Q3 2024 Moog Inc Earnings Call

Please stand by, we're about to begin.

Operator: Order of Fiscal Year 2024 earnings conference call. Today's conference is being recorded.

Operator: This is a 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.

Speaker Change: Good morning and welcome to the Moog 3rd 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.

Operator: At this time, I would like to turn the conference over to Mr. Aaron Astrachan. Please go ahead.

Aaron Astrachan: Good morning, and thank you for joining Moog's third quarter 2024 earnings release conference call. I'm Aaron Astrachan, Director of Investor Relations. With me today are Pat Roche, our Chief Executive Officer, and Jennifer Walter, our Chief Financial Officer.

Aaron Astrachan: Good morning. And thank you for joining Moogs, Third Quarter 2024 earnings release conference call. I'm Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, a Chief Executive Officer, Jennifer Walter, our Chief Financial Officer.

Aaron Astrachan: Good morning and thank you for joining Moog's third 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.

Aaron Astrachan: 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. Reconciliation for these adjusted results, to get results are contained within me provided materials.

Aaron Astrachan: 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 time gap results. Reconciliations for these adjusted results to gap results are contained within the provided material. Lastly, our comment today may include statements related to expected future results and other forward-looking statements, which are not guaranteed. 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'm happy to turn the call over to Pat.

Speaker Change: 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 down gap results.

Aaron Astrachan: Reconciliations for these adjusted results. The gap results are contained within the provided materials.

Aaron Astrachan: Lastly, our comment today may include the image 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 our subject to variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings.

Aaron Astrachan: Lastly, our comment today may include statements related to expected future results and other forward-looking statements which are not guarantees.

Pat: 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'm happy to turn the call over to Pat.

Patrick Roche: Now I'm happy to turn the call over to Pat. Good morning and welcome to the call. Today we report another strong quarter, demonstrating very positive progress towards improved financial performance. Sales are strong with double-digit growth in defense and mid-single-digit growth in commercial and markets. In Doffsville, which has been a watch item, held ground despite softening in automation. Adjusted operating margin was up substantially. This reflects moving beyond our space vehicle charges, a ramp in better priced commercial business, and greater productivity as future-long range assault aircraft expands. Adjusted diluted earnings per share increased by almost 40% relative to prior year, driven by margin enhancement initiatives and profitable sales growth.

Patrick Roche: Good morning, and welcome to the call. Today we report another strong quarter, demonstrating very positive progress towards improved financial performance. Sales are strong, with double-digit growth in defense and mid-single-digit growth in commercial and markets. Industrial, which has been a watch item, held ground despite softening in automation.

Pat: Good morning and welcome to the call. Today we report another strong quarter demonstrating very positive progress towards improved financial performance.

Pat: Delta Strong with double-digit growth in defense and mid-single-digit growth in commercial and markets.

Pat: Industrial, which has been a watch item, held ground despite softening in automation.

Patrick Roche: Adjusted operating margin was up substantially. This reflects moving beyond our space vehicle charges, a ramp in better-priced commercial business, and greater productivity as future long-range assault aircraft expand. Adjusted diluted earnings per share increased by almost 40% relative to the prior year, driven by margin enhancement initiatives and profitable sales growth.

Pat: Adjusted operating margin was up substantially. This reflects moving beyond our space vehicle charges, a ramp in better priced commercial business, and greater productivity as future long-range assault aircraft expands.

Pat: Adjusted diluted earnings per share increased by almost 40% relative to prior year, driven by margin enhancement initiatives and profitable sales growth.

Patrick Roche: Cash flow improved on the prior year. With three strong quarters behind us, we look forward with confidence to closing out fiscal 24 as another record year in which we deliver improved financial performance. We're increasing our revenue guidance, holding our adjusted operating margin guidance, and increasing our adjusted diluted earnings per share guidance for fiscal 24.

Patrick Roche: Cash flow improved on the prior year. With three strong quarters behind us, we look forward with confidence to closing out Fiscal 24 as another record year in which we deliver improved financial performance. We're increasing our revenue guidance, holding our adjusted operating margin guidance, and increasing our adjusted diluted earnings per share guidance for fiscal 24. Now I'll provide some highlights on our operational performance, starting with customer folks. We recently had the opportunity to meet with commercial and military customers, suppliers, and partners at the Farnborough International Air Show and the Royal International Air Tattoo.

Pat: Cash flow improved on the prior year.

Pat: With three strong quarters behind us, we look forward with confidence to closing out fiscal 24 as another record year in which we deliver improved financial performance.

Pat: We're increasing our revenue guidance, holding our adjusted operating margin guidance, and increasing our adjusted diluted earnings per share guidance for fiscal 24.

Patrick Roche: Now I'll provide some highlights on our operational performance. Starting with customer focus, we recently had the opportunity to meet with commercial and military customers, suppliers, and partners at the Farnborough International Airshow and the Royal International Air Tattoo. These engagements were incredibly important to enhance communications and strengthen working relationships, as we continue to manage the growth in both markets. At Farmera, we announced new airline support contracts with Luftanzer, Austrian Airlines, Hawaiian Air, Finair PLC, and Finair Technical Services, expanding our commercial after-market business. In June, we met with defense customers, suppliers, and partners at your accessory in Paris.

Speaker Change: Now I'll provide some highlights on our operational performance.

Patrick Roche: These engagements were incredibly important to enhance communications and strengthen working relationships, as we continue to manage the growth in both markets. At Farnborough, we announced new airline support contracts with Lufthansa, Austrian Airlines, Hawaiian Air, Finnair PLC, and Finnair Technical Services, expanding our commercial aftermarket business. In June, we met with defense customers, suppliers, and partners at Eurosatury, the largest international exposition for land and air defense held every two years.

Pat: Starting with customer focus.

Pat: We recently had the opportunity to meet with commercial and military customers, suppliers and partners at the Farnborough International Air Show and the Royal International Air Tattoo.

Pat: These engagements were incredibly important to enhance communications and strengthen working relationships as we continue to manage the growth in both markets.

Pat: At Farnborough, we announced new airline support contracts with Lufthansa, Austrian Airlines, Hawaiian Air, Finnair PLC and Finnair Technical Services, expanding our commercial aftermarket business.

Pat: In June , we met with defence customers, suppliers and partners at Eurosatory in Paris. This is the largest international exposition for land and air defence held every two years.

Patrick Roche: This is the largest international exposition for land and air defense held every two years. Our customers signaled near-term growth, not seen in decades, that is driven by the need to build out the census strength in Europe. This is creating increased interest in our field-proven products and opening opportunities for platform modernization. Our dedicated subsidiary received its full and final facility security clearance at the end of June, enabling it to receive new classified program contract awards. We're excited to work with our customers on new opportunities that apply our unique systems capabilities to solve our nation's most challenging technical problems, moving to people, community, and planet.

Patrick Roche: Our customers have signaled near-term growth not seen in decades, driven by the need to build out defensive strength in Europe. This is creating increased interest in our field-proven products and opening opportunities for platform modernization. Our dedicated subsidiary received its full and final facility security clearance at the end of June, enabling it to receive new classified program contract awards.

Pat: Our customers signaled near-term growth not seen in decades that is driven by the need to build out defensive strength in Europe . This is creating increased interest in our field-proven products and opening opportunities for platform modernization.

Pat: Our dedicated subsidiary received its full and final facility security clearance at the end of June , enabling it to receive new classified program contract awards.

Patrick Roche: We're excited to work with our customers on new opportunities that apply our unique systems capabilities to solve our nation's most challenging technical problems. Moving to people, community, and planet, in June, I visited San Jose, Costa Rica, home to the largest of our three medical device facilities.

Pat: We're excited to work with our customers on new opportunities that apply our unique systems capabilities to solve our nation's most challenging technical problems.

Patrick Roche: In June, I visited San Jose, Costa Rica, home to the largest of our three medical device facilities. Clarity of purpose to enhance healthcare and enrich patients' lives continues to be a powerful motivator for our medical employees. This focus has driven a decade of continuous improvement, leading to a reputation as a reliable partner that has secured market share growth, enhanced productivity that has doubled throughput in the facility, and secured a bronze shingle award. Costa Rica is a notable example of a purpose-driven organization delivering sustainable business performance through lean. While in San Jose, we visited a childcare facility run by a local charity within one of the most challenged communities.

Speaker Change: Moving to people, community and planet.

Pat: In June , I visited San Jose, Costa Rica, home to the largest of our three medical device facilities. Thank you. Thank you.

Patrick Roche: Clarity of purpose to enhance healthcare and enrich patients' lives continues to be a powerful motivator for our medical employees. This focus has driven a decade of continuous improvement, leading to a reputation as a reliable partner that has secured market share growth, enhanced productivity that has doubled throughput in the facility, and secured a Bronze Shingle Award. Costa Rica is a notable example of a purpose-driven organization delivering sustainable business performance through lean. While in San Jose, we visited a childcare facility run by a local charity within one of the most challenged communities.

Pat: Clarity of purpose to enhance health care and enrich patients' lives continues to be a powerful motivator for our medical employees.

Pat: This focus has driven a decade of continuous improvement, leading to a reputation as a reliable partner that has secured market share growth.

Pat: enhanced productivity that has doubled throughput in the facility and secured a Bronze Shingo Award. Costa Rica is a notable example of a purpose-driven organization delivering sustainable business performance through lean.

Speaker Change: While in San Jose, we visited a childcare facility run by a local charity within one of the most challenged communities.

Patrick Roche: We are delighted that our contributions help provide a hot meal and peace of mind for parents who struggle to make ends meet. Another community project helping the next generation is addressing the availability of clean drinking water in Baguio City, which is a water-stressed region. Our donation and volunteer effort provided a local school 1,000 liters, or just over 260 gallons per hour, of clean, safe drinking water that will, on an ongoing basis, sustain around 1,800 people. Baguio City in the Philippines is an important manufacturing location for Moe. Continuing this theme, water stress is a growing humanitarian concern.

Patrick Roche: We are delighted that our contributions helped provide a hot meal and peace of mind for parents who struggle to make ends meet. Another community project helping the next generation is addressing the availability of clean drinking water in Baguio City, which is a water-stressed region. Our donation and volunteer effort provided a local school with 1,000 liters, or just over 260 gallons, per hour of clean, safe drinking water that will, on an ongoing basis, sustain around 1,800 people. Baguio City in the Philippines is an important manufacturing location for molds.

Speaker Change: We are delighted that our contributions helped provide a hot meal and peace of mind for parents who struggle to make ends meet.

Speaker Change: Another community project helping the next generation is addressing the availability of clean drinking water in Baguio City, which is a water-stressed region.

Speaker Change: Our donation and volunteer effort provided a local school 1,000 litres or just over 260 gallons per hour of clean, safe drinking water that will, on an ongoing basis, sustain around 1,800 people.

Speaker Change: Baguio City in the Philippines is an important manufacturing location for mold.

Patrick Roche: Continuing this theme, water stress is a growing humanitarian concern. We recognize that water is already a limited and precious resource in many parts of the world and that access to clean water will be even more challenging in future years. Consequently, we have baselined our consumption of water at all manufacturing locations globally. We're committed to reductions, and we'll publish our goal later this year. In the meantime, we've already started multiple projects to reduce water consumption. These include improved water stewardship through metering, awareness campaigns on water usage, and rainwater harvesting at several facilities. Our Bengaluru manufacturing facility has already seen a 40% reduction in water consumption.

Speaker Change: Continuing this theme, water stress is a growing humanitarian concern. We recognize that water is already a limited and precious resource in many parts of the world, and that access to clean water will be even more challenging in future years.

Patrick Roche: We recognize that water is already a limited and precious resource in many parts of the world, and that access to clean water will be even more challenging in future years. Consequently, we have baselineed our consumption of water at all manufacturing locations globally. We are committed to reductions, and we will publish our goal later in this year. In the meantime, we have already started multiple projects to reduce water consumption. These include improved water stewardship through metering, awareness campaigns on water usage, and rainwater harvesting at several facilities. Our Bengaluru manufacturing facility has already seen a 40% reduction in water consumption.

Speaker Change: Consequently, we have baselined our consumption of water at all manufacturing locations globally. We're committed to reductions and we will publish our goal later in this year.

Speaker Change: In the meantime, we've already started multiple projects to reduce water consumption. These include improved water stewardship through metering, awareness campaigns on water usage, and rainwater harvesting at several facilities.

Speaker Change: Our Bengaluru manufacturing facility has already seen a 40% reduction in water consumption.

Patrick Roche: And finally, let me move to financial strength. We continue to drive margin enhancements through pricing and simplification. We see impact and growing momentum. We continue to ensure that our pricing reflects the value we create for our customers. We've already made great progress in delivering on our investor-day plans. The work continues with bottom-up, site-level data analysis and action, complementing top-down large account management. We persist in simplifying our business, further building our 80-20 capability. We've now deployed to almost half of our manufacturing locations, with the addition of a further six sites this quarter. We have trained over 750 leaders, with 200 trained within the quarter.

Patrick Roche: And finally, let me move to financial strength. We continue to drive margin enhancement through pricing and simplification. We see impact and growing momentum. We continue to ensure that our pricing reflects the value we create for our customers.

Speaker Change: And finally, let me move to financial strength. We continue to drive margin enhancement through pricing and simplification. We see impact and growing momentum.

Patrick Roche: We've already made great progress in delivering on our Investor Day plan. The work continues with bottom-up, site-level data analysis and action, complementing top-down large account management. We persist in simplifying our business.

Speaker Change: We continue to ensure that our pricing reflects the value we create for our customers. We've already made great progress in delivering on our Investor Day plans.

Speaker Change: The work continues with bottom-up, site-level data analysis and action, complementing top-down large account management.

Patrick Roche: Building our 80-20 capability. We've now deployed to almost half of our manufacturing locations, with the addition of a further six sites this quarter. We have trained over 750 leaders, with 200 trained within the quarter.

Speaker Change: We persist in simplifying our business, further building our 80-20 capability. We've now deployed to almost half of our manufacturing locations, with the addition of a further six sites this quarter.

Speaker Change: We have trained over 750 leaders, with 200 trained within the quarter. Training has extended to functional leadership, such as finance, who can better support data analytics, which enable better informed decision-making across the organization.

Patrick Roche: Training has extended to functional leadership, such as finance, who can better support data analytics, which enable better informed decision-making across the organization. With the launch of our 80-20 playbook and standardized training programs, we anticipate accelerated deployment to the remaining sites. We now have a talented team of well-trained, dedicated 80-20 champions within the business who are acting as catalysts for this transformation. We're actively developing 80-20 tools and templates to embed the 80-20 mindset into our organizational DNA. This commitment ensures that our approach to 80-20 becomes a fundamental part of how we work and drive sustained success.

Patrick Roche: Training has extended to functional leadership, such as finance, who can better support data analytics, which enables better informed decision-making across the organization. With the launch of our 80-20 playbook and standardized training programs, we anticipate accelerated deployment to the remaining sites. We now have a talented team of well-trained, dedicated 80-20 champions within the business who are acting as catalysts for this transformation. We're actively developing 80-20 tools and templates to embed the 80-20 mindset into our organizational DNA.

Speaker Change: With the launch of our 80-20 playbook and standardized training programs, we anticipate accelerated deployment to the remaining sites.

Speaker Change: We now have a talented team of well-trained, dedicated 80-20 champions within the business who are acting as catalysts for this transformation.

Speaker Change: We're actively developing 80-20 tools and templates to embed the 80-20 mindset into our organizational DNA. This commitment ensures that our approach to 80-20 becomes a fundamental part of how we work and drive sustained success.

Patrick Roche: This commitment ensures that our approach to 80-20 becomes a fundamental part of how we work and drive sustained success in Footprint and Portfolio Shaping Activities. We took changes in the charges in the quarter arising from the ongoing consolidation of our Radford, Virginia facility into our Murphy, North Carolina facility.

Patrick Roche: On footprint and portfolio shaping activities, we took changes in the charges in the quarter, arising from ongoing consolidation of our Radford, Virginia facility into our Murphy, North Carolina facility. Murphy is a focused factory for industrial motors, having transferred avionics products out of that site over the last year. The sales of two small European businesses near completion, and we expect both to close in the coming quarter.

Speaker Change: on Footprint and Portfolio Shaping Activities.

Speaker Change: We took changes in the charges in the quarter arising from ongoing consolidation of our Radford, Virginia facility into our Murphy, North Carolina facility. Murphy is a focused factory for industrial motors, having transferred avionics products out of that site over the last year.

Patrick Roche: Murphy is a focused factory for industrial motors, having transferred avionics products out of that site over the last year. The sales of two small European businesses are near completion, and we expect both to close in the coming quarter. Now turning to macroeconomic, market, and in-market conditions. We're still in the midst of ongoing conflicts in Europe and the Middle East. The war in Ukraine has become a war of attrition.

Speaker Change: The sales of two small European businesses near completion and we expect both to close in the coming quarter.

Patrick Roche: Now turning to macroeconomic and market conditions. We're still in the midst of ongoing conflicts in Europe and the Middle East. The war in Ukraine has become a war of attrition. This reality drives the pressing need to replenish depleted arsenals. The shifting geopolitical reality is leading to growing security concerns in Europe, where nations are increasing their defense spending, and in Asia-Pacific, where a conflict would require a different balance of capabilities. As a result, we're seeing strong, broad-based demand in defense and notable strengthening in Europe. In the United States, a limited increase in the Department of Defense budget is anticipated in calendar year 2025.

Speaker Change: Now turning to macroeconomic and in-market conditions.

Speaker Change: We're still in the midst of ongoing conflicts in Europe and the Middle East. The war in Ukraine has become a war of attrition. This reality drives the pressing need to replenish depleted arsenals.

Patrick Roche: This reality drives the pressing need to replenish depleted arsenals. The shifting geopolitical reality is leading to growing security concerns in Europe, where nations are increasing their defense spending, and in Asia-Pacific, where a conflict would require a different balance of capability. As a result, we're seeing strong, broad-based demand for defense and notable strengthening in Europe. In the United States, a limited increase in the Department of Defense budget is anticipated in calendar year 2025. Given inflationary pressure, this means difficult prioritization decisions in the near term.

Speaker Change: The shifting geopolitical reality is leading to growing security concerns in Europe , where nations are increasing their defence spending, and in Asia-Pacific, where a conflict would require a different balance of capabilities.

Speaker Change: As a result, we're seeing strong broad-based demand in defense and notable strengthening in Europe .

Speaker Change: In the United States, a limited increase in the Department of Defense budget is anticipated in calendar year 2025.

Patrick Roche: Given inflationary pressure, this means difficult prioritization decisions in the near term. This could result in replenishment and sustainment being favored over some long-term strategic programs for a limited time. Despite this budgetary context, we have strong platform positions. We continue to ramp up our engineering efforts on Flora, and as Bell has indicated that the next program milestone is imminent, making Flora a program of record. Lockheed has resumed deliveries of F-35 to the United States government and is bullish about foreign military sales. and we've continued to deliver on our remote integrated weapons platform. As civil longer term, we're seeing once-in-the-generation type opportunities that could become important future platforms for Moog.

Speaker Change: Given inflationary pressure, this means difficult prioritization decisions in the near term.

Patrick Roche: This could result in replenishment and sustainment being favored over some long-term strategic programs for a limited time. However, despite this budgetary context, we have strong platform positions. We continue to ramp up our engineering efforts on FLARA, and as Bill has indicated, the next program milestone is imminent, making FLARA a program of record. Lockheed has resumed deliveries of F-35s to the United States government and is bullish about foreign military sales, and we've continued to deliver on our remote integrated weapons platform. As for the longer term, we're seeing once-in-a-generation opportunities that could become important future platforms for mobile. Within these applications, we can leverage our component and system of systems engineering capabilities.

Speaker Change: This could result in replenishment and sustainment being favored over some long-term strategic programs for a limited time.

Bill: Despite this budgetary context, we have strong platform positions. We continue to ramp up our engineering efforts on FLARA, and as Bill has indicated, that the next program milestone is imminent, making FLARA a program of record.

Speaker Change: Lockheed has resumed deliveries of F-35s to the United States government and is bullish about foreign military sales. And we've continued to deliver on our remote integrated weapons platform.

Speaker Change: As for the longer term, we're seeing once-in-a-generation type opportunities that could become important future platforms for Moog.

Patrick Roche: Within these applications, we can leverage our component and system of systems engineering capabilities. There are multiple examples starting with six generation fighters on-manned collaborative aircraft programs in play. In the United States, opportunities include the Navy's FA-XX and the Air Force's Next Generation Air Dominance Aircraft. At Farnborough, the Tri-Nations Global Combat Air Program concept model aircraft was revealed. Whilst there may be uncertainty on budget and timeline, there is a clear need for these Next Generation Aircraft. In addition to aerial platforms, there are also Next Generation armored vehicle platforms, including the mechanized infantry combat vehicle known as XM30 and vehicle modernization programs such as the United Kingdom's ground-based air defense.

Speaker Change: Within these applications, we can leverage our component and system of systems engineering capabilities. There are multiple examples, starting with 6th generation fighters and unmanned collaborative aircraft programs in play.

Patrick Roche: There are multiple examples, starting with sixth-generation fighters and unmanned collaborative aircraft programs in place. In the United States, opportunities include the Navy's FAXX and the Air Force's next-generation air dominance aircraft. At Farnborough, the Tri-Nations Global Combat Air Program concept model aircraft was revealed. Whilst there may be uncertainty on the budget and timeline, there is a clear need for these next generation aircraft. In addition to aerial platforms, there are also next-generation armored Vehicle platforms, including the Mechanized Inventory Combat Vehicle, known as XM-30, and vehicle modernization programs such as the United Kingdom's ground-based air defense.

Speaker Change: In the United States, opportunities include the Navy's F-AXX and the Air Force's Next Generation Air Dominance aircraft. At Farnborough, the Tri-Nations Global Combat Air Program concept model aircraft was revealed.

Speaker Change: Whilst there may be uncertainty on budget and timeline, there is clear need for these next generation aircraft.

Speaker Change: In addition to aerial platforms, there are also next-generation armored vehicle platforms, including the Mechanized Inventory Combat Vehicle, known as XM-30, and vehicle modernization programs, such as the United Kingdom's ground-based air defense.

Patrick Roche: Finally, we see ample opportunities for missile, hypersonic, and strategic weapons programs. We look forward to playing our part on these platforms of the future.

Patrick Roche: Finally, we see ample opportunities for missile, hypersonic, and strategic weapons programs. We look forward to playing our part on these platforms of the future. Turning to commercial aircraft, the number of people flying continues to increase. Data shows that more people have traveled over the last couple of months than before the pandemic. This is driving aircraft flight hours, and consequently, aftermarket demand is increasing. While Farnborough was light on aircraft orders in general, we did note that 57-8-7s and 25-8-350s were added to the backlog.

Speaker Change: Finally, we see ample opportunities for missile, hypersonic and strategic weapons programs. We look forward to playing our part on these platforms of the future.

Patrick Roche: Turning to commercial aircraft, the number of people flying continues to increase. Data shows that more people traveled over the last couple of months than pre-pandemic. This is driving aircraft flight hours and consequently after market demand is increasing. Whilst Farnborough was light on aircraft orders in general, we did note that 5,787s and 25 A350s were added to backlog. The focus of industry debate was the ability of Boeing and Airbus to hit target at build rate, especially for narrow-body aircraft. For our part, we are well prepared to meet our customers' planned build rates.

Speaker Change: Turning to commercial aircraft, the number of people flying continues to increase. Data shows that more people traveled over the last couple of months than pre-pandemic. This is driving aircraft flight hours and consequently aftermarket demand is increasing.

Speaker Change: Whilst Farnborough was light on aircraft orders in general, we did note that 57-8-7s and 25-8-350s were added to backlog.

Patrick Roche: The focus of industry debate was the ability of Boeing and Airbus to hit targeted build rates, especially for narrow-body aircraft. For our part, we are well prepared to meet our customers' planned build rates. Finally, turning to industrial markets, manufacturing activity in the heart of Europe continues to be weak, affecting our industrial automation business. However, this impact has been partially compensated for by other subsegments such as simulation and energy.

Speaker Change: The focus of industry debate was the ability of Boeing and Airbus to hit targeted build rate, especially for narrow body aircraft. For our part, we are well prepared to meet our customers' planned build rates.

Patrick Roche: Finally, turning to industrial markets, manufacturing activity in the heart of Europe continues to be weak, affecting our industrial automation business. However, this in fact has been partially compensated for by other sub-segment systems such as simulation and energy. On a positive note, orders in the quarter were hired in the average trailing four quarters.

Speaker Change: Finally, turning to industrial markets, manufacturing activity in the heart of Europe continues to be weak, affecting our industrial automation business.

Speaker Change: However, this impact has been partially compensated for by other subsegments such as simulation and energy. On a positive note, orders in the quarter were higher than the average trail in four quarters.

Jennifer Walter: On a positive note, orders in the quarter were higher than the average trail for four quarters. Now, let me turn the call over to Jennifer for a detailed review of the financials. Thanks, Pat.

Jennifer Walter: Now, let me turn the call over to Jennifer for a detailed review of the financials. Thanks, Pat. I'll begin with our third quarter financial performance. I'll then provide an update on our guidance graph by 24. We had another great quarter from a sales and earnings perspective. Sales of 900 $5 million were very strong; adjusted operating margin of 12.3% was robust, and adjusted earnings per share of $1.91 exceeded the high end of our guidance range. Sales in the third quarter were 6% higher than last year's third quarter. Aerospace and defense sales were up nicely, while industrial sales were fairly flat.

Jennifer Walter: Thanks, Pat. I'll begin with our third quarter financial performance. I'll then provide an update on our guidance for FY24. We had another great quarter from a sales and earnings perspective. Sales of $905 million were very strong, adjusted operating margin of 12.3% was robust, and adjusted earnings per share of $1.91 exceeded the high end of our guidance range. Sales in the third quarter were 6% higher than last year's third quarter. Aerospace and defense sales were up nicely, while industrial sales were fairly flat.

Speaker Change: Now, let me turn the call over to Jennifer for a detailed review of the financials.

Jennifer: Thanks, Pat. I'll begin with our third quarter financial performance. I'll then provide an update on our guidance for FY24.

Jennifer: We had another great quarter from a sales and earnings perspective. Sales of $905 million were very strong, adjusted operating margin of 12.3% was robust, and adjusted earnings per share of $1.91 exceeded the high end of our guidance range.

Jennifer: Sales in the third quarter were 6% higher than last year's third quarter. Aerospace and defense sales were up nicely, while industrial sales were fairly flat.

Jennifer Walter: The largest increase in segment sales was in military aircraft. Sales of $2007 million were up 18% over the third quarter last year. Activity on the Flora tote roller aircraft program began to ramp in the third quarter last year, and has steadily increased since that time, accounting for half of the increase in military aircraft sales this quarter. In addition, over the past couple of years, certain other development work has shifted into production, and we're now beginning to see the ramp up in production that will continue for the next few years. Space and defense sales of $258 million increased 7% over the third quarter last year.

Jennifer Walter: The largest increase in segment sales was in military aircraft. Sales of $207 million were up 18% over the third quarter last year. Activity on the FLARA tiltrotor aircraft program began to ramp up in the third quarter last year and has steadily increased since that time, accounting for half of the increase in military aircraft sales this quarter. In addition, over the past couple of years, certain other development work has shifted into production, and we're now beginning to see the ramp-up in production that will continue for the next few years. States and defense sales of $258 million increased 7% over the third quarter last year. There continues to be strong defense demand across our portfolio associated with U.S. defense priorities and European defense needs.

Jennifer: The largest increase in segment sales was in military aircraft.

Jennifer: Sales of $207 million were up 18% over the third quarter last year.

Jennifer: Activity on the FLARA tilt rotor aircraft program began to ramp in the third quarter last year and has steadily increased since that time, accounting for half of the increase in military aircraft sales this quarter.

Jennifer: In addition, over the past couple of years, certain other development work has shifted into production, and we're now beginning to see the ramp up in production that will continue for the next few years.

Jennifer: Space and defense sales of $258 million increased 7% over the third quarter last year. There continues to be strong defense demand across our portfolio associated with U.S. defense priorities and European defense needs.

Jennifer Walter: There continues to be strong defense demand across our portfolio associated with US defense priorities and European defense needs. In addition, launch via collectivity increased in our space business. Commercial aircraft sales of $189 million increased 6% over the same quarter a year ago. This reflects increased production in our wide-body business. Industrial sales were $250 million in the third quarter. That's down 1% from the same quarter a year ago, or flat when considering the changes in foreign currency rates. Industrial automation sales were down from the very strong quarter a year ago. We've left in the flowdown and orders we've seen in recent quarters.

Jennifer Walter: In addition, launch vehicle activity increased in our space business. Commercial aircraft sales of $189 million increased 6% over the same quarter a year ago. This reflects increased production in our wide-body business. Industrial sales were $250 million in the third quarter. That's down 1% from the same quarter a year ago, or flat when considering the changes in foreign currency rates. Industrial automation sales were down from a very strong quarter a year ago, reflecting the slowdown in orders we've seen in recent quarters. The other subsegments, Energy, Simulation, and Test, and Medical, were all up from the third quarter last year. Demand for flight simulation systems continues to be strong.

Jennifer: In addition, launch vehicle activity increased in our space business.

Jennifer: Commercial aircraft sales of $189 million increased 6% over the same quarter a year ago. This reflects increased production in our wide-body business.

Jennifer: Industrial sales were $250 million in the third quarter. That's down 1% from the same quarter a year ago, or flat when considering the changes in foreign currency rates.

Jennifer: Industrial automation sales were down from the very strong quarter a year ago reflecting the slowdown in orders we've seen in recent quarters.

Jennifer Walter: The other sub-segment, energy, simulation and test, and medical were all up from the third quarter last year. Demand for flight simulation systems continue to be strong in this quarter, auto-test demand through the increase in the sub-segment. We also benefited within medical devices from a competitor's challenges this quarter.

Jennifer: The other sub-segments, Energy, Simulation and Test, and Medical, were all up from the third quarter last year.

Jennifer Walter: In this quarter, auto test demand drove the increase in this subsegment. We also benefited within medical devices from a competitor's challenges this quarter. We'll now shift to operating margin. Adjusted operating margin of 12.3% in the third quarter increased 210 basis points from the third quarter last year. Adjustments to operating profit this quarter and the same quarter a year ago were $6 million and $2 million, respectively. These adjustments reflect restructuring and asset impairment charges, largely in our industrial segment, as we continue to drive simplification.

Jennifer: Demand for flight simulation systems continues to be strong. In this quarter, auto test demand drove the increase in this subsegment.

Jennifer: We also benefited within medical devices from a competitor's challenges this quarter.

Jennifer Walter: We'll now shift to operating margin. Adjusted operating margin of 12.3% in the third quarter increased 210 basis points from the third quarter last year. Adjustments to operating profit this quarter in the same quarter a year ago were $6 million and $2 million, respectively. These adjustments reflect restructuring and asset impairment charges, largely in our industrial segment, as we continue to drive simplification. Adjusted operating margins increased over the third quarter last year in each of our segments. In space and defense, operating margin increased 490 basis points to 12.7%. This increase is associated with improved performance on space vehicle programs, also partially by investments to fund once-in-a-generation pursuits.

Jennifer: We'll now shift to operating margin. Adjusted operating margin of 12.3% in the third quarter increased 210 basis points from the third quarter last year.

Jennifer: Adjustments to operating profit this quarter and the same quarter a year ago were six million dollars and two million dollars respectively. These adjustments reflect restructuring and asset impairment charges, largely in our industrial segment, as we continue to drive simplification.

Jennifer Walter: Adjusted operating margins increased over the third quarter last year in each of our segments. In space and defense, operating margin increased 490 basis points to 12.7%. This increase is associated with improved performance on space vehicle programs, partially offset by investments to fund once-in-a-generation pursuits.

Jennifer: Adjusted operating margins increased over the third quarter last year in each of our segments.

Jennifer: In Space and Defense, Operating Margin increased 490 basis points to 12.7%.

Jennifer: This increase is associated with improved performance on space vehicle programs, also partially by investments to fund once-in-a-generation pursuits.

Jennifer Walter: The operating margin for military aircraft was 11.9%, up 140 basis points, reflecting cost absorption on the flow of programless quarter. Commercial aircraft operating margins was 13.1%, up 190 basis points over the third quarter last year, as we saw benefits from both pricing and volume, as well as mix. Industrial operating margin was 11.7% in the third quarter of 20 basis points. This increase was attributable to benefits from pricing initiatives, also by pressures associated with lower industrial automation sales and planned product factors. Our adjusted effective tax rate in the third quarter was 19.3%, compared to 16.0% in the third quarter last year.

Jennifer Walter: The operating margin for military aircraft was 11.9%, up 140 basis points, reflecting cost absorption on the FLARA program this quarter. The commercial aircraft operating margin was 13.1%, up 190 basis points over the third quarter last year, as we saw benefits from both pricing and volume, as well as MIPS. Industrial operating margin was 11.7% in the third quarter, up 20 basis points. This increase was attributable to benefits from pricing initiatives offset by pressures associated with lower industrial automation sales and planned product. Our adjusted effective tax rate in the third quarter was 19.3%, compared to 16.0% in the third quarter last year.

Jennifer: The operating margin for military aircraft was 11.9%, up 140 basis points, reflecting cost absorption on the FLARA program this quarter.

Jennifer: Commercial aircraft operating margin was 13.1% up 190 basis points over the third quarter last year as we saw benefits from both pricing and volume as well as mix.

Jennifer: Industrial operating margin was 11.7% in the third quarter, up 20 basis points.

Jennifer: This increase was attributable to benefits from pricing initiatives offset by pressures associated with lower industrial automation sales and planned product transfers.

Jennifer: Our adjusted effective tax rate in the third quarter was 19.3% compared to 16.0% in the third quarter last year.

Jennifer Walter: We're benefiting from high-level VivR&D tax credits and have captured these benefits in a return to provisions third quarter adjustments in both years.

Jennifer Walter: We're benefiting from high levels of R&D tax credits and have captured these benefits in our return to provision third quarter adjustments in both years. Putting it all together, adjusted earnings per share of $1.91, we're up 39% over the same quarter a year ago. Operating margin expansion, along with increased operating profit associated with higher sales, drove the increase in earnings per share. Compared to our previous guidance, adjusted earnings per share for the third quarter came in well above the high end of our range.

Jennifer: We're benefiting from high levels of R&D tax credits and have captured these benefits in our return to provision third quarter adjustments in both years.

Jennifer Walter: and Joseph. Putting it all together, adjusted earnings per share of $1.91, or up 39% over the same quarter a year ago. Operating margin expansion, along with increased operating profit associated with higher sales, drove the increase in earnings per share. Compared to our previous guidance, adjusted earnings per share for the third quarter came in well above the high end of our range. Higher operating profit associated with strong sales and margin expansion, along with a lower than four cash to the effective tax rate, drove the increase in earnings per share. This was partially offset by higher non-operating expenses.

Jennifer: Putting it all together, adjusted earnings per share of $1.91 were up 39% over the same quarter a year ago. Operating margin expansion, along with increased operating profit associated with higher sales, drove the increase in earnings per share.

Jennifer: Compared to our previous guidance, adjusted earnings per share for the third quarter came in well above the high end of our range.

Jennifer Walter: Higher operating profit associated with strong sales and margin expansion, along with a lower than forecasted effective tax rate, drove the increase in earnings per share. This was partially offset by higher non-operating expenses. Let's now shift over to cash flow. Free cash flow for the third quarter was a $2 million use of cash.

Jennifer: Higher operating profit associated with strong sales and margin expansion.

Jennifer: Along with a lower than forecasted effective tax rate, drove the increase in earnings per share. This was partially offset by higher non-operating expenses.

Jennifer Walter: Let's now shift over to cash flow. Pre-cash flow for the third quarter was a $2 million use of cash. Our cash performance was driven by growth and networking capital. Customer advances were a use of cash this quarter, reflecting the achievement of significant progress across several major defense programs. We also had strong buildings, resulting in higher receivables that were a use of cash, which should be collected over the next quarter or two. Physical inventories, which has been a consumer of cash over recent quarters, were relatively flat in the third quarter. Capital expenditures were $32 million in the third quarter, down from the levels of the past few quarters.

Jennifer: Let's now shift over to cash flow.

Jennifer Walter: Our cash performance was driven by growth in net working capital. Customer advances were a use of cash this quarter, reflecting the achievement of significant progress across several major defense programs. We also had strong billings resulting in higher receivables that were a use of cash, which should be collected over the next quarter or two. Physical inventories, which have been a consumer of cash in recent quarters, were relatively flat in the third quarter.

Jennifer: Free cash flow for the third quarter was a two million dollar use of cash. Our cash performance was driven by growth in networking capital.

Jennifer: Customer advances were a use of cash this quarter, reflecting the achievement of significant progress across several major defense programs.

Jennifer: We also had strong billings resulting in higher receivables that were a use of cash, which should be collected over the next quarter or two.

Jennifer: Physical inventories, which has been a consumer of cash over recent quarters, were relatively flat in the third quarter.

Jennifer Walter: Capital expenditures were $32 million in the third quarter, down from the levels of the past few quarters. We expect our capital expenditures to return to a more typical level next quarter. Our leverage ratio, calculated on a net debt basis at the end of the third quarter, was 2.2 times, near the low end of our target range.

Jennifer: Capital expenditures were 32 million dollars in the third quarter down from the levels of the past few quarters. We expect our capital expenditures to return to a more typical level next quarter.

Jennifer Walter: We expect our capital expenditures to return to a more typical level next quarter. Our leverage ratio calculated on a net debt basis at the end of the third quarter was 2.2 times, near the low end of our range. Our capital deployment priorities, both long-term and near-term, are unchanged. Our current priorities continue to be investing for organic growth.

Jennifer: Our leverage ratio, calculated on a net debt basis at the end of the third quarter, was 2.2 times, near the low end of our target range. Our capital deployment priorities, both long-term and near-term, are unchanged. Our current priority continues to be investing for organic growth.

Jennifer Walter: Our capital deployment priorities, both long-term and near-term, are unchanged. Our current priority continues to be investing for organic growth. We'll now shift over to our updated guidance for this year. We're raising our sales guidance, affirming our adjusted operating margin, and increasing our adjusted earnings per share guidance for FY24. Fiscal year 2024 is measuring up to be a great step towards achieving our long-term financial targets. This year, our sales are projected to grow by 8 percent.

Jennifer Walter: We'll now shift over to our updated guidance for this year. We're raising our sales guidance, affirming our adjusted operating margin, and increasing our adjusted earnings per share guidance for FY24. This year, year 2024 is measuring up to be a great step towards achieving our long-term financial targets. This year, our sales will grow by 8%. Adjusted operating margin will stand by 150 basis points, and adjusted earnings per share will increase by 20%. We're projecting sales of $3.5 billion in FY24, with sales growth in each of our segments. The commercial aircraft sales will grow related to the production ramps on wide-body and other programs. Military aircraft sales will increase due to having a full year worth of flora sales.

Jennifer: We'll now shift over to our updated guidance for this year.

Jennifer: We're raising our sales guidance, affirming our adjusted operating margin, and increasing our adjusted earnings per share guidance for FY24.

Jennifer: Fiscal year 2024 is measuring up to be a great step towards achieving our long-term financial targets. This year, our sales will grow by 8%, adjusted operating margin will expand by 150 basis points, and adjusted earnings per share will increase by 20%.

Jennifer Walter: The adjusted operating margin will expand by 150 basis points, and adjusted earnings per share will increase by 20 percent. We're projecting sales of $3.58 billion in FY24, with sales growth in each of our segments. Commercial aircraft sales will grow related to the production ramps on live body and other programs. Military aircraft sales will increase due to having a full year's worth of PLRA sales. Space and defense sales will also increase due to strong defense demand.

Jennifer: We're projecting sales of 3.58 billion dollars in FY24, with sales growth in each of our segments.

Jennifer: Commercial aircraft sales will grow related to the production ramps on live body and other programs.

Jennifer: Military aircraft sales will increase due to having a full year's worth of FARA sales.

Jennifer Walter: The space and defense sales will increase due to strong defense demands. Sales and industrial will increase slightly, with softening and industrial automation being compensated for by growth in other submarkets. We're increasing our guidance for FY24 sales by $25 million from 90 days ago. For industrial, we're increasing our sales guidance by $40 million to reflect a strong level of sales in the third quarter and an improved outlook for the fourth quarter. We're increasing our sales guidance for military aircraft by $15 million based on our performance. First Basin Defense, we're increasing our sales guidance by $10 million to reflect strong defense demands.

Jennifer Walter: Sales in industrial will increase slightly, with the softening in industrial automation being compensated for by growth in other submarkets. We're increasing our guidance for FY24 sales by $25 million from 90 days ago. For industrial, we're increasing our sales guidance by $40 million to reflect a strong level of sales in the third quarter and an improved outlook for the fourth quarter. We're increasing our sales guidance for military aircraft by $15 million based on our performance this past quarter.

Jennifer: Space and defense sales will increase due to strong defense demand.

Jennifer: Sales in industrial will increase slightly, with softening in industrial automation being compensated for by growth in other submarkets.

Jennifer: We're increasing our guidance for FY24 sales by $25 million from 90 days ago. For industrial, we're increasing our sales guidance by $40 million to reflect a strong level of sales in the third quarter and an improved outlook for the fourth quarter.

Jennifer: We're increasing our sales guidance for military aircraft by $15 million based on our performance this past quarter.

Jennifer Walter: For Space and Defense, we're increasing our sales guidance by $10 million to reflect strong defense demand. We're reducing our sales guidance for commercial aircraft by $40 million, primarily due to a change in the timing of orders, which is causing a short-term delay in sales and a temporary increase in inventory.

Jennifer: For Space and Defense, we're increasing our sales guidance by $10 million to reflect strong defense demand.

Jennifer Walter: We're reducing our sales guidance for commercial aircraft by $40 million, primarily due to a change in the timing of orders, which is causing a short-term delay in sales and a temporary increase in inventory.

Jennifer: We're reducing our sales guidance for commercial aircraft by $40 million, primarily due to a change in the timing of orders, which is causing a short-term delay in sales and a temporary increase in inventory.

Jennifer Walter: Less shift over to operating margin. We're projecting our adjusted operating margin and FY24 to be 12.4%. The payments we guided to a quarter of goals show a different mix between segments. We're increasing guidance and commercial aircraft to reflect a strong third quarter of performance, and we're bringing down Basin Defense for planned costs to fund business pursuits. Our other two segments will be down just marginally. This results in operating margin of 13.0% in space and defense, 11.9% in military aircraft, 12.0% in commercial aircraft, and 12.5% in industrial. For FY24, we're projecting adjusted earnings per share of $7.40 plus or minus 10 cents.

Jennifer Walter: Let's shift over to operating margin. We're projecting our adjusted operating margin in FY24 to be 12.4%, the same as we guided to a quarter ago, though with a different mix between segments, commercial aircraft to reflect the strong third-quarter performance, and we're bringing Our other two segments will be down just marginally. This results in operating margins of 13.0% in space and defense, 11.9% in military aircraft, 12.0% in commercial aircraft, and 12.5% in industrial.

Jennifer: Let's shift over to operating margin. We're projecting our adjusted operating margin in FY24 to be 12.4%, the same as we guided to a quarter ago, though with a different mix between segments.

Jennifer: We're increasing guidance in commercial aircraft to reflect the strong third-quarter performance, and we're bringing down space and defense for planned costs to fund business pursuits. Our other two segments will be down just marginally.

Jennifer: This results in operating margins of 13.0% in space and defense, 11.9% in military aircraft, 12.0% in commercial aircraft, and 12.5% in industrial.

Jennifer Walter: For FY24, we're projecting adjusted earnings per share of $7.40, plus or minus $0.10. We've increased our guidance from 90 days ago by 15 cents, which reflects the benefit associated with a lower effective tax rate in the third quarter and higher operating profits, largely realized in the third quarter, offset partially by higher non-operating costs. Compared to FY23, earnings per share will be up 20%. This reflects strong operational performance and growth in the business, partially offset by higher non-operating expenses and a higher effective tax rate.

Jennifer: For FY24, we're projecting adjusted earnings per share of $7.40, plus or minus $0.10.

Jennifer Walter: We've increased our guidance from 90 days ago by 15 cents, which reflects the benefit associated with a lower effective tax rate in the third quarter and higher operating profit largely realized in the third quarter, offset partially by higher non-operating costs. In here to FY23, earnings per share will be up 20%. This reflects strong operational performance and growth in the business, partially offset by higher non-operating expenses and a higher effective tax rate.

Jennifer: We've increased our guidance from 90 days ago by 15 cents, which reflects the benefit associated with a lower effective tax rate in the third quarter and higher operating profits, largely realized in the third quarter, offset partially by higher non-operating costs.

Jennifer: Compared to FY23, earnings per share will be up 20%. This reflects strong operational performance and growth in the business, partially offset by higher non-operating expenses and a higher effective tax rate.

Jennifer Walter: Finally, turning to free cash flow. Our cash situation is somewhat more pressured than previously guided. We've consumed $77 million of cash year to date, and we expect that we will generate roughly that amount in the fourth quarter. We'll see capital improvements will drive our cash generation, with physical inventory coming down due to strong shipment. In addition, we expect receivables to generate cash on strong collections. Customer advances will remain a use of cash as we continue to work them down. For the year, we're projecting capital expenditures of $150 million, down from our previous guidance, reflecting the lighter spend in the third quarter.

Jennifer Walter: Finally, turning to free cash flow, our cash situation is somewhat more pressured than previously guided. We've consumed $77 million of cash year-to-date, and we expect that we will generate roughly that amount in the fourth quarter. Working capital improvements will drive our cash generation, with physical inventories coming down due to strong shipments. In addition, we expect receivables to generate cash on strong collections. Customer advances will remain a use of cash as we continue to work them down.

Jennifer: Finally, turning to free cash flow.

Speaker Change: Our cash situation is somewhat more pressured than previously guided.

Jennifer: We've consumed $77 million of cash year to date, and we expect that we will generate roughly that amount in the fourth quarter. Working capital improvements will drive our cash generation, with physical inventories coming down due to strong shipments.

Jennifer: In addition, we expect receivables to generate cash on strong collections.

Jennifer Walter: For the year, we're projecting capital expenditures of $150 million, down from our previous guidance, reflecting the lighter spend in the third quarter. Overall, our third quarter financial performance was solid, and we're confident in a strong finish to the year.

Jennifer: Customer advances will remain a use of cash as we continue to work them down. For the year, we're projecting capital expenditures of $150 million, down from our previous guidance, reflecting the lighter spend in the third quarter.

Jennifer Walter: Overall, our third quarter financial performance will be solid, and we're confident in a strong finish to the year.

Jennifer: Overall our third quarter financial performance was solid and we're confident in a strong finish to the year. And now I'll turn it over to Pat.

Patrick Roche: And I'll turn it over to Pat. Thanks, Jennifer. I'm pleased with another impressive performance this quarter, and I look forward to continued strength as we close out the year. We continue to deliver improved financial performance.

Patrick Roche: I'm pleased with another impressive performance this quarter, and I look forward to continued strength as we close out the year. We continue to deliver improved financial performance.

Pat: Thanks, Jennifer. I'm pleased with another impressive performance this quarter.

Pat: And I look forward to continued strength as we close out the year. We continue to deliver improved financial performance. Now let us turn it over to questions.

Patrick Roche: Now, let's turn it over to questions. Thank you. If you'd like to ask a...

Operator: Now, let's turn it over to questions. Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are, you may speak your phone. Please make sure your mute function is turned to lower signal tree chart equipment. Again, press star one to ask a question. We'll pause for just a moment.

Operator: Thank you. If you'd like to ask a question, please signal by pressing star 1 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. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions, and we'll go first to Michael Ciarmoli with Truist

Speaker Change: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are, you may speak your phone. Please make sure your mute function is turned off.

Speaker Change: To allow your signal to reach our equipment, again press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.

Operator: Tell out everyone an opportunity to signal for questions.

Michael Ciarmoli: And we'll go first to Michael Ciarimoli with True Security. Please. Hey, good morning, guys. Thanks for taking the question. Pat or Jennifer, I guess the change in the commercial aircraft revenue may be pretty significant this late in the year. I guess that's wide body driven. Jennifer, I think you said timing of orders there. Can you maybe give a little bit more color? I guess against the backdrop of what we've seen from Airbus with their downward revision and Boeing sort of ongoing challenges? Yeah, Michael, I wouldn't read too much into it as a reflection of a trend.

Speaker Change: And we'll go first to Michael Ciarmoli with Truist Securities.

Michael Ciarmoli: Hey, good morning, guys. Thanks for taking the time to answer the question.

Michael Ciarmoli: Pat or Jennifer, I guess the change in commercial aircraft revenue may be pretty significant this late in the year. I guess that's wide-body driven. Jennifer, I think you said timing of orders there. Can you maybe give a little bit more color, I guess, against the backdrop of what we've seen from Airbus with their downward revision and Boeing's sort of ongoing challenges?

Michael Ciaramolli: Hey, good morning guys. Thanks for taking the questions.

Michael Ciarmoli: Pat or Jennifer, I guess the change in the commercial aircraft revenue may be pretty significant this late in the year. I guess that's wide-body driven. Jennifer, I think you said...

Speaker Change: timing of orders there can you maybe give a little bit more color you know I guess against the backdrop of what we've seen from from Airbus with their downward revision and Boeing's sort of ongoing challenges

Patrick Roche: Yeah, Michael, I wouldn't read too much into it as a reflection of a trend. It's a timing issue within the course of Q3 and Q4, the placement of orders from one of our significant...

Jennifer: Yeah, Michael, I wouldn't read too much into it as a reflection of a trend. It's a timing issue within the course of Q3 and Q4.

Jennifer Walter: It's a timing issue within the course of Q3 and Q4, the placement of orders from one of our significant customers, and that's affecting the sales level we're recording within the quarter.

Jennifer: the placement of orders from one of our significant customers and that's affecting the sales level we're recording within the quarter. It doesn't reflect the change in production rates we're running on any of the wide-body programs.

Patrick Roche: It doesn't reflect the change in production rates we are running on any of the wide body programs. Okay, where are you right now on the wide body rate? I guess, more specifically, 787. I think you have been delivering ahead. Is that still kind of the plan, and do we have to worry about an inventory destock situation at any point? So we're delivering to Boeing at a rate of about five ship sets per month, and we have an in-house production rate that's in line with their plans. So we're in a lot of communication with Boeing about the master production schedule.

Operator: Okay, are you...

Speaker Change: Okay. Are you, where are you right now on the wide-body rates? I guess more specifically 787, I think you had been delivering ahead. Is that, is that still kind of the plan? And, you know, do we, do we have to worry about an inventory destock situation at any point?

Patrick Roche: So, we're delivering to Boeing at a rate of about five shipsets per month, and we have an in-house production rate that's in line with their plans. So, we're in a lot of communication with Boeing about the master production schedule. We don't see an impact here at the moment. We're continuing to monitor the situation closely with them. Jennifer, do you have anything additional?

Speaker Change: So we're delivering to Boeing at a rate of about five ship sets per month and we have an in-house production rate that's in line with

Speaker Change: their plans. So we're in a lot of communication with Boeing about the master production schedule. We don't see an impact here at the moment. We're continuing to monitor the situation closely with them.

Jennifer Walter: We don't see impact here at the moment. We're continuing to monitor the situation closely with them.

Patrick Roche: So, Jennifer, do you have anything additional? Yeah, I think what you described, Pat, is fair. You know, it's the constant communications that we're having with our customer right now so that we can find a solution that needs our needs and their needs. We're all looking for a healthy supply chain as we ramp off, and so that's something that's certainly important to us. We're also mindful that we come to resolutions on these things that make sense from a financial perspective for us as well. Yeah, I mean the stability of the supply chain is crucially important to both us as we manage at a whole tier of sub-suppliers, but also to Boeing as they acknowledge in their earnings call yesterday as well.

Jennifer Walter: Yeah, I think what you described, Pat, is fair. You know, it's the constant communication that we're having with our customers right now so that we can find a solution that meets our needs and their needs. We're all looking for a healthy supply chain as we ramp up, and so that's something that's certainly important to us. And we're also mindful that we come to resolutions on these things that make sense from a financial perspective for us as well. Yeah,

Speaker Change: So, Jennifer, do you have anything additional?

Jennifer: Yeah, I think what you described, Pat, is fair. You know, it's the constant communications that we're having with our customer right now so that we can find a solution that meets our needs and their needs. We're all looking for a healthy supply chain as we ramp up, and so that's something that's...

Speaker Change: And we're also mindful that we come to resolutions on these things that make sense from a financial perspective for us as well. Yeah, I mean the stability of the supply chain is crucially important to both us as we manage a whole tier of sub-suppliers, but also to Boeing as they acknowledged in their earnings call yesterday as well.

Patrick Roche: Yeah, I mean, the stability of the supply chain is crucially important to both us, as we manage a whole tier of sub-suppliers, but also to Boeing, as they acknowledged in their earnings call yesterday as well.

Michael Ciarmoli: We have a shared interest. Got it. Within commercial, I guess, can you give any color as to what was happening in the quarter and expectations for the aftermarket side?

Patrick Roche: Yeah, the shared interest.

Michael Ciarmoli: Got it.

Michael Ciarmoli: Within commercial, I guess, can you give any color as to what was happening in the quarter and expectation for the aftermarket side? So, as I said in the end market comments in general, Michael, aftermarket is strong for us as a business. We expected that will continue within the within our numbers. We signed up additional contracts with more airlines, bringing them under our support contracts, so feel positive about the aftermarket business. Yeah, Jennifer. There's just some shifts also that we're seeing in the aftermarket right now between OE and aftermarket that's making our OE a little bit stronger this quarter versus our aftermarket.

Speaker Change: We have a shared interest.

Speaker Change: Got it. Within commercial, I guess, can you give any color as to what was happening in the quarter and expectation for the aftermarket side?

Patrick Roche: So, as I said in the end market comments, in general, Michael, the aftermarket is strong for us as a business. We expect that that will continue. We have signed additional contracts with more airlines, bringing them under our support contracts. So, we feel positive about the aftermarket business.

Speaker Change: So, as I said in the end market comments, in general, Michael, aftermarket is strong for us as a business. We expect that that will continue within our numbers. We signed up additional contracts with more airlines, bringing them under our support contracts.

Speaker Change: So, do you feel positive about the aftermarket business?

Operator: All right. Does that... Yes. (inaudible)

Jennifer Walter: There are just some shifts also that we're seeing in the aftermarket right now between OE and aftermarket that's making our OE a little bit stronger this quarter versus our aftermarket. But that tends to normalize. It depends on just the prioritization of work that we're putting through the factory. So you'll see a little bit of a shift to that, but that's again, similarly, not a trend that we expect to continue.

Speaker Change: [inaudible]

Jennifer: Yeah, go ahead, Jennifer.

Jennifer: There's just some shifts also that we're seeing in aftermarket right now between OE and aftermarket. That's making our OE a little bit stronger this quarter versus our aftermarket. That tends to normalize. It depends on just the prioritization of work that we're putting through the factory. So you'll see a little bit of shift to that, but that's again similarly not a trend that we expect to continue.

Jennifer Walter: That tends to normalize. It depends on just the prioritization of work that we're putting through this aftery. So you'll see a little bit of shifts of that, but that's again similarly not a trend that we expect to continue.

Michael Ciarmoli: Got it. And maybe I'll try and sneak one more in, Pat. You guys are going to be in the unenviable position of reporting the fourth quarter with an election and everything that's going on in this market. Any sort of early read you'd be willing to give us on fiscal 25?

Michael Ciarmoli: and maybe I'll try and sneak one more in, Pat. You guys are going to be maybe in the unenviable position of reporting fourth quarter with an election, everything that's going on in this market. Any sort of early read you'd be willing to give us on fiscal 25? No, we'll give the guidance for 25 in the November of Michael Book. In general, we as an organization, as I said, are making good progress with the initiatives we're driving on margin enhancement. We expect that to continue. Our sales have been strong and are growing. We expect that to continue as well.

Jennifer: Got it. And maybe I'll try and sneak one more in, Pat. You guys are going to be maybe in the unenviable position of reporting fourth quarter with an election, everything that's going on in this market. Any sort of early read you'd be willing to give us on fiscal 25?

Patrick Roche: No, we'll give the guidance for 25 in the November call, Michael, but in general, we as an organization, as I said, are making good progress with the initiatives we're driving on margin enhancement. We expect that to continue. Our sales have been strong and are growing. We expect that to continue as well. So I think we're looking into 25 with a degree of optimism that we will deliver on all of them. Whatever happens in the election, I don't think it knocks us off the path at all.

Pat: No, we'll give the guidance for 25 in the November call, Michael, but in general...

Speaker Change: We, as an organization, as I said, are making good progress with the initiatives we're driving on margin enhancement. We expect that to continue.

Patrick Roche: So I think we're looking, we're looking into 25 with a degree of optimism that we will deliver on all of the plans that we've laid out previously. So whatever happens in the election, I don't think it knocks us off pat at all. Got it.

Speaker Change: Our sales have been strong and are growing. We expect that to continue as well. I think we're looking into 2025 with a degree of optimism that we will deliver on all of the plans that we've laid out previously.

Michael Ciarmoli: Got it. Perfect. I'll jump back in the queue, guys. Thanks.

Jennifer: Whatever happens in the election, I don't think it knocks us off path at all.

Michael Ciarmoli: Perfect. I'll jump back in the queue, guys. Thanks.

Speaker Change: Got it. Perfect. I'll jump back in the queue, guys. Thanks.

Kristine Liwag: We'll be next to Kristine Liwag with Morgan Stanley. Hey guys, great to see you at Farmboro. Pat, Jennifer, you know, you're now guiding to minimal free cash flow this year.

Kristine Liwag: We'll go next to Kristine Liwag with Morgan Stanley.

Kristine Liwag: Hey guys, great to see you at Farnborough. Pat, Jennifer, you know, you're now guiding to minimal free cash flow this year. So what's the path of some of the working capital unwinding in 4Q to get to positive territory? And then, you know, I think Jennifer, you highlighted that there's some pressure on receivables. Is there a change in what you guys are charging your customers to get bases on the receivables, you know, at a shorter and have cash conversion at a faster rate?

Jennifer: We'll go next to Kristine Liwag with Morgan Stanley .

Kristine Liwag: Hey guys, great to see you at Farnborough. Pat, Jennifer, you're now guiding to minimal free cash flow this year.

Jennifer Walter: So what's the path of some of the working capital unwind in 4Q to get to the positive territory? And then, you know, I think Jennifer, you highlighted that there's some pressure on receivables. Is there a change in what you guys are charging your customers to get these days on the receivables at a shorter and have cash conversion at a faster cycle? Yeah. Thanks, Kristine. It was nice seeing you there as well. For the fourth quarter in our cash flow, we've got, we're expecting positive cash flow essentially to make up for the use of cash that we have in the third quarter.

Kristine Liwag: So what's the path of some of the working capital unwind in 4Q to get to the positive territory?

Speaker Change: And then, you know, I think, Jennifer, you highlighted that there's some pressure on receivables.

Speaker Change: Is there a change in what you guys are charging your customers to get bases on the receivables, you know, at a shorter and have cash conversion at a faster cycle?

Jennifer Walter: Yeah, thanks, Kristine. It was nice seeing you there as well. For the fourth quarter in our cash flow, we're expecting positive cash flow, essentially to make up for the use of cash that we had in the third quarter. We're going to see it in a few places. First of all, receivables. So our receivables grew, putting pressure on cash in the third quarter. Because we've got the strong receivables, we'll be able to collect much of that. Different parts of the business have different collection terms, and so I made a reference to the next quarter or two.

Jennifer Walter: But a large portion of that we will be able to collect off of the strong receivables that we had in the third quarter. So the pressure in the third quarter becomes a benefit in the fourth quarter on the receivables. From a physical inventory standpoint, this is actually kind of a nice story for us.

Speaker Change: Thanks, Kristine. It was nice seeing you there as well. For the fourth quarter in our cash flow, we're expecting positive cash flow, essentially to make up for the use of cash that we had in the third quarter.

Jennifer Walter: We're going to see it in a few places. First of all, receivables. So our receivables grew, putting pressure on cash in the third quarter. Because we've got the strong receivables, we'll be able to collect much of that. Different parts of the business have different collection terms. So I made a reference to in the next quarter or two. But a large portion, we will be able to collect also the strong receivables that we have in third quarter. So the pressure in the third quarter becomes a benefit in the fourth quarter on the receivables. From a physical inventory, this is actually kind of a nice story for us.

Speaker Change: We're going to see it in a few places. First of all, receivables. So our receivables grew, putting pressure on cash in the third quarter.

Speaker Change: Because we've got the strong receivables, we'll be able to collect much of that.

Speaker Change: Different parts of the business have different collection terms, and so I made a reference to in the next quarter or two, but a large portion we will be able to collect off of the strong receivables that we had in the third quarter. So the pressure in the third quarter becomes a benefit in the fourth quarter on the receivable.

Jennifer Walter: It's a slow story, but in this quarter, we had flat levels of physical inventories from a cash perspective. And we're going to actually see that be a slight benefit as we look into next quarter. We're going to work down some of those physical inventories. So it's really starting to turn after we've had some growth over the past couple of years in the physical inventory. So this quarter is nice and slow.

Jennifer Walter: It's a slow story. But in this quarter, we've had flat levels of physical inventories from the cash perspective. And we're going to actually see that be a slight benefit as we look into the next quarter. We're going to work down some of those physical inventories. So it's really starting to turn after we've had some growth over the past couple of years in the physical inventory. So this quarter is nice that we got to that level space, and we'll have a small benefit next quarter as we're doing it.

Kristine Liwag: From a physical inventory, this is actually kind of a nice story for us. It's a slow story, but in this quarter we had flat levels of physical inventories from a cash perspective.

Kristine Liwag: And we're going to actually see that be a slight benefit as we look into next quarter. We're going to work down some of those physical inventories.

Kristine Liwag: So, it's really starting to turn after we've had some growth over the past couple of years in the physical inventory. So, this quarter it's nice that we got to that level space and we'll have a small benefit next quarter as we're doing it.

Jennifer Walter: It's nice that we got to that level of space, and we'll have a small benefit next quarter as we're doing it. As we look to what happens, if I look longer term, there's structural opportunities that we have that'll be beyond, you know, 24 and 25 because it takes time to make those structural changes. And we're doing this while we're supporting a growing business. So we've got that natural pressure of a growing business, but we are making a dent in some of these other things so that we are working that down. In the fourth quarter, the other thing that we're having is pressure on customer advances. So that's a timing issue. We're going to continue to work it out.

Jennifer Walter: As we look to what happens, if I look longer term, there's structural opportunities that we have that'll be beyond 24 and 25 because it takes time to make those structural changes. Those are involved in convincing the flow as we build inventory in our processes. However, some of those things that we are working on and seeing the beginning of benefits associated with that are going to be our inventory management that we can impact and have a greater, more near-term impact, like vendor inventory management systems, planning, and procurement. And we're doing this while we're supporting a growing business.

Kristine Liwag: As we look to what happens, if I look longer term, there's structural opportunities that we have that'll be beyond, you know, 24 and 25, because it takes time to make those structural changes.

Kristine Liwag: And those involve things like condensing the flow as we build inventory in our processes.

Kristine Liwag: However, some of the things that we are working on and seeing the beginning of benefits associated with that are going to be our inventory management that we can impact and have a greater, more near-term impact, like vendor inventory management systems, planning and procurement. And we're doing this while we're supporting a growing business, so we've got that natural pressure of a growing business, but we are making a dent in some of these other things so that we are working back down.

Jennifer Walter: So we've got that natural pressure of a growing business, but we are making a dent in some of these other things so that we are working back down. In the fourth quarter, the other thing that we're having is pressure on customer advances. So next, the timing thing, we're going to continue to work it down. We did have really nice customer advances in the back half of FY23, and even into the first quarter of this year, but we don't have any new advances that are coming in of significance in the fourth quarter, so we are having that pressure as we continue to work that down.

Kristine Liwag: In the fourth quarter, the other thing that we're having is pressure on customer advances.

Jennifer Walter: We did have really nice customer advances in the back half of FY23 and even into the first quarter of this year, but we don't have any new advances that are coming in of significance in the fourth quarter. So we are having that pressure as we continue to work that down. So that's largely where we're going to get the free cash flow benefit in Q4. And as you know, it's a timing thing.

Kristine Liwag: So that's a timing thing. We're going to continue to work it down. We did have really nice customer advances in the back half of FY23 and even into the first quarter of this year, but we don't have any new advances that are coming in of significance in the fourth quarter.

Jennifer Walter: So that's largely where we're going to get the free cash flow benefit in Q4. And as you know, the timing thing, last year's fourth quarter, we had a strong cash quarter after a softer quarter. So it's a lot of this is with timing, and as you can see, you know, customer advances is a big portion of that. So quarter type of results in that pressure does continue on. But we are making some nice progress in the physical inventory. And then we're positioned nicely on the receivables as well.

Kristine Liwag: So we are having that pressure as we continue to work that down. So that's largely where we're going to get the free cash flow benefit in Q4.

Jennifer Walter: Last year's fourth quarter, we had a strong cash quarter after a softer quarter. So a lot of this is timing. And as you can see, customer advances are a big portion of that for the third quarter type of results. And that pressure does continue on.

Kristine Liwag: And as you know with the timing thing, last year's fourth quarter we had a strong cash

Speaker Change: Astrachan, Jennifer Walter, Patrick Roche

Jennifer Walter: But we are making some nice progress in the physical inventories, and then we're positioned nicely on the receivables as well, with respect to, you know, what are we charging customers, and how are we working? We work when we're looking at our customers; we're looking at, you know, comprehensive negotiations with our customers that involve pricing and terms, whether we're opening something up that isn't normally open, or we're renewing, or renegotiating something like that.

Kristine Liwag: And that pressure does continue on, but we are making some nice progress in the physical inventories, and then we're positioned nicely on the receivables as well.

Jennifer Walter: With respect to you, you're also asking about the, you know, what are we charging customers and how are we working? We work when we're looking at our customers. We're looking at, you know, comprehensive negotiations with our customers that involve pricing in terms, whether we're opening something up that isn't normally open or we're renegotiating something like that. So we look at that as a balanced perspective; sometimes, depending on, in some, the customer side, but it's also on, you know, the vendor side as well. We need to make sure that we're coming up with what makes best sense for us as well as the person, the parties that we're negotiating with so that we can come out with the best outcome.

Jennifer Walter: So we look at that as a balanced perspective, sometimes depending on, and it's on the customer side, but it's also on, you know, the vendor side as well. We need to make sure that we're coming up with what makes best sense for us, as well as the person, the parties that we're negotiating with, so that we can come out with the best outcome. Sometimes there is a benefit of pricing at the cost of term, and sometimes it could be different.

Kristine Liwag: With respect to

Speaker Change: You're also asking about the, you know, what are we charging customers and how are we working? We work, when we're looking at our customers, we're looking at, you know, comprehensive

Kristine Liwag: negotiations with our customers, you know, that involves pricing and terms, whether we're opening something up that

Kristine Liwag: [inaudible]

Kristine Liwag: And it's on the customer side, but it's also on, you know, the vendor side as well. We need to make sure that we're...

Kristine Liwag: Coming up with what makes best sense for us as well as the person, the parties that we're negotiating with so that we can come out with the best outcome.

Jennifer Walter: Sometimes there is a benefit of pricing at the cost of a term, and sometimes it could be different. So it's looking at everything in a holistic type of way to get the best economic answer for us that works in that circumstance. So we are mindful of both our terms and pricing because it's obviously not just the sales, the margin; it's the cash aspect of it as well. So thank you for the detailed answer, Jennifer. I really, really appreciate it.

Kristine Liwag: Sometimes there is a benefit of pricing at the cost of a term, and sometimes it could be different. So it's looking at everything in a holistic type of way to get the best economic answer for us.

Jennifer Walter: So it's looking at everything in a holistic type of way to get the best economic answer for us that works in that circumstance. So we are mindful of both our terms and pricing, because it's obviously not just the sales and margin, it's the cash aspect of it as well.

Kristine Liwag: That works in that circumstance. So we are mindful of both our terms and pricing because it's obviously not just the sales, the margin, it's the cash aspect of it as well.

Kristine Liwag: Great, thank you for the detailed answer, Jennifer. I really, really appreciate it. And if I could follow up, I mean, your previous guidance for 2025 free cash flow was, you know, 75% to 100% conversion. With all the timing issues that are happening and these changes, I just wanted to check to see if this is still intact, or if any of these concerns in fiscal year 24 are kind of still over to 25.

Kristine Liwag: And if I could follow up, I mean, your previous guidance for 2025 free cash flow was, you know, 75% to 100% conversion with all the climbing issues that are happening in these changes. I just wanted to check to see if this is still in tax or if any of these concerns and clear 24 kind of so over to 25. Yeah, we'll comment more specifically in our November call, but we are still working towards our investors' commitment that we put out there. And what we're looking forward to being able to report and demonstrate our continued success in our financial metrics.

Speaker Change: Great. Thank you for the detailed answer, Jennifer. I really, really appreciate it. And if I could follow up, I mean, your previous guidance for 2025 free cash flow was, you know, 75% to 100% conversion. With all the timing issues that are happening and these changes, I just wanted to check to see if this is still intact or if any of these concerns in fiscal year 24 kind of still over to 2025.

Jennifer Walter: Yeah, we'll comment more specifically in our November call, but we are still working towards our Investor Day commitments that we put out there, and we're looking forward to being able to report and demonstrate our continued success in our financial metrics.

Speaker Change: Yeah, we'll comment more specifically in our November call, but we are still working towards our Investor Day commitments that we put out there.

Speaker Change: And we're looking forward to being able to report and demonstrate our continued success in our financial metrics.

Kristine Liwag: Well, great. Thank you very much. Thanks.

Operator: Well, great. Thank you very much. And as a reminder to ask a question on

Speaker Change: Well, great. Thank you very much.

Operator: And as our minds are to ask a question on today's call, that is star one under the telephone keypad. And at this time, there are no further questions. Questions? Okay, so I would like to thank everyone for joining the call. I appreciate your attendance and your questions. It's been another strong quarter for us on the path to a really good physical 24. I look forward to talking to you again in November as we report out on that. Thank you very much.

Operator: Another reminder to ask a question on today's call; that is, star 1 on your telephone keypad. And at this time, there are no further questions. OK.

Kristine Liwag: Thanks, Kristine.

Speaker Change: And as a reminder to ask a question on today's call, that is star 1 on your telephone keypad.

Patrick Roche: Okay, so I would like to thank everyone for joining the call. I appreciate your attendance and your questions. It's been another strong quarter for us on the path to a really good fiscal 24. I look forward to talking to you again in November as we report on that. Thank you very much.

Speaker Change: And at this time, there are no further questions.

Speaker Change: Okay, so I would like to thank everyone for joining the call. I appreciate your attendance and your questions.

Speaker Change: It's been a another strong quarter for us on the path to a really good fiscal 24. I look forward to talking to you again in November as we report out on that. Thank you very much.

Operator: This does conclude today's conference. We thank you for your participation.

Operator: This does conclude today's conference. We thank you for your participation.

Speaker Change: This does conclude today's conference. We thank you for your participation.