Q2 2025 Moog Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the Moog Second Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session.

Good morning, ladies and gentlemen, and welcome to the Moog second quarter fiscal year 2025 earnings Conference call.

At this time all lines are in listen only mode.

Following the presentation, we will conduct a question and answer session.

Operator: If at any time during this call you require immediate assistance, please press star zero for the operator.

If at any time during this call and you require immediate assistance. Please press star zero for the operator.

Operator: This call is being recorded on Friday, April 25, 2025.

This call is being recorded and Friday April 25th 2025.

Aaron Astrachan: I would now like to turn the conference over to Aaron Astrachan. Please go ahead.

Speaker Change: I would now like to turn the conference over to Erin Astrachan. Please go ahead.

Aaron Astrachan: Good morning and thank you for joining Moog's second quarter 2025 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.

Erin Astrachan: Good morning, and thank you for joining <unk> second quarter 2025 earnings release Conference call.

Erin Astrachan: I am Eric Astrakhan 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. Reconciliations for these adjusted results to gap results are contained within the provided materials.

Erin Astrachan: Earlier. This morning, we released our results and our supplemental slides both of which are available on our website.

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

Erin Astrachan: Conciliations for these adjusted results to GAAP results are contained within the provided materials.

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

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

Erin Astrachan: Actual results may differ materially from those described in our forward looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings now I am happy to turn the call over to Pat.

Patrick Roche: Now, I'm happy to turn the call over to Good morning, and welcome to our earnings call. We've just delivered another quarter of strong financial results. The results are reflective of our unrelenting focus on improved business performance. We achieved record sales and drove improved operating margin and earnings per share, both net of prior year's employee retention credit. In addition, we deliver free cash flow in line with our plan. We feel positive about the outlook for our business. Year-to-date, our revenue is up 3% on prior year, and we expect an increase in revenue in the second half, with 12-month backlog, up sequentially in our defence businesses steady in industrial and slightly down in commercial.

Pat Roche: Good morning, and welcome to our earnings call.

Pat Roche: We've just delivered another quarter of strong financial results. The results are reflective of our unrelenting focus on improved business performance.

Pat Roche: Record sales and drove improved operating margin and earnings per share both net of prior year's employee retention credit.

Pat Roche: In addition, we delivered free cash flow in line with our plan.

Pat Roche: We feel positive about the outlook for our business.

Pat Roche: Year to date, our revenue is up 3% on prior year and we expect an increase in revenue in the second half with 12 month backlog up sequentially in our defense businesses.

Pat Roche: Steady and industrial and slightly down in commercial.

Patrick Roche: Year-to-date, our adjusted operating margin, excluding employee retention credit, is up 40 basis points on prior year, and we expect stronger performance in the second half from our defence businesses due to secured prices.

Pat Roche: Year to date, our adjusted operating margin excluding employee retention credit is up 40 basis points on prior year, and we expect stronger performance in the second half from our defense businesses due to secure pricing.

Patrick Roche: Finally, we expect to see significant free cash flow generation in the back half, as previously indicated, arising from our actions to optimise networking capital.

Pat Roche: Finally, we expect to see significant free cash flow generation in the back half as previously indicated arising from our actions to optimize net working capital.

Patrick Roche: Given the prominence of the trade policy in the current environment, I want to address tariffs before talking further about our business. The new administration is driving change at a remarkable pace and on multiple fronts. of the many changes enacted by Executive Order, the most significant relate to trade policy and tariffs.

Pat Roche: Given the prominence of the trade policy in the current environment I want to address tariffs before talking further about our business.

Pat Roche: The New administration is driving change at a remarkable pace and on multiple fronts.

Pat Roche: Many changes enacted by executive order the most significant relates to trade policy and tariffs. Since these changes have created a climate of uncertainty I want to spend some more time discussing the potential impacts and our litigations.

Patrick Roche: Since these changes have created a climate of uncertainty, I want to spend some more time discussing the potential impacts and our mitigation. Over many decades our organization has optimized its manufacturing footprint and strategic supply chain to best meet the needs of our customers in an environment of global trade that was relatively free of tariff. In addition to investing in our U.S. manufacturing operations, we have also built up world-class manufacturing facilities in the Philippines, India, Ireland, Costa Rica, Germany, and the U.K. In addition, we developed overseas supply chain partnerships that have served us well for decades.

Pat Roche: Over many decades, our organization has optimized its manufacturing footprint and strategic supply chain to best meet the needs of our customers.

Pat Roche: <unk> of global trade that was relatively free of tariffs.

Pat Roche: In addition to investing in our U S manufacturing operations. We have also built a world class manufacturing facilities in the Philippines, India, Ireland, Costa Rica, Germany, and the UK.

Pat Roche: In addition, we developed overseas supply chain partnerships that have served us well for decades. This.

Patrick Roche: This strategy allows us to access exceptional talent and create an economic benefit for Moog and its customers. The changes in U.S. tariffs within the last 100 days, but especially since April 2, altered the context in which we operate. We recognize that this situation is fluid and that it will be some time before tariff uncertainty is reduced. Based on the tariffs in effect today, and our operations and supply chain footprint, we would be most impacted by tariffs that apply to the import of steel and aluminium. to the import of goods from around the world, but especially from our facilities and suppliers in Costa Rica, the Philippines, Mexico, the European Union, Canada, and the UK.

Pat Roche: This strategy allows us to access exceptional talent and created economic benefit for Morgan its customers.

Pat Roche: The changes in U S tariffs within the last 100 days, but especially since April 2nd Ultra the context in which we operate with.

Pat Roche: We recognize that this situation is fluid and that it will be some time before tariff uncertainty is reduced.

Pat Roche: Based on the tariffs in effect to date, and our operations and supply chain footprint.

Pat Roche: He would be most impacted by tariffs that apply to the import of steel and aluminium.

Pat Roche: So the imported goods from around the world, but especially from our facilities and suppliers and Costa Rica, Philippines, Mexico European Union, Canada, and the U K.

Patrick Roche: In our assessment, we've assumed a 25% tariff on steel and aluminium, a 10% country tariff during the 90-day pause corresponding to our third quarter, and a higher reciprocal rate for the fourth quarter, and a 145% tariff on China.

In our assessment, we have assumed a 25% tariffs on steel and aluminium.

Pat Roche: A 10% country tariff during the 90 day cost corresponding to our third quarter and the higher reciprocal rates for the fourth quarter and the 145% tariff on China. We have not attempted to estimate second order effects on pricing or on the economy or disruption to supply chain and material availability.

Patrick Roche: We've not attempted to estimate second-order effects on pricing, or on the economy, or disruption to supply chain and material availability.

Patrick Roche: In response, we've taken immediate and specific action to mitigate the impact of these tariffs on Moog. These steps include maximum utilization of the U.S.-Mexico-Canada agreement, the effective administration of import and re-export of goods that by necessity must return to the U.S. for repair and price adjustments where appropriate to reflect our new cost base.

Mark: In response, we have taken immediate and specific action to mitigate the impact of these tariffs and Mark please.

Mark: These steps include maximum utilization of the U S Mexico, Canada agreement the.

Mark: The effective administration of import and re export of goods that by necessity must return to the U S repair and price adjustments where appropriate to reflect our new cost base.

Patrick Roche: We will continue to assess our manufacturing footprint and strategic supply chain to ensure that we can deliver for our customers and perform for our shareholders. We will not act in haste given the risk of disrupting these highly efficient supply chains that are critical to the global aerospace industry and to our many customers. These strategic choices will be given due consideration over a longer period during which we expect more stability around tariffs. We see these tariffs as a potential risk in our business that is otherwise continuing to deliver extremely well. In addition, we believe that our end markets are supportive of further strengthening.

Mark: We will continue to assess our manufacturing footprint and strategic supply chain to ensure that we can deliver for our customers and perform for our shareholders.

Mark: We will not act in haste given the risk of disrupting these highly efficient supply chains that are critical to the global aerospace industry and to our many customers.

Mark: These strategic choices will be given due consideration over a longer period during which we expect more stability around tariffs.

Mark: We see these tariffs as a potential risk in our business that is otherwise continuing to deliver extremely well.

Mark: In addition, we believe that our end markets are supportive of further strengthening so.

Patrick Roche: So let me describe each of our end markets, starting with defense. We continue to see strength in our defence businesses, both short-term and long-term. The Department of Defense budget for 2025 increased with the continuing resolution approved by Congress. And there have been indications that the President's 2026 budget request will be in excess of $1 trillion. Our portfolio of products and capabilities is well-aligned with the Administration's key defense priorities, such as sixth-generation fighters and collaborative combat aircraft, nuclear deterrence, and elements that could be integral to the Golden Dome, such as hypersonics, space vehicles, missiles, and counter-drone defense.

Mark: So let me describe each of our end markets starting with defense.

Mark: We continue to see strength in our defense businesses, both short term and long term.

Mark: The department of Defense budget for 2025 increased with the continuing resolution approved by Congress.

Mark: And there have been indications that the President's 2026 budget request will be in excess of one trillion.

Mark: Okay.

Mark: Our portfolio of products and capabilities as well is well aligned with the administration's key defense priorities.

Mark: Such as six generation fighters and collaborative combat aircraft.

Mark: Cleared the turns have elements that could be integral to the growth in <unk>.

Mark: Such as hypersonic vehicles missile and counter drone defense.

Patrick Roche: In addition, increased international defence spending, accessed through our extensive European operations, provides further opportunities for growth.

Mark: In addition increased international defense spending access through our extensive European operations provides further opportunities for growth.

Patrick Roche: On commercial aerospace, our customers have strong order books but struggle with consistent production throughput. We work with our customers to maintain a stable production plan that supports their actual needs. Both wide-body OEMs are still intent on ramping in the near future. On the aftermarket side, we continue to see the benefits of increased airline activity.

Mark: On commercial aerospace our customers have strong order books, but struggled with consistent production throughput.

Mark: We've worked with our customers to maintain a stable production plan that supports their actual needs.

Mark: Both wide body Oems are still intent on ramping in the near future.

Mark: On the aftermarket side, we continued to see the benefits of increased airline activity.

Patrick Roche: The industrial market outlook has been stable over the last couple of quarters, and our bookings in the second quarter continue to support that view. In summary, in-market conditions continue to favour a significant portion of our business.

Mark: The industrial market outlook has been stable over the last couple of quarters and our bookings in the second quarter continued to support that view.

Mark: In summary, and market conditions continue to favor a significant portion of our business.

Patrick Roche: Now, let me turn to the initiatives that are driving our strong underlying operational performance as a business. Firstly, a customer focus.

Mark: Now, let me turn to the initiatives that are driving our strong underlying operational performance as a business.

Mark: Firstly on customer focus.

Patrick Roche: The focus of the 40th Space Symposium was space as a warfighting domain. This highlights the significant emerging opportunities for Moog. for both components and complex systems of systems. We showcased our METEOR satellite with flight-proven, radiation-hardened electronics and hydrazine propulsion for high-thrust avoidance maneuvers. We also have delivered units for the National Security Space Mission. We also highlighted significantly enhanced computational capabilities in our space avionics. The addition of graphical processor units enabled sensor data to be processed on orbit, an example of edge computing.

Mark: The focus of the 40th space Symposium was space as a warfighting domain.

Mark: This highlights the significant emerging opportunities for Moog.

Mark: For both components and complex system of systems.

Mark: We showcased our meatier satellite with flight proven radiation hardened electronics and hydrazine propulsion for high thrust avoidance maneuvers.

Mark: It also has delivered units to the national security space missions.

Mark: We also highlighted significantly enhanced computational capabilities in our space avionics.

Mark: The addition of graphics processor units enabled sensor data to be processed on orbit and example of edge computing.

Patrick Roche: While continuing the space team, we are delighted to see that United Launch Alliance's Vulcan rocket has successfully completed two certification launches and has been recently certified under the National Security Space Launch Program.

Mark: While continuing to face team, we are delighted to see that United launch Alliance is Vulcan rocket has successfully completed two certification launches.

Mark: It has been recently certified under the National Security Space launch program.

Patrick Roche: Sustainability and digitization were the focus of the 34th Biomass Construction Exhibition, which is one of the largest trade shows in the world. We showcased our Terratech electric traction and actuation solutions and our ZQIP modular energy system for construction equipment. We were pleased to be recognized by Compact Equipment Magazine as having one of the show's top ten equipment breakthroughs.

Mark: Sustainability, and Digitization, where the focus of the 34th biomass construction exhibition, which is one of the largest trade shows in the world.

Mark: We showcased our terror attack electric traction and actuation solutions, and our <unk> modular energy system.

Mark: Shipments we.

Mark: We were pleased to be recognized by <unk>.

Mark: <unk> as having one of the shows top 10 equivalent breakthroughs.

Patrick Roche: We launched our next generation Curlin 8000 infusion pump at the 34th National Home Infusion Association Conference. This high-performance intravenous pump will be the mainstay of our market-leading IV business for decades to come. It demonstrates our commitment to the IV market given the decade-long journey through development and certification. These examples across various end markets highlight our continued investment in innovation to meet the evolving needs of our customers. Our innovation successes drive our steady organic growth.

Mark: We launched our next generation Kirtland 8000 infusion pump at the 34 <unk>.

Mark: National Home Infusion Association conference. This high performance intravenous pump will be the mainstay of our market, leading IV business for decades to come that demonstrates our commitment to the IV market given the decade long journey through development and certification.

Mark: These examples across various end markets highlight our continued investment in innovation to meet the evolving needs of our customers our innovation successes drive our steady organic growth.

Patrick Roche: In addition, to further strengthen our relationship with our strategic customers and expand our business with them, we've continued to roll out our Voice of the Customer activities. This work is providing valuable customer-specific insights, and our response to the feedback has indeed increased business with those customers. reinforcing the value of this work.

Mark: In addition to further.

Mark: Strengthening our relationship with our strategic customers and expand our business with them. We've continued to rollout our voice of the customer activities.

Mark: This work is providing valuable customer specific insights and our response to the feedback has indeed increased business with those customers reinforcing the value of this work.

Patrick Roche: Finally, turning to financial strength, we continue to embed 80-20 as part of how we work. Our priority is driving deeper integration at the sites that have been through the first round of simplification. We're applying 8020 to address specific operational and business challenges at site level.

Mark: Finally, turning to financial strength we.

Mark: We continue to embed 80, 20 as part of how we work our priority is driving deeper integration at the sites that have been through the first round of simplification.

Mark: We're applying 80 20 to address specific operational and business challenges at site level.

Patrick Roche: For example, reducing inventory through better flow, simplifying the supply chain using 80-20 analysis, enhancing profitability based on insights from segmented P&L analysis, clarifying investment strategy at lower levels in the organization, and differentiating support for strategic customers to expand the business with them. In all cases, lessons learned and best practices are shared across the organization such that we can accelerate further improvement.

Mark: For example, reducing inventory through better flow simplifying the supply chain using 80 20 analysis enhancing profitability based on insights from segmented P&L analysis clarifying investment strategy at lower levels in the organization and differentiating support for strategic customers to expand the business with them.

Mark: In all cases lessons learned and best practices are shared across the organization such that we can accelerate further improvement.

Patrick Roche: Now, let me turn to the guidance for fiscal 25. We're driving business development and operational improvement in line with our long-term goals. We've performed well in the first half of the year and have confidence in the business outlook for the second half. Therefore, financial performance of the business is in line with our prior guidance.

Mark: Now, let me turn to the guidance for fiscal 'twenty five.

Mark: Driving business development and operational improvement in line with our long term goals with performed well in the first half of the year and our confidence in the business outlook for the second half therefore financial performance of the business is in line with our prior guidance.

Patrick Roche: Tariffs present a potential risk that could impact our full-year results. The high level of uncertainty around the tariff landscape leads to a range of possible outcomes. We will provide an estimate of that impact.

Mark: Tariffs present, a potential risk that could impact our full year results the high level of uncertainty around tariff landscape eight to a range of possible outcomes, we will provide an estimate of that impact.

Jennifer Walter: And with that, let me hand over to Jennifer for a detailed breakdown on the quarter, an update on our guidance, and an estimate of the impact of those tariffs net of our mitigation. Thanks, Pat. Our financial performance in the second quarter was strong, with a record level of sales, solid adjusted operating margin and adjusted earnings per share, and free cash flow as we had projected. We continued to simplify our business. As a result, we took $7 million of charges, largely associated with our simplification activities in the second quarter.

Mark: And with that let me hand over to Jennifer for a detailed breakdown on the quarter and update on our guidance and an estimate of the impact of those tariffs net of our mitigation.

Jennifer Walter: Thanks, Pat our financial performance in the second quarter was strong with a record level of sales solid adjusted operating margin and adjusted earnings per share and free cash flow as we had projected.

Jennifer Walter: We continue to simplify our business as a result, we took $7 million of charges largely associated with our simplification activities in the second quarter.

Jennifer Walter: I'll now talk through our second quarter adjusted results, which exclude these charges. Sales in the second quarter of $935 million were just above last year's second quarter. Military aircraft and commercial aircraft sales were up nicely, and space and defense sales were up marginally, exceeding their prior record, while industrial sales were down due to our simplification efforts. In military aircraft, sales of $214 million were up 6% over the second quarter of last year. Activity on the FLARA program began to ramp midway through FY23 and increased steadily through FY24, driving the sales increase this quarter. Commercial aircraft sales of $216 million increased 4% over the same quarter a year ago.

Jennifer Walter: I'll now talk through our second quarter adjusted results, which exclude these charges.

Jennifer Walter: Sales in the second quarter of $935 million were just above last year's second quarter military aircraft in commercial aircraft sales were up nicely and space and defense sales were up marginally exceeding our prior record while industrial sales were down due to our simplification effort.

Jennifer Walter: And military aircraft sales of $214 million were up 6% over the second quarter of last year.

Jennifer Walter: <unk> on the Flyer program began to ramp midway through FY 'twenty, three and increased steadily through to FY 'twenty for driving the sales increase this quarter.

Jennifer Walter: Commercial aircraft sales at $216 million increased 4% over the same quarter a year ago.

Jennifer Walter: Aftermarket sales were particularly strong, driven in part by strong fleet utilization on the A350 program. The aftermarket sales increase was partially offset by lower sales on certain business jets and narrow body programs for which our customers have experienced disruption and delays in production. Space and defense sales were $270 million, up 1% over the second quarter last year. Our sales this quarter were at a record level, reflecting broad-based defense demand. Industrial sales were $234 million in the second quarter, down 7% from the same quarter a year ago. Half of the decrease relates to the divestitures we completed at the beginning of this fiscal year.

Jennifer Walter: Aftermarket sales were particularly strong driven in part by strong fleet utilization on the <unk> hundred 50 program.

Jennifer Walter: The aftermarket sales increase was partially offset by lower sales on certain business jet and narrow body programs for which our customers have experienced disruption and delays in production.

Jennifer Walter: Space and defense sales were $270 million up 1% over the second quarter last year.

Our sales this quarter were at a record level, reflecting broad based defense demand.

Jennifer Walter: Industrial sales were $234 million in the second quarter down 7% from the same quarter a year ago half of the decrease relates to the divestitures. We completed at the beginning of this fiscal year.

Jennifer Walter: Other purposeful product exits also contributed to the sales decrease.

Jennifer Walter: Other purposeful product exits also contributed to the sales decrease.

Jennifer Walter: We'll now shift to operating margins. Adjusted operating margin was 12.5% in the second quarter, which is down from 13.6% in the prior year. It should be noted, however, that the second quarter is up 40 basis points, including the benefit of the employee retention credit. This margin expansion is due to strength in industrial. Industrial operating margin was 13.4% in the second quarter, up 90 basis... This increase is attributable to benefits from simplification initiatives, including the divestitures completed at the beginning of this fiscal year. These benefits were offset partially by last year's employee retention credit benefits. Military aircraft operating margin was 12.0% in the second quarter, 140 basis points lower than in the second quarter last year.

Jennifer Walter: We will now shift to operating margins.

Jennifer Walter: Adjusted operating margin was 12, 5% in the second quarter, which is down from 13, 6% in the prior year.

Jennifer Walter: Should be noted however that the second quarter is up 40 basis points, excluding the benefit of the employee retention credit.

Jennifer Walter: This margin expansion is due to strength in industrial.

Jennifer Walter: Industrial operating margin was 13, 4% in the second quarter up 90 basis.

Jennifer Walter: This increase is attributable to benefits from simplification initiatives, including the divestitures completed at the beginning of this fiscal year.

Jennifer Walter: These benefits were offset partially by last year and player retention credit benefit.

Jennifer Walter: Military aircraft operating margin was 12 <unk> percent in the second quarter of 140 basis points lower than in the second quarter last year last.

Jennifer Walter: Last year, second quarter included two one time benefits, the employee retention credit, and the sale of a mature product line that we exited as part of our simplification effort. The lack of these items this quarter was partially offset by stronger business performance in this year's second quarter. Commercial aircraft operating margin was 11.8%, down 20 basis points from the second quarter last year. Our operating margin was pressured by customer production delays on certain business jet and narrow body programs. Aftermarket strength offsets these pressures. In space and defense, operating margins decreased 330 basis points to 12.6%. This was driven by the benefit from the employee retention credit in last year's second quarter.

Jennifer Walter: Last year's second quarter included two onetime benefits the employee retention credit and the sale of our mature product line that we exited as part of our simplification efforts.

Jennifer Walter: The lack of these items this quarter was partially offset by stronger business performance in this year's second quarter.

Jennifer Walter: Commercial aircraft operating margin was 11, 8% down 20 basis points from the second quarter last year, our operating margin was pressured by customer production delays on certain business jet narrow body program.

Jennifer Walter: Aftermarket strength offset these pressures.

In space and defense operating margin decreased 330 basis points to 12, 6%. This was driven by the benefit from the employee retention credit in last year's second quarter.

Jennifer Walter: Putting it all together, adjusted earnings per share came in at $1.92, down 12% compared to last year's second quarter, or up 3%, excluding last year's employee retention credit benefit. The increase is attributable to higher operating margins.

Jennifer Walter: Putting it altogether adjusted earnings per share came in at $1 92 down 12% compared to last year's second quarter are up 3%, excluding last year's employee retention credit benefit the.

Jennifer Walter: The increase is attributable to higher operating margin.

Jennifer Walter: Let's shift over to cash flow. In the second quarter, we generated $2 million of free cash flow. This quarter turned out as we had planned. Earnings were strong, cash use by net working capital requirements decreased significantly, and capital expenditures ran low compared to our planned run rate for the year. We secured customer advances on multiple defense programs as planned, halted the growth in physical inventories, and faced anticipated pressure on receivables due to the timing of collections. Capital expenditures of $38 million were generally in line with recent spend levels. We're continuing to invest in facilities and equipment to support longer-term growth opportunities.

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

Jennifer Walter: In the second quarter, we generated $2 million of free cash flow. This quarter turned out as we had planned earnings our strong cash used by networking capital requirements decreased significantly and capital expenditures ran low compared to our planned run rate for the year.

Jennifer Walter: We secured customer advances in multiple defense programs as planned although the growth in physical inventories and faced anticipated pressure on receivables due to the timing of collections.

Jennifer Walter: Capital expenditures of $38 million were generally in line with recent spend level, we're continuing to invest in facilities and equipment to support longer term growth opportunities.

Jennifer Walter: With respect to capital allocation, we return capital to shareholders in the form of share repurchases and dividend payments. We repurchased roughly 290,000 shares of our stock in the second quarter, spending about $60 million, bringing our total year-to-date spend to $100 million. In addition, we spent $9 million on our dividend policy, which remains unchanged. Our leverage ratio was 2.6 times as of the end of the second quarter, nicely within our target range of two to three times.

Jennifer Walter: With respect to capital allocation, we returned capital to shareholders in the form of share repurchases and dividend payments.

Jennifer Walter: We repurchased roughly 290000 shares of our stock in the second quarter spending about $60 million, bringing our total year to date spend to $100 million.

Jennifer Walter: In addition, we spent $9 million on our dividend policy, which remains unchanged.

Jennifer Walter: Our leverage ratio was two six times as of the end of the second quarter nicely within our target range of two to three times.

Jennifer Walter: We'll now shift over to our updated guidance for this year. Our underlying business is strong. We're reiterating guidance on sales, adjusted operating margin, and adjusted earnings per share from 90 days ago for our underlying business, with just minor adjustments. Sales are projected to be $3.7 billion, the same as previously guided, with a shift within commercial aircraft. OE sales on A350 are projected to slow, reflecting Airbus' current ordering patterns, while aftermarket sales continue to be robust. We're projecting an operating margin of 13.0% with some puts and takes that net out. We're reflecting a reduction in military aircraft due to the mix in that business, and an increase in commercial aircraft on stronger aftermarket sales, both realized and expected.

Jennifer Walter: We will now shift over to our updated guidance for this year, our underlying business is strong we're reiterating guidance on sales adjusted operating margin and adjusted earnings per share from 90 days ago for our underlying business with just minor adjustments.

Jennifer Walter: <unk> sales are projected to be $3 $7 billion. The same as previously guided with a shift within commercial aircrafts.

Jennifer Walter: OE sales on <unk> hundred 50 are projected to slow, reflecting Airbus current ordering patterns, while aftermarket sales continued to be robust.

Jennifer Walter: We're projecting an operating margin of 13, 8% with some puts and takes that net out we're reflecting a reduction in military aircraft due to the next in that business and an increase in commercial aircraft and stronger aftermarket sales both realized and expected.

Jennifer Walter: Earnings per share is projected to be $8.20, plus or minus $0.20. We're now projecting free cash flow to be near the low end of the range we shared 90 days ago due to near-term pressure on physical inventories related to a change in Airbus's ordering patterns on the A350. We expect significant cash flow generation in the back half of this year with a considerable amount of cash generation in the third quarter and further improvement in the fourth quarter. Timing of collection on receivables will be a significant driver of our cash flow generation. The other key driver is fiscal inventories, which we'll reduce as a result of our planning and sourcing initiatives.

Jennifer Walter: Earnings per share is projected to be $8, 20, plus or minus 20.

Jennifer Walter: We're now projecting free cash flow to be near the low end of the range. We shared 90 days ago due to near term pressure on physical inventories related to a change in air buses ordering patterns on the <unk> hundred 50.

Jennifer Walter: We expect significant cash flow generation in the back half of this year with a considerable amount of cash generation in the third quarter and further improvement in the fourth quarter.

Jennifer Walter: The timing of collection on receivables will be a significant driver of our cash flow generation.

Jennifer Walter: The other key driver is physical inventories, which will reduced as a result of our planning and sourcing initiatives.

Jennifer Walter: We acknowledge the potential for pressure on our results from tariffs. We expect that commercial aircraft and industrial will be impacted the most, with a lesser impact in space and defense, a negligible impact in military aircraft. In commercial aircraft, we have an extensive global supply chain. Industrial is exposed to tariffs within our medical business that sources from our facility in Costa Rica. Within space and defense, our supply base includes countries that are subject to tariffs. Military aircraft supply chain in the U.S. is predominantly U.S.-based and therefore not meaningfully impacted. We are taking appropriate steps to significantly mitigate the impact on our business.

Jennifer Walter: We acknowledge the potential for pressure on our results from tariffs we.

We expect that commercial aircraft and industrial will be impacted the most with a lesser impact on space and defense and negligible impact in military aircraft.

Jennifer Walter: In commercial aircraft, we have an extensive global supply chain.

Jennifer Walter: Industrial is exposed to tariffs within our medical business that sources from our facility in Costa Rica.

Jennifer Walter: Within space and defense our supply base includes countries that are subject to tariffs.

Jennifer Walter: Military aircraft supply chain in the U S is predominantly U S based and therefore not meaningfully impacted.

Jennifer Walter: We are taking appropriate steps to significantly mitigate the impact on our business.

Jennifer Walter: After considering the actions we're taking to offset these risks and assuming current conditions persist, we're estimating the potential for $10 million to $20 million of net pressure on our operating profit guidance for FY25. Our estimate does not account for retaliatory tariffs and potential further escalations, nor does it include effects of negotiations to remove tariffs. It does not factor in the impact of second-order effects, non-tariff-related trade constraints, recessionary pressures, or other disruptive shocks to the supply chain or the economy.

Jennifer Walter: After considering the actions, we're taking to offset these stress and assuming current conditions persist. We are estimating the potential for $10 million to $20 million of net pressure on our operating profit guidance for FY 'twenty five.

Jennifer Walter: Our estimate does not account for retail Atari tariffs and potential further escalation startups that include effects of negotiations to remove tariffs.

Jennifer Walter: Does not factor in the impact of second order effects non tariff related trade constraints recessionary pressures or other disruptive shocks to the supply chain or the economy.

Jennifer Walter: We expect third quarter earnings per share to be $2.00, plus or minus 10 cents.

Jennifer Walter: We expect third quarter earnings per share to be $2, plus or minus 10.

Jennifer Walter: This projection may be impacted by tariffs.

Jennifer Walter: This projection may be impacted by tariffs.

Jennifer Walter: Fiscal year 25 is shaping up to be another strong year, with growth in sales, continued operating margin expansion, and enhanced free cash flow generation.

Pat Roche: Fiscal year 'twenty five is shaping up to be another strong year with growth in sales continued operating margin expansion and enhanced free cash flow generation and now I will turn it back over to Pat.

Patrick Roche: And now I'll turn it back over to Pat. Thank you. Our second quarter delivered strong financial performance, and halfway through the year we're in good shape. We're guiding that the business will continue to perform well based on our view of the markets and our success in driving business improvement. We've actions in place to limit the potential impact of tariffs on our business.

Pat Roche: Thank you our second quarter delivered strong financial performance and halfway through the year. We're in good shape, we're guiding that the business will continue to perform well based on our view of the market and our success in driving business improvement we have actions in place to limit the potential impact of tariffs on our business.

Operator: And with that, let me open up the floor to questions. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys.

Pat Roche: And with that let me open up the floor to questions.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Pat Roche: Should you have a question. Please press star followed by the number one on your Touchtone phone, you'll hear a prompt that <unk> had has been raised.

Speaker Change: Should you wish to decline from the polling process. Please press star followed by the number too.

Pat Roche: We are using a speaker phone please make sure to lift your handset before pressing any keys.

Michael Ciarmoli: Your first question is from the line of Michael Ciarmoli from Tourist Security. Your line is now open. Hey, good morning, guys. Thanks for taking the questions. Jennifer, just housekeeping first, do you have the commercial OE revenue growth and commercial aftermarket growth in the quarter? Yeah. commercial, let's see, So our commercial OE for the quarter was about $135 million, and our aftermarket was $81 million. that compares here. OE of 140 last year and 67. of Aftermarket. Got it. Okay, perfect.

Speaker Change: Your first question is from the line of Michael Schirmer Moly from tourists security. Your line is now open.

Hey, good morning, guys. Thanks for taking the questions.

Speaker Change: Jennifer just housekeeping first you have the commercial OE revenue growth in commercial aftermarket growth in the quarter.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: The commercial update.

Speaker Change: I'm back.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: So our commercial Oes for the quarter was about $135 million and our aftermarket was $81 million.

Speaker Change: That compares here.

Speaker Change: OE of 140 last year and 67.

Speaker Change: Aftermarket got it okay perfect and then can you maybe you talked about.

Jennifer Walter: And then just, can you maybe, you talked about the A350, sort of, give us maybe a little bit more detail as, you know, what were you kind of shipping at? What are you expected? Is there going to be a destock period? And does this kind of resolve towards the end of the year? Or what kind of signals are you getting from Airbus? Sure, yeah, so Airbus has changed their ordering patterns for us. We experienced this both in the third quarter and fourth quarter last year and caught up a little bit at the beginning of this year.

Speaker Change: 350 sort of give us maybe a little bit more detail as what were you kind of shifting at what are your expected if theyre going to be a destock period.

Speaker Change: Okay. So it's kind of resolved towards the end of the year or what kind of signals are you getting from from Airbus.

Speaker Change: Sure Yeah. So Airbus has changed their ordering patterns for us we experienced this both in the third quarter and fourth quarter last year and caught up a little bit at the beginning of this year. So this is not something new for us.

Jennifer Walter: So this is not something new for us. So what we, for A350, we reduced our sales guidance. Our net sales guidance within commercial is flat because we've got the commercial OE going down, that's largely Airbus, being offset by the strength in the aftermarket. So those are offsetting each other. We've got inventory that's already built and we get very short-term orders from Airbus and that's how we release those orders. Because of the timing and how their ordering patterns are going now, we'll wind up holding on to some of that inventory. So that puts pressure on our cash.

Speaker Change: So what we.

Speaker Change: For the <unk> hundred 50 could reduce our sales guidance, our net sales guidance within commercial is flat because we've got the commercial OE going down that's largely Airbus being offset by the strength in the aftermarket. So those are offsetting each other.

Speaker Change: We've got inventory that's already built.

Speaker Change: And we get very short term orders from Airbus and Thats, how we release those orders.

Speaker Change: Cause of the timing and how their ordering patterns are going now will wind up holding onto some of that inventory. So that puts pressure on our cash we will see that pressure on our cash in the back half of fiscal year 'twenty five and we expect that we will then recover that in FY 'twenty.

Jennifer Walter: We'll see that pressure on our cash in the back half of fiscal year 25 and we expect that we will then recover that in FY26. So that's really what we're seeing on the Airbus front. So it is impacting our sales from what we had previously projected and then we wind up holding that inventory for a little bit longer. So it's just the timing. Got it.

Speaker Change: So that's really what we're seeing on the Airbus front. So it is impacting our sales from what we had previously projected.

Speaker Change: Then.

Speaker Change: We wind up holding that inventory for a little bit longer. So it's just the timing.

Speaker Change: Got it.

Jennifer Walter: And then just the last one I had, just on the cash, I mean, even at the low end, the 50% conversion, I mean, it implies, I guess, you know, 300 million or so cash generation second half. I don't really ever recall you guys doing anything that significant over 3Q, 4Q. Any other puts and takes? I mean, it sounds like 3Q will be stronger, but should we expect an even stronger fourth quarter? And, you know, it's sort of the tariff kind of unknowns captured in that.

Speaker Change: And then just the last one I have just on the cash I mean the.

Speaker Change: Even at the low end of 50% conversion I mean, it implies I guess $300 million or so cash generation second half item.

Speaker Change: Really as you will recall you guys doing anything that significant over Q <unk>.

Speaker Change: Any other puts and takes I mean, it sounds like <unk>.

Speaker Change: <unk> will be stronger, but should we expect an even stronger fourth quarter in.

Speaker Change: It's sort of that tariff.

Speaker Change: Unknowns captured in that.

Jennifer Walter: So the tariff unknowns are not captured in that, but we have a couple major drivers. What we'll see as we go into Q3 is benefit coming through collections on receivables. So we had tough collections on receivables in Q1 and in Q2, and in Q2 we had that planned. It was anticipated. So we have that timing in our favor as we look into Q3. So that's something that we're feeling comfortable with, such that that will be our major driver for cash flow generation very strong Q2 to Q3. We'll hold that level of collections as we move into Q4, and we'll see a number of things actually helping us out in the back part of the year.

Speaker Change: So the tariff when loans are not captured in that but we have a couple of major drivers what we'll see as we go into Q3 is benefit coming through collections on receivables. So we had tough collections on receivables in Q1 and in Q2 and into Q2, we had that planned it was anticipated that we have that.

Speaker Change: Timing in our favor as we look into Q3.

Speaker Change: So that's something that we're feeling comfortable with such that that will be a major driver for cash flow generation.

Speaker Change: Very strong Q2 to Q3 will hold that level of collections as we move into Q4, and we will see a number of things actually helping us out in the back part of the year first of all we've got a higher guide on our earnings in Q4 versus Q3, so that's helping.

Jennifer Walter: First of all, we've got a higher guide on our earnings in Q4 versus Q3, so that's helping. We also have some benefits that are coming in physical inventories. We're looking for next quarter in Q3 to be about similar to our halting of growth in physical inventories like we had this quarter, have that repeat in Q3 as well, and actually generate some cash from physical inventories as we move into the back part of the year. We've got a number of things that are happening on that, Michael. Manufacturing efficiencies, we're reducing cycle time. We're still a long way to go and have opportunities there, but we're making progress, and that's actually helping contribute.

Speaker Change: Also have some benefits that are coming in physical inventory. We're looking for next quarter in Q3 to be about similar to our <unk> of growth in physical inventories like we had this quarter have that repeat in Q3, as well and actually generate some cash from physical inventories as we move into the back.

Speaker Change: Part of the year.

Speaker Change: We set a number of things that are happening on that Michael manufacturing efficiencies, we're reducing cycle time or still have a long way to go on and have opportunities there are making progress and that's actually helping contribute inventory management is we're eliminating incoming inventory hitting milestones. So that we can bill and collect those are all things that are going to drive that fits call.

Jennifer Walter: Inventory management, as we're limiting incoming inventory, hitting milestones so that we can bill and collect, those are all things that are going to drive that physical inventory. And then we've got just some timing and some other things like payables that we're projecting at the end of the year to get us to where we historically are. Got it.

Speaker Change: Inventories and then we've got just some timing and some other things like payables that were projecting at the end of the year.

Speaker Change: To get us to where we historically are.

Speaker Change: Got it perfect.

Michael Ciarmoli: Perfect.

Michael Ciarmoli: Thanks, guys.

Michael Ciarmoli: I'll jump back in.

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

Speaker Change: Okay.

Kristine Liwag: Your next question is from the line of Kristine Liwag from Morgan Stanley. Please go ahead. Hey guys, a good morning. Hi, Kristine. Welcome back. Thanks, thanks. Happy to be back.

Speaker Change: Your next question is from the line of Chris <unk> from Morgan Stanley. Please go ahead.

Speaker Change: Hey, guys good morning.

Speaker Change: Good morning, Christine welcome back.

Speaker Change: Thanks, Thanks, I'm happy to be back.

Kristine Liwag: I was wondering, I know it's still early in the tariff stuff and there's a lot of uncertainty, but I was wondering, can you give some color regarding how, where you think your exposures are? Like, is it when you're an importing entity? And then also from your discussions with your customers, how is this pain going to be shared? Are people sticking to the letter of the contract or their discussions of being able to pass through? Any sort of indication on how this would play out? And I realize it's still pretty early and there's a lot of uncertainty, but any indication on the direction of how these flows could be really helpful.

Speaker Change: Was wondering I know, it's still early in the tariff stuff and there's a lot of uncertainty, but I was wondering can you give some color regarding.

Speaker Change: Where you think your exposures are like is it when you're on importing entity and then also from your discussions with your with your customers.

Speaker Change: How is this <unk> going to be sure that our people sticking to the letter of the contract or are there discussions of being able to pass through any sort of indication on how this will play out and I realize it's still pretty early and there's a lot of uncertainty, but any indication on the direction of how these flows could be very helpful.

Patrick Roche: Yeah, no problem. I'll try and address that, Kristine. So I highlighted in my notes that we have, you know, an extensive external supply chain around the world, and also manufacturing sites at different locations. They impact our businesses in different, differing ways.

Christine: Yes, no problem I'll try and address that Christine so.

Speaker Change: I highlighted in my notes that we have.

Speaker Change: The extensive external supply chain around the world and also manufacturing sites for different locations.

Christine: They impact.

Jennifer Walter: Our businesses in different differing ways, and so Jennifer sort of highlighted that we would.

Patrick Roche: And so Jennifer sort of highlighted that we would expect maybe the commercial business to see the highest level of impact in the short term arising from the tariffs, then followed by the industrial group, and then to a much lesser extent by the space and defense group, and almost negligible in the military aircraft group for the reasons that Jennifer gave. If I take as an example, our commercial business, you know, aerospace is a very global business in terms of its supply chain. We draw from around the world. So we have The main part, an exposure to aluminum and steel imports, because as our products move around the world in our supply chain, they're getting impacted by tariffs on the way back into the U.S.

Jennifer Walter: Maybe the commercial business to see the highest level of impact in the short term arising from the tariffs that followed by the industrial group and then to a much lesser extent by the space and defense group and almost negligible.

Jennifer Walter: The aircraft group for the reasons that Jennifer gave if I take as an example, our commercial business.

Jennifer Walter: Aerospace is a very global.

Jennifer Walter: In terms of its supply chain, we draw from around the world. So we have.

Jennifer Walter: And the main part and exposure to aluminum and steel imports because as our products move around the world and our supply chain. They are getting impacted by tariffs on the way back into the U S. We also have offshore manufacturing partners.

Patrick Roche: We also have offshore manufacturing partners, products such as electronics, which come back in from Mexico, and so it's basically those two elements that have the impact on our commercial aerospace business. On our industrial business, the Costa Rica manufacturing site is a core part of the pump and accessories business that we have on the medical side. And so that's subject to tariff now as it comes into the U.S. And in our space and defense, but also in our industrial business, we do use some long-term partnerships with companies in both Mexico and Costa Rica that provide labor.

Jennifer Walter: Such as electronics, which come back in from Mexico, and so it's basically those those two elements that have the impact on our commercial aerospace business.

Jennifer Walter: On our industrial business, the Costa Rica manufacturing site as a core part of the pump and accessories business that we have on the medical side and so thats subject to tariffs now as it comes into the U S and in our space and defense, but also in our industrial business, we do use some.

Jennifer Walter: Long term partnerships with companies in both Mexico, and Costa Rica.

Patrick Roche: So we send partially finished products to them. They do some work on it and they send it back to the U.S. again. And so that is also attracting some tariffs in the current model or potentially could attract tariffs in the current model. So that's where it's coming from. So if you think about our exposure, I would say about a quarter of it or so is coming from the steel and aluminum parts of the tariff. And then the balance comes from importations from our other intercompany or suppliers. All told, we import about $200 million into the U.S.

Jennifer Walter: <unk> labor. So we partially finished products to them. They do some work on it and they send it back to the U S. Again, and so that is also attracting some tariffs in the current model or potentially could attract Harrison current models. So that's that's where it's coming from so if you think about our exposure I would say about a.

Jennifer Walter: A quarter of it or so is coming from the steel and aluminum parts of the tariffs and then the balance comes from importation from our other intercompany our suppliers.

Jennifer Walter: All told we import about $200 million into the U S.

Pat Roche: Thank you Pat.

Patrick Roche: And then if I could add on the 70s, if I could just talk about the mitigations then, you know, anything that's moving back and forth in the North Americas across the border between Mexico and Canada potentially falls under elements of the U.S.-Canada trade agreement, U.S.-Mexico-Canada trade agreement. And so we're making sure that we are understanding how to apply that to our products and get the administration right on the movement of those goods in and out of the country to minimize the tariff output or the tariff that's claimed. And then in terms of repair goods for the commercial aerospace business, as product moves back in and out of the U.S.

Jennifer Walter: And if I can.

Pat Roche: Thanks, Kevin.

Speaker Change: Christine I'd like to just talk about the mitigation than anything.

Speaker Change: Anything thats moving back and forth in the North America's across the border from Mexico, and Canada potentially falls under elements of the U S. Canada trade agreements U S Mexico, Canada trade agreement and so we're making sure that we are understanding how to apply that to our products and get the administration right on the movement of those goods in and out of the country.

Speaker Change: Minimize the tariff.

Speaker Change: The tariff.

Speaker Change: Claims and then in terms of.

Speaker Change: Repair goods for the commercial aerospace business as product moves back in and out of the U S from partner Airlines and other parts of the World. We've got to make sure that we are importing those specifically for Reexport. Later, so we have to work through the administration of that to make sure that we don't incur tariffs on necessarily and then finally, where we have issues associated with pricing.

Patrick Roche: from partner airlines in other parts of the world, we got to make sure that we are importing those specifically for re-export later. So we have to work through the administration of that to make sure that we don't incur tariffs unnecessarily. And then finally, where we have issues associated with pricing, if it's coming in from an offshore partner and it increases our cost base, then we've got to reflect on how we pass that through to customers in terms of pricing if necessary. And that's only in certain parts of the business that are impacted. Great.

Speaker Change: If it's coming in from offshore partner and it increases our cost base and we've got to reflect on how we pass that through to customers in terms of pricing if necessary and then.

Speaker Change: In certain parts of the business that are impacted.

Kristine Liwag: Thank you, Pat. Thank you for all the color. A lot to digest there.

Pat Roche: Great. Thank you Pat Thank you for all the color a lot to digest there.

Kristine Liwag: Maybe another question on the 787. You know, Boeing from this quarter, they talked about that they're at five per month and going to seven per month later. And it looks like, from their perspective, all 787 KPIs look green and look good. So, yes, for you guys, you were delivering at a higher pace than they were producing for the past few quarters.

Speaker Change: Maybe another question on the 77.

Boeing from from this quarter he talked about the five per month and going to seven per month later and it looks like from their perspective, all 77 kpis.

Speaker Change: Green.

Speaker Change: Look good so I guess for you guys you are delivering at a higher pace than they were producing.

Speaker Change: For the past few quarters I was wondering where are you now and when they do get to seven per month when would you start seeing that uplift in.

Patrick Roche: I was wondering where are you now? And when they do get to seven per month, when would you start seeing that uplift and volume for you? So typically, there's a few months, we're working a few months ahead of them as well. So when we're confident that we're at a higher rate, it will pull through from our manufacturing operations. I would describe us as running at a relatively stable production rate during the course of this year, which is aligned with our actual needs.

Speaker Change: And volume for you.

Speaker Change: So typically there is a.

Speaker Change: Few months work in a few months ahead of them as well. So when we are confident that we are at a higher rate it will pull through from our manufacturing operations I would describe us is running at a relatively stable production rate. During the course of this year, which is aligned with our actual needs.

Speaker Change: Okay.

Kristine Liwag: Great.

Kristine Liwag: Well, thank you. I'll get back in queue.

Speaker Change: Okay, well, thank you I'll get back in queue.

Operator: Thank you. Thanks.

Christine: Thank you thanks Christine.

Speaker Change: Okay.

Jonathan Tanwanteng: Your next question is from the line of Jonathan Tanwanteng from CJS Securities. Please go ahead. Thanks for the question, guys. I was just wondering if you could talk about your exposure to 787 and 8350. you know, to China International and back to the U.S. from Airbus, I guess, and if there's any risk to deliveries and how that would pull through from you guys. Yeah, contemplated at all in your guidance or not. I mean, we've seen, you know, China refused deliveries of 737. It is a risk there for you. It doesn't matter even if it can get boring.

Speaker Change: Your next question is from the line of Jon <unk> from CJS Securities. Please go ahead.

Speaker Change: Hi, Thanks for the question guys.

Speaker Change: Just wondering if from you.

Speaker Change: You could talk about your exposure to the 70 $783 50.

Speaker Change: To China International and back to the U S from Airbus I guess.

Speaker Change: There is any risk to deliveries and how that would pull through from you guys in the near term.

Speaker Change: Yes.

Speaker Change: Contemplated at all in your guidance or not I mean, we've seen China refuse deliveries of some 37.

Speaker Change: Is there a risk there for you guys.

Speaker Change: How can we capture that doesn't matter, even if they can get Boeing or Airbus can please please with the virus.

Patrick Roche: Yeah, thanks for the question, Jonathan. Good morning. We are not anticipating an impact from that on our business. There is quite an extensive backlog on both of the OEMs on the white bodies. It's likely that it's a redistribution of orders that happens as a consequence of any. trade restrictions having an impact on their ability to ship into China. I think it was reported earlier in the week that Boeing actually moved aircraft out of China to reuse them for other customers during the course of the week. And so we don't expect to see any impact of that flowing through China.

Speaker Change: Yes, Thanks for the question John and good morning.

Speaker Change: We are not anticipating an impact from that on our business.

Speaker Change: There is quite an extensive backlog on both of the deal.

Speaker Change: Oems on the wide bodies.

Speaker Change: It's likely that it's a redistribution of orders that happens as a consequence of any.

Speaker Change: Trade.

Speaker Change: Frictions.

Speaker Change: Having an impact on their ability to ship into China I think it was reported earlier in the week that Boeing actually moved aircraft out of China.

John: We use them for other customers during the course of the week and so we don't we don't expect to see any impact of that flowing through John.

Jonathan Tanwanteng: Great.

Speaker Change: Okay great.

Jonathan Tanwanteng: I was wondering if you could touch a little bit on next-gen programs at all. I think you mentioned Golden Dome. I didn't hear if you mentioned F47.

Speaker Change: I was wondering if you could touch a little bit on Nextgen programs at all I think you mentioned Golden Dome I didn't hear if you mentioned a 47%.

Speaker Change: If you did.

Patrick Roche: Are you competing on that or is there an opportunity there that might be possible? Yeah, maybe the only thing I'd say on the sixth generation aircraft are that we're a leading supplier of primary flight controls for these military aircraft, and we have a strong funded development book of business, so...

Speaker Change: Are you competing on that or is there an opportunity there.

Speaker Change: It might be substantial.

Speaker Change: Maybe the only thing I would say on the sixth generation aircraft are that we are a leading supplier of primary flight controls for these these military aircraft and we have a strong funded development book of business. So this.

Patrick Roche: This program is a restricted program and we can't speculate who the suppliers are specifically on that 47. All of this to say that, you know, we have capabilities that are useful in these types of aircraft. And you mentioned Golden Dome. There's no defined architecture for Golden Dome at this point, but in all likelihood, it requires a combination of different types of assets to be effective. It requires missile defense on the ground. It requires assets in space to be able to understand what's going on and to inform decision making. And if you're trying to defend against an incoming missile, it could involve counter drone defenses as well.

Speaker Change: This program is a restricted program and we can certainly through the suppliers are specifically on that 47.

Speaker Change: All of this to say that we are capabilities that are useful in these types of aircrafts.

Speaker Change: And you mentioned it goes down.

Speaker Change: There is no defined architecture for Golar enrollment at this point.

Speaker Change: In all likelihood it it requires a combination of different types of assets to be effective requires missile defense.

Speaker Change: On the ground it requires assets in space to be able to understand what's going on and to inform decision making.

Speaker Change: And if you are trying to defend against an incoming missile.

Speaker Change: It could involve counter drone defenses as well. So we think it has an impact on a whole range of different products and technologies that we actually have a position and so if you think about a return thats used in.

Patrick Roche: So we think it has an impact on a whole range of different products and technologies that we actually have a position in. So if you think about our RIP turret that's used in drone defense, that could be an element of it. If you think about our missile programs, we have a whole range of exposure there, Hellfire, Javelin, TAC-3, as we announced back in the first quarter, we had a large order from Lockheed Martin on that. You'd imagine that would be part of some system like that. Our CAD missile program that we're on also could play a role in it.

Speaker Change: Drone defense that could be an element of it if you think about our missile programs, we have a whole range of exposure there hellfire javelin Tac three as we announced back in.

Speaker Change: In the first quarter, we had a large order from Lockheed Martin on that you would imagine that would be part of some system like that.

Speaker Change: <unk> missile program that we're on also could play a role in it so we feel that those.

Patrick Roche: So we feel that those, and on the space side, we've got space vehicles, and we've got space vehicles that are aimed at defense applications. So, I mean, they're perfectly suited for these types of roles. So, a combination of those technologies and products could form part of Golden Dawn when it is defined, and so that's why we think that's a positive for us as well.

Speaker Change: The space side, we got space vehicles, and we've got space vehicles that are aimed at the center applications. So perfectly.

Speaker Change: <unk> for these type of rules.

Speaker Change: So a combination of those technologies and products could form part of Golden Dawn when it is defined and so that's why we think thats a positive for us as well.

Patrick Roche: And then lastly, at a high level, how do you perceive or reconcile, I guess, the recent commentary that there might be a trillion-dollar You know, compared to prior commentaries of looking for 8% reductions in reality. And how does that square with your longer term? So, I think I reflected back in the previous quarter that The threats or the issues that we face in terms of national security, they didn't change. And so from my perspective, it's a reflection of the necessary investment that is there to ensure you are able to provide for national security. So I think it's a reflection of the reality when you're dealing with large, near-peer threats.

And then lastly, it at a high level.

Speaker Change: How do you perceive a reconcile I guess the recent commentary that there might be a trend.

Speaker Change: Defense budget compared to prior commentary.

Speaker Change: For 8% reductions in Reallocations.

Speaker Change: Square with your longer term outlook and targets.

Speaker Change: So.

Speaker Change: I think I reflected back in the previous.

Speaker Change: Quarter.

Speaker Change: The threats are the issues that we face in terms of national security, They didnt change and so in my from my perspective, it's a reflection of the necessary investment that is there to ensure you are able to provide.

Speaker Change: <unk> provide for National security. So I think it's a reflection of the reality when you're when you're dealing with large near peer threats.

Jonathan Tanwanteng: Thank you very much.

Speaker Change: Got it thank you very much.

Operator: No problem, thanks.

Speaker Change: No problem. Thanks, John.

Operator: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchstone phone. And if you are using a speakerphone, please make sure to lift your handset before pressing any key.

Speaker Change: Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star followed by the number one on your Touchtone phone and if you are using a speaker phone. Please make sure to lift your handset before pressing any keys.

Tony Bancroft: Your next question comes from the line of Tony Bancroft from Gabelli. Please go ahead. Thanks so much and congratulations on a great quarter and all the great work. Just really quickly on, you know, you've seen those articles, there was one this morning about... countries exempting aerospace and defense parts from offsetting, you know, from counter-tariffs. This morning in China and last week about the French aerospace industry, is there anything you can maybe talk to about that, that you sort of mentioned a little bit before, but maybe some more color on that?

Speaker Change: Your next question comes from the line of Tony Bancroft from Gabelli. Please go ahead.

Speaker Change: Thanks, so much and congratulations on a great quarter and all the great work you've done.

Jennifer Eric: Jennifer Eric.

Speaker Change: Just really quickly on that.

Speaker Change: <unk> seen those article this morning about obviously countries exempting aerospace and defense parts from.

Speaker Change: From counter tariffs I think Theres one this morning in China last week about France, France, the French aerospace industry.

Speaker Change: Is there anything you can maybe talk to you about that.

Speaker Change: Are you sort of mentioned a little bit before but maybe some more color on that.

Sure.

Patrick Roche: for me. Good morning, Tony, and welcome to the call. This is all the uncertainty around tariffs. I mean, we mentioned it in the note that we've tried to model out what might happen or potentially could happen based on the known imports that we have and the current rate of tariffs, but they change sometimes day by day. So it's not, there's no certainty in this. And I think there will be negotiations on an ongoing basis on a country basis, but also people lobbying for carve outs as well for certain industries. And you saw that with the automotive side as well.

Tony Bancroft: Good morning, Tony and welcome to the call.

Speaker Change: This is our this is all of the uncertainty around tariffs.

Speaker Change: We mentioned it in the note.

Speaker Change: We've tried to model out what.

Speaker Change: Might happen potentially could happen based on the known imports that we have and the current rate of tariffs both the.

Speaker Change: They change sometimes day by day, so it is not.

Speaker Change: It does no.

Speaker Change: Certainty in this and I think there will be negotiations on an ongoing basis on a country basis, but also people lobbying for carve outs as well as certain industries and you saw that with the automotive side as well so that certainly could happen and that will definitely help also mitigate what we've indicated is a range here.

Patrick Roche: So that certainly could happen. And that would definitely help also mitigate what we've indicated as a range here.

Speaker Change: Yeah, that's great.

Tony Bancroft: That's great.

Tony Bancroft: So that's all I've got. Thank you so much. You're welcome. Thank you.

Speaker Change: That's all I have got it. Thank you so much.

Speaker Change: Youre welcome. Thank you.

Speaker Change: Okay.

Ed: Your last question comes from the line of Gautam Kanna from TD Cowen. Please go ahead.

Speaker Change: Your last question comes from the line of Gautam Khanna from TD Cowen. Please go ahead.

Ed: Oh, hi, actually, this is Ed in for Gotham. I just have a couple questions. One is on the Bumpy Gaze commercial for commercial aftermarket. Could you give a little more color on what you're seeing in the aftermarket of the positives and if there's any offsetting negatives that you see out there? And the second question is on the potential net tariff risk of 10 to 20 million. Could you remind me sort of exactly what that's addressing? Thanks.

Ed: Oh, Hi, actually this is Ed in for Gautam I just have a couple of questions. One is.

Ed: On the bumpy gave commercial for commercial aftermarket could you give a little more color on what youre seeing in the aftermarket of the <unk>.

Ed: Positive and if there's any offsetting.

Ed: Negative such as the out there and the second question is on the potential tariff risk.

Ed: And the $20 million could you remind me sort of exactly what that addressing.

Jennifer Walter: I'll start with the first one on the commercial aftermarket. So our commercial aftermarket has been really strong this year. If I go not just to this quarter, but I go to a quarter ago, we were strong both in spares and repairs. We had strong repair activity, lots of flight hours, lots of activity going on there. Spares in the past, we'd also seen on last quarter in particular, the shift from some of our customers from time and materials over into longer term contracts that they actually provisioned some spares for us was really strong. Looking at this quarter, this quarter is really on the repair side, rather.

Ed: I'll start with the first one on the commercial aftermarket so our commercial aftermarket has been really strong next year.

Ed: If I go not just to this quarter, but I go to a quarter ago are strong both in spares and repairs. We had strong repair activity lots of flight hours lots of activity going on there spares in the past. We had also seen on last quarter in particular, the shift from some of our customers from time and materials over into.

Ed: New longer term contracts that they actually provisions some spares.

Ed: Looking at this quarter. This quarter is really on the on the repair side rather the repairs activity continues to be strong and continues to be robust.

Jennifer Walter: The repairs activity continues to be strong and continues to be robust. The flight hours are strong and up. We're seeing it on the newer wide body aircraft platforms, such that we're expecting it to increase from our previous guide. So that's the offset to some of the A350 ordering patterns that I had mentioned. So definitely commercial aftermarket is helping us from a margin perspective on commercial business. And it's the repair activity that continues to be robust, and we see it continuing in the future to be robust.

Ed: Flight hours are strong and we're seeing it on the newer wide body aircrafts.

Ed: Platforms, such that we are expecting it to increase from our previous guidance. So that's the offset to some of the <unk> hundred <unk> ft ordering patterns that I had mentioned so definitely in commercial aftermarket is helping us from a margin perspective on the commercial business.

And it's the repair activity that continues to be robust NBC it continuing in the future to be robust.

Jennifer Walter: And then, hi Ed, welcome. If I think about the tariff, I mean, our exposure on the tariff side is. Steel and Alumina, as I should have said on the call. Apologies for using the European version of it. But that's one of the big elements. And then, I guess, if we look at Costa Rica being one of our plants importing a lot of materials into the U.S. on the medical business. After that, I would say some exposure to Europe. We have a manufacturing plant in Ireland, another one in Italy that bring product in, which supports our space and defense group.

Ed: And then I add welcome.

Ed: As I think about the tariffs I mean, our exposure on the tire side is.

Ed: Steel and aluminium steam steel and alumina as I Should've said on the call apologies for using the European version of it but.

Ed: That's one of the big elements and then I guess, if we look at Costa Rica, being one of our plants and putting a lot of materials into the U S. On the medical business after that I would say some exposure to Europe.

Ed: Have a manufacturing plant in Ireland and another one in Italy that bring product in which supports our space and defense group and then Mexico.

Jennifer Walter: And then Mexico, some subcontracting going on there. Canada, some sourcing of sensors and materials to go into some of our military products. So that's how I characterized the impact. So the commodity tariff is a large element. And then those countries that I called out specifically contributing to it. Okay, thank you. You're welcome.

Ed: So the contracting going on there, Canada, some sourcing of sensors and materials that go into some of our military products.

Ed: So that's that's how I would characterize the impacts of the commodity tariff.

Ed: As a large element in those countries that I called out specifically contributing to it.

Speaker Change: Okay. Thank you.

Ed: Youre welcome.

Ed: Okay.

Operator: There are no further questions at this time.

Ed: There are no further questions at this time I'd like to turn the call over to Pat Roche for closing comments Sir. Please go ahead.

Patrick Roche: I'd like to turn the call over to Pat Roche for closing comments. Sir, please go ahead. Thank you. So that concludes our earnings call. It was a solid quarter, a positive outlook, and a managed tariff risk. I appreciate you taking the time to listen to the update on the business, and I look forward to providing another update in 90 days' time. Thank you.

Pat Roche: Thank you.

Pat Roche: That concludes our earnings call. It was a solid quarter and a positive outlook and managed tariff risk I. Appreciate you taking the time to listen to the update on the business and I look forward to providing another update in 90 days time. Thank you.

Operator: This concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Pat Roche: This concludes today's conference call. Thank you very much for your participation you may now disconnect.