Q1 2024 Moog Inc Earnings Call

Good morning, and welcome to the first quarter of fiscal year 'twenty 'twenty Four earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Aaron Astrakhan. Please go ahead Sir.

Operator: Good morning, and welcome to the Moog First Quarter Fiscal Year 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Aaron Astrachan. Please go ahead, sir.

Good morning, and thank you for joining <unk> first quarter 2024 earnings release Conference call I'm, Aaron Astrakhan Director of Investor Relations with me today is Pat Roche, our Chief Executive Officer, and Jennifer Walter Our Chief Financial Officer.

Aaron Astrachan: Good morning, and thank you for joining Moog's first quarter 2024 earnings release conference call. I'm Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, our Chief Executive Officer, and Jennifer Walter, our Chief Financial Officer. Earlier this morning, we released our results and our supplemental slides, both of which are available on our website. Our earnings press release, our supplemental slides, and remarks made during our call today contain adjusted non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials. Lastly, our comments today may include statements related to expected future results and other forward-looking statements, which are not guarantees. Our actual results may differ materially from those described in our forward-looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings. Now, I am happy to turn the call over to Pat.

Earlier. This morning, we released our results and our supplemental slides both of which are available on our web site.

Aaron Astrakhan: Our earnings press release or supplemental slides and remarks made during our call today contains adjusted non-GAAP results.

Pat Roche: Conciliations for these adjusted results to GAAP results are contained within the provided materials.

Pat Roche: Lastly, our comments today may include statements related to expected future results and other forward looking statements, which are not guarantees our actual results may differ materially from those described in our forward looking statements.

Pat Roche: And are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings now I am happy to turn the call over to Pat.

Patrick J. Roche: Good morning, and welcome to the call. Today we report on an excellent start to Fiscal 24. We have positive feedback that we are delivering for our customers and that our employees are highly engaged and vested in our success. This feeds through to stronger financial performance. Sales were strong, delivering double-digit growth relative to the prior year.

Pat Roche: Good morning, and welcome to the call today, We report on an excellent start to fiscal 'twenty four.

Pat Roche: We have positive feedback that we are delivering for our customers and that our employees are highly engaged and invested in our success.

Pat Roche: This feeds through to stronger financial performance.

Pat Roche: Sales were strong delivering double digit growth relative to prior year.

Patrick J. Roche: Adjusted operating margin increased 90 basis points relative to the prior year, which is in line with our margin enhancement plans. Together, these factors resulted in EPS performance at the upper end of our guidance range. Given a great start to the fiscal year, we are confident that we will deliver 110 basis points of incremental adjusted operating margin for the full year, as previously guided. We have also increased both revenue and EPS guidance relative to 90 days ago. Now, I'd like to provide some highlights on our operational performance, starting with customer satisfaction. We were pleased to receive customer recognition from United Launch Alliance as the most innovative supplier of the year 2023. Moog supplies Thrust Vector Actuators for ULA's Vulcan Rock.

Pat Roche: Adjusted operating margin increased 90 basis points relative to prior year, which is in line with our margin enhancement plans.

Pat Roche: Together. These factors resulted in EPS performance at the upper end of our guidance range.

Pat Roche: Given the great start to the fiscal year, we are confident that we will deliver 110 basis points of incremental adjusted operating margin for the full year. As previously guided we have also increased both revenue and EPS guidance relative to 90 days ago.

Pat Roche: Now I'd like to provide some highlights on our operational performance.

Pat Roche: Starting with customer focus.

Pat Roche: We were pleased to receive customer recognition from United launch Alliance as the most innovative supplier of the year 2023.

Pat Roche: <unk> supplies thrust vector accelerators for <unk> Vulcan rocket it was great to see the successful Vulcan certification one slight on January eight and we look forward to many more successful launches.

Patrick J. Roche: It was great to see the successful Vulcan certification flight on January 8th, and we look forward to many more successful launches. We've secured major contract awards in both defense and space that indicate that our product offerings are meeting real customer needs. We received a significant order for our reconfigurable, integrated weapons platform, taking cumulative bookings from $270 million to $350 million, which extends full rate production through to the end of fiscal 25. In addition, we secured further space vehicle business, bringing cumulative bookings to $280 million. We are delighted with the success in building these businesses. Finally, in a highly regulated medical market, we are pleased to have completed a full independent audit of our medical device operations with zero non-conformances.

Pat Roche: We've secured major contract awards in both defense and space that indicate that our product offerings are meeting real customer needs.

We received a significant order for our Reconfigurable integrated weapons platform, taking cumulative bookings from $270 million to $350 million, which extends <unk> full rate production through to the end of fiscal 'twenty five.

Pat Roche: In addition, we secured further space vehicle business, bringing cumulative bookings to $280 million. We are delighted with the success and building these businesses.

Pat Roche: Finally in a highly regulated medical market. We are pleased to have completed a full independent audit of our medical device operations with zero Nonconformance sees.

Patrick J. Roche: This is a testament to the team's focus on quality and continuous improvement. Speaking of teams, and moving to people, community, and planet, our unique culture is core to defining who we are as a company. It is the reason that talented people come to our organization and stay with us. I'm immensely proud to share that Moog was recently recognized by Glassdoor as one of the best places to work.

Pat Roche: This is a credit to the teams focus on quality and continuous improvement.

Pat Roche: Speaking of teams and moving to people community and planet are unique culture is core to defining who we are as a company. It is the reason that talented people come to our organization and stay with us.

Pat Roche: I'm immensely proud to share that <unk> was recently recognized by Glassdoor as one of the best places to work.

Patrick J. Roche: We were ranked 21st of the top 100 large US companies, ranked first in New York State. And we're the top manufacturing company and top aerospace and defense company in this ranking. In addition to this recognition externally, our own recent global employee survey indicated increased levels of engagement relative to our last survey taken prior to the pandemic. Our highly engaged workforce is what enables us to deliver for our customers and drive improved company performance. Turning next to the planet, we continue to increase our focus on environmental issues. During our last earnings call, we committed to reducing Scope 1 and Scope 2 greenhouse gas emissions by 40% by 2030. We are also intent on reducing both water consumption and hazardous waste byproducts and will commit to specific goals by the end of calendar year 24.

Pat Roche: We were ranked 21 of the top 100 large U S companies.

Pat Roche: First in New York State and we are the top manufacturing company and top aerospace and defense company in this ranking.

Pat Roche: In addition to this recognition externally.

Pat Roche: Our own recent global employee survey indicated increased levels of engagement relative to our last survey taken prior to the pandemic.

Pat Roche: Our highly engaged workforce is what enables us to deliver for our customers and drive improved company performance.

Pat Roche: Turning next to planet, we continue to increase our focus on environmental issues.

Pat Roche: During our last earnings call, we committed to reducing scope, one and scope two greenhouse gas emissions by 40%.

Pat Roche: By 2030.

Pat Roche: We are also intent on reducing both water consumption and hazardous waste byproducts and we will commit to specific goals by the end of calendar year 'twenty four.

Pat Roche: We recently published our fiscal 'twenty, three sustainability accounting standards Board disclosure, which provides insights into our environmental performance for our stakeholders.

Patrick J. Roche: We recently published our Fiscal 23 Sustainability Accounting Standards Board Disclosure, which provides insights into our environmental performance for our stakeholders. And finally, financial strength. We continue to drive margin enhancement through pricing and simplification. We've already secured important price adjustments that reflect the value that we deliver for our customers. This made an important contribution to our margin improvements in this quarter. Our business leaders continue to pursue fair pricing on an ongoing basis. We're continuing to systematically reduce unnecessary complexity in our business. AD20 is the methodology that drives much of this activity, and we're gaining traction across all businesses. In the quarter, we rolled out 8020 to a further two manufacturing sites, bringing total deployment to 12 sites.

Pat Roche: And finally financial strength, we continue to drive margin enhancement through pricing and simplification, we've already secured important price adjustments that reflect the value that we deliver for our customers.

Pat Roche: This made an important contribution to our margin improvements in this quarter.

Pat Roche: Our business leaders continue to pursue fair pricing on an ongoing basis.

Pat Roche: We're continuing to systematically reduce unnecessary complexity in our business.

Pat Roche: <unk> is the methodology that drives much of this activity and we are gaining traction across all businesses.

Pat Roche: In the quarter, we rolled out 80 20 to a further two manufacturing sites, bringing total deployment to 12 sites.

Patrick J. Roche: We're using data and analytics on customers, products, and profitability to make key business decisions. At two of our more recently deployed sites, we uncovered the opportunity to end-of-life significant numbers of low-margin, high-overhead items to reduce complexity. For example, we've discontinued more than 40% of part numbers that were previously available for sale at one site and 20% at the other.

We're using data and analytics on customers products and profitability to make key business decisions.

Pat Roche: At two of our more recently deployed sites, we uncovered the opportunity to end of life significant numbers of low margin high overhead items to reduce complexity. For example, we've discontinued more than 40% of part numbers that were previously available for sale at one site and 20%.

Pat Roche: At the other.

Patrick J. Roche: This is all part of our product simplification effort. We're making good progress in strengthening our AB20 talent. We trained 120 more leaders on our AB20 approach this quarter, bringing the total number of trained to close to one quarter of our global leadership.

Pat Roche: This is all part of our product simplification efforts.

Pat Roche: We're making good progress in strengthening our <unk> 'twenty talent, we trained 120 more leaders on our 80 20 approach this quarter, bringing total trained to close to one quarter of our global leadership.

Pat Roche: In addition, we're selectively hiring key expertise to supplement our internal talent we.

Patrick J. Roche: In addition, we're selectively hiring key expertise to supplement our internal talent. We see significant opportunities to deliver financial improvements beyond profitability. We're building a framework to better structure our 80-20 activities. This will guide how we apply 80-20 at each site, and we will also be able to assess our ability to deliver against our own capability maturity model. Finally, we will use consistent measures across the business to inform our operational reviews and decision making.

Pat Roche: We see significant opportunities to deliver financial improvements beyond profitability.

Pat Roche: We're building a framework to better structure, our <unk> 'twenty activities. This will guide how we apply $80 20 at each site.

Pat Roche: We will also be able to assess our ability to deliver against our own capability maturity model.

Pat Roche: Finally, we will use consistent measures across the business to inform our operational reviews and decision making.

Pat Roche: The buy in for 2020 from all levels of the organization has been outstanding. This widespread acceptance in support of 2020 activities is a positive sign that we are on the right track. It shows that our team understands the benefit of this approach and is committed to implementing it in their respective areas.

Patrick J. Roche: The buy-in for 8020 from all levels of the organization has been outstanding. This widespread acceptance and support of 8020 activities is a positive sign that we are on the right track. It shows that our team understands the benefits of this approach and is committed to implementing it in their respective areas. Our work on portfolio rationalization, footprint, and focused factories continues apace, and we will have more to report on this in the next earnings call, macroeconomic, and end market conditions. The geopolitical environment has remained volatile over the past month.

Pat Roche: Our work on portfolio rationalization footprint and focused factories continues apace and we will have more to report on this in the next earnings call.

Pat Roche: Macroeconomic and market conditions, the geopolitical environment has remained volatile over the past months.

Patrick J. Roche: The situation is defining defense priorities for the U.S. and global partner nations, and this is driving investment in industrial capacity to meet current and future demand. In addition, the need for a strategic shift is pushing the development of new capabilities. We are active in supporting both near-term production requirements and the development of those future capabilities. Consequently, we're seeing a broad-based increase in demand across our defense applications, notably missile components, space components, and space vehicles. Meanwhile, commercial aviation continues to recover strongly. Higher fleet utilization is driving higher aftermarket activity, and the wide body production ramps at Boeing and Airbus are driving a significant pickup in our OEM business. However, industrial output in Europe continues to soften, with German manufacturing contracting in the last quarter.

Pat Roche: The situation is defining defense priorities for the U S and global partner Nations. This is driving investment in industrial capacity to meet current and future demands in.

Pat Roche: In addition, the need for a strategic shift is pushing the development of new capabilities. We are active in supporting both near term production requirements and the development of those future capabilities.

Pat Roche: Consequently, we are seeing a broad based increase in demand across our defense applications.

Pat Roche: Notably missile components space components and space vehicles.

Pat Roche: Commercial aviation continues to recover strongly.

Pat Roche: Increased fleet utilization is driving higher aftermarket activity.

Pat Roche: And the wide body production ramps at Boeing and Airbus are driving a significant pickup in our OEM business.

Pat Roche: Industrial output in Europe continues to soften with German manufacturing contracting in the last quarter.

Jennifer Walter: We continue to adjust our business in response to demand, and we will move to a reduced work week for our largest German site in February. On the other hand, our flight simulation business is experiencing strong demand due to increasing fleet utilization and flight hours, leading to increased flight training. We are getting indications of strong future demand from our customers. Guidance for 24. Considering our quarter one performance and the current end market conditions, we're increasing our full year guidance for revenue by $50 million and EPS by 10 cents per share and holding firm on our adjusted operating margin guidance of 12%, an increase of 110 basis points relative to the prior year. Now, I will hand over to Jennifer for a more detailed breakdown of the quarter and our guidance. Thank you, Pat.

Pat Roche: We continue to adjust our business in response to demand and we will move to reduced work week for our largest German site in February.

Pat Roche: On the other hand, our flight simulation business is experiencing strong demand due to increasing fleet utilization on flight hours, leading to increased flight training.

Pat Roche: We are getting indications of strong future demand from our customers.

Pat Roche: Guidance for 'twenty for considering our quarter, one performance and the current end market conditions, we are increasing our full year guidance for revenue by $50 million and EPS by <unk> 10 per share and holding firm on our adjusted operating margin guidance of 12% an increase of 100.

Pat Roche: 10 basis points relative to the prior year.

Pat Roche: Now, let me hand over to Jennifer for a more detailed breakdown of the quarter and our guidance.

Pat.

Jennifer Walter: At the start of FY24, we split our aircraft business into two segments, military aircraft and commercial aircraft. So we'll now be reporting for each segment. We provided indicative numbers for the military and commercial split a quarter ago for comparative purposes, but we've now updated those prior year amounts to reflect the current organization. I'll begin with our first quarter financial performance, and I'll then provide an update on our guidance for all of FY24. It was a great start to the year, with sales coming in strong at $857 million.

Jennifer: Part of FY 'twenty Flyer, we split our aircraft business into two segments military aircraft in commercial aircraft.

Jennifer: We will now be reporting four segments.

We provided indicative numbers for the military and commercial for the quarter ourself for comparative purposes.

Pat Roche: We've now updated those prior year amount to reflect the current organization.

Pat Roche: I'll begin with our first quarter financial performance I will then provide an update on our guidance for all of FY 'twenty four.

Pat Roche: It was a great start to the year with sales coming in strong at $857 million adjust.

Jennifer Walter: Adjusted operating margin of 11.3% was just above plan, and adjusted earnings per share of $1.53 was at the high end of our guidance range. Sales in the first quarter of $857 million were 13% higher than last year's first quarter, with each of our segments contributing to that growth. The largest increase in segment sales within commercial aircraft. Sales of $194 million increased nearly 50% over the same quarter a year ago. Commercial OE sales in the quarter were strong, driven by continued market recovery in wide-body platforms.

Pat Roche: Adjusted operating margin of 11, 3% with just above plan and adjusted earnings per share of $1 53 was at the high end of our guidance range.

Pat Roche: Sales in the first quarter of $857 million were 13% higher than last year's first quarter with each of our segments contributing to that growth.

The largest increase in segment sales within commercial aircraft sales of $194 million increased nearly 50% over the same quarter a year ago.

Pat Roche: Marshall OE sales in the quarter were strong driven by continued market recovery in wide body platform.

Jennifer Walter: This is in addition to strength across the broader commercial book of business and robust aftermarket sales due to airlines wanting to have more spares on hand. Space and defense sales of $230 million increased 6% over the first quarter last year. There's strong defense demand across our portfolio, with new defense work ramping up and increased activity in defense-related space applications. Military aircraft sales of $186 million were up 5% over the first quarter of last year. Activity on the V-280 program has continued to ramp up over the past three quarters, driving OE sales higher. Industrial sales of $246 million increased 6% over last year's first quarter.

Pat Roche: This is in addition to strength across a broader commercial book of business and robust aftermarket sales due to airlines wanting to have more spares on hand.

Pat Roche: Space and defense sales of $230 million increased 6% over the first quarter last year, they're strong Japan demand across our portfolio with new defense work ramping up and increased activity and defense related applications.

Pat Roche: Military aircraft sales of $186 million were up 5% over the first quarter of last year activity on the V. 280 program has continued to ramp up over the past three quarters driving OE sales higher.

Pat Roche: Industrial sales of $246 million increased 6% over last year's first quarter.

Jennifer Walter: Demand for flight simulation systems is strengthening and is associated with recovery and commercial aircraft flight hours and related demand for pilot training. Industrial automation sales also grew over the same quarter a year ago, though we've seen a slowdown in orders in recent quarters, and sales decreased from our most recent quarter. We'll now shift to operating margins. The adjusted operating margin of 11.3% in the first quarter increased 90 basis points from the first quarter last year.

Pat Roche: Demand for flight simulation systems is strengthening and is associated with recovery in commercial aircraft flight hours and related demand for pilot training.

Industrial automation sales also grew over the same quarter a year ago. So we've seen a slowdown in orders in recent quarters and a sales decrease from our most recent quarter.

Pat Roche: We will now shift to operating margin.

Adjusted operating margin of 11, 3% in the first quarter increased 90 basis points from the first quarter last year.

Jennifer Walter: Adjustments this quarter were $2 million of restructuring charges; adjustments for last year's first quarter consisted of a $10 million gain on the sale of two buildings and $2 million of restructuring and other. Adjusted operating margins increased over the first quarter of last year in each of our segments other than commercial aircraft. In space and defense, operating margin increased 160 basis points to 11.0%. This increase is associated with production efficiencies, along with a benefit from additional pricing activities. The operating margin for military aircraft was 10.5%, up 200 basis points. The higher margin resulted from increased activity on the V-280 program as we near the expected full staffing level and a favorable mix. Commercial aircraft operating margin was 10.6%, down slightly from the first quarter last year.

Pat Roche: Adjustments this quarter were $2 million of restructuring charges.

Adjustments for last year's first quarter consisted of a $10 million gain on the sale of two buildings and $2 million of restructuring and other.

Pat Roche: Adjusted operating margins increased over the first quarter of last year in each of our segments other than commercial aircraft and space and defense operating margin increased 160 basis points to 11, 8%. This increase is associated with production efficiencies along with a benefit.

Pat Roche: Additional pricing activity.

The operating margin for military aircraft was 10, 5% up 200 basis points.

Pat Roche: Higher margin resulted from increased activity on the V 280 program as we near the expected full staffing level and a favorable mix.

Pat Roche: Commercial aircraft operating margin was 10, 6% down slightly from the first quarter last year the benefits.

Jennifer Walter: The benefits associated with pricing and higher volume across our entire book of business were offset by the lack of retrofit activity on the 787 program that we had in last year's first quarter. Industrial operating margin was 12.6% in the first quarter on a 30 basis. We continue to realize benefits from our pricing activities, though this improvement is mostly masked by a favorable mix we experienced in last year's first quarter. Non-operating expenses are also impacting your financial results this quarter. The most significant element of that is interest expense, which was $17 million, up $4 million over the first quarter last year.

Pat Roche: Associated with pricing and higher volume across our entire book of business was offset by the lack of retrofit activity on the 787 program that we had in last year's first quarter.

Pat Roche: Industrial operating margin was 12, 6% in the first quarter up 30 basis points.

We continue to realize benefits from our pricing activities, though this improvement is mostly masked by a favorable mix we experienced in last year's first quarter.

Pat Roche: Non operating expenses are also impacting our financial results. This quarter. The most significant element of that is interest expense, which was $17 million up $4 million over the first quarter last year.

Pat Roche: Putting it altogether adjusted earnings per share came in at $1 53, near the high end of the range, we provided a quarter ago.

Jennifer Walter: Putting it all together, adjusted earnings per share came in at $1.53, near the high end of the range we provided a quarter ago. EPS was up 22% from the same quarter a year ago, driven by the increase in operating profit and partially offset by the increased levels of interest and other non-operating expenses. Let's now shift over to cash flow. Free cash flow for the first quarter was $23 million, which included a $25 million benefit associated with the expansion of our securitization facility. Due to this facility structure, the associated receivables are not recognized on the balance sheet, so any growth in the outstanding balance of this facility results in an improvement in free cash flow. We amended our securitization facility in the first quarter, extending the maturity to 2026 and increasing the capacity from $100 million to $125 million.

Pat Roche: <unk> was up 22% from the same quarter, a year ago, driven by the increase in operating profit and partially offset by the increased levels of interest and other nonoperating expenses.

Pat Roche: Let's now shift over to cash flow.

Pat Roche: Free cash flow for the first quarter was $23 million, which included a $25 million benefit associated with the expansion of our securitization facility.

Due to this facility structure the associated receivables are not recognized on the balance sheet. So any growth in the outstanding balance of this facility results in an improvement in free cash flow, we amended our securitization facility in the first quarter, extending the maturity to 2026 and increasing the capacity from $100 million.

$125 million.

Pat Roche: We took advantage of the additional capacity this quarter.

Jennifer Walter: We took advantage of the additional capacity this quarter. In my following comments, I'll reference our free cash flow performance and working capital changes, excluding the benefit associated with the increase in our securitization facility balance. We had an expected slow start for adjusted free cash flow in the quarter.

In my following comments I will reference our free cash flow performance and working capital changes, excluding the benefit associated with the increase in our securitization facility Ellen.

Ellen: We hadn't expected slow start for adjusted free cash flow in the quarter net earnings were solid and capital expenditures are under the run rate expected for the year. However, we consume cash with working capital growth during.

Jennifer Walter: Net earnings were solid, and capital expenditures were under the run rate expected for the year. However, we consumed cash with working capital growth. During the quarter, we were negatively impacted by the timing of compensation payments.

Pat Roche: During the quarter, we were negatively impacted by the timing of compensation payments.

Jennifer Walter: There were other offsetting changes in working capital with growth and physical inventories being fully offset by cash collected from. We grew inventories in anticipation of production increases. In addition, we purchased materials to mitigate exposure from the supply chain. On the other hand, we have strong cash collections, converted bill receivables to cash, and generated cash from customer advances on defense programs. Capital expenditures were $37 million in the first quarter and included investments in our facilities to support our growth. Our leverage ratio, calculated on a net debt basis at the end of the first quarter, was 2.2 times, around the low end of a target range of two and a quarter times to two and three quarter times.

Pat Roche: There were other offsetting changes in working capital with growth in physical inventories being fully offset by cash collected from customers.

We grew inventory in anticipation of production increases in.

Pat Roche: In addition, we purchase materials to mitigate exposure from supply chain constraints.

Pat Roche: On the other hand, we had strong cash collections converted builder.

Pat Roche: We generated cash from customer advances on defense programs.

Pat Roche: Capital expenditures were $37 million in the first quarter and include investments in our facilities to support our growth.

Pat Roche: Our leverage ratio calculated on a net debt basis at the end of the first quarter was two two times around the low end of our target range of two and a quarter times to two and three quarters time.

Pat Roche: Our capital deployment priorities, both long term near term arent changed our current priority continues to be investing in organic growth on.

Jennifer Walter: Our capital deployment priorities, both long term and near term, are unchanged. Our current priority continues to be investing in organic growth. On the acquisition front, we did acquire a technology company that enhances our digital airfield solutions capabilities for $6 million this quarter. Now, we'll shift over to our updated guidance for this year. We're raising our sales and earnings per share guidance based on our first quarter performance, and we're holding our operating margin at 12.0%. Fiscal year 2024 will be another positive step on our journey towards our long-term financial target. Our sales will grow by 5%, operating margin will expand by 110 basis points, and earnings per share will increase by 12%. We're projecting sales of $3.5 billion in FY24, with sales growth in commercial aircraft, space and defense, and military aircraft and a decline in sales in industrial.

Pat Roche: On the acquisition front, we did acquire a technology company that enhances our digital airfield solutions capabilities for $6 million this quarter.

Pat Roche: We will now shift over to our updated guidance for this year.

Pat Roche: We're raising our sales and earnings per share guidance based on our first quarter performance and we're holding our operating margin of 12%.

Pat Roche: Full year 2024 will be another positive step in our journey towards our long term financial targets. Our sales will grow by 5% operating margin will expand by 110 basis points and earnings per share will increase by 12%.

We're projecting sales of $3 $5 billion in FY 'twenty four with sales growth in commercial aircraft space and defense and military aircrafts and a decline in sales in industrial.

Pat Roche: We're increasing our guidance for FY 'twenty for sales by $50 million from 90 days ago.

Jennifer Walter: We're increasing our guidance for FY 24 sales by $50 million from 90 days ago. We're increasing our sales guidance for the commercial aftermarket by $30 million to reflect the strong first quarter activity and the strength we're seeing. We're increasing our military aircraft sales guidance by $10 million, which reflects our first quarter run rate.

Pat Roche: We're increasing our sales guidance for commercial aftermarket by $30 million to reflect the strong first quarter activity and the strength we're seeing.

Pat Roche: We're increasing our military aircraft sales guidance by $10 million, which reflects our first quarter run rate.

Jennifer Walter: We're also increasing our industrial sales guidance by $10 million, reflecting a stronger first quarter than expected. Now, let's shift over to operating margin. We're projecting our adjusted operating margin in FY24 to be 12.0%, a 110 basis point increase over FY23. Operating margins will be 13.5% in space and defense, 11.6% in military aircraft, 10.2% in commercial aircraft, and 12.3% in industrial, all the same as our previous guidance. For FY 24, we're projecting adjusted earnings per share of $6.90, plus or minus 20 cents, which is up 12% over FY 23, reflecting strong operational performance. We've increased this guidance by 10 cents from a quarter ago based on our first quarter performance. For the second quarter, we're forecasting earnings per share to be $1.70 plus or minus 10 cents. Finally, turning to cash. We're projecting free cash flow for FY 24 to be modest, as previously guided. Relative to FY23, we'll see stronger cash from net earnings and working capital, while capital expenditures remain around the same level. We'll use less cash for working capital needs this year as physical inventories grow at a slower rate.

Pat Roche: We're also increasing our industrial sales guidance by $10 million, reflecting a stronger first quarter than expected.

Pat Roche: Let's shift over to operating margin.

Aaron Astrakhan: We're projecting our adjusted operating margin in FY 'twenty for it to be 12% or 110 basis point increase over FY2023.

Operating margins will be 13, 5% in space and defense.

Aaron Astrakhan: 11, 6% and military aircraft 10, 2% and commercial aircraft and 12, 3% and industrial all the same as our previous guidance.

Aaron Astrakhan: For FY 'twenty four we're projecting adjusted earnings per share of $6 90.

Pat Roche: Plus or minus 20, which is up 12% over FY 'twenty, three reflecting strong operational performance.

Pat Roche: We've increased the guidance by <unk> 10 from a quarter ago based on our first quarter performance.

Pat Roche: For the second quarter, we're forecasting earnings per share to be $1, 70, plus or minus 10.

Pat Roche: Finally, turning to cash.

Pat Roche: Projecting free cash flow for FY 'twenty for it to be modest as previously guided realm.

Pat Roche: Relative to FY 'twenty, three we will see stronger cash from net earnings and working capital while capital expenditures remain around the same level will use less cash for working capital needs. This year as physical inventories grow at a slower rate.

Patrick J. Roche: Overall, we had a great start to the year, and our outlook for the year continues to look strong. Now, I'll turn it over to Pat. Thank you, Jennifer.

Overall, we had a great start to the year and our outlook for the year continues to look strong and now I'll turn it over to Pat.

Pat Roche: Thank you Jennifer I'm really pleased with our performance in this quarter and look forward to another exceptional year.

Operator: I'm really pleased with our performance in this quarter and look forward to another exceptional year. Now, we open it up to questions. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Pat Roche: Now, let's open it up for questions.

And if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Pat Roche: Once again that is star one if you would like to ask a question.

Operator: Once again, that is star number one if you would like to ask a question. We'll take our first question from Kai von Rumohr with the TD Calendar. Yes, thanks so much.

Pat Roche: We will take our first question from Cai von <unk> with TD Cowen.

Pat Roche: Yes, thanks, so much good quarter.

Operator: Good quarter. So your space and defense profit margin, given the price hike and the productivity, looks a little lighter than we'd estimated. Were there any additional charges on the satellite program?

Pat Roche: So your space and defense profit.

Margin given you know the price hike and the productivity looks a little lighter than we had estimated whether any additional charges on the satellite program.

Pat Roche: There is nothing of significance to call out from <unk>.

Operator: There is nothing of significance to call out from space vehicles. Got it. And so, when we talk to you, I guess, can you give us some color on your customers, like LHX is on the, you know, the Tronch II tracking satellites, but which satellites of theirs are you providing the bus to, and have you expanded to additional customers yet? Hi, it's Pat here.

Pat Roche: Vehicles.

Pat Roche: Yes.

Pat Roche: Got it.

Pat Roche: So you talked I guess can you can you give us some color on.

Speaker Change: Your customers like La <unk> is on the.

Speaker Change: Trough two tracking satellite but.

Which satellites.

Speaker Change: There are you or are you, providing the bus and have you expanded to additional customers yet.

Speaker Change: So.

This part here, yes, we are actively pursuing the development of that business and broadening out the customer base that is still underway.

Patrick J. Roche: Yes, we're actively pursuing the development of that business and broadening out the customer base, which is still underway. We are continuing to work with our lead customer, L3Harris, and we're not really able to talk about the individual programs which they're performing on, so that makes it a little bit more difficult for me to describe the detail behind it, but what I would say is positive about the business is that it continues to expand. We have a lot of proposal activity and, as I mentioned, we've increased orders during the course of the last quarter, bringing our total book of business there to quite a significant number. We're over a quarter of a billion dollars in business there in that new endeavor to get into space vehicles. So I think it's a really positive story for us. It's growing, and we hope to see flight hardware in space in the coming six months. Great And is it in the black yet?

Speaker Change: We are continuing to work with our lead customer <unk> Harris.

Pat Roche: We're not really able to talk about the individual programs, which theyre performing on so thats makes it a little bit more difficult for me to describe the details behind it but what I would say is positive about the business is that it continues to expand we have a lot of proposal activity and as I mentioned, we have increased orders during the course of the last quarter, bringing our.

Pat Roche: Total book of business, there to a quite significant number where over a quarter of a $1 billion of business, there and that new endeavor to get into the space vehicles. So I think it's a really positive story for us.

Pat Roche: It's growing and.

Pat Roche: We hope to see flight hardware.

Pat Roche: <unk> and space in the coming six months.

Pat Roche: Great.

Pat Roche: In the block yet.

Pat Roche: The business is challenged because of the issues, we uncovered last year and the charges we took.

Patrick J. Roche: The business is challenged because of the issues we uncovered last year and the charges we took. We are taking all of those learnings into account on any of the new contracts that we are in negotiation on. So we expect that the picture improves over the course of the coming year. Great And then on the RIP, where are those basically more domestic orders, and what's the prospect for foreign sales? So, yes, they are basically domestic orders. They are supporting the needs of two programs. One is M-SHORAD, which is the bigger of those programs, and the other one is M-LID.

Pat Roche: We are taking all of those learnings into account on any of the new contracts that were in negotiation on so we expect that the picture improves over the course of the coming year.

Pat Roche: Great and then.

Pat Roche: The risks.

Do those are those are basically more.

<unk> orders and whats the prospect for foreign sales.

Speaker Change: So yes. They are basically domestic orders they are supporting the needs on two programs. One is <unk>, which is the bigger of those programs and the other one is in lids.

Patrick J. Roche: So that program is, as you can see, very successful for us. We're really pleased with those orders because they allow us to continue full-rate production without interruption through to the end of fiscal year 25. So on M-SHORAD, we are working on the Stryker vehicle. On M-LIDS, the turret is mounted on a Noshkosh all-terrain vehicle.

Pat Roche: So that program is as you can see very successful for us.

We're really pleased with those orders because they allow us to continue full rate production without interruption through to the end of fiscal year 'twenty five.

So on <unk>, we are working on the Stryker vehicle and lids.

The third is mounted on <unk>, all terrain vehicle and during the quarter. We also.

Patrick J. Roche: And during the quarter, we also had a press release from BAE Systems that indicated that they had our turret installed on their armored multipurpose vehicle, and they had done live fire tests at one of the Army firing ranges with great success. So we are working to build out that business beyond those two existing programs, and that would be for us to build the business beyond fiscal 25, maybe even expanding the run rate that we're currently doing. But we're really active there, Kai. Thanks so much.

Had a press release from VA systems.

<unk> indicated that they had our turf installed on their armored multipurpose vehicle and they had done life fire tests, one of the army firing ranges with great success. So we are working to build out that business.

Beyond those two existing programs and that would be for us building the business beyond fiscal 'twenty five maybe even expanding the run rate that we're currently doing but we're really active there.

Thanks, So much I'll turn it over to next version.

Operator: I'll turn it over to the next person, and our next question will come from Kristine Liwag with Morgan Stanley. Good morning.

And our next question will come from Christine <unk> with Morgan Stanley.

Kristine Tan Liwag: Good morning.

Operator: Yeah. Hey, you know, um, Pat, I was just thinking about this. You know, like, Moog's performance regarding margin growth, margin expansion, and revenue had kind of been stagnant for about a decade or so. But since taking on the role of CEO at Moog, you've clearly injected energy into revenue growth and margin expansion, and you're starting to show results. You discussed this at investor day, but now that you are showing some of this traction, can you give more color on how different your leadership approach is, how you're thinking about strategy, and what are the immediate more low-hanging fruit that you can accomplish this year to show more of the traction from your multi-year outlook? Thanks for the question, Kristine. I think we're making great success as a business and a team overall. It's not all down to me in this role.

Hey.

Pat I was just thinking about this.

Like more performance regarding margin growth margin expansion and revenue had kind of been stagnant for about a decade or so but since taking on the role of CEO at mode. You've clearly injected energy on revenue growth and margin expansion and you are starting to show results.

Can you discuss this at the Investor day, but now that you are showing some of this traction.

Give more color on how different your leadership approach is how youre thinking about strategy and what our immediate more low hanging fruit that you can accomplish this year to show more of the traction from your multiyear outlook.

Yeah.

Thanks for the question.

<unk> I think we're making great success as a business and the team overall, it's not all down to me in this role I think that the contribution that I can make is increasing the level of focus and prioritization around these activities. We are single minded in our intent to improve operating margin and thats, what we committed to as a and the entire leadership team.

Patrick J. Roche: I think the contribution that I can make is increasing the level of focus and prioritization around these activities. We are single-minded in our intent to improve operating margin, and that's what we committed to as an entire leadership team when we went to investor day in June, and what you're seeing are the fruits of that coming through now. That wasn't an overnight switch that was thrown.

Pat Roche: When we went to the Investor day in June and what Youre seeing or the fruits of that coming through now.

Pat Roche: That wasn't an overnight switch.

Patrick J. Roche: It was planning that had gone on prior to that, building out what we believed were realizable plans, and I think what we're seeing now in our results is that, indeed, they were realizable. We're getting the value that we thought we would from those activities, and as we see the results coming through, it actually builds belief and commitment and momentum within the organization as well because you can see the fruits of your labor coming through in those improvements, and that's actually reinforcing the activity. We talked a lot on the call about 80-20, it's one of the techniques that we've started to use, but you know that there are a lot more activities going on in the background on portfolio shaping, on footprint activities, and during the next quarterly call, I'll have more to report on progress made in those areas. So the activities and effort continue at pace within all of the areas, and the results are coming through in our financials. So I'm really pleased where we are on this journey. Great, thanks, Pat. And a few program questions.

Sure.

Pat Roche: Thrown it was planning that had gone on prior to that building out what we believed were realizable plans and I think what we're seeing now in our results is yes. They were indeed realizable, we're getting the value that we thought we would from those activities and as we as we as we see the results coming through it actually builds.

Belief and commitment and momentum within the organization as well because you can see the fruits of your labor coming through in those improvements and thats actually reinforcing the activity.

We talk a lot in the call about 80 20, it's one of the techniques that we've started to use but you know that there is a lot more activity going on in the background on portfolio shaping on the footprint activities and joined the next quarter call I'll have more to report on progress made in those areas. So the activities in effort continues at pace with an all in.

The areas and the results are coming through in our financials. So I'm really pleased where we are with in this journey.

Great. Thank Pat and a few off program questions.

Operator: You've clearly been seeing success with the turret, which I saw at AUSA last October. I mean, it's really more of an integrated system versus individual components. You run the strategy of providing for integrated solutions in space. Does that mean that you want to do more of that also in defense?

You've clearly been seeing success with that correct, which I thought <unk> last October I mean, it's really more of an integrated system versus individual components.

You are running the strategy of providing for integrated solutions and space.

Does that mean that you wanted to do more of that also in defense.

I think that's a journey we've been on for probably two decades for Athene, because as you think about our aircraft business, we were a component supplier and over the two decade period, we became system engineering experts unable to build our primary flight control system that now flies on 780, 700, <unk> hundred 50 <unk>.

Patrick J. Roche: I think that's a journey we've been on for probably two decades, Kristine, because when you think about our aircraft business, we were a component supplier. And over the two-decade period, we became system engineering experts and able to build a primary flight control system that now flies on 787, A350, Embraer, and E2 jets. That capability, those skills, we've now applied in different areas. You see it, as you rightly point out, in the reconfigurable integrated weapons platform.

Embraer <unk> jet that capability those skills, we've now applied in different areas you see it as you rightly pointed out India.

And the Reconfigurable integrated weapons platform, that's a pretty complex system, where we brought those systems capabilities. So does user interfaces that are software does aiming in fire control systems in there does the motors and actuation Theyre sensing and vision systems very complicated systems and I think we know we know how to do those now.

Patrick J. Roche: That's a pretty complex system where we bring those capabilities, so there are user interfaces, there are software, there are aiming and fire control systems in there, there are the motors and actuation, there are sensing and vision systems, very complicated systems. And I think we know how to do those now. And yes, you see the extension of that into the space side. That will continue. We're using those capabilities and exploiting them in different end-market applications. That's great to hear.

The FCC then the extension of that into the space side that will continue.

We're using those capabilities and exploiting them in different end market applications.

That's great to hear and as you climb up the value chain. How do you think about margin profile historically, sometimes the component manufacturer is higher margin, but more of an integrator or taking on more risk how do you balance the opportunity versus.

Patrick J. Roche: And as you climb up the value chain, how do you think about the margin profile? You know, historically, sometimes the component manufacturers have higher margins, but more of an integrator taking on more risk? How do you balance the opportunity versus, you know, managing a broader supply chain with an integrated approach and making sure that you're getting margins? Yeah, that's a great question.

Managing a broader supply chain with an integrated approach and making sure that youre getting margin.

Yes, that's a great question I mean, when you are building. These complex systems. There is a lot more engineering activity invested upfront, we got to be really clear that we're going to generate a return from those and so thats down to each of the business leaders looking at the value proposition that they are developing and making sure that it.

Patrick J. Roche: I mean, when you're building these complex systems, there is a lot more engineering activity invested up front; we have to be really clear that we're going to generate a return on those. And so that's down to each of the business leaders looking at the value proposition that they're developing and making sure that it's going to be a profitable business. So those investment decisions are something we as a leadership team pay a lot of attention to, to see where we can spend our next investment dollar and in what piece of the business we're likely to generate the greatest return.

It's going to be a profitable business. So those investment decisions are something we as a leadership team pay a lot of attention to to see where we can spend our next investment dollar and what piece of the business. We are likely to generate the greatest returns. So we actively do that.

Operator: So we actively do that portfolio review type work as well, which I think helps ensure that we have the right level of profitability. We continue to want to explore new areas. And so we have a funnel of opportunities, new ideas that we continue to develop, but we do that in a fairly prudent manner, testing out new capabilities and new developments. Great, thank you very much.

Portfolio review type work as well, which I think helps ensure that we have the right level of profitability.

We continue to want to explore in new areas and so we have a.

Our funnel of opportunities new ideas that we continue to develop what we would do that in a fairly prudent manner.

To test out new capabilities and new developments.

Great. Thank you very much.

Thank you.

Operator: Thank you. And once again, that is star number one if you would like to ask a question. We'll take our next question from Michael Ciarmoli with Truist Security. Hey, good morning, guys.

And once again that is star one if you would like to ask a question.

We will take our next question from Michael <unk> with <unk> Securities.

Hey, good morning, guys. Thanks for taking my question nice results here.

Operator: Thanks for taking the question. Nice results here. Maybe, Pat, just to close the loop, maybe a bit on Kai's question on the space margins. I mean, you put up 11 in the quarter.

Maybe Pat just to close the loop, maybe a bit here on the <unk> question on the space margins I mean, you put up the 11 in the quarter. What gives you the confidence or what are you seeing to drive that expansion to get to the full year target I mean, I guess, you've got a bit of volume growth it sounds like.

Operator: What gives you the confidence or what are you seeing to drive that expansion to get to the full year target? I mean, I guess you'll get a bit of volume growth. It sounds like you're still battling some pressures on some programs, but I guess I'm just asking maybe risk parameters around that margin target this year. Yeah, I just wanted to comment, maybe share a little bit more color.

Youre still battling some some pressures on some programs, but I guess I'm, just asking maybe risk parameters around that that margin target this year.

Yeah.

Alright.

And then maybe share a little bit more color, yes, what we're seeing in the first quarter as we've got the production efficiencies that I've mentioned, a nice growing business.

Jennifer Walter: Yeah, what we're seeing in the first quarter is we have, you know, the production efficiencies that I've mentioned, a nice growing business with, you know, strong health overall, and we're seeing the benefits of the pricing. And certainly, when we look at the full year, the benefits that we're going to see year over year 23 to 24 are going to be, you know, the absence of space vehicle charges that we were saddled with last year.

Strong horse overall, and we're seeing the benefits from our pricing and certainly when we look at the full year the benefits that we're going to see you.

Year over year 'twenty three 'twenty four is going to be the absence of the space vehicle charges that we are saddled with last year, it's a little bit muted when we're looking at our first quarter results. Because we did have some higher investment and R&D expenses. So thats kind of the other thing that's comparable to the factor here, but really its a nice thought.

Jennifer Walter: It's a little bit muted when we're looking at our first quarter results because we did have some higher investment in R&D expenses. So that's kind of the other thing that's coming into the factory here. But really, it's a nice solid business; we're getting some improvements in the pricing there. But when you look at 23 to 24, overall, it's really the absence of charges that stands out most significantly, because that was our learning.

<unk> business, we're getting some improvement in the pricing there, but when you look at 23% to 24 overall, it's really the absence of the charges that stands out most significantly because that was our learning.

Patrick J. Roche: But we've gotten through a lot of risk on these programs, as Pat mentioned, and we've learned a lot. And we're happy to be taking on new work and new business and having this business grow. Got it. That's helpful. Thanks. Thanks very much, Jennifer. And we're seeing pricing coming through generally on the work in space and defense. Got it, got it.

But we've.

Gotten through a lot of risk on these programs as Pat mentioned, we have learned a lot.

And we're happy to be taking on new work and new business and having this business grow.

Got it that's helpful. Thanks.

Thanks, very much Jennifer and we're seeing pricing coming through generally on the.

Our work in the space and Defense group.

Got it got it and then Jennifer just on <unk>.

Jennifer Walter: And then Jennifer, just on inventory, you know, up, I think, nine, nine percent sequentially. How should we think about inventory levels, you know, going forward here as it relates to cash flow? Yeah, so physical inventory definitely grew larger than we had anticipated. I think last quarter, I shared that over the last few quarters and in the last year, we made improvements every quarter of using less and less inventory each quarter. This quarter, we used more than that average that we were projecting to be throughout the full year. A few things happened to us. First of all, we had some supply chain challenges. More than we had anticipated doesn't necessarily mean that the supply chain is necessarily getting any worse or challenged, but that was a factor for us.

Inventory.

Up I think 90.

9% sequentially, how should we think about inventory levels.

Going forward here as it relates to cash flow.

Yeah, so physical inventory definitely grew larger than we had anticipated.

<unk> I think last quarter I shared that over.

Over the few quarters end.

Last year, we made improvements every quarter of using less and less inventory each quarter. This quarter, we even more than that average that we're projecting could be throughout the full year, a few things happen to us first of all we had some supply chain challenges.

More than we had anticipated it doesn't mean that supply chain is necessarily getting any worse or challenged but that was a factor for us. There is obviously the growth in the business the commercial ramp certainly.

Jennifer Walter: There's obviously the growth in the business; the commercial ramp certainly has an impact on that. And then there's also timing; some of the timing things that have caused us to have an increase this quarter are already pushing through and are going to help us out in the next quarter or two. So that's where we're at on that. Definitely a little bit more challenged.

Hasnt impact on that and then Theres also timing some of that timing things that has caused us to have an increase.

Are already pushing through and are going to help us out in the next quarter or two.

So that's where we're at on that so definitely a little bit more challenged it's probably going to have more growth than what we had previously anticipated for the year. However.

Jennifer Walter: It's probably going to have more growth than we had previously anticipated for the year. However, our collections from our customers, in particular customer advances that we received in the first quarter, are also higher than we had anticipated. So that's really offsetting it.

Collections from our customers in particular on customer advances that we received.

Are also higher.

And we had anticipated so that's really offsetting it. So we feel like we are in the same shape that we were coming into this quarter as we view right now just a little bit different of a mix as we've gotten a little bit stronger on the customer advances.

Jennifer Walter: So we feel like we're in the same shape that we were coming into this quarter as we do right now. It's a little bit different of a mix as we've gotten a little bit stronger on the customer advances, but that's offset by a little bit of growth in the physical inventories that we've got.

But that's offset by a little bit of growth in the physical inventory that we've got.

Patrick J. Roche: Got it. And then I'll just ask one last one here. I'll jump into queue. Um, Pat, something just stuck out to me about the medical device audit. What sort of drove that? And what was the, I guess, rationale to call that out?

Got it and then I'll just ask one last one here I'll jump in the queue.

It just stuck out to me the medical device audit what sort of drove that.

What was the I guess the rationale to call that out anything we should read into there.

Patrick J. Roche: Anything we should read into there? For me, it demonstrates the level of focus and commitment to quality work within our organization. The audit itself was to certify us to an ISO standard, which is the International Standard for Medical Device Production. That makes sure that we have access to European markets and other areas as well. It was a planned event. We invited a German certification company to do that audit at our three manufacturing sites. We came up with zero non-conformances. We are talking about production sites where we have hundreds of people. Costa Rica, with over 600 people, Salt Lake City, with hundreds of people, and Lithuania.

For me it demonstrates the level of focus and commitment on quality of work within our organization.

The audit itself was to certify ourselves to an ISO standard which is the international standard for medical device production.

That makes sure that we have access to European markets in other areas as well. It was a planned four event, we invited in a German certification company to do that audit of our three manufacturing sites and I think the remarkable thing is we came out with zero Nonconformance is.

These are talking about production sites, where we have hundreds of people Costa Rico under People's Salt Lake City 100 people in Lithuania is able to three manufacturing sites that were reviewed so overall a good result in a very strong endorsement of the work of the team in that business.

Patrick J. Roche: They were the three manufacturing sites that were reviewed. So overall, a really good result and a very strong endorsement of the work of the team in that business. Got it. Helpful. I'll jump back in the queue, guys. Thanks. And as a final reminder, that is star number one.

Got it helpful I'll jump back into queue guys back.

Okay.

And as a final reminder, that is star one if you would like to ask a question, we'll pause for just a moment.

Patrick J. Roche: If you would like to ask a question, we'll pause for just a moment. And it appears there are no further telephone questions. I'd like to turn the conference back to our presenters for any additional or closing comments. So, thank you very much, everyone, for joining our call. I think we had a great start to the year. I'm looking forward to continuing to drive all of the initiatives we have to improve margins in the business, and we're expecting a really good year for Fiscal 24.

And it appears there are no further telephone questions I'd like to turn the conference back to our presenters for any additional or closing comments.

So thank you very much everyone for joining our call I think we had a great start to the year looking forward to continuing to drive all of the initiatives, we have to improve margins in the business and we are expecting a really good year for fiscal 'twenty four.

Operator: So thank you very much for your time today. And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.

Thank you very much for your time today.

And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.

Okay.