Q1 2025 Moog Inc Earnings Call
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Good morning, ladies and gentlemen.
Alcan and locate first quarter fiscal 2025 earnings conference call.
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During the presentation, we will conduct a question and answer session.
<unk> will be provided at that time are your chicken or egg question.
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Stephanie: Thank you Stephanie.
Stephanie: Director of Investor Relations. Please go ahead.
Eric Astrakhan: Good morning, and thank you for joining <unk> first quarter 2025 earnings release Conference call I'm, Eric Astrakhan with.
Eric Astrakhan: With me today is Pat Roche, our Chief Executive Officer, and Jennifer Walter Our Chief Financial Officer.
Eric Astrakhan: Earlier. This morning, we released our results and our supplemental slides both of which are available on our website.
Eric Astrakhan: Our earnings press release or supplemental slides and remarks made during our call today contains adjusted non-GAAP results.
Conciliations for these adjusted results to GAAP results are contained within me provided materials.
Eric Astrakhan: Lastly, our comments today may include statements related to expected future results and other forward looking statements, which are not guarantees.
Eric Astrakhan: 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.
Pat Roche: Good morning, and welcome to the call.
Pat Roche: Today, we will share an update on our first quarter financial and operational performance and an updated outlook for the year.
Pat Roche: We've delivered a great quarter with strong sales growth.
Pat Roche: Impressive bookings and solid margin enhancement.
Pat Roche: We're delivering value for our customers and we're being rewarded with significant program wins.
Pat Roche: Our operational initiatives will deliver continued margin enhancement and strong free cash flow in the second half of fiscal 'twenty five.
Pat Roche: Now let me provide further detail on our operational initiatives that are driving this strong performance firstly, our customer focus our performance in delivering for our customers. That's put us in a great position to pursue and capture significant opportunities arising from broad based defense demand.
Pat Roche: <unk>.
Pat Roche: We secured record quarterly bookings of over $450 million in our space and defense segment.
Pat Roche: These wins cover a range of applications and leverage our technical leadership and our operational performance.
Close to half of the bookings or within our missile business with the largest single award being a production order for over $100 million from Lockheed for the control actuation system on the pad III program.
Pat Roche: We also captured initial bookings on collaborative combat aircraft platforms, demonstrating the relevance of our technology in this fast moving segment.
Pat Roche: Bookings were also very impressive and commercial aircraft with close to $400 million in orders with almost 60% aftermarket content.
Pat Roche: We continue to grow our customer base for both total support with additional long term agreements with airlines around the world.
Pat Roche: In December the German government delivered to the Ukrainian armed forces.
Pat Roche: First of 54 self propelled arce H 155 howitzers produced by K Mds.
Pat Roche: In support of our growing defence business in Europe, We've recently added manufacturing space to our opening a site in Germany.
Pat Roche: Next turning to people community and planet I want to return to the impact of extreme weather with an update on <unk>.
Pat Roche: As you May recall, we experienced severe damage to our pre commercial aircraft facility in September.
Pat Roche: I am pleased to report that we have regained production capacity within eight weeks of the event.
Pat Roche: This is a remarkable achievement, it's a credit to the dedication of our staff who continue to drive the recovery. So that we can deliver on our customers' commitments.
Pat Roche: Reinstatement of our production facilities will continue through fiscal 'twenty five.
Pat Roche: It is heartbreaking to see the loss of life and the destruction wrought by the wildfires in Los Angeles, We are concern for all of those impacted including our staff at our Torrance and Chatsworth operations.
Pat Roche: To date, there has been no impact on our facilities.
Pat Roche: We published our second sustainability report in December 2024.
Pat Roche: In its broadest sense sustainability is about adapting to the evolving needs of our stakeholders.
Pat Roche: And we've made significant strides.
Pat Roche: Highlights include <unk> reduction through HVAC upgrades and the deployment of solar arrays.
Pat Roche: Installation of water purification projects in our communities in India, and the Philippines and progress in tackling hazardous waste.
Pat Roche: In addition, we made a commitment to cook water consumption by 20% relative to fiscal 'twenty two basically.
Pat Roche: In areas that are designated water stressed and to better manage our water resources across our footprint.
Pat Roche: In relation to supporting sustainable aviation industry.
Pat Roche: We are pleased and collaborating with jet zero under blended wing body demonstrator, which promises to have fuel burn and emissions as a step towards net zero carbon emissions by 2015 mortgage providing with the flight control actuation on this aircraft.
Pat Roche: Finally, turning to financial strength, we continue to make excellent progress on driving margin enhancement through pricing and simplification. Our execution is in line with our Investor day commitments.
Pat Roche: We continue to simplify our operations the transfer of all production from a retro Virginia Motors manufacturing site is complete and we will soon exit that facility.
Pat Roche: This completes the consolidation of our industrial electric motors in the U S to our focused factory in Murphy North Carolina.
Pat Roche: In addition in November we entered a collective.
Pat Roche: Process with staff on the proposed closure of our slippery manufacturing site and reading in the United Kingdom. The consultation process will conclude by end of January.
Pat Roche: We expanded 80 20 deployment to cover 75% of our business by sales and trained more than 60 leaders, bringing the total to over 900, we're on our plan to deploy to all manufacturing locations by the end of fiscal 2006.
Pat Roche: We continue to develop our capabilities and are using insights gained to drive productivity and reduce complexity in the business. We're building momentum by using our own success stories to educate the wider organization and to show what is possible related <unk>.
Pat Roche: As part of <unk> to 'twenty, we've continued to expand voice of the customer interviews and we're using that feedback to drive improvement further building customer loyalty.
Pat Roche: Finally during a recent visit to our German industrial manufacturing facilities I saw firsthand the strong commitment to driving production efficiency achieved through innovation within our manufacturing process and the integration of robotics and automation.
Speaker Change: Now turning to the macroeconomic and end market conditions.
Speaker Change: With a change of administration in Washington. This week, let me start with a few comments on our defense business.
Speaker Change: The geopolitical environment remains extremely challenging.
Speaker Change: Whilst the recent ceasefire in gas is an extremely welcome development. There is still an ongoing war in Ukraine and tensions over Taiwan.
Speaker Change: The threat from growing military capability of near peers is undiminished.
Speaker Change: Consequently, there is no lessening of the need to replenish arsenals over the next few years to modernize and upgrade existing platforms and to develop new strategic capabilities.
Speaker Change: For these reasons, we believe that our FY 'twenty five guidance is solid and we foresee continued expansion in our defense business based on our significant bookings.
Speaker Change: Whilst the new administration will certainly defined its own department of defense priorities, we believe that our broad based exposure across all defense domains positions us well.
Speaker Change: In addition, we expect to see continuing growth in international demand.
The new administration will likely introduce tariffs, although it is not clear how widely they will be applied not what level.
Speaker Change: We've experienced the impact of tariffs in the past and we will work with our customers and suppliers to mitigate any impact.
Speaker Change: On the commercial side, we remain optimistic that wide body platforms will ramp in fiscal 'twenty six given the feedback received from our customers and their actions.
Speaker Change: That Boeing recently announced the $1 billion investment into its Charleston facility is strong commitment to the 787 ramp plan.
Speaker Change: Airbus also reaffirm their <unk> hundred 50 ramp plan.
Well positioned to support this and we look forward to that increased demand flowing through our business.
Speaker Change: Finally, the industrial business is stabilized despite the soft market conditions.
Speaker Change: In fact, our book to Bill ratio was greater than one for the first time in two years.
Speaker Change: Now, let's turn to the guidance for fiscal 'twenty five.
Speaker Change: We had a good start to the fiscal year and we're maintaining our full year guidance.
Speaker Change: This means solid revenue growth strong adjusted operating margin improvement in line with our Investor plan and a significant improvement in free cash flow relative to fiscal 'twenty four.
Speaker Change: Our revenue guide is unchanged with just minor updates by segment to reflect what was achieved in quarter, one and the impact of unfavorable exchange rates within the industrial business.
Speaker Change: Our margin guide also remains unchanged.
Speaker Change: Finally, our free cash flow is unchanged for the year.
Speaker Change: Whilst our use of cash in the quarter was high we have a clear line of sight to its improvement in quarter, three and strong cash flows for the back half of the year.
Speaker Change: Now, let me hand over to Jennifer with a more detailed breakdown on the quarter and our guidance. Thanks.
Jennifer Walter: Thanks, Pat I'll begin with our first quarter financial performance I'll, then provide an update on our guidance for FY 'twenty five we.
Speaker Change: We had a great start to the year from an earnings perspective.
Speaker Change: <unk> were up nicely over last year's first quarter, and adjusted operating margin and earnings per share were strong.
Speaker Change: We continue to simplify our business as a result, we took a $6 million of charges.
Speaker Change: So any associated with our footprint rationally rationalization activities in the first quarter.
Speaker Change: I will now talk through our first quarter adjusted results, which exclude these charges.
Speaker Change: Sales in the first quarter of $910 million or 6% higher than last year's first quarter military aircraft commercial aircraft and space and defense sales were up considerably while industrial sales were down due to our simplification efforts.
Speaker Change: The most significant increases in segment sales were in military aircraft in commercial aircraft.
Speaker Change: In military aircraft sales of $213 million were up 15% over the first quarter of last year activity.
Speaker Change: Activity on the Flyer program began to ramp midway through FY 'twenty, three and has steadily increased since that time accounting for half the sales increase this quarter.
Speaker Change: In addition over the past couple of years certain other development into.
Speaker Change: These into production and we're seeing a ramp in that production that will continue for the next few years.
Speaker Change: Commercial aircraft sales of $221 million increased 14% over the same quarter a year ago.
Speaker Change: Aftermarket sales were particularly strong it was a good quarter for repair activity. In addition, we're partnering with airlines to ensure they can meet early demand on their screen.
Speaker Change: And this resulted in strong probation anchor spared.
Speaker Change: In addition, OE sales were up due to the timing of orders.
Speaker Change: Second half of FY 'twenty for short term delay in sales and we're now seeing those orders catch up, thereby increasing our sales.
Speaker Change: Based on defense sales of $248 million increased 8% over the first quarter last year, we're seeing broad based defense demand that's driving that growth within this segment.
Speaker Change: This quarter the growth is most notable for European defense need and satellite and launch vehicle activity.
Speaker Change: Industrial sales were $228 million in the first quarter.
Speaker Change: Down 7% from the same quarter a year ago.
Speaker Change: Half of the decrease relates to the fastest curious we completed at the beginning of the first quarter.
Speaker Change: Otherwise sales in our industrial automation business is stabilized.
Speaker Change: <unk> with the fourth quarter last year and down from the strong level a year ago.
Speaker Change: Strengthen our medical pump business, which reached a record high this quarter helped to offset this decline as we benefited from a constant from a competitor challenges.
Speaker Change: We will now shift to operating margin.
Speaker Change: Adjusted operating margin of 11, 8% in the first quarter was up from 11, 3% in the first quarter last year.
Speaker Change: Adjusted operating margins increased over the first quarter of last year.
Speaker Change: Segment.
Speaker Change: We achieved margin expansion, despite 80 basis points of pressure from recording an out of period warranty expense this quarter.
Speaker Change: The most impactful increase was in space and defense, where operating margin increased 90 basis points to 11, 9%.
Speaker Change: This increase is associated with our strong growth, partially offset by a less favorable program mix and investments to prepare for upcoming major program.
Speaker Change: Industrial operating margin was 13, 2% in the first quarter up 60 basis points.
Speaker Change: This increase is attributable to benefits from simplification initiatives, including the divestitures, we completed at the beginning.
Speaker Change: Hi, there.
Speaker Change: Military aircraft operating margin was 11, 8% in the first quarter 50 basis points higher than in the first quarter last year.
Speaker Change: We benefited from efficiencies associated with higher volume on the Flyer program and lower research and development expense.
Speaker Change: These benefits were partially offset by a less favorable sales mix.
Speaker Change: Commercial aircraft operating margin was 11%.
Speaker Change: Up 40 basis points from the first quarter last year underlying operational performance was robust, reflecting very strong aftermarket sales.
Speaker Change: Strength was largely offset by 340 basis points of pressure related to recording the out of period warranty expense.
Speaker Change: Putting it altogether adjusted earnings per share came in at $1 78 up 16% compared to last year's first quarter. Despite 18 tons of pressure associated with the out of period expense.
Speaker Change: The increase is attributable to higher operating margin and additional operating cost associated with higher sales.
Speaker Change: Let's shift over to the cash flow in the first quarter, we used $165 million of free cash flow.
Speaker Change: Use of cash was driven by working capital requirement.
Speaker Change: We used cash for physical inventory to support future sales growth.
Speaker Change: We also used cash for receivables as our strong collections in the first and the fourth quarter last year less left to collect this quarter in.
Speaker Change: In addition timing of compensation payments impacted us in the first quarter.
Speaker Change: Capital expenditures at $33 million were relatively light compared to recent quarter, we're continuing to invest in facilities and equipment to support longer term growth opportunity the lower level of capital expenditures. This quarter simply reflects timing and we're expecting to pick up next quarter.
Speaker Change: Capital expenditures represent a key opportunity for us to invest for organic growth and this continues to be a priority within our capital allocation strategy.
Speaker Change: Okay.
Speaker Change: Time, we strive to have a balanced approach to capital allocation in that regard, we repurchased roughly 220000 shares of our stock in the first quarter spending just over $40 million.
In addition, we remain committed to our dividend policy and as announced we're increasing our quarterly dividend by 4% to 29 per share.
Speaker Change: Our leverage ratio was two four times as of the end of the first quarter nicely within our target range of 2% to three times.
Speaker Change: We will now shift over to our updated guidance for this year, which is unchanged from 90 days ago at a company level.
Speaker Change: Fiscal year 2025 is shaping up to be another strong year with growth in sales continued operating margin expansion and enhanced free cash flow generation.
Speaker Change: Both pricing and simplification will drive our operating margin expansion this year, while our focus on optimizing our planning and sourcing activities will contributing to our significant cash generation in the back half of this year.
Speaker Change: We're projecting sales of $3 7 billion in fiscal year, 'twenty, 5% to 3% increase compared to fiscal year 'twenty four we're projecting sales growth in space and defense commercial aircrafts and military aircraft and expecting a decrease in sales in industrial.
Speaker Change: We're maintaining our sales guidance for FY 'twenty five that we shared a quarter ago with a modest shift between segments to reflect what we've seen in the first quarter.
Speaker Change: We're increasing our sales guidance in commercial aircraft by $20 million to reflect the strong first quarter aftermarket activity.
We're increasing sales guidance for military aircraft by $10 million.
To reflect our current run rate.
And we are decreasing sales guidance by $30 million in industrial to reflect the weakening of foreign currencies against the U S. Dollar that we filed in the first quarter.
Speaker Change: We're holding our adjusted operating margin for FY 'twenty five a 13, 8%.
Speaker Change: 60 basis point increase over FY 'twenty for a 120 basis points after factoring out FY 'twenty for employee retention credit in FY 'twenty five out of period warranty expense.
Speaker Change: Operating margin for the 14, 2% and based in Japan.
13, 1% in military aircraft 11, 8% and commercial aircrafts and 13, 4% and industrial all the same as our previous guidance.
Speaker Change: We are affirming our FY 'twenty five adjusted earnings per share guidance at $8 21.
Speaker Change: Plus or minus 20.
Speaker Change: That's up 5% over FY, 'twenty, four or 14% normally normalizing for this year's out of period expense in last year's benefits that are not reflective of our operational performance.
Speaker Change: For the second quarter, we're forecasting earnings per share to be $1, 75, plus or minus 10%.
Speaker Change: This reflects a similar operating margin in Q2 relative to Q1 with neither the out of period warranty expense, nor the extraordinary commercial aftermarket strength.
Speaker Change: In Q2.
Speaker Change: Finally, turning to cash we're still projecting free cash flow conversion in FY 'twenty five to be in the 50% to 75% range a solid improvement from the modest level of cash we generated in FY 'twenty four.
Speaker Change: Free cash flow in the second quarter will improve markedly from the first quarter as we are projecting no cash usage in the second quarter.
Speaker Change: The real improvement, though will be in the back half of the year as we reduce inventories from our planning and sourcing activities and collect on receivables.
Speaker Change: Overall FY 'twenty five is shaping up great years, and now I'll turn it over to Pat.
Thank you Jennifer our first quarter was a strong start to the fiscal year.
Speaker Change: Leads us with increased confidence in our guidance for the year and we will continue to see our performance improvements reflected in those results now lets turn it over to your questions.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: You have a question. Please press the star followed by the one on your Touchstone filings.
Speaker Change: <unk> will be taken into your order received.
Speaker Change: Should you wish to cancel your question. Please question Star followed by the Taylor well behind.
Speaker Change: Using a speaker phone please flip to handsets quick question any case.
Speaker Change: Once again that is star one should you wish to ask a question.
And your first question is from John Kim Lantern Thomas T. Js Securities. Your line is now open.
John Kim: Hi, Good morning. Thank you for taking my questions. My first one Pat I was wondering if you could talk about your CCA involvements nice to hear you are having some activity there how much of an opportunity is that relative to other large programs, such as Florida or F 35, and kind of when do you see that very soon.
Pat Roche: Hi, John welcome to the call. Thanks for the question.
Pat Roche: Yes, I think the reason for indicating our work on CCA is to is to say that we.
Pat Roche: We have relevant technologies that we can offer in this space we have been engaged in conversations on several of the PCA programs.
Pat Roche: And we have development activity underway to prove out our concepts. So early stages I would describe as a mechanical components supplier entities. We feel that we have a valuable rule that we can provide on the flight controls.
Speaker Change: Understood and are you involved with all the players who are competing there or is it just one or two of those platforms.
Pat Roche: Yes.
Pat Roche: One or two.
Pat Roche: That's done a handful at this point.
Pat Roche: Got it Okay, and then I was wondering if you could talk about the Boeing investment and the 787 production line I was wondering how much capacity does that enable for them or them. We're just catching back up to where they were producing before COVID-19.
Pat Roche: More detail on that and kind of what.
Scott: Kind of forecast of their production rates in the future if Scott if you have that.
Pat Roche: Kind of detail.
Speaker Change: Yes, I mean Boeing is still working towards.
Pat Roche: Achieving a rate of 10 for the 787 wide body aircraft.
Pat Roche: By the end of by fiscal 'twenty six.
Pat Roche: That's the goal and the investment is to enable them to achieve that through the Charleston facility.
Speaker Change: Okay understood and then finally I was wondering how you drove so many.
Pat Roche: Aftermarket orders with <unk>.
Speaker Change: Commercial space with fixed breakdown as I just said.
Speaker Change: Test and how quickly we're getting it back up or is there other capacity or.
Are those orders for future dates.
Speaker Change: Yes, I mean, our repair work goes through both cheeks PREPA at other facilities around the world as well.
Speaker Change: We have quite a nice backlog of work on the aftermarket side. So we were able to get that through our production environment. So that's helped.
Boost the sales level, we also provisioned.
Speaker Change: Airlines directly with spares that enables them to ensure our fleet readiness so that was.
Speaker Change: Additional work that came through within the quarter. So I would describe it as having a very strong book of business on the aftermarket side with the benefit of some additional work that we were able to push through during the quarter itself and if I turn to Tewksbury site.
I think we got back to having our interim production environment working.
Speaker Change: The short period of time, which is allowing us get production through that plant again and meet the customer commitments, we actually still have quite an amount of work to do to rebuild the full production environment that gets us back to our let me say a full capacity, where we'd have some headroom and some additional capability or capacity available to us at the moment, we're very.
Speaker Change: And with what we have but we're working and we're getting stuff through the plant.
Speaker Change: Great. Thank you I'll jump back in queue.
John Kim: Thank you very much John.
John Kim: Okay.
John Kim: Thank you.
Speaker Change: Question is from Michael is primarily from <unk> Securities. Your line is now open.
Speaker Change: Hey, good morning, guys.
Good morning, Nice results. Thanks for taking my question.
Speaker Change: Pat maybe just to stay on that that aftermarket a bit.
Speaker Change: And I don't know how do you want to take this but you called out in the release the warranty expense, excluding that 14, 4% margins that looks to be a multi year high I guess.
Speaker Change: Two questions.
Speaker Change: Why didn't you ought to just adjust out that warranty expense I can't recall I check my notes I don't know what the last time you had one of those charges were and I guess should we should we think about that level being sustainable it sounds like you've got a lot of aftermarket through some provisioning, but just trying to get some color on that 14.
Speaker Change: 4% as it relates to <unk>.
Longer term targets and youre going to get some volume increases so how should we think about that.
Speaker Change: I think we had a really good quarter obviously.
Speaker Change: If you back it out back out that one time expense. It was very strong and it is a record margin quarter for the commercial aircrafts group. So all of that is correct Michael.
Speaker Change: Anticipate continuing strength on the aftermarket side, but we had the extra boost coming through from that provisioning and getting some of our.
Speaker Change: <unk> pre output back out again, so there's some gains coming from those things and we.
Speaker Change: We're just not banking on that repeating in the subsequent quarters, but we do still have a really solid level of aftermarket business.
Speaker Change: Planned and for the rest of the year.
Speaker Change: Okay.
Speaker Change: I think it is a positive it is a positive story, Michael about that strength in the aftermarket.
Speaker Change: And the operational improvements on the commercial side.
Speaker Change: Got it so fair to say more skewed towards aftermarket versus OE, there wasn't any additional pricing, maybe just kind of ongoing.
Speaker Change: Operational excellence improvements on the OE side.
Speaker Change: The aftermarket was a significant driver to the underlying performance that we saw in the operating margin performance.
Speaker Change: To your question as far as the out of period adjustment. Yes, you can think of this as it's not an ongoing type of thing it doesn't change our warranty expense going forward or anything like that that's why we tried to give you a trail to say how much was included in our numbers typically in our adjustments, we only keep things like restructuring and those.
Speaker Change: Types of activities in there.
Jennifer Walter: Yes, sure Jennifer do you have the commercial OE revenue growth in aftermarket growth in the <unk>.
Speaker Change: In the quarter.
Speaker Change: Yes, they were they actually both grew after market was a little bit more of growth on the a little more than half of the growth compared to the total segment.
Speaker Change: Okay perfect.
Speaker Change: And then just shifting on industrial I think you called out that the bookings were greater than book to Bill was greater than one time any color there what drove what youre kind of seeing in those markets.
Speaker Change: On slide <unk>.
Scott, presumably better visibility here.
Speaker Change: Whether or not that bookings trend kind of continues.
Yes.
Speaker Change: I think this is a long running story, Michael what we've been talking about that softening of the us.
Speaker Change: The economy in Germany, and then the further softening in our orders as you know that predominantly affects the industrial automation piece of the business and we've had some counterbalancing going on because medical has been strong.
Speaker Change: We actually had record sales in our medical pumps business in this quarter.
Speaker Change: I didn't see in prior quarters, some strength in the simulation and test, which was helping us as well.
Speaker Change: If I take those back out of it and I just focus on that industrial automation piece that industrial automation piece I believe is relatively stable at this point, that's what I was saying in the fourth quarter and when I look forward I still have that view that we keep running at roughly the same level of industrial automation activity through fiscal 'twenty five.
Speaker Change: So the message stable.
Speaker Change: And the book to Bill is a positive sign wed like to see that to continue for another few quarters before we are certain that the business is picking up again.
Speaker Change: In line with what we've built into the 25 plans by type by saying that it was going to be stable for the year.
Speaker Change: Got it Okay and then just one last one for me.
Speaker Change: Second quarter earnings guidance at the mid point sequentially down versus first quarter I think that's kind of an anomaly for you guys can you give any color as to why we should expect earnings to be down at the midpoint versus the first quarter here.
Speaker Change: Yes, largely largely it's about the same we've got when we think about the out of period and the warranty as we think about either one of those repeating into the next quarter to largely it's pretty much flat.
Speaker Change: Flat.
Speaker Change: A small tick down in EPS.
Speaker Change: Okay, Alright, thanks, guys I'll jump back in the queue.
Speaker Change: Thanks, Tom.
Okay.
Speaker Change: Okay.
Speaker Change: I'll Miss you.
Speaker Change: Our next question is from Jack <unk> from JD Cowen. Your line is now open.
Jack: Yes, Hey, thanks, guys good morning.
John Kim: Good morning, John.
Speaker Change: Good morning, a quick question on the cash Jennifer I would love to dig in on.
Speaker Change: <unk> burned $165 million this quarter, just kind of moving forward some of the buckets of working capital I don't know if you want to hit on inventory or Unbilled, just how do we get conviction that free cash flow conversion guide reiterated thanks.
Speaker Change: Yeah.
Speaker Change: Yes, so I can go through it I'll start with Q2, then and then basically for the rest of the year.
Speaker Change: The improvement that we're going to see in Q2. So again I said, we're not going to have a use of cash in Q2, we're going to see it come across a number of places. So if I do it relative to where we were in Q1 physical inventories will improve we will have stronger shipments that we've got line of sight to and milestones that are going to help us.
Speaker Change: Physical inventory.
Speaker Change: We also had the compensation payments in Q1, which is normally happens in Q1. It doesn't happen in Q2. So that is actually another benefit from Q1 to Q2 as we look there.
Speaker Change: Customer advances is another one we do have some defense advances that are on the horizon for us that we expect to come in in the second quarter and finally in receivables, while still a use of cash not the level of use of cash that we have in the first quarter and the first quarter, we just had that excess of level.
Speaker Change: A pressure because we had such strong collections in the fourth quarter that we are seeing a little bit of an up and down which is quite typical for our receivables. So theres a number of things that are driving our improvement.
Speaker Change: In the second quarter.
Speaker Change: As I mentioned, though the real improvement that we're going to see where we're going to generate the cash is going to be in our third and fourth quarters and thats going to be in a number of places physical inventories is a really important place for us.
Speaker Change: Again, we're going to have a strong operational performance there is milestones and things that we've got going on there.
Speaker Change: In physical inventory, we've got an increase in OE shipments.
Speaker Change: We're also taking efforts to constrain our incoming levels of inventory.
Speaker Change: We're optimizing our buffer stock level. So that we are reducing it in the places where we can still meet our customers requirements, but not carry higher levels of inventory and we're reducing excess levels of production to only what we need in areas, where we can do that without risk taking deliveries.
Speaker Change: We also have the benefit that Pat talked about as far as the tewkesbury output that three covering drawing down inventory and to the extent, we can we are delaying receipt and pushing out demand and our supply chain.
Speaker Change: We are starting these activities.
Speaker Change: It takes a little while for that to turn through so thats why we don't have the significant amount of relief in the second quarter, but we are projecting these things to materialize and get into our financial results in the back half of the year.
Speaker Change: Other area that we will see improvement in the back half of the year is going to be and receivables.
Speaker Change: We're looking to have the strong collections and then including on some milestones that are on the horizon as well. So we've got some visibility as far as that goes as well. So those will be the big drivers in the back half of the year.
Speaker Change: So with those activities that we've got in place.
Speaker Change: The customer advances that we have line of sight to the collections that we've got in place, we're feeling confident to hold our 50% to 75% free cash flow conversion to the year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Yes go ahead, sorry, sorry, Jack I was just going to say, where we've been working to drive increased profitability with defined initiatives. They have a similar approach now internally on cash flow. We know what we're trying to drive it in each of the businesses.
Speaker Change: Checking that as well.
Speaker Change: Go through each of our internal reviews to make sure we are delivering.
Speaker Change: Okay.
Speaker Change: Yes, that's good insight.
Speaker Change: I guess, just switching gears back to commercial and I'm not sure.
Speaker Change: If you've covered it Pat just maybe an update.
Speaker Change: All right just kind of assumptions, maybe 780 <unk> hundred 50.
Speaker Change: Because it looks like commercial OE was actually up pretty strongly sequentially from Q4 to Q1.
Speaker Change: Which is kind of.
Speaker Change: Just any any update on OE assumptions.
Speaker Change: Where you were and where youre kind of looking to go to through 25 would be helpful. Thanks.
Speaker Change: I think both of us are going to come in on this one Jack So just the first high level comments I mean when.
Speaker Change: When we.
Speaker Change: Hilltop.
Speaker Change: 25 plan, we had lots of conversations back and forth with the customers on the wide body programs, which are really important to our numbers and we have strong alignment between their plans and our plans and are very confident in those levels that we have loaded into <unk>.
Speaker Change: Into our plan.
Jennifer Walter: That's the first comment and we've seen no change in that over the last 90 days. So I would describe that as very stable for us with enrollment and Jennifer your comments as well related to the back half of last year and strong OE. This quarter. It's an element basically just a timing in the third quarter last year.
Jennifer Walter: We actually started to see a short term delay and that carried in both Q3 and in Q4 related to some orders ordering patterns of our customer that has normalized and we've essentially caught up in those orders. So its really just affecting the timing of orders that has otherwise been very stable and.
Jennifer Walter: Normalized a little bit of a down depth and the last half of last year. When we actually got our sales guidance down now we've actually seen the catch up of those orders.
Jennifer Walter: Fulfilled such that we could have that higher level that we saw this time, so it's more so.
Jennifer Walter: So we got a little bit of a pop from from that catch up.
Jennifer Walter: Got it thank you.
Jennifer Walter: Alright.
Jennifer Walter: Thank you.
Speaker Change: Next question is from Jon <unk> from CJS Securities. Your line is now open.
Jon: Hi, Thanks for the follow up I was just curious about the medical device business you had mentioned that.
Speaker Change: <unk> had a record.
Speaker Change: Based on a competitor having challenges I'm wondering how long that window might be opened four and do you expect a reversal or just stabilization.
Speaker Change: If your competitor catches up.
Speaker Change: Think about the timeframe around those type of venues in the six or nine months period. It takes a little bit of time to work through issues when they do arise and thats, what our competitors are experiencing we have been gaining from this over the prior quarter and we will continue to soar.
Speaker Change: For the rest of the year, So we're up mid.
Speaker Change: Digits to high single digits.
Speaker Change: Sure.
Speaker Change: Relative to the prior year.
Speaker Change: Product lines.
Speaker Change: Okay and would you expect to give that back or more maybe hold some of the share that you took when you can put out we would expect we would expect to hold John because once you get that fleet out into the field.
Speaker Change: Continues actually to drawdown consumables from us as well so people don't like slipping or moving around too too much. So I think it's relatively sticky.
Speaker Change: Okay got it.
Speaker Change: Okay, and then just could you maybe provide a little more detail on your international exposure by currency I know you mentioned the headwind in the industrial business, but I know you do have foreign military sales as well as those sales in dollars or they are denominated in any other currency.
Speaker Change: Okay.
So that question is relating to our sales rather than purchases is that right.
Speaker Change: Territory here.
Speaker Change: We're just calling it off here.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sorry, John we're nearly there.
Speaker Change: Doors.
Speaker Change: Can also do it offline later.
Speaker Change: Yes.
Speaker Change: If you could give a quick summary, now our sales.
Speaker Change: Regionally, let's say, 7% to 2% of sales for fiscal 'twenty four or in the U S.
Speaker Change: 18% and Europe, 3% in Asia Pacific and then seven and various other currencies around the world.
Speaker Change: Okay, great. Thank you.
Okay.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I will now hand, the call back to Patrick Lynch for any closing remarks.
Speaker Change: Thank you thanks very much for the questions everyone.
Speaker Change: That closes out our first quarter call. It's been a good quarter for us on a good start to the year strong sales record orders impressive margin performance we have.
Speaker Change: Heavy use of cash in the quarter, but we can see line of sight to improving that in the back half of the year. So we remain confident in our full year guidance. So thank you for your time and attention and look forward to talking to you again on the next call.
Speaker Change: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect your lines.