Q4 2022 Kaman Corp Earnings Call
Good day and thank you for standing by welcome to the Command Corporation Q4, 2022 conference call.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
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Today's conference is being recorded I would now like to hand, the conference over to your speaker today Ms.
Becky Scott Vice President and controller.
Mr. <unk>. Please.
Please go ahead.
Good morning, welcome to commands fourth quarter 2022 earnings call, leading the call today are Ian Walsh, Chairman, President and Chief Executive Officer, and Jamie Coogan, Senior Vice President Chief Financial Officer, and Treasurer before we begin. Please note that some of the information discussed during today's call will cause.
The forward looking statements setting forth, our current expectations with respect to the future of our business the economy and other 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 these statements regarding the company and its business.
The companys 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 2022 results included on Form 10-K, and the current rig.
Port 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.
Finally, we posted an earnings call supplement on our website, which provides additional context on our financial performance you can find this presentation at Www Dot command Dot com forward slash investors for its slashed quarterly earnings calls now I'll turn the call over to Ian Walsh.
Thank you Becky and good morning, everyone and thank you for joining us for our fourth quarter 2022 earnings call.
I'll start by providing a summary of the quarter followed by the decisive actions, we have taken to improve our operations and position us for success in 2023 and beyond.
I will then pass the call over to Jamie for a more detailed discussion of our financials and outlook.
Our teams worked hard to overcome multiple challenges in 2022.
We finished the year ahead of the revised EBITDA expectations, we communicated in our third quarter earnings call, primarily driven by continued strength in our engineered product segment, coupled with meaningful progress on initiatives to enhance our overall operational performance.
Our fourth quarter sales came in at $197 1 million compared to $175 1 million in the prior year and for the full year, we reported sales of $688 million compared to 709 million in the prior year.
Both the quarter and the full year results benefited from strength in our engineered products segment that grew organically at 12% year over year and contributions from aircraft, we won't break acquisition offer.
Set by the planned reduction in volume on our GPS program.
Our adjusted fourth quarter, EBITDA was $31 million, which was up 31, 4% from $23 6 million in the prior year for.
For the full year, our adjusted EBITDA was $8 2 million, which was above the range we communicated in November .
This resulted from initiatives, we launched during the year to improve execution and cost control.
Performance in the quarter was further supported by strength in our engineered products segment as we continue to see steady recovery in the commercial aerospace market and growth in medical and industrial end markets.
In addition, we benefited from the contributions of our aircraft fuel and brake acquisition.
We are very pleased with the integration and performance of this new business and we look forward to their full year contribution in 2023.
2022 at several challenges that emerged with a couple of our businesses and their suppliers with the teams have been working to correct.
We also had the anticipated reduction in <unk> volume as.
As we head into 2023, we continue to have a clear path forward on more stable footing with strong backlogs and our highest growth businesses.
We have consciously reduced the primary sources of variation in our performance with our recent announcements on J P and K Max.
Our 2023 outlook, which sets forth our expectations for the year is based on the following assumptions number one.
<unk> only the small amount of firm GPS orders, we have on hand number two no contribution from K Max aircraft sales and number three no margin contribution from our structures business.
Later in the call Jamie will take you through the 2023 outlook in more detail.
Our primary.
Near term strategic objective continues to be our focus our highest growth businesses, where our team's emphasis is on innovation investing in product and process advancements through a combination of incremental capex and <unk>.
Other key objectives include the transition of our precision products business to next generation for using autonomous component manufacturing.
And our structures segment, we continue to focus on realizing the gains expected to result from the recently announced consolidation of our Jacksonville structures business, improving our legacy programs and winning new more profitable OEM and aftermarket work.
The deployment of operational best practices have already had a tremendous benefit out of Vermont structures business in just over a year, we have gone from low single digit to high teens EBITDA margins.
As recently announced we are consolidating our remaining JP up production in our existing Middletown, Connecticut facility.
This will enable us to maintain adequate production capacity for potential future Dcs volume, while rationalizing our footprint and reducing our costs.
We expect to complete the closure of the Atlanta facility during the first half of 2024.
After careful analysis and evaluation, we announced in January the discontinuation of K Max production with.
We conducted a thorough review of the program last year talk with our customers and channel partners and assess the future addressable market, while K Max is a unique and capable platform. It will continue to struggle with low volume and high level of competition, therefore, creating unpredictability in orders the low margins and a significant working capital requirements for this program do not meet or.
Our expectations for EBITDA margin cash flow and ROIC.
The discontinuation of K Max production removes a significant source of variation and use of cash going forward.
We will continue to support the existing fleet, including providing operators with repair spare parts or blade exchanges and fleet services, including training.
Lastly, we have identified and taken incremental action to optimize our total cost structure inclusive of the corporate headquarters. These activities included reducing layers consolidating support functions and eliminating redundancies between business units and corporate and efforts continued to lower SG&A.
Now, let me turn to the business discussion with an update on general market conditions demand across the commercial business and general aviation markets continues to improve as we are seeing high levels of orders for our bearings springs seals in context.
As of the end of January the outstanding backlog in our specialty bearings business is now exceeding pre pandemic levels set in 2019.
These trends support the higher sales and improved margins, we anticipate over the coming year, although we.
Spectra defense sales to decline year over year due to lower <unk> volume the remaining portion of our defense business looks to benefit from increased defense spending and the ramp up in production of new defense programs.
The defense market and budgets show moderate growth and we continue to identify areas to support our national interest overseas in a complex and rapidly changing global environment.
In our industrial and medical end markets order rates continue to increase and provide meaningful organic growth.
By segment and beginning with engineered products strong performance continued in the fourth quarter driven by outperformance in these business units relative to our outlook.
Sales for this segment increased 38, 1% and 18, 7% for the quarter and full year, respectively Bell.
Fitting from organic growth and the addition of aircraft fuel and brake.
Organic sales growth for both the quarter and the year was 16, 2% and 12, 2% respectively.
Volume also translated to improved profitability with EBITDA margin up 250 basis points for the quarter and 240 basis points for the full year with aircraft will embrace contributing 130 basis points and 40 basis points respectively.
Precision product segment sales declined 17, 7% and 27, 8% for the fourth quarter and full year, respectively. As we transition these businesses to new growth products and markets.
This anticipated decline resulted from lower volume and a corresponding reduction EBITDA margin contribution.
Much of our announced restructuring is focused in this segment as the discontinuation of <unk> and the closure of the Atlanta facility will provide opportunity for further cost savings, allowing us to focus on the development of new technologies and the improvement of our other missile fuze programs.
And our structures segment of Vermont facility continues to exceed expectations and serve as a blueprint for success.
Key initiatives for this facility include cash improvement efforts quality improvement plans and facility optimization as we prepare for growth opportunities.
Our other structures facilities will mirror. These efforts as we move into 2023 and continue our journey to bring this segment to acceptable financial performance levels.
During 2022 challenges persisted in our Wichita in Jacksonville facilities on two legacy programs, which drove a $1 $6 million operating loss for the quarter.
We took great strides in 2022 in early 2023 to continue to transform command and reposition our company for long term growth. These.
These actions and the strength of our underlying businesses will enhance our earnings power and allow us to deliver improved financial performance going forward.
These transformative initiatives were designed and executed with our highest growth opportunities in mind as we continue to demonstrate that our core competencies of innovation and solving our customers' most complex problems will stay at the center of our strategy.
As we look to the year ahead, we are focused on execution against the strong backlog, we have in our engineered products segment, while being thoughtful and deliberate with our investment spend on new technologies and precision product segment.
Our near term priorities in 2020 through very clear.
Continue to reduce or eliminate sources of variation to our annual performance, which will help us better level load, our overall performance quarter to quarter.
Continue to advance our processes drive cash generation and reduce our leverage.
Our long term strategy remains intact as we strengthen our balance sheet and continue to grow our company more profitably.
Now I'll turn the call over to Jamie for a closer look at the numbers Jamie.
Thank you Anne and good morning, everyone. Today, I will walk you through our fourth quarter results before turning to our outlook for 2023.
Our fourth quarter sales were $197 1 million, which was higher than the prior year period of $175 1 million for the full year total sales were $688 million compared to $709 million in the prior year.
Higher sales in the quarter stemmed primarily from organic growth in our engineered products segment and contributions from aircraft wheel and brake acquisition.
Lower sales for the year were due to lower <unk> shipments.
Adjusted EBITDA in the fourth quarter increased 31, 4% to $31 million or a margin of 15, 7% compared to $23 $6 million or a margin of 13, 5% in the fourth quarter of 2021.
Higher EBITDA in the period, mostly stem from the performance in engineered products and the addition of aircraft Wieland break for.
For the full year, adjusted EBITDA was $80 2 million compared to $95 $5 million in 2021.
Lower EBITDA resulted from lower sales in our safe and armed device programs and at our structured programs at Jacksonville and Wichita.
This decrease was a function of program inefficiencies and supply chain matters that we communicated last quarter.
As Ian mentioned, we've implemented a range of measures to lower our cost base and eliminate programs, which historically have caused significant variation in performance.
In the aggregate, we expect the cost reduction program termination initiatives produced approximately 22% to $25 million in annualized savings by 2024 with approximately $12 million to be realized in 2023.
These savings are comprised of the following.
$12 million to $15 million associated with the closure of the Atlanta facility, we will begin to see savings between $3 million to $4 million immediately as we reduced operating activity with full savings achieved by the end of 2024.
At least $7 million related to corporate restructuring primarily focused on the right sizing of our corporate structure to current sales levels and the elimination of redundant functions between business units and lastly around $3 million related to the discontinuing production of K Max aircraft.
We remain committed to optimizing our cost structure and are focused on implementing additional cost out measures. This year in order to yield additional savings in 2023, as we continue to drive improved performance.
Turning back to our results for the fourth quarter GAAP earnings per diluted share were adversely affected by the impairment and restructuring charges, taking during the quarter, resulting in a loss of $1 96 per share.
Adjusting for these and other charges, we achieved adjusted earnings per diluted share of <unk> 42.
This compares to earnings per diluted share of 33 in the fourth quarter of 2021 and adjusted earnings per diluted share of <unk> 48.
For the full year, we reported a loss of $1 65 per diluted share and adjusted earnings per diluted share of $1 12.
In the current period adjustments were primarily related to restructuring inventory and contract cost write offs related to the K Max onetime costs related to the acquisition of aircraft wheel and brake and a goodwill impairment charge due to lower demand on our GPS program.
Adjustments in the prior year, primarily related to discrete tax items and severance costs. A full reconciliation of GAAP to non-GAAP amounts can be found in our fourth quarter earnings release.
Next I'd like to turn to our guidance for 2023, our team is focused on expanding our highest growth businesses, where we can generate stronger returns while optimizing our cost structure to match the size of our business under lying demand remains strong and our most impactful end markets and we expect continued growth in contribution from our specialty bearings businesses, our ball field engineer.
<unk> business and of course, our newly acquired aircraft wheel and brake business as a result.
We anticipate topline growth in 2023 with total revenue in the range of $730 million to $750 million.
Full year adjusted EBITDA is expected to be in the range of $95 million to $105 million and operating cash flow for 2023, a 60 million to $70 million, leading to free cash flow expectations in the range of $35 million to $45 million.
Approximately 36% of our adjusted EBITDA improvement is from growth in our organic business and lower expenses due to the cost actions, we've taken with the remainder coming from the addition of aircraft will break.
These increases are partially offset by the impact of lower <unk> volume.
Our diluted EPS expectations are lower than historical results, primarily because of higher interest costs on our outstanding debt due to the AWP acquisition and lower pension income we expect for 2023.
As a reminder, our pension income which is recorded below operating income was $20 6 million in 2022. This compares to our expected pension income of $1 5 million in 2023.
This decrease was largely driven by market conditions impacting the actuarial assumptions for the plan.
When combined with the lower <unk> volume. These factors together account for $1 60 per share of degradation year over year, which was partially offset by the anticipated organic growth and the contribution of aircraft we haven't break.
Touching on the cadence of earnings for the year, we have worked to better level load our quarterly earnings in 2023, we expect a more balanced quarterly earnings profile, we expect approximately 45% of our full year adjusted EBITDA to be realized in the first half compared to 35% in 2022.
The first and second quarter, we anticipate our adjusted EBITDA to be slightly weighted towards the second quarter.
In order to improve the reliability of our guidance and improved transparency, we have excluded discreet items, which have historically been high sources of variation. Specifically these include untoward at or uncertain J P. F. Dcs orders and sales of remaining Eric K Max aircraft held in inventory. We have also assumed no margin contribution from.
Our structures segment, we expect to achieve success in these areas, but they are not incorporated in our guidance. If we are successful this will provide upside to our expectations for 2023 with that I'll turn the call back over to Ian for closing remarks.
Thanks, Jamie as I mentioned earlier, we are entering 2023, and a much stronger position and a clear path forward as a result of planned and deliberate actions to create a more stable company with more predictable results.
We continue to develop a culture with greater internal discipline controls and leadership, we are very proud to work alongside such a talented team of professionals with capabilities to design and develop highly engineered <unk> solutions for our customers.
Our future is dependent on our talent and I'm thankful to our workforce of more than 3000 dedicated employees, whose commitment has been instrumental in our success with that I'd like to open the line for questions maybe have a first question. Please.
Thank you.
As a reminder to ask a question. Please press star one on your phone and wait for your name to be announced withdraw. Your question. Please press star one again standby ASIC El Pilar the Q&A roster.
One moment, while first question.
First question will come from Steve Barger of Keybanc capital markets. Your line is open.
Thanks, Good morning.
Hey, good morning, Steve Good morning, Steve.
Just first question on gross margin when we think through GPS wind down exiting K Max and restructuring do you expect gross margins will exceed last year's low 30% range and then longer term what do you think the appropriate gross margins should be for this portfolio as you focus on engineered products.
So I'll start off with that one Steve we do expect gross margin to be higher than what we anticipated last year, probably somewhere in the range of maybe two to 300 basis points higher overall as we look to 2023, just given the incremental addition of aircraft we own break into the portfolio and the absence of the K Max sales.
Yes, and Steve looking forward I mean, we have clear targets as we've mentioned before relative to what we feel is best in class performance for each of our segments. Those businesses. All know what those numbers are so and that's that's the first piece and the second piece is we're working hard with all of our activities relative to our <unk>.
Chain and how we build assemble and deliver products. So we continue to chip away at that gross margin, we want gross margin expansion year over year.
And presumably as you look further out you'll exceed the couple of hundred basis points that you expected. This year as you continue to optimize the portfolio.
Yes, we do indeed, yes, Steve one of the drive key drivers there is organic growth in the base business, especially on the engineered product side comes through with very significant drop through relative to earnings. So as that business continues to grow we would expect to see.
<unk> gross margin gains.
Yes got it and just similar question on SG&A. When you have the portfolio you want revenue is growing things are running efficiently. What do you think the right SG&A percentages because it seems like that's the biggest opportunity for cost savings as I look at the income statement.
Yes, and we agree with you on that Steve We there's still a lot of work that we're going to do around cost and looking at cost overall in the organization I think optimally, we want to be closer to 20% and in the long run and get down below that 20%, if we if possible with some incremental scale.
So team is working hard to think through ways to be more efficient more productive on the G&A front.
Yes.
The team is yes.
Yes, it does a nice job just again offsetting a lot of those material.
Excuse me the SG&A inbound costs have crept up in the last couple of years. So.
Fundamentally our target is to get close to 20 and definitely below 20.
And I hear you on the scale aspect of that does do you need $1 billion in revenue to be at <unk> or can you frame. It up at all is just for accountability standpoint.
Yes, I mean, I think no. We don't think we need to be at $1 billion to get to that 20% threshold. I think there is a significant level of efficiency that we can obtain at a slightly lower level than that but again it's.
We closed we'd be higher than we are today, but probably not at a $1 billion. Yeah. In the scale will definitely help but again, we've got activities going on right. Now. This year is a function of what we started a year and a half ago to really go after SG&A. So that continues okay.
I'll ask one more and then jump back in line you had planned to fulfill full scale test flight of cargo UAV towards the end of last year and I think Thats now first half of 'twenty. Three can you talk about timeline changes and just your updated thinking on the program.
Sure. So we actually said it was it was close to end of year early this year and actually just checking with the team. The other day. So we're very close to our first flight.
As you can imagine that's a very important milestone for us team's done a marvelous job.
We're very close to getting that first flight and once we do we'll make sure everybody knows about it in terms of going forward. We've had significant significant success not just funding from from Congress, but also funding from the Marine Corps as we've announced with a multi program. So that is now a funded program that we're working towards with the Marine Corps. They were just in la.
Weak.
Very excited and a direction and kind of what their expectations are with that our anticipation is.
By early next year, where that it's an 18 month window. The marine Coe will take the next big step, which is to say however demonstrates the capability that they need and we're confident we will be there and they're going to find a series of prototypes to mature the technology from that point forward.
They will then push prototypes in the field with customers I AK, the Marines, who really give us the last kind of level of ingredients that we need to kind of finalize that first iteration and then they want to go to full rate production full rate production is still targeted for the 26 27 time frame and they've told us if we can move that in.
They would be excited about that so we're full steam ahead with cargo which has been great.
As you go through the gating process here, how many competitors will be down selected for further testing.
Right now Theres two in a multi program.
So and we don't know if they would kind of take to the next step or not.
So we'll see.
So it's literally down to just two of us right now.
Got it thanks I'll get back in line.
Okay. Thanks, Steve.
Thank you.
And one more please.
Question.
Our next question will come from Larry Solow of.
C. J S Securities Your line is open.
Good morning, Jimmy and thanks, Thanks for taking the questions.
A follow up.
On the cargo UAV question, how about commercial sales did you expect is there a potential to get commercial sales before the 'twenty six 'twenty seven.
Frame or.
One is going to fall in line after the mill time was first.
The answer is yes.
We already have a tremendous amount of interest from several commercial customers.
And we feel confident that they will move faster.
Then the military which by the way it helps the military out tremendously it's all about building hours to maturity on the aircraft.
So we've got some exciting things happening right now that hopefully will be able to announce this year to demonstrate the interest of cargo and again theirs.
You think about whether it's oil and gas and offshore.
And humanitarian relief and some other things, there's just a tremendous amount of interest in the capability of what cargo Brink's I will say the addressable market.
On the commercial side is orders of magnitude higher relative to the military we've got interest right now obviously as I said in the Marine Corps, but we also have strong interest in working right now with SOCOM and the army.
The Navy has already kind of been talking to us and the air force as well. So the services are really trying to think about distribution logistics that is a big problem for them to solve and we are in the forefront of that commercial side just as much.
I just read an article recently about what's happening with.
With Wal Mart, and how they've demonstrated almost 6000 flights on small stuff already all of those prime and big boxes and some of the certainly the offshore oil and other companies are going to be looking for cargo.
Okay, Great I appreciate that color and I'm not just.
Switching gears back to engineered products.
Obviously, we've had a nice recovery in commercial aviation.
The economy has held up pretty well for the last couple of years and this is certainly your biggest segment.
Biggest driver for growth.
Does the current economic situation.
As we look out does that concern you at all.
We're getting a slowdown after a pretty strong 22, and I know backlog is strong as well the oven and concerns.
The economy and how that relates to you.
Performance over the next few quarters even.
Yeah I'll start the <unk>.
Nice part about engineered products quite frankly, as they cover a very wide range.
Of our end markets. So certainly heavily loaded on the commercial and aviation and helicopter side, but also medical industrial and we're seeing strong growth rates in all of those.
We track the Boeing and Airbus Bill rates, we have nobody knows what's going on there, but we have seen a nice recovery I would tell you that from all the data I've seen I think 2024 for the single aisle is going to really be back to pre pandemic double aisles, I think will be before.
The 'twenty kind of think 89 timeframe, because we're seeing an uptick there and we've got really strong content on the double aisle.
On the business jet market, we've made really strong inroads if you look at what kinetics.
And some of our other businesses like a practical and brakes military side.
Strong position a lot of future contracts CH 53, we're still working some stuff right now in <unk>, which everybody knows was a big program wins for Bell.
So I'm relatively.
Optimistic on our end markets for our engineered products and we saw as we mentioned really strong organic growth last year, we anticipate the same thing this year.
Double digit growth and that drop through for our for our engineered products is just it's just fabulous, yes, just to provide some more clarity there right, where we are year to date on orders specifically out of our specialty bearings product.
We are at pre pandemic levels relative to order rates given at this time of the year. So very very strong fill rates for this year's book of business.
And we've got a high level of confidence there that that's going to kind of continue as we move through the year at the end point that low mid teens sort of organic growth rate expected for 2023 out of engineered products with the incremental drop through and earnings power of that business.
Is going to be well received we believe.
Awesome and excluded the wheel and brake business, obviously, that's a new business, but how about you guys had talked about couple of some new products coming out thinking about titanium area and engineered products any update on that or when we might be hearing something about new product introductions.
Yes, we've actually made steady progress on when we talk about titanium diffusion hardening process for their <unk> business, which is our new proprietary technology. So for example, we've got 30.
<unk> that are now either approved or in testing that cover.
Everything from space propulsion.
There's a huge movement as everybody knows about limiting chrome plating right overseas in the EU and titanium diffusion hardening can do that so the Airbus has been talking to US we've got stuff already in work right now in the medical industry.
He is joined after the class D and some other things so the team's doing and these take obviously a while to certify right. So the team continues to develop I think a really strong testing portfolio of TD H that will migrate itself in a time over time and we're just going to be looking to really start to accelerate that growth here in the out years.
Great I appreciate the color thanks, guys.
Yep, Thanks, Sir Thanks, Larry.
Thank you.
One moment. Please go to our next question.
Our next question will come from Seth salesman of J P. Morgan Your line is open.
Thanks, very much good morning, guys.
Good morning.
Okay.
So I wanted to start off asking about the revenue guide and.
I think if we look at 'twenty, two and we pro forma for wheel and brake it's $740 million, so basically looking at flat.
Sales at the midpoint in 2023.
And it looks like based on what's in the backlog for J P F.
It looks like there's about $100 million headwind.
From that in the guidance and so if you took <unk> out of both years.
Probably be growing like 17%.
Pro forma from 'twenty two 'twenty three.
What are the main pieces that are driving that that 17%.
Yes.
I like your math SaaS. The one other piece I might add to that is we did have some <unk> sales in 2020.
Two as well that we are not planning to repeat year over year. So that's about call it Brian order $14 million or so and related to that as well so where the growth is coming in absent aircraft. We only break absent J P. F apps and K Max is really coming from engineered products.
A significant portion of organic growth there as we talked about probably low to mid teens rate of growth there structures on year over year is expected to grow we've got some really nice volumes coming out of our Vermont facility and with the expected recovery on our <unk> and Blackhawk, but as we mentioned as part of our guide right. We're not we're not.
Counting any incremental contribution margin from those businesses. This year, we need to make sure that we get them healthy and that those will be opportunity and upside to our plan overall correct.
Right. Okay. Okay got it got it and then so when we think about I guess, when we think about what precision products looks like.
On a go forward basis like in the out years pro forma.
Without any.
<unk> contribution.
That business, what will get to a place where it's kind of sub 100, and then kind of start to start growing from there in terms of the top line.
Yes, and Thats, where youre going to see things like we do have a very strong portfolio of missile fuze programs and as you know with the defense spending and the support that's happening sort of around the world to kind of increased defense spending we would expect and have seen some incremental orders come through for that as well as our new fire burst technology here that is going to as.
As expected to be a contributor over the course of this year.
Yes, I guess the remaining fusing portfolio.
Okay pretty strong demand right now.
Okay.
And then.
The last one from me, maybe just turning to the balance sheet.
And kind of the thought process around 2024.
It's still over a year away until maturities are coming up but they will go current during this year.
So.
How do you think about preparing to address those during during 2023.
Yes, yes, we are working on that right now Seth.
Talking with our trusted bank partners here as we work forward with that we know the bank markets are open as of right now that there is.
Ample opportunity for us to refi and our goal here is to make the assessment make a determination and sort of move.
To take care of those refinancings.
With the converts, though it's pretty attractive coupon rate right now, we do have sufficient capacity underneath our credit agreement.
To sort of handle any incremental with that but we will have more information on our expected refinancings as we proceed through the year, but absolutely with that process and project, we're working through right now.
Alright.
Okay. Okay, great. Thanks, Thanks very much.
Thanks, guys.
Thank you.
Again to ask a question. Please press star one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment for our next question.
Our next question is a follow up from Steve Barger of Keybanc. Your line is open.
Thanks.
Jamie cumulative free cash flow over the past few years has been kind of a tough story can you talk to your confidence in this forecast.
Yes, I mean, we are we feel good about our forecast for this year, Steve we do have some opportunities like we talked about in the prepared remarks relative to the incremental sales of the three white tails. We've got three white tail came back from an inventory today.
We do have the opportunity to convert those to cash that is not included as part of our forecast for the full year.
In addition to that we like we talked about we are focused on working capital and incremental cost outs in order to drive improved cash flow performance.
And so as we move through the course of the year this year.
We will have hopefully have some more information for you on that.
Further shore up our current period cash flow as well as maybe provide incremental opportunities above the range.
Yes, and this is more of a forward looking sorry go ahead.
No I was just going to mention just for everybody's sake, as we think about cash flow performance over the course of the year Q1 is typically write a little bit more of a use for us and we would expect the cash flows to sort of turn positive as we move through the course of the year.
Yes, understood and looking forward.
I ask the question on SG&A similar question on free cash flow margin do.
Do you have a view yet on what this portfolio should produce as it trends more towards engineered products or whatever it is ultimately going to look like how should free cash flow margin flow through.
Yes, we would expect it to be akin to probably the peer group set right that we would look at from an engineered products perspective, Steve.
So the goal here is to get that cost structure in line move that inventory in a way in a manner. That's consistent with those folks think about RBC think about those types of businesses.
Their ability to generate cash that's where our goal is and target is for command.
So high single low double digit is that right, yes, yes, yes.
And the business plan approval letter for the Firebird manufacturing and Assembly facility can you talk through how that works from a cash use standpoint, and when that turns to revenue.
Yes, so what that is as you may recall, we got some footnote disclosures on this inside of our 10-K, when we had our initial award with the UAE we.
Entered into some.
Commitments there to provide offset credits associated with that program. So the fire burst agreement in joint venture is our way of satisfying those offset requirements. There will be some incremental cash contribution, but we don't really expect that to be anything meaningful until 2024 as we move forward.
And Steve just to add to that we were just at IDEXX.
Yes.
Got our joint venture in place, which is a huge milestone.
To move Firebird forward, but also relative to potential future Dcs orders.
Thinking about that part of the world. The other thing from a cash flow perspective.
I was I was going to mention was we had another huge milestone just this week, we had a production maintenance review approval. This was back to our.
Our ATM program.
Which we've been waiting on and working towards so that's another again upside for us this year as we start to really get product out the door with the ATM program from Wichita in Jacksonville.
Sounds good and I'll just ask one more Jamie you were gone pretty fast on guidance. So I can check the transcript, but I think you said EBITDA is heavier in the back half is that true for revenue as well.
Not as much is what happens is Steve as we get through the course of the year, we move through some of the accounting right that happens in like the first second quarter of the year, whether it be vacation accruals, whether it would be other types of accruals that were establishing we start to work our way through and as the volume builds over the course of the year, we get better absorption so that.
It's the sort of natural cadence that we have through our process.
So that inherently will always probably have us have olivia a little bit backend weighted.
Relative to performance, but our goal and as we are trying to demonstrate this year is that we're trying to make that a little bit more even on a quarterly basis.
Right, so revenue a little more even but EBITDA little heavier because of the accruals and such in the front half.
Yes, more or less okay.
Got it thank you.
Yes.
Thank you.
And seeing no further questions in the queue I would now like to turn the conference back to MS. Becky staff for closing remarks.
Thank you for joining us on today's conference call. We look forward to speaking with you again, when we report our first quarter results.
This concludes today's conference call. Thank you all for participating you may now disconnect have a pleasant day and enjoy your weekend.
We are prepared.
The conference will begin shortly.
Reason lower Johan during Q&A, you can dial star one one.
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