刘玥首次大战黑人

(INTRODUCTION FOR CONFERENCE CALL)

听

Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements.听A description of these risks, uncertainties and other factors is contained in our news release of January 29, 2021 our most recent Form 8K filed on January 29, 2021 and in certain of our other public filings with the SEC.

We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our investor relations webcast page at听.

听

听

Good morning.听 Thanks for joining us.听 This morning we鈥檒l report on the first quarter of fiscal 鈥�21 and provide color on what we鈥檙e thinking for the remainder of the year.听 Overall, given the on-going challenging operating conditions, we鈥檙e pleased with the results this quarter.

Last quarter we told the market that we were planning for COVID to be with us throughout our fiscal 鈥�21.听 Given this assumption, we projected that our business this year would be somewhat similar to the second half of fiscal 鈥�20.听 In my prepared remarks today, I鈥檒l provide my usual comparisons to the same quarter last year, and also some reflections on the comparison of Q1 to the average of the previous 2 quarters.听听

There remains considerable uncertainty around the on-going impact of COVID on our business.听 Therefore, similar to last quarter, we鈥檝e elected not to provide specific guidance as we believe the range of possible outcomes is beyond our ability to accurately forecast.听 We will, however, update the market on our assumptions for the business.听

Similar to last quarter, I鈥檝e arranged my headlines under the headings of macro-economic, micro-economic and 刘玥首次大战黑人specific items.听

Headlines

First, on the macro front, it鈥檚 been a very eventful 90 days.听 In the U.S. we鈥檝e seen a change in the administration with the democrats taking control of both houses of congress as well as the White House.听 At this early stage it鈥檚 hard to predict the impact of this political shift on our business but it鈥檚 probable that tax, trade and defense spending will all be on the agenda over the coming years.听 One thing that does seem clear is that interest rates will remain very low for several years to come.听 This quarter, 4-years of BREXIT discussions came to a close as the UK left the EU with a last minute deal.听 We don鈥檛 anticipate any immediate impact on our business from this new trade arrangement between the UK and Europe.听 Finally, we all rejoiced in the announcement of approved vaccines against COVID, and at the same time, worried about the emergence of more infectious strains and the surge in cases in Europe and the US.听 As the calendar year closed out, only China reported GDP growth for 2020, while the rest of the world shrunk under the burden of the pandemic.听

听Second, on the micro-economic front, consolidation across our major markets continued with Lockheed agreeing to buy AeroJet, Teledyne combining with FLIR and MTS being carved up between Amphenol and ITW.听 Government spending in our defense and space markets remained strong and demand for medical products continued.听 It was great to see that the 737 Max was certified to begin flying again and Boeing resumed deliveries to customers.听 Unfortunately, wide-body demand continued to weaken and, excluding the impact of holidays, there was no appreciable recovery in air traffic.听听

Third, it was a solid quarter for our business, under the circumstances.听 Relative to a year ago, sales and earnings were lower.听 On the positive side, comparing our performance with the second half of fiscal 鈥�20, first quarter sales held steady and earnings per share were up sharply on an improved mix in Aircraft.听 We also generated very strong cash flow in our first quarter.听 COVID continued to impact our performance and, with the surge in cases in the western hemisphere, we saw an increased impact on our operational efficiencies across our footprint.听 We bought back 150,000 shares this quarter and completed the first significant acquisition in our Aircraft business in over a decade.听 At the end of December we paid $78 million to acquire Genesys, a company which provides a range of flight instruments, displays and autopilot systems for military and commercial programs.听 Genesys will add about $40 million to sales in fiscal 鈥�21 and will be neutral to earnings as a result of first year accounting impacts.听 We also booked our first significant production order for our RIwP turret system with the award of the SHORAD contract.

Now let me move to the details starting with the first quarter results.听 I鈥檇 remind our listeners that we鈥檝e provided a 3-page supplemental data package, posted on our webcast site, which provides all the detailed numbers for your models.听 We suggest you follow this in parallel with the text.

Q1 Fiscal 鈥�21

Sales in the quarter of $684 million were 9% lower than last year.听 Sales were up in our defense, space and medical markets.听 Sales were lower across our industrial portfolio and down over 50% in our commercial aircraft business.听 Taking a look at the P&L, our gross margin was down slightly on the lower sales.听 R&D and SG&A spend was similar to last year while interest expense was down on lower rates.听 Last year we incurred a $4 million charge associated with calling our high yield bonds which showed up in 鈥渙ther income鈥�.听 Excluding this unusual item, the 鈥渙ther income鈥� line is flat with last year.听 The effective tax rate this quarter was 24.9% resulting in net income of $38 million, down 24% from last year, and earnings per share of $1.17, down 19% on a lower share count.听

Fiscal 鈥�21 Outlook

90 days ago we started the year with what we believed was a conservative set of assumptions.听 We believed COVID would be with us throughout our fiscal year.听 We assumed our defense, space and medical markets would remain strong.听 We predicted no recovery in our industrial markets and finally, we were optimistic that our commercial OEM business would stabilize and we might see a slight recovery in the aftermarket towards the end of the year.听 With one quarter under our belt, we think our assumptions still largely hold true.听 On the COVID front, the good news of a vaccine is being tempered by the surge in cases in Europe and the U.S. and the slow pace of vaccine delivery.听 Taken together, we believe we鈥檒l continue to have to deal with the effects of COVID throughout our fiscal year.听 Relative to the second half of fiscal 鈥�20, our defense, space and medical markets are holding up as expected.听 Our industrial markets have actually weakened in the first quarter but we think we may have hit the bottom in Q1 and could see a slow improvement through the rest of the year.听 Finally, our commercial OEM customers continued to reduce their production forecasts, although we believe they are now settling down, and the commercial aftermarket actually strengthened in the first quarter.听 Given the quarterly variation we see in the commercial aftermarket, it鈥檚 too soon yet to determine if this is a trend.听 All in all, we think the year will continue to unfold much as we thought 90 days ago.听听

Now to the segments.听 鈥�

听

Aircraft

Aircraft Q1

Sales in the quarter of $287 million were 16% lower than last year.听 It鈥檚 the same story as the last few quarters with strength on the military side and weakness on the commercial side.听 Military OEM sales were very strong this quarter on higher F-35 activity, robust foreign military sales and strength in our funded development programs.听 The military aftermarket was more or less in line with last year.听

On the commercial side, OEM sales were down almost 60% from a year ago.听 Sales to both Boeing and Airbus were down on every platform ranging from 40% lower on the A320 to over 90% lower on the 737.听 Sales on our 2 flagship programs, the 787 and A350 were down between 50 and 60%.听 Business Jet sales were down almost 70%.听 The commercial aftermarket was down a third with weakness across the complete portfolio.听

Comparing Q1 to the run rate of the second half of fiscal 鈥�20, we saw strong growth in our military OEM platforms, driven by the same 3 items mentioned above 鈥� the F-35, foreign military sales and funded development.听 The military aftermarket was lower after a very strong finish to FY20.听 On the commercial side, the commercial OEM business was steady signaling a gradual stabilizing of demand, while the commercial aftermarket was up on higher 787 and A350 activity.听

Aircraft Margins

Margins in the quarter of 9.7% were lower than a year ago as a result of the lower commercial sales.听 The good news is that margins were up nicely from the adjusted margins of the previous 2 quarters as a result of an unusually positive mix.听 This mix was the result of particularly strong foreign programs in Q1.听 We don鈥檛 anticipate our mix will be quite so favorable as we move through the next few quarters.听

Aircraft Fiscal 鈥�21

Coming into this year we described our outlook for Aircraft as follows.听 We were assuming continued strong demand from our military customers, stabilization of our commercial OEM demand and a modest pick-up in the commercial aftermarket towards the back half of the year.听 As of today, those assumptions are unchanged.听 From an external perspective, we鈥檙e seeing continued strength on the military side.听 The longer-term commercial OEM demand is still moving downwards, but seems to be gradually settling, and while the commercial aftermarket was strong in Q1, sales were within the normal quarterly volatility we see in this end market.听 Internally we鈥檙e managing through increased pressure on our operations capacity as a result of higher COVID cases.听 Finally, the completion of the Gensys acquisition will add about $40 million to the Aircraft segment sales this year, split 50/50 between military and commercial.听 Given the impact of first year accounting, the acquisition will have a negligible impact on operating profit.听

听

Space & Defense

Space & Defense Q1

Sales in the quarter of $188 million were in line with the first quarter of last year.听 Sales into space applications continued very strong, up over 20% from a year ago.听 We had growth in our NASA work, across our hypersonic programs and in integrated space vehicles.听 Defense sales were 11% lower than last year.听 We serve 4 sub-markets within our Defense sector, with 2 up this quarter and 2 down.听 Sales on military vehicles and into naval applications were up in the quarter, while sales of missile steering systems as well as into security applications were down.听 Our security business has been particularly hard hit by the pandemic as much of that business requires on-site installation work and this has slowed to a standstill over the last 9 months.听

Comparing this quarter with the run rate of the second half of fiscal 鈥�20, shows that the space business is right in line. While Defense is slightly lower, it still within the normal quarterly variation we might expect.听 听听

Space & Defense Margins

Margins in the quarter of 12.2% continue to be healthy, albeit down somewhat from the last few quarters. As in our other businesses, we鈥檙e seeing some increased pressure on operational efficiency as a result of higher COVID cases across our facilities.

Space & Defense Fiscal 鈥�21

Coming into the quarter, our assumption was that we鈥檇 see continued strength in both the space and defense markets as we move through fiscal 鈥�21. 听听This held true for the first quarter and continues to be our operating assumption as we look out over the coming 3 quarters.听

听

Industrial Systems

Industrial Systems Q1

Sales in the quarter of $209 million were 9% lower than last year. We experienced sales declines in 3 of our 4 major markets with medical providing the only growth, up 3% from a year ago on higher pump sales. Sales into energy markets were marginally lower, driven by lower sales of components into exploration applications.听 Sales into industrial automation were down over 10% with weakness across the entire portfolio of products. This is our biggest sub-market and continues to be pressured from the combined effects of the industrial slowdown in Europe and the US, compounded by the impact of COVID. Finally, sales into simulation and test markets were down almost a third, with flight simulation particularly hard hit as a result of the drop in airline activity.听

Compared to the run rate of the second half of last fiscal year, industrial systems were down a further 7%, with weakness in each of our submarkets.听 Simulation and Test was hardest hit as sales to our flight simulation customers continued their quarterly sequential decline since Q2 last year. Sales into medical applications were also lower as surge demand for COVID related components waned.听

Industrial Systems Margins

Margins in the quarter of 9.5% were lower than last year on the lower sales and the impact of COVID. Margins were in line with the average adjusted margins of the previous 2 quarters.听

Industrial Systems Fiscal 鈥�21

Our sales assumption coming into the year was flat sales in our energy, industrial automation and simulation and test markets. We also predicted that our medical market would remain strong albeit down somewhat from the highs we saw in the recent quarters as demand for COVID-related equipment slowed. After one quarter, medical sales are in line with our thinking 鈥� up from a year ago and down from the second half. Although sales into our other 3 submarkets continued to weaken we were encouraged by an improving book to bill ratio this quarter.听 Therefore, for the full year our sales assumptions remain unchanged.听

听

Summary Guidance

It鈥檚 been a good start to the year. 听We鈥檝e adapted our business practices to live with COVID and our customers, our suppliers and our internal operations continue to function.听 We managed our way through some efficiency impacts in the first quarter as a result of increased infections across our footprint. The good news is that vaccines are on their way. The less good news is that the pace of distribution is slower than we might have hoped. Therefore, we鈥檒l continue to plan for COVID restrictions across our business for the remainder of the fiscal year.听

Looking at our 5 major markets, defense, space and medical remain strong.听 Industrial continued to soften in the first quarter and our commercial business stabilized relative to the previous 6 months.听

This quarter we allocated our capital to growth with the acquisition of Genesys in our Aircraft segment. Our overall approach to capital allocation remains unchanged. Our priorities are organic investments, acquisitive growth and return to shareholders, with all decisions based on long-term value creation. As we emerge from COVID over the coming year, we鈥檙e optimistic that we鈥檒l see more acquisition opportunities than in the recent past.听 The present financial markets are providing easy access to almost free capital, which seems to be driving acquisition prices into the stratosphere. From our perspective, plentiful, free money does not change the underlying economics and risks inherent in any acquisition and we intend to remain disciplined in our approach to valuations. Therefore, we鈥檒l remain cautious not to overpay.听

As we look to the coming 3 quarters, we鈥檒l continue our hybrid working practices with most of our staff working remotely. Over the last 9 months, we鈥檝e learned how to live with COVID and have reconfigured our business to ensure the company remains strong and that we鈥檙e in a position to invest in growth. Looking to the future, we鈥檒l continue to pursue our long term strategy of technology focus, diverse end markets, a strong balance sheet, internal investment and complimentary acquisitions.听

Now let me pass you to Jennifer who will provide more color on our cash flow and balance sheet.

听

Thank you, John. Good morning, everyone.

We had another very strong cash flow quarter. Free cash flow in the first quarter was $74 million, a conversion of almost 200%.听 That compares to $15 million of free cash flow in the same period a year ago. Strong collections on receivables, slower growth in inventories, lower compensation payments and reduced capital expenditures drove the increase in free cash flow.

The $74 million of free cash flow in Q1 compares with an increase in our net debt of $24 million.听 During the first quarter, we completed the Genesys acquisition in our Aircraft business, which increased our net debt by $78 million.听 We also repurchased just over 150,000 shares of our stock for $10 million and paid our quarterly dividend.

Net working capital (excluding cash and debt) as a percentage of sales at the end of Q1 was 29.2% compared to 28.4% a quarter ago.听 The increase is being driven by the addition of net working capital from the Genesys acquisition with little being added in the way of sales due to the timing of the acquisition. Without the acquisition, net working capital as a percentage of sales would have been 28.6%, up only slightly from a quarter ago.

Capital expenditures in the first quarter were $20 million, up from $18 million in the fourth quarter and down from $27 million in the same quarter a year ago.听 This quarter, we began to invest after limiting our capital spend to compliance and business critical projects in the early stages of the pandemic.听 Our strong financial position today affords us the opportunity to catch up on capital investments that we had delayed and invest in efforts to increase productivity and gain efficiencies. Depreciation and amortization totaled $21 million, continuing at the fairly constant level that we experienced last year.

Our leverage continues to be in our target zone.听 We have had very strong free cash flow generation during the past year, which fully offset the decline in our trailing-twelve-month EBITDA that resulted from the pandemic. Absent the first quarter acquisition, our leverage ratio would have been 2.4x, the same as a quarter ago.听 The impact from the acquisition caused our leverage ratio to increase to 2.6x as of the end of our first quarter.

At quarter end, our net debt was $869 million, including $98 million of cash. The major components of our debt were $500 million of senior notes, $400 million of borrowings on our U.S. revolving credit facilities and $67 million outstanding on our securitization facility.听

We have $660 million of unused borrowing capacity on our U.S. revolving credit facility. Our ability to draw on the unused balance is limited by our leverage covenant, which is a maximum of 4.0x on a net debt basis. Based on our leverage, we could have incurred an additional $474 million of net debt as of the end of our first quarter.听 We are confident that our existing facilities provide us with the flexibility to invest in our future.听

Cash contributions to our global retirement plans totaled $13 million in the quarter, compared to $10 million in the first quarter of 2020. Global retirement plan expense in the first quarter was $18 million, the same as in the first quarter of 2020.

Our effective tax rate was 24.9% in the first quarter, down just slightly from 25.2% in the same period a year ago.听 We did not have any significant special items in either of these periods.

At the end of our first quarter, twelve-month backlog was $1.9 billion, up 14% from $1.7 billion a quarter ago, with increases in each of our segments. The increase in our total backlog during the quarter was much more dramatic. Total backlog at the end of Q1 was $4.7 billion, compared to $2.6 billion a quarter ago.听 During the quarter, we renewed several long-term arrangements with customers in our aerospace and defense business. These supply arrangements cover periods up to ten-plus years. Under expanded reporting in ASC 606, we capture the full value of these arrangements in our total backlog.听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听听

We expect free cash flow generation in 2021 to be in line with our long-term target of 100% conversion.听 We continue to see shorter-term pressures on inventories as our customers continue to change their demand and we work to slow our incoming receipts of inventory. However, the benefits associated with our efforts to create operational efficiencies in our business will outweigh these pressures later in 2021. We are beginning to ramp up our investments in capital expenditures from the constrained levels of the last few quarters.

We are well positioned to invest in our business, and we鈥檝e returned to a balanced capital deployment strategy.听 We will invest in our operations and explore opportunities to make strategic acquisitions and return capital to shareholders.

听

With that, we鈥檒l turn it back to John for any questions you may have.

听

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