Q4 2021 Kaman Corp Earnings Call

February 25, 2022

Good day and thank you for standing by welcome Ticking Man Corporation fourth quarter 2021 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will.

A question and answer session to ask a question during the session you will need to press star one on your Touchtone telephone. Please be advised today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today Karey Burke head of Investor Relations. Please go ahead.

Good morning, I'd like to welcome everyone to command fourth quarter 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 statements on plans and objectives of the company or its management statements of future economic performance and assumptions underlying those 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 company's fourth quarter 2021 results included on Form 10-K , and the current report on form.

<unk> 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.

Conciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K.

Finally, we posted an earnings call supplement on our website, which provides additional context financial performance and our outlook for 2022, you can find this presentation at Www Dot command Dot Com slash investor Slash presentations now.

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

Thank you Carrie and welcome aboard the command team as our new head of Investor Relations.

Very glad you were here with us at this exciting time in our journey.

And good morning, everyone and thank you for joining our fourth quarter 2021 earnings call.

Start by providing some highlights on the quarter and full year share some operational and business updates on each of our new segments and then discuss some important innovations before passing the call over to Jamie for a more detailed discussion of our financial results and our expectations for 2022.

During 2021 sales decline however, we achieved our financial targets for adjusted metrics of EBITDA EBITDA margin and earnings per share, while delivering significantly more free cash flow.

Gross margin increased more than 200 basis points to 33, 4% driven by improved performance in several of our businesses, primarily in our seals springs and contacts products.

In the first half of 2021, the pandemic continued to present economic challenges. However, in the fourth quarter, we saw meaningful order increases across commercial business and general aviation markets led by strong order intake for bearings springs seals and context products.

In fact sales to Boeing and Airbus increase the second quarter in a row. This is a promising indicator that airline demand is rebounding. These.

These order increases have contributed to an improvement in our order backlog for the company, which increased 11% compared to the same time last year.

2021 was a year focused on building a new leadership team as well as building a foundation for future growth that will allow us to achieve top quartile performance in each of our segments.

I am pleased to say that we also made notable progress on the implementation of our new operations Excellence model.

We've taken a number of steps, including the deployment of many new tools and systems to drive improved performance and more formal training across all our businesses. We are beginning to see the benefits of these actions as we eliminate waste and reduce variation in our processes.

As part of our overarching strategy, we reported our results under our new segment structure. This reinforces commands commitment to provide transparency in support of our growth strategy and portfolio management or.

Our three segments are engineered products precision products and structures.

The new segments align well with our product capabilities in our new brand architecture.

Over the coming months, you will see the rollout of the new brand strategy, which is rooted in the company's name to simplify complexities for our customers and focus on innovation.

Let me highlight the high level strategy for each of our segments.

Our engineered products segment displayed tremendous resiliency in 2021, we saw increased order rates for our products and the team work diligently to position the business to meet market demand the.

The strength in the medical and industrial end markets is expected to continue in 2022, and we have increasing confidence in incremental recovery in commercial aviation.

We will continue to provide innovative solutions that push the boundaries of application engineering and material science to meet the needs of our customers across all of the end markets we serve.

Can you run technology, which supports a proprietary self lubricating bearings. For example was selected to support Nasa's Historic launch of the James Webb Space Telescope.

Our precision products segment is in a state of positive transition as we continue to streamline the organization improve our business and advance new product development efforts.

We've recently completed two successful demonstrations with an overseas customer for a fire burst Heidelberg sensor technology, leading to opportunities for commercial deliveries in the near term.

Regarding J P. F. We are laser focused on continuing to fulfill our dcs funnel, although we expect lower <unk> sales over time, we are pursuing several meaningful dcs opportunities.

Second to increase our backlog and extend the life of the program.

Ultimately however, we anticipate offsetting the reduced volume with organic growth.

In other areas of our business in.

In addition, we continue to make substantial progress on our autonomous logistics technologies cargo UAV unmanned aerial system and K Max tightening aerial system in partnership with near Earth autonomy.

Moving to our structure segment, we have made meaningful progress in improving the financial performance of the business in this segment.

We've accomplished this through strong deployment of our operations Excellence model and believe there is significant opportunity for further enhancement.

Our teams in Jacksonville, Wichita in Vermont have embraced our model and we are seeking opportunities to drive improved performance.

In Jacksonville for example, they are in the process of consolidating from four manufacturing plants down to two in order to eliminate excess capacity and optimize manufacturing floor space and flow.

In addition.

We have focused our efforts on driving lean principles through their programs that has led to significant improvements in quality and on time delivery the.

The results of these efforts were important enough to be recognized by Sikorsky, which increase the quantities from those originally planned in our follow on multi year contract for Black Hawk cockpit production awarded in December .

Now, let me highlight several exciting innovations underway as a result of listening to our customers and helping them solve their toughest problems.

In our engineered products segment, we began manufacturing products in the first quarter utilizing our proprietary titanium diffusion hardening process, which provides the benefits of titanium alloys, while extending service and improving harnessed durability and wear characteristics for wide range of end markets outside of aerospace and defense.

Our team is actively exploring a variety of medical applications, including those in orthopedics, while fueling request for applications from Formula One racing teams and weapons accessory manufacturers.

And our precision products segment, we are extremely excited to unveil our new cargo UAV unmanned aerial system in the third quarter. This is a purpose built fully autonomous medium lift logistics vehicle designed to be easily deployed and provide cost effective cargo hauling up to 800 pounds and up to 523 nautical miles went empty.

Our initial addressable market is the U S military and special operations command and longer term the platform capabilities lend themselves to a wide range of commercial applications, such as servicing oil platforms search and rescue and middle mile delivery for logistics companies.

We've had several companies looking to partner with us to help provide value added capabilities, which could expand the use applications for this vehicle. In addition, we have received direct inquiries from U S International military customers and we're working to secure initial orders for the program.

Finally, we are proud to cargo UAV unmanned aerial system was asked to participate in phase two of the U S. Air Force agility Prime program, a significant accomplishment for the team and validation as to the interest of the U S military.

These are just some of our exciting growth opportunities that our demand team will continue to execute against.

Looking ahead, we feel confident the commercial aerospace market is rebounding as the economy continues to recover.

Seeing stronger demand in key end markets, especially in aviation medical and industrial which are expected to benefit our very profitable engineered products segment.

Brazilian products will continue to transform advancing applications of <unk> core competencies and precision manufacturing sophisticated measuring equipment and fully autonomous flight or.

Our structure segment will continue to get operationally healthier and focus on advanced composite applications. We are extremely excited for what's on the horizon with several of our new innovations as we position the company for best in class performance.

Lastly, we will also continue to take disciplined disciplined approach in identifying and pursuing the right strategic acquisitions.

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

Thank you Ian and good morning, everyone today, I will discuss our fourth quarter and full year results before providing an outlook for 2022 on.

On a consolidated basis, our net sales in the fourth quarter were $175 million compared to $180 million in the third quarter of 2021.

We recognized lower sales on both our GPS program as well as products, serving the medical and industrial markets.

Sales increased in the commercial business and general aviation markets, partially offsetting these declines.

Net sales for the year were $709 million compared to $784 million in 2020.

The decline of nine 6% was largely due to an anticipated reduction in <unk> sales and the sale of our UK composites business.

Adjusted EBITDA in the fourth quarter was $23 $6 million or a margin of 13, 5% compared to $27 $8 million or a margin of 15, 5% in the third quarter of 2021.

For the full year 2021, adjusted EBITDA declined 7% to $95 million. However, adjusted EBITDA margin improved 40 basis points from 13, 1% in 2020 to 13, 5% in 2021 as a result of our focus on operations excellence.

Now I'd like to walk through each of our segments beginning with engineered products.

Compared to the third quarter volumes declined in the fourth quarter, primarily for products, serving the medical markets adjusted EBITDA for the fourth quarter was $19 $4 million with a margin of 23, 5%. Despite the small decline during the quarter annual results improved with higher demand in medical and industrial markets and looking ahead.

We expect continued strength in these markets into 2022.

Annual sales and gross profit increased unsealed springs in context for medical Implantables medical devices and analytical instruments.

This was partially offset by lower sales volume of commercial bearing products driven by the impacts of COVID-19 on commercial aerospace end markets, primarily in the first half of the year adjusted.

Adjusted EBITDA for this segment for the full year 2021 was $69 million within margin of 21, 8%.

The demand for our springs seals and contacts as well as for our bearings products has improved significantly against the backdrop of ongoing economic recovery.

We end the year with a backlog of $169 million in our engineered products segment, a 26% increase over the prior year and we expect to see strong order rates for these products in 2022 in fact to date. We are encouraged by the significant year over year order rate increases we have seen thus far in the year.

Now moving to our precision products segment.

Paired to the third quarter gross profit declined in the fourth quarter due to lower sales of K Max aircraft in spares. Additionally, we increased R&D investments in new technologies, such as the cargo UAV unmanned aerial system adjusted EBITDA for the fourth quarter was $9 $7 million with a margin of 16%.

<unk>.

Annual results for this segment declined driven by a decrease in <unk> Dcs sales and associated gross profit combined with lower gross profit on our legacy fuse programs. This was partially offset by higher sales and gross profit on our GPS USG program and higher sales and gross profit on our phase II program with New Zealand.

Adjusted EBITDA for the full year 2021 for this segment was $60 million with a margin of 23, 2%.

We are managing our current GPS pipeline and we are looking to secure additional dcs orders in the near term.

We continue to make progress in R&D efforts with a with our patented hydro <unk> sensors, and we are developing new sensor and fusing technologies for UAV platforms counter UAV ammunition, and hypersonic that bring in all new capabilities to our existing family of safe and armed devices.

Now moving to our third segment structures compared to the third quarter results were relatively unchanged with lower gross profit due to changes in profit estimates for some of our long term contracts. This was offset by higher sales volume on our <unk> program.

Adjusted EBITDA for the fourth quarter was $1 $2 million with a margin of three 6%.

Adjusted EBITDA for the full year was $3 million with a margin of two 3% compared to a loss of $3 $7 million and a negative margin of two 2% in 2020.

We continue to identify opportunities for further operational improvement in our structures segment, which is expected to be healthier in 2022, we will continue to leverage our long standing aerospace customer relationships with Sikorsky at Boeing as well as utilize our technologies for additional medical imaging solutions in order to drive.

Improvements in the financial performance for this segment.

On a consolidated basis gross margin increased in 2021 to 33, 4%, we benefited from higher profitability for our seals Springs and contacts and we will continue to focus on driving improved performance through the deployment of our operations Excellence model.

SG&A as a percentage of net sales for 2021 was 21, 5% as we discussed on the prior quarter call. We will continue to manage cost and seek opportunities to increase efficiencies across our organization.

One example of these activities as the facilities rationalization planned at our structures manufacturing sites that Ian mentioned earlier, which is expected to result in cost savings benefit the beginning in the first half of 2022 with total realization of approximately $4 million by 2024.

Diluted earnings per share from continuing operations were <unk> 33 for the quarter compared to <unk> 53 in the third quarter of 2021.

On an adjusted basis diluted earnings per share from continuing operations were <unk> 48 compared.

Compared to the 60 in the third quarter.

For the full year diluted earnings per share from continuing operations were $1 57, compared to a loss per share of $2 54 in 2020.

On an adjusted basis diluted earnings per share from continuing operations were $1 93 compared to $2 11.

In 2020.

Recall in 2020 adjustments were largely driven by non cash non tax goodwill impairment charge and asset impairment charge on our former UK business and costs associated with the <unk> acquisition.

During the quarter, we generated adjusted free cash flow of $28 million driven by strong cash collections and improved working capital management as a function of our focus on operations excellence for the year adjusted free cash flow generation was $56 million.

Compared to a usage of $1 million in 2020.

Now I'll provide you with our outlook for 2022.

We expect sales in the range of $720 million to 700.

Third $40 million and we expect to deliver adjusted EBITDA of $93 7 million to $99 million with an adjusted EBITDA margin on a consolidated level in the range of 13% to 13, 4%.

For the full year 2022, we currently expect earnings per diluted share to be in the range of $1 75 to $1 90.

We expect cash flow from operating activities to be in the range of $65 million to $75 million, leading to an adjusted free cash flow of 40 million to $50 million we.

We expect the cadence of earnings to be weighted towards the second half of 2022 with our first quarter results being the lowest period of performance or.

Our results for 2020 to reflect the continued strong performance expected in the medical and industrial end markets and the anticipated incremental recovery of commercial business and general aviation and products through the balance of the year with that I'll turn the call back over to Ian for closing remarks.

Thanks, Jamie two.

2021 was a foundation building year for command in terms of people processes and performance, we will never be satisfied with our profitability until we are achieving top quartile performance improvements in the end markets. We serve are encouraging and we will capitalize on that opportunity by continuing to win more profitable programs expand our market share.

<unk> unprofitable work and improve our year over year organic growth together with new leadership, we have developed developed a solid strategy and we are well positioned to deliver on our priorities.

As a quick recap of our overarching strategy. We continued to focus on three strategic pillars first we will grow our business through innovation and accelerating investments in our products facilities and people.

We will continue to be disciplined in our approach to accretive M&A and capital allocation.

Third we will continue driving operations excellence until it's in our DNA and we are best in class in what we do every day.

Three pillars will lead us to top quartile financial performance in our segments.

All are aimed at improving EBITDA margin free cash flow conversion and ROIC metrics that lead to exceptional shareholder returns.

Thankful to all of our talented employees.

And around the world and we're making our vision become a reality and helping each and every one of our customers to achieve greater with that I'd like to open. The line for questions can we have the first question. Please.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our first question comes from the line of Steve Barger with Keybanc capital markets. Your line is open. Please go ahead.

Hi, good morning, everyone.

Hey, good morning, Steve.

I wanted to start with the bridge on slide 14, specifically, the 86% headwind from J P F.

That program was a bigger contributor last year than I would've guessed just directionally, how much will that business be down this year and is it is it still a significant contributor and to the extent that you can talk about that is that a further headwind in 'twenty three.

Yes, so we've talked about this program for some time now we've been trying to be transparent in our disclosures here and we wanted to demonstrate here the importance really Steve again, yes, JP up as a headwind, but we really like the growth that we're seeing in the rest of the business. When we think about the contribution of engineered products, the remaining precision products and structures.

<unk>, there's good contribution there in terms of we're going to continue to work through our backlog in <unk> as we have that now as.

As we mentioned in our prepared remarks, we do have additional line of sight to additional Dcs opportunities.

But our focus really is on growing the remainder remaining portion of the business.

Yes, Steve This is Ian just to build on that.

We do have a good pipeline, we've got a lot of prospects out there.

But we wanted to show this purposefully to kind of demonstrate that we know what that program has been is it is it kind of runs its course.

And we are Super focused like Jamie said I'm really offsetting.

As much as we can with organic growth across the rest of our businesses with which we feel very strongly about relative to the coming years.

And not sure thats by the way inclusive of some some strategic acquisitions.

Sure.

Yes, understandable just given the size of the contribution last year can you just give us a directional idea of how much that is down for 22 versus <unk> 21.

Yes, I mean, when you have got we've got $100 million worth of backlog right now for that program.

And we have that inside the 10-K, there the disclosures there related to 10-K.

We've not typically disclosed forward looking profitability on those specific programs just given the customer mix.

As we as we negotiate contracts.

But that is has been a very profitable program for us in the past.

Yes.

The man the bigger here.

Alright, the mix this year is weighted a little bit more towards USG right. So we are having lower profitability year over year, just on mix given the pricing of the units that are expected to go out this year.

Understood. Thanks, and the biggest positive contributor in that bridge is the improvement in structures can you tell us what that margin was in 2019 on an EBIT or EBITDA basis, and just talk about your confidence level in that specific area of improvement and just what does that segment look like when it is top quartile.

Yes, why don't I start with the margin of 2019, it was about 3% positive thus Steve.

In that period of time.

And what I'll do is maybe pass that over to Ian to talk about the longer term vision therefore that.

Segment.

Yes, Steve Thats like we talked about it's been a major focus for us to get that segment healthy.

And we've got different sites different programs there.

Actually a variation around it so quite frankly, our Vermont business. Historically has had really nice margins, but some of the other businesses. We have programs that werent the right types of programs and the nice part is we've got incoming work new programs CH 47 boom for example, really working the <unk> belt programs.

Black Hog program for example, very really nice follow on order with much stronger profitability is a function of all the work that we did last year, so really kudos to the team there fundamentally though where we're trying to go.

And I think that's the right question is we feel comfortable and if you look at improvement just between 'twenty.

'twenty, one and what we're shooting for this year.

The structures programs when Youre doing high end composites complex composite materials that should be high single digits and.

And that's where we're trying to get to even low double digits. That's the target.

And so just a quick follow up on that Jamie was that 3% EBIT or EBITDA and same question for you in EBITDA and so you are saying high single digit EBITDA or double digit if you can get there and just last one.

Timeframe for being able to see a high single digit EBITDA margin.

And structures.

So and by the way I want to mentioned to Wichita and Jacksonville, We start already has 145 certifications. So there's also a little bit of a conscious shift to focus on some aftermarket work, which we are highly capable of doing and we've got we're coming in right now thats much more profitable so.

Our timeline right now and I think this is true for the other segments we've got.

Effectively a five year timeline to get there, but we feel very comfortable and confident that probably when its three year Mark we could be in the high single digits and the five year, Mark we could be low double digits.

Got it I'll get back in line. Thanks.

Thanks, Steve.

Thank you and our next question comes from the line of Seth <unk> with Jpmorgan. Your line is open. Please go ahead.

Thanks, very much good morning.

Yes.

So I guess I was wondering a little bit.

In engineered products, if we think about kind of.

Getting aircraft build rates back to the <unk>.

19 level and I guess, there could be some some back and forth there maybe theres never as many as 780 sevens, but may.

There is some more <unk> hundred <unk>.

Kind of mid decade profile, what you guys are thinking about for build rates mid decade on commercial aircraft what kind of sale.

Are we looking at how much recovery is ahead for that engineered products business.

Yes, that's a great question. So if you look back we tried to put some disclosures in there to show you exactly where.

Engineered products was in 2019, so you can see the sales bridge back to 2019 at the peak of aerospace.

At that point in time, we did not have the ball seal business unit at that point that was about a $270 million business generating around 28, 29% EBITDA margins.

Effectively so as we look at the performance today, we believe that there is opportunity for incremental top line growth as we get back to that recovery and because this is some of our discussions we've had over the past year because of the actions that we've taken.

With that business from a cost from an investment in automation and new technologies. Some some new facilities to streamline our processes and operations. We do expect the drop through on those incremental sales opportunities to come through fairly meaningfully.

I mean, if you look at the historic.

<unk> been exceptionally strong certainly for businesses like kinetics, the content that we have across Airbus and Boeing whether it's in the $823 <unk>, we know that the double aisles theyre going to recover a lot slower we've got we've expanded content on 787.

Even triple seven X. So I think we're in a very strong position as Jamie said, not just from that recovery, which the bill rates are all increasing we know travel has gone up.

But also from an operational perspective, what we've done to expand the margins there and a lot of good work still in work to automate a lot of our processes and.

And get cost out.

And just to add to that as we think about cost this year in Capex. This year right. We do see some incremental cost as we are as we are investing for growth rate at both the sort of all across all of our engineered products companies frankly.

It's new engineering, it's new sales and business development talent as well as capital expenditures right to continue our trend towards automation and new technologies.

There is a little bit of that's weighing on our results for 2022 to a certain extent and that.

Youll note, our capex expectations for the year, a little bit higher than that.

They were last year.

Okay great.

Great and then.

Following up on structures I guess.

Just stepping back and thinking about it big picture and looking at the profitability of the different segments and the.

What would you guys have highlighted that kind of.

The relative strength of the company being being in engineered products.

I mean just structures.

Strategic.

Structures in the portfolio over time and being a strategic partner of command I.

I guess, how do you how do you think about that.

Yeah.

We consciously wanted to segment as we've talked about before for all different reasons and good reasons.

What I want to make sure.

People understand is it early in the year last year, we were already focused on this and really trying to understand.

Where the.

Best in class top core top performance for each of those segments. So early last year, we laid those trajectories, we set those game plans in place the strategies over five years. So our focus right now is to get each of our segments to that top quartile performance as we go year over year and again a lot of effort.

Honestly with like we talked about the training that's underway consolidation thats underway investment, we're making in the front end of our business to expand our topline.

If we feel at that.

Structures for example can't get to that top quartile performance well, then we're going to take a hard look at it.

And what it means to the portfolio because fundamentally from a consolidate basis, we know exactly where we need to be in five years.

Okay, Okay, Okay, great and then.

Just in the M&A market.

I guess how are things looking these days.

Whats.

Develop there incrementally maybe over the past.

Probably something we talked about each quarter, but since it's here and kind of over the past year in terms of the landscape the opportunities multiples.

And how youre thinking about thanks.

And remain very active as we've talked about before on the acquisition front.

We talked about last year about how we kind of we.

We did have a hard look at our filters and really trying to focus on the right type of acquisition that fits into our portfolio.

So last year it wasn't for lack of effort we are pursuing.

Pursuing several opportunities.

But at the same time to your point about multiples small medium or large didn't matter really some almost crazy irrational behavior out there we want to be very patient, we want to be very conscious and disciplined in the use of capital.

And quite frankly.

Investing in ourselves, we've got plenty of opportunities investing in ourselves, but we remained very active we've got a nice pipeline, we continue to pursue certain <unk>.

Strategic acquisitions that we think makes a lot of sense for the business and we'll continue to do that we know that's a big part of our growth.

And also repositioning the company in.

In terms of getting that top quartile performance.

We will continue to pursue that very hard.

Great.

Okay.

That's it for me for now thanks, Thanks, very much. Thanks. Thanks.

Thank you and again if you have a question at this time. Please press Star then one and our next question comes from the line of Pizza Kubicki with global.

Global Your line is open. Please go ahead hey.

Good morning, guys.

Pete.

Hey, guys I wanted to get a better just to extend kind of the margin discussion around engineered products.

I wanted to get a better sense of how to think about kind of the future cycle peak margin in that business.

4% almost.

At the peak of 2019 is a great number.

It came down after that.

Obviously on the <unk>.

Aerospace down cycle I think also you have the ball seal purchase intangibles flowing through there.

I was wondering if you could maybe give us a sense of what those what that amortization looks like and engineered products in next few years.

So we could just get a sense of what the new kind of peak number is likely to be including the amortization.

Yes.

Jim you've talked amortization.

Pete I'll kind of talk again targets.

Where we're aiming.

When you look at the portfolio of businesses, we have in engineered products.

We actually have a nice I mean, they're all highly high performers, but we do have a.

Variation there we've got some that are well above that.

That consolidated margin and some a little bit below and so I look at where for example, both CLA as I look at our traditional.

Performance with kinetics, we've got our two German sites are WGN J W.

Tons of potential there.

And a real focus of effort.

Expand those margins.

From a target perspective, we feel that we should be north of 25%.

And we have Scott business like I said above that so we're highly confident that fit in a three year window.

And certainly the five year Mark that is the top quartile performance, we're shooting for that's where those businesses needed to be.

Yes.

Don't specifically break out the depreciation from the amortization for the engineered products business unit, but again as we look at the prior performance in 2019.

If you were to look at EBITDA for that business, it would be closer to 2008% to 29%.

So there's sort of a kind of on a run rate basis 600 basis points in the we'll call. It the legacy engineered products before the acquisition of <unk>.

Okay. Okay.

Okay.

Ian you think it could be north of 25% at some point, even including that amortization.

I do think that's an EBIT number and an EBITDA number.

It's EBITDA, it's EBITDA okay. Okay.

Okay, and then just last one for me.

Just a follow up on the JP App conversation.

The fuse guidance for 'twenty 2022, and it was 25000 to 30000 does that include does that include the.

This $45 million Dcs order that you guys have been talking about for a couple of quarters.

No.

So that's that's in work and again, we've got a high degree of confidence that we will secure that here at some point.

But it does not include that yes.

Okay.

References again, we have to remember our <unk> program is unique in that fuse deliveries do not necessarily always correlate one to one with fuze revenue right given the overtime nature of our USG program.

Versus deliveries underneath the Dcs programs.

So just just to kind of make sure that everyone's aware of that.

Yes, understood and I appreciate it.

So there are some dcs opportunities that are out there you guys are working that theyre just not us.

Not as mature as the $45 million opportunity I guess is that the way to think about it yes.

Yes.

Do you think about it and again, we've got line of sight I think strong line of sight between now and certainly 2023 for those orders.

Okay. Okay, alright, thanks, guys okay.

Okay. Thanks Pete.

Thank you and we have a follow up question from the line of Steve Barger with Keybanc capital market. Your line is open. Please go ahead.

Hey, thanks.

I hate to harp on structures, obviously, it's weighed on results for a long time and I know you have these target ranges of three to five years, but can you just tell us in general how long do the contracts on these programs run and do you think youll be able to drive pricing on top of the efficiencies you're looking to get to help accelerate.

This improvement program.

Yeah, no actually that absolutely.

And credit to our team down in Jacksonville, specifically, we use them as an example, they just recently signed a new multiyear contract the duration on those is typically five years.

So we just turned over the latest multiyear contract will start performing under the new contract. This year that does have improved pricing underneath it.

On top of that again, we're driving cost out of the organization.

These are longer term in nature for sure the nature and types of this work, but which is why we are so focused on lean lean practices and driving cost out of the operations to be more efficient on the current contracts, but that also positions us better to when we win new work that that new work comes in at a more profitable right that historically.

It would have or if there's any you want to add yes.

Again, we're consciously also looking at the type of work that we're pursuing when we've got some really nice near term prospects that we're expecting to land this year.

That will demonstrate that much higher margins much more in line with our hiring capabilities.

So again, we're kind of in that.

Fixed get healthy stage operationally, which is showing really nice results, which includes that consolidation piece, we talked about even like I said, Vermont and what we're doing with some of our structures on the medical side that is much more profitable work really have some nice growth there last year the team up in Vermont.

And even with the folks down Jacksonville like I said with the part 145 work that they're doing so we feel confident that we're definitely going to get healthier there as we go.

And to your point, yes, we were in some work that was not profitable for a period of time and we've exited some of that work and we've actually gone back and renegotiated some of the pricing on some of that legacy work.

That's great.

Sorry, if this is in the K I can find out later, but how much of that $100 million in J P. F will ship this year.

Yes, again, we're going to continue to work through that so I would imagine the expectation would be we'd sort of worked through as much of that as we can over the course of this year, Steve but again okay.

Yes.

And there's obviously some unfortunate events in the news this week.

What does that mean, if anything for the fuse business or safe and arm, whether it's from supply chain or or inquiries or whatever how are you just thinking about that.

I think to answer your question from a supply chain perspective.

We don't think there's really any risks there quite frankly.

And we've looked at that.

I think our teams already have done a nice job with the situation that's going on there looking at what that might mean and specifically for GPS quite frankly, it is just way too hard to tell we know exactly as we've disclosed where that program is it's running its course, we've got our pipeline. We now expect to have any issues there.

Yeah.

So other than that we really don't have much to comment on.

Yes.

Figured, but I thought I'd ask.

For cargo UAV, you said theres direct inquiries from various customers. What's your estimate from when you can secure orders and kind of same question for when that might ship like is there a timeline that you can talk about yes sure can so our timeline right now and I actually was literally just yesterday down at camp Lejeune with our.

Our Marines special forces team is talking with them really productive meeting.

I would tell you that our timeline from a military perspective, so the military's whether its Marine Corps Air Force things we've talked about.

They want to have these types of capabilities flying before 2025.

From a commercial perspective.

They would definitely want them earlier.

But that's a function of how again, we're ramping up this program, we're going to be flying a full scale prototype this year.

We know that getting into a technology readiness level of six or seven is where we need to be and we're confident we're going to be there. So.

Quite frankly, we would expect to have some level of funding from the services, which this year and some initial orders coming in possibly later this year either not from the military because they went from a programmatic perspective, so there could be a couple of.

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Of those cargoes that they could be we could be building under a kind of a teeny or test and evaluation perspective and from a commercial perspective.

We've seen whether it's <unk>.

Airlines logistics companies. They are very comfortable getting early orders and so our teams are and thats kind of part of the investment to really thinking about how we approach those markets and the right smart way to get orders starting to come in later this year with the intent again delivering orders delivering product before 2025.

And Thats doable for us.

And so how do you think about the addressable market in.

In 2025, and then maybe longer term as commercial.

<unk> takes off.

Well, we're starting to see some initial analysis coming right now.

And from a commercial perspective, if you look at unmanned systems.

You know that that market addressable market is $5 billion to $10 billion, it's a huge market.

On the military side, it's less naturally.

And very strategic and targeted so.

We've got anywhere from ranges of hundreds to several thousands of that's kind of the range, we would be talking about for services.

Certainly the Marine Corps Army is little different airports, a little different so all in all it's a very nice market for us both the military and the commercial side.

I know, it's hard to know this now but if you are selling hundreds in 2025, what's the margin profile on that program.

Well I'll put it this way it sits under our precision products for a reason.

That is a position product and if you look at the margins that we're showing that's the margins that we're shooting for.

Got it and then one final.

If you can't find good M&A candidates for whatever reason or you find some that are small would you consider a buyback or other avenues of capital allocation or are you just really content to wait for the right deals.

No we're looking at all those options.

And the board is very supportive of that so the answer is yes.

But at the same time, we're not going to overpay.

And we feel there are plenty of really nice targets out there that we're going to use it to look at and go after for sure.

Great. Thanks for the time.

Yep Thanks, Steve.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Cary Baker for any further remarks.

Thank you Michelle and thank you everybody for joining our fourth quarter 2021 conference call today for our earnings and we look forward to getting back to you and talking with you when we provide our update on our first quarter 2022 earnings.

Have a great day.

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

Okay.

Yes.

[music].

Yes.

Okay.

[music].

Good day and thank you for standing by welcome to Command Corporation fourth 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 and answer session to ask a question. During the session you will need to press star one on your Touchtone telephone. Please be advised today's conference is.

It's being recorded.

If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today carry their head of Investor Relations. Please go ahead.

Good morning, I'd like to welcome everyone to commands fourth quarter 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 business the economy and other future events.

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.

Conciliations to the company's GAAP measures are included in the earnings release filed with yesterday's 8-K.

Finally, we posted an earnings call supplement on our website, which provides additional context or financial performance and our outlook for 2022, you can find this presentation at Www Dot command Dot com slash investors such presentations now I'll turn the call over to Ian Walsh.

Thank you Gary and welcome aboard the command team as our new head of Investor Relations. We are very glad you're here with us at this exciting time in our journey.

And good morning, everyone and thank you for joining our fourth quarter 2021 earnings call.

I'll start by providing some highlights on the quarter and full year share some operational and business updates on each of our new segments and then discuss some important innovations before passing the call over to Jamie for a more detailed discussion of our financial results and our expectations for 2022.

During 2021 sales decline however, we achieved our financial targets for adjusted metrics of EBITDA EBITDA margin and earnings per share, while delivering significantly more free cash flow.

Gross margin increased more than 200 basis points to 33, 4% driven by improved performance in several of our businesses, primarily in our seals springs and contacts products.

In fact sales to Boeing and Airbus increase the second quarter in a row. This is a promising indicator that airline demand is rebounding.

These order increases have contributed to an improvement in our order backlog for the company, which increased 11% compared to the same time last year.

2021 was a year focused on building a new leadership team as well as building a foundation for future growth that will allow us to achieve top quartile performance in each of our segments.

I am pleased to say that we also made notable progress on the implementation of our new operations Excellence model.

As part of our overarching strategy, we reported our results under our new segment structure. This reinforces <unk> commitment to provide transparency in support of our growth strategy and portfolio management or.

Of our three segments are engineered products precision products and structures.

The new segments align well with our product capabilities in our new brand architecture.

Over the coming months Youll see the rollout of the new brand strategy, which is rooted in the companys aim to simplify complexities for our customers and focus on innovation.

Let me highlight the high level strategy for each of our segments.

Our engineered products segment displayed tremendous resiliency in 2021, we saw increased order rates for our products and the team worked diligently to position the business to meet market demand the.

The strength in the medical and industrial end markets is expected to continue in 2022, and we have increasing confidence in incremental recovery in commercial aviation.

We will continue to provide innovative solutions that push the boundaries of application engineering and material science to meet the needs of our customers across all of the end markets we serve.

Our key around technology, which supports our proprietary self lubricating bearings. For example was selected to support Nasa's Historic launch of the James Webb Space Telescope.

Our precision products segment is in a state of positive transition as we continue to streamline the organization improve our business and advance new product development efforts.

We have recently completed two successful demonstrations with an overseas customer for a fire burst height of burst sensor technology, leading to opportunities for commercial deliveries in the near term.

Regarding <unk>, we are laser focused on continuing to fulfill our tcs funnel, although we expect lower <unk> sales over time, we are pursuing several meaningful dcs opportunities are expected to increase our backlog and extend the life of the program.

Ultimately however, we anticipate offsetting the reduced volume with organic growth in our in other areas of our business in.

Moving to our structures segment, we have made meaningful progress in improving the financial performance of the business in this segment.

We've accomplished this through strong deployment of our operations excellence model.

And believe there is significant opportunity for further enhancement.

Our teams in Jacksonville, Wichita in Vermont have embraced our model and our seat are seeking opportunities to drive improved performance.

In Jacksonville for example, they are in the process of consolidating from four manufacturing plants down to two in order to eliminate excess capacity and optimize manufacturing floor space and flow in.

In addition.

We have focused our efforts on driving lean principles through their programs that has led to significant improvements in quality and on time delivery.

Now, let me highlight several exciting innovations underway as a result of listening to our customers and helping them solve their toughest problems.

In our engineered products segment, we began manufacturing products in the first quarter utilizing our proprietary titanium diffusion hardening process, which provides the benefits of titanium alloys, while extending service and improving harnessed durability and wear characteristics for a wide range of end markets outside of aerospace and defense.

Our team is actively exploring a variety of medical applications, including those in orthopedics.

Request for applications from Formula one racing teams and weapons accessory manufacturers.

And our precision product segment, we are extremely excited to unveil our new cargo UAV unmanned aerial system in the third quarter. This is a purpose built fully autonomous medium lift logistics vehicle designed to be easily deployed and provide cost effective cargo hauling up to 800 pounds and up to 523 nautical miles went empty.

Finally, we are proud to announce that cargo UAV unmanned aerial system was asked to participate in phase two of the U S. Air Force agility Prime program, a significant accomplishment for the team and validation as to the interest of the U S military.

These are just some of our exciting growth opportunities at our command team will continue to execute against.

Looking ahead, we feel confident the commercial aerospace market is rebounding as the economy continues to recover.

We're seeing stronger demand in key end markets, especially in aviation medical and industrial.

Expected to benefit our very profitable engineered products segment.

Precision products will continue to transform advancing applications of <unk> core competencies and precision manufacturing sophisticated measuring equipment and fully autonomous flight or.

Lastly, you'll also continue to take disciplined disciplined approach in identifying and pursuing the right strategic acquisitions.