedicated employees, whose commitment has been instrumental in our success.

With that I'd like to open the lines for questions that we have the first question. Please.

Thank you as a reminder, task of the question. Please press Star then 1 of you touched on the telephone to withdraw your question press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from Steve Barger with Keybanc capital markets. Your line is open.

Hey, good morning, guys and congratulations Jamie thank.

Thank you Steve Good morning, Steve.

And I have to start with J P. F reading through the 10-Q, it seems like the fuse business could extend the 23, assuming option 16 comes through but it looks like the program revenue will be decelerating can you talk about new product development efforts to make an electronic fuse or just.

Anything that you have on the outlook there.

Yeah, no share Steve for.

First of all late breaking positive news since you mentioned it literally last night, we just signed our option 16 deal.

Which is very exciting so that has come through nicely and that brings us into 'twenty to 2022.

We've got line of sight, I think very strong of 22% in 'twenty 3.

Relative to electronic fuse and what's going on there we're actually looking at a lot of different types of fusing technologies on different types of weapons systems.

Not to go into specific things I think the focus right now we've talked about <unk> and some other programs that we've got in the works, which are which are awesome working with the army.

And the Air force a little bit on some of their new weapon system. So I think there's some upside there of down the road in terms of of of electronic fuse to replace J P. F.

We've got electronic technology, but we're not really gone down that path, we're really looking at what the future holds for for future programs there.

Okay.

Gross margin was the highest in several years was that all driven by mix with medical and industrial being strong and is that sustainable or what do you expect for the back half.

Yeah, I'll start and Jamie can also weigh in here.

Very exciting to see that gross margin come through.

Obviously, a little bit of a mix, which is nice, but I also say and we'll talk more about it if you wanted to but we're really seeing the the operations excellence model take root across all of our businesses Theres been a lot of effort and this is something we architected late last year kicked it off this year rest.

The rest of the team and the Gms and the and the folks are really pushing hard and driving to a lot of new training and new tools and new applications. So that's also helping tremendously.

For the back half of the year, we absolutely intend to maintain that margin. This is what it's all about which I mentioned is just about becoming operationally excellent in all of our businesses and it's a journey and we've just really kind of accelerated that path, but I am excited to see a full run rate of where we're going next year, which will be very exciting.

Just to add to that of lot of the actions we've taken Steve over the last year of through the through the pandemic as well as the first part of this year are really designed for us to try to maintain that margin rate as we move through move forward. We do see an acceleration of sales opportunities in the back half related to our commercial aerospace as well and so as that starts to <unk>.

Pick up the leverage that we'll get from the actions we've taken.

We will start to meaningfully come through both through cost of sales as well as G&A.

Got it and Jamie I know, you've only had the seat for a minute and you've got a ton to do but what is your vision for what reporting I will look like going forward.

Get back to quarterly slides can we expect segment margins along the lines of the revenue breakdown you provide.

I think the answer to all of those questions at some point, yes in terms of the quarterly slides and others. We will make sure we get those up there for you guys for sure that's something we can do.

Right out of the gate, we'll make sure we have that up there.

As it relates to sort of some of the other reporting right 1 of the things Thats important for US is that structurally we're set up in a way to support the reporting right that we put out there and I know as Ian kind of comes through is his first year here and is evaluation of the organization what it needs I know that that is part of the consideration here is to determine structure.

How we wanted to.

Have the the management of the business.

Setup that will then ultimately feed in right as you know that the accounting on this is pretty clear in terms of how we need to report.

So we want to make sure we don't get ahead of that.

With what <unk> has underway, but that is something that is currently in the works and Steve just to add to that I mean to your point, we're very comfortable the structure that we've got today, we are discussing it.

There is a lot of elements to consider so as we evaluate it will we'll keep you posted.

Very good thanks.

Thank you.

Our next question comes from C.

With Jpmorgan your line is open.

Okay. Thanks, Thanks very much.

Good morning, everyone and congratulations Jamie.

Jamie.

I guess I was.

Wonder if you could talk.

A little about the mix that you expect in the second half.

On the.

The safe and arm.

For for Dcs versus.

Domestic and kind of how how helpful that 1 of them in the quarter.

Yeah, I know that's of Great question, as we think about J P. F over the back half and again, we haven't given specifics on this in the in the past.

Is it as it.

<unk> sort of generally speaking Dcs orders will be weighted a little bit more towards the first half than they are towards the back half.

But in overall for the full year, we do expect there to be a slight weighting advantage the dcs for the full year relative to the USG deliveries.

So in the period, we did deliver more J P of Dcs in the quarter than we did during Q1 of last of the.

Of this year.

Okay. Okay.

And then I guess.

Maybe if you could talk a little bit more about the.

The M&A.

Environment.

And kind of how come.

Coming out of the pandemic, how you think about.

When it makes sense to go.

Go ahead, and maybe pull the trigger on some M&A, how you think about evaluating valuations on what might be normalized numbers and kind of putting companies recent results into context, given all of the noise. We've had in terms of compares in different.

Bottlenecks in all of these different things as it kind of necessary to see things settle out a little bit more or can.

Can you can you go ahead of the more more near term.

Yeah, No. It's a big Big question said I'll start by saying it is exciting to see the level of activity. That's out there and we are absolutely very active we've refined our filters. We know exactly the types of companies that we're looking for that of accretive that fit our strategy and where we're headed which is that kind of highly engineered precision products businesses.

We've assessed a bunch of deals so far we'll continue to do that.

We fully intend to move as aggressively as we can and if you look at the activity that's out there. It's interesting it's is very aggressive.

Pricing and multiples and all that stuff, but I think quite frankly, we've got to put our balance sheet to work. We're very excited about the opportunities. We have in our pipeline will continue to assess those opportunities and we'll keep you guys posted when we know more we'll share more.

Okay, great. Thanks, very much all of stop for now and I'll get back in the queue. Okay. Thanks.

Thank you as a reminder to ask the question at this time. Please press Star then 1 of your Touchstone telephone.

Our next question comes from Pete's Kubicki with Alembic Global your line is open.

Hey, good morning, Ian and Jamie.

Hey, good morning.

I'll Echo.

Steven Seth Jamie Congrats and best of luck in the new role.

Thank you.

Maybe just start with a couple of top level questions Ian.

Think back in May you guys were scheduled to have kind of your deep dive strategic reviews could you maybe touch on kind of what came out of that just kind of how youre thinking comp level.

Yeah, No I love that good memory, we went through our first what we call our command business system cycle, which was our strategic business reviews.

And what's really exciting the team here did a marvelous job.

Putting together a template that really allowed each of the business units to map out there.

They are 5 year trajectories and the beauty of the of what we just rolled out was not just a trajectory that they based on their own assessments, it's really about achieving top quartile performance in each of our segments over that time period, some of our businesses depending of the dimension of the metric are actually already there others, we of the gap to fill.

And the beauty of that is debt now each of the businesses the general managers and their teams working in concert with us and our support.

Have a real understanding deep understanding of what it takes to get to that point over that 5 year period. So those have all been mapped out.

Honestly I think this was a really again first time opportunity to say what each of the businesses and walk through that process and understand the ins and outs in the competitive dynamic in the resources required to get there. So that was a very powerful exercise and then in complement to that we just finished the whole round of talent reviews.

Which is the second cycle that debt of that business system and then at the end of the year, we'll be rolling into our annual operating plans and really understanding the and refining the targets for next year.

Got a lot going on.

Another top level, 1 Steve mentioned the fuse outlook. The other program that gets me a little concerned as the Black Hawk outlook.

As recently as yesterday Lockheed was talking about kind of the mid term Blackhawk decline and it's obviously been a pretty big program for you guys. So are we all thinking that.

Mid term for command, we've got some fuse headwind, we've got Blackhawk headwind and so it's important to utilize the balance sheet.

M&A wise.

Reshaped the company and kind of offset those kind of the.

Headwinds from some of the legacy platforms is that am I on the same page as the way you guys are thinking.

I think it's yes, I think you're thinking of it the way we are although I just make 1 refinement, which is on the fuel headwind. It's to me, it's not a headwind we're kind of still in a very strong position relative to future prospects Dcs option 16, just came in I think we've got a nice window here.

And then other technologies, we're developing the Blackhawk program, we know they're shifting.

We're seeing that with some of the other Oems, but the beauty of that is there's a whole bunch of future programs are coming up that we're well positioned on so that we will replace that I think in a meaningful way.

Just a natural I think evolution of both of those programs and then the third part is yes, we know inorganically theres a lot of stuff that we feel.

That would be really attractive and accretive debt will fill that gap in the in the future for us.

Okay, great great.

And 1 more of of this.

EV Tal thing.

And as you know Fascinates me.

There is obviously, it's early days there is a ton of players out there are you almost lose track.

How do you how do you ensure you guys as you think about business opportunities. How do you ensure the you get an adequate return on that type of of program being that it's so hard to get a feel for the winners and losers.

And just you know.

Structures historically has been a lower margin program for you guys. Just the start out. So how are you thinking about that whole area and how it can be.

<unk> for command.

Yeah I'll start.

With its.

It's evolving and I notice this this industry.

And around it and studying it for so long of saying, we've got a lot of folks out there some of whom we know we're getting phone calls like I just mentioned.

I think theres several ways that it can go I think fundamentally for us.

We are not in the business of of.

Of signing up for something that we don't feel is aligned with the strategy.

Make precision things, we're moving towards higher margin businesses and so when you think about that type of level of manufacturing was providing parts to those EBIT tall folks or its actually having levels of manufacturing or assembly.

I think that that can be a very robust part of our business.

And because it's such I think in the next quite frankly, 20 years or so youre going to see this E VTOL take real life and real form.

As you said Theres a lot of players out there we're actually talking to some of the ones that we feel are going to be the winners.

But it's still early to say and I think it's important to make sure that whatever we do it fits nicely in our strategy and where we're trying to go as a company.

And I think not to bridge into AEP toll is a very unique application, but its really about the urban mobility movement, and then kind of bridges in towards.

As the Thomas capability, which is something that we are absolutely directly investing in and involved in and we feel very strongly that we've got some future there yeah and just to just to add on to that a little bit Pete as we think about the opportunity. Yes by all means that the first thing that comes to mind is potentially supporting the structures aspect of that but investments we've made at <unk>.

And our bearings technology, specifically <unk>, our self lubricating bearings and others I mean, that's about light weight rate, reducing weight and we know that that's very important for the EV Tal community as they try to.

Get a little bit of extra distance get a little bit out of the extra out of that battery battery life, and we're able to support them.

Some of our bearings technologies, but that ultimately with the ball seal and Theyre Springs and contacts we have very efficient means of I wish to maintain electrical contacts right for them, which are also very lightweight very very small.

Or really supportive of these types of technologies. So we bring a broad range of capabilities to these 2 of these folks are more than just our structures expertise right.

Okay, great. Thanks for the color guys I appreciate it I'll get back in queue.

Sure.

Our next question is of follow Steve Barger with Keybanc capital markets. Your line is open.

Hey, Thanks, just a clarification on the fuse business. You said you have got a nice revenue window through 2023, which I agree with.

And there are other technologies, you're working on but in the electronic fuse isn't 1 of them did I get that right.

Well, yes, I mean, we're not trying to.

To replace right.

We're actually the cash.

Current views with the 139, we're not really competing necessarily there of that contract and we're all of Teekay as and those things. We know that that's very clear where we're trying to go is the nextgen.

And those are the future things smaller munitions more precision munitions.

There is technology there that we're working on it that we can't talk about but there's some exciting opportunities there.

We were just being realistic about where the 1009 is where we know our 152 is and we know the current contracts, which like we said earlier the Dcs contracts.

We still plenty of opportunities out there that we continue to work on its of proven technology.

Moving to use very extremely reliable.

And again options 16, just came in we will see what happens what really TK still coming online with their for users. So we'll see.

Any way for the next generation stuff any way to think about the timeframe I understand you can't talk about the technology, but just trying to.

Gauge, how you bridge from 1 program to the other.

No I think it's too.

Too early to really kind of give you any kind of headline on the on the on the timing of those things.

But I will say from an investment perspective, and knowing our capability with safe and arm.

We are of very strong capability. There. So we're trying to assess is part of the strategic reviews, where we can go.

Okay.

Good day here your optimism about the back half for commercial Aero as you look at consolidated orders do you expect the backlog can start to grow again or will mix and youre just own ability to ramp production keep keep backlog, where it is even as revenue increases.

Yeah, Steve that's of Great question, we look at backlog specifically in those business units that have greater exposure to commercial aero.

Think about our bearings business in others, we actually saw growth in backlog from year end to where we are today. So we are seeing that backlog portion of the business grow.

Recall that as much of more of a short cycle business given the lead times that we have for those products.

Yes.

We are still.

Well within our lead times for the full year, our customers know what our lead times are right and so.

Bit of a double edged sword, because they take advantage of that when placing their orders.

But that also advantages us.

In the in the need that those customers have something they need urgently, we can provide that to them as well. So we still have a high level of confidence as we said in our prepared remarks right. We're continuing to monitor the more global situation around Covid as you would expect us to do but overall, we're still we're still pretty bullish on where we think that could be in the back half and from the market.

I mean just to ease.

1 of more clarity other than you guys notice too, but it's really for us the industrial medical is really responding nicely, we're well positioned there general business aviation is actually up and rising it's really the commercial.

Market that we are well positioned on just wanted to see those those platforms and those sales once delivery start to really.

Increase and then again, we're going to see that drop through very nicely.

And as we watch Airbus and Boeing start to ramp production and I think the Max is going to they are targeting 31 ships per month by January of 'twenty 2.

But I think some of the wide bodies have actually started to slow down a bit how does command lead build rates as we as we watch the.

Oems.

Yes, so as we think about that sort of lead lag as you recall, maybe a little bit from last year.

We don't have the best visibility right necessarily into the inventory that Boeing and Airbus have for us, but as we looked at the way our sales trended over the course of last year right that might give us an indication. So we had a very strong Q1.

We had again, a very nice Q2, given the global pressures.

We sort of move through the course of last year.

Sales continued to decline, but maybe at a pace that was a little bit behind where everybody else was.

So ultimately what we're thinking is maybe 3 to 6 months is what that sort of lead lag time is going to be.

Clearly as we are seeing orders come up at a higher rate.

More so with Airbus, a little bit less with Boeing but.

But as we look ahead, we think it's likely 3 to 6 months and but we don't have again perfect clarity into that supply chain or the inventory levels.

Got it and the last 1 for me.

A lot of companies. This earnings season have seen issues around material cost supply chain disruptions and I think you talked about some labor challenges just any broad comments on what that all of it looks like for you any risks of the back half.

Barring a COVID-19 uptick or do you think the supply chain is in decent shape.

Yeah, I'll start high level and it's a great question, because it's something on everybody's mind for sure and you know I was just talking to all of you all managers and we just went through a bunch of operating views I think at a high level. We're in we're in a good place right now.

We are seeing signs of lead times.

Turning a little bit it's still within our planning process. So it's not affecting production per se and we got real shortages here and there some small things sole source stuff, but that's not really a problem for us so on the materials side, whether its shortage or availability I think we are in decent shape on the labor side.

Honestly the same kind of situation, it's really kind of a case by case, depending on which business we're talking about.

I think overall with the caliber of usually just went through and the things that we've already done.

I think we're in relatively good shape, where we're going continue to monitor it because people are going back to work yet or is this still challenge with the whole stimulus and the unemployment and people you know.

Where they are sitting and when theyre going to actually get back to work and things like that but we're pretty aggressive on that I think we're feeling very confident that we're doing the right things to retain our people and attract the right types of people.

So theres really no I think concern at this moment, but again it's.

Manage it very closely and carefully with what's happening with the Covid the day variant coming out and things like that.

Just add to that in those areas, where labor might be more of a meaningful contributor to the cost that's where we have the greatest flexibility relative to pricing as well right.

To kind of help protect some of that as well.

Appreciate it thank you.

Thanks, Steve.

Thank you our next follow up comes from.

Keith Dubicki with Alembic Global your line is open.

Yes, Thanks, guys a couple of a couple of quick follow ups.

We were talking about where we are kind of alluding to the follow on to the Blackhawk earlier.

Flora and borrow as well.

Is there a plan there are you guys kind of competing hard to get content on those 2 programs and would you like to have both bearings and structures or maybe only bearings could you maybe I know, it's very early but could you maybe share some thoughts about the strategy there yes.

Yes.

As we talked the teams a theyre already position on all of those platforms and yes to bearings and structures.

And again, it's early so it's hard to tell what's going to happen here, but.

Our teams have been relatively in some cases very aggressive on getting all of those new platforms. So we're again, depending on what happens here.

And that's just early production and the El Rip stuff in <unk>.

Stuff, we're gonna be even better positioned I think in terms of technology that we're bringing to the table with some of these Oems.

Does it is it going to matter to you who wins because I know you've worked very closely with both of the main competitors. So will it will the matter an awful lot.

Don't go too deep down that road, if you don't want to but I just thought I'd ask.

I actually I can't.

Can't really talked.

<unk> talked about certain things, but I think again, we're we're on.

All of those platforms. We're in really good shape. We are also very strong relationships with those Oems and strong track record of this OEM. So that's also plays to our advantage.

That's great that's great last 1 for me.

For the medium lift projects seems to be coming along pretty quickly.

Just wondering if you have of first customer in mind, whether we should expect defense customer first or commercial customer first and maybe kind of timing.

So like.

Like we talked about we're making our board is very supportive.

We've got the flying half scale model right now, it's doing very very well.

Right now with.

With the medium lift is we're going to go live here.

With the with the military side first this fall, which will be very exciting.

And then obviously over time, there's no question, there's commercial applications for this technology at the current state for them that we're in.

<unk>.

There's expansion capabilities in terms of the family of vehicles, because if you look what's going on out there and our capabilities in the software involved and being fully autonomous and remember this is a purpose built fully autonomous vehicle very different and trying to make something that's currently manned.

Thomas K Max is doing very well, we've got a demo of coming up here of late August early September with the Marine Corps, but the focus really is where the need is right now and the poll is which is with our defence customers and then we know quite frankly for a little different problem set when you think about distribute logistics and point to point with the Thomas vehicles.

Small medium and large different the commercial space, but that's going to happen. So we're really excited of kind of prove this technology out with the military customer first.

And then take it from there.

Okay. So on the commercial side, we're thinking about moving beyond.

Kind of firefighters and the type of applications.

Logging I should say Oh, yes, yes, yes, so I mean, we're talking about.

Multi mission sets multi applications for this type of technology.

Got it okay, great. Thanks, guys, yes, thanks Pete.

Our next follow up comes from Seth <unk> with Jpmorgan. Your line is open.

Great. Thanks.

Thanks for the follow up Jamie.

Jamie just real quick on the guidance if I look at the midpoint of the sales for the second half assume can maintain the second quarter gross margin.

Assuming the SG&A in dollars can stay of the second quarter level. It seems like might come in at the high end or slightly above the.

The high end for EBITDA.

Fair enough.

The potential for unforeseen things 1 of the little bit of cushion, but in all of those assumptions is there anything thats, particularly that you would say is.

You know of risk or something you'd highlight that might not be correct about making.

Those those assumptions in the second half.

No Seth and thanks for the question as we look at the back half we do have 3 K Max sales right that we are we are projecting in the back half of the year. We've got good line of sight to the potential customers there for.

For those 3 aircraft, we've got 1 customer who is actually looking to add 2 aircraft and again, we're working that really hard to bring those in as I think about that.

To me as the top line risk that's not necessarily of a huge profit driver for us and again.

Given any unforeseen issues or related matters associated with Covid right I don't think of your assumptions are necessarily incorrect.

Great. Thanks, Thanks very much.

Thank you and I'm currently showing no. Further question. This time I'd like to turn the call back over to Jamie Coogan for closing remarks.

I just want to thank you all for joining us on today's conference call and we look forward to speaking with you again, when we report our third quarter results.

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