Kaman Reports Third Quarter 2022 Results

Kaman Reports Third Quarter 2022 Results

01 November 2022

Third Quarter 2022 Highlights:

  • Completed acquisition of Parker-Hannifin’s Aircraft Wheel & Brake division, the largest in the history of the company
  • Consolidated results supported by strength in Engineered Products amid program and supplier challenges
  • Net sales: $172 million
  • Gross Margin: 32.5%
  • Net earnings: $0.6 million
  • Adjusted EBITDA*: $20.6 million; Adjusted EBITDA margin*: 12.0%
  • Diluted earnings per share: $0.02 per share, $0.32 per share adjusted*

BLOOMFIELD, Conn.–(BUSINESS WIRE)–Nov. 1, 2022–
Kaman Corp. (NYSE:KAMN) today reported financial results for the third fiscal quarter ended September 30, 2022.

Table 1. Summary of Financial Results (unaudited)

 

 

 

 

Thousands of U.S. dollars

(except share data)

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2022

 

July 1,

2022

 

October 1,

2021

 

September 30,

2022

 

October 1,

2021

Net sales

 

$

172,004

 

 

$

160,766

 

 

$

179,836

 

 

$

490,818

 

 

$

533,846

 

Net earnings

 

 

625

 

 

 

4,064

 

 

 

14,667

 

 

 

8,717

 

 

 

34,507

 

Adjusted EBITDA*

 

 

20,614

 

 

 

16,429

 

 

 

27,816

 

 

 

49,229

 

 

 

71,873

 

Adjusted EBITDA margin*

 

 

12.0

%

 

 

10.2

%

 

 

15.5

%

 

 

10.0

%

 

 

13.5

%

Diluted earnings per share

 

$

0.02

 

 

$

0.14

 

 

$

0.53

 

 

$

0.31

 

 

$

1.24

 

Adjusted diluted earnings per share*

 

$

0.32

 

 

$

0.31

 

 

$

0.60

 

 

$

0.77

 

 

$

1.45

 

*See the end of this release for an explanation of the Company’s use of Adjusted EBITDA, Adjusted EBITDA margin, Free cash flow and Adjusted diluted earnings per share. See tables 6-13 for reconciliations to the most comparable GAAP measure.

“In September, we executed on our growth strategy with the acquisition of Parker-Hannifin’s Aircraft Wheel and Brake division, the largest in our company’s history. This acquisition expands the breadth of our product offerings and will drive meaningful margin and cash flow accretion. During the quarter, consolidated results benefited from strong performance in Engineered Products while some program and supplier challenges pressured current results and full year expectations. We continue to see strength in market demand with healthy order rates for our most profitable bearings, springs, seals and contacts products. In addition, demand in the commercial aerospace market is ramping, as sales increased to Boeing and Airbus for the fifth quarter in a row,” said Ian K. Walsh, Chairman, President and Chief Executive Officer.

“In the third quarter, our Engineered Products segment delivered excellent performance with year over year sales growth of 9% which was 11% excluding the increase from Aircraft Wheel and Brake and foreign exchange pressures. Additionally, order rates remained strong with backlog growing organically by nearly 40 percent since the beginning of the year. Margins were slightly tempered by some supply chain challenges in this segment; however, we are pleased with the way our teams have been managing these issues in order to limit disruptions, while continuing to meet our customer requirements.”

“In Precision Products, our fuze delivery plan is slightly below our prior expectations due to a delay in receipt of a supplied component. This has shifted the timing of deliveries, which will postpone a significant portion of our cash receipts to 2023. With regard to our air vehicles program, we are excited to announce that the Marine Corps selected KARGO UAV for its MULS-A program. They will be funding a prototype build starting in 2023 with a customer Field User Capability Assessment to follow.”

“In our Structures segment, certain program and supplier challenges are delaying the recovery we had anticipated, impacting our expected earnings and cash flow performance for the full year. We remain focused on improving the operational performance of this segment and winning new business opportunities in complex structural programs,” said Walsh.

Outlook

“Kaman is seeing sustained strength in our backlog of greater than $765 million and robust revenue, margins and backlog for bearings, seals, springs and contacts products driven by persistently strong demand. Guidance for the full year 2022 is being revised to include Aircraft Wheel and Brake and account for a decrease from our prior expectations based on a combination of execution on our programs and supplier challenges in Precision Products and Structures. The most meaningful change is the reduction in our cash flow for the year driven mostly by a delay in cash collections which will shift to 2023 due to the push out of deliveries.”

“Over the long term, Kaman is positioned to provide meaningful shareholder returns. We will remain disciplined in our approach to capital allocation and our main priority is to deleverage our balance sheet. We will continue to invest in research and development of new products and remain thoughtful in our strategy to achieve top quartile EBITDA margin, free cash flow and return on invested capital,” Walsh said.

See Table 5 of this release for an updated outlook summary for 2022.

KAMAN BUSINESS RESULTS DISCUSSION

Kaman manages its portfolio through three segments: (1) Engineered Products; (2) Precision Products; and (3) Structures.

Engineered Products – Our Engineered Products segment serves the aerospace and defense, industrial and medical markets providing sophisticated, proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; and wheels, brakes and related hydraulic components for helicopters, fixed-wing and UAV aircraft.

Table 2. Engineered Products Results

 

 

 

 

 

 

Thousands of U.S. dollars

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2022

 

July 1,

2022

 

October 1,

2021

 

September 30,

2022

 

October 1,

2021

Net sales

 

$

92,052

 

 

$

89,765

 

 

$

84,399

 

 

$

263,269

 

 

$

235,134

 

Operating income

 

 

14,156

 

 

 

15,467

 

 

 

14,931

 

 

 

40,665

 

 

 

29,595

 

Adjusted EBITDA

 

 

21,772

 

 

 

21,614

 

 

 

21,488

 

 

 

60,655

 

 

 

49,321

 

Adjusted EBITDA margin

 

 

23.7

%

 

 

24.1

%

 

 

25.5

%

 

 

23.0

%

 

 

21.0

%

Three months ended September 30, 2022 versus three months ended July 1, 2022 – Operating income decreased $1.3 million, and Adjusted EBITDA and margin were relatively unchanged compared to the second quarter of 2022. Within the third quarter of 2022, we incurred an inventory step-up of $0.8 million related to the acquisition of Aircraft Wheel & Brake. Results for Adjusted EBITDA and margin were impacted by lower sales of engine aftermarket products and industrial bearings. This was mostly offset by higher commercial aerospace bearings sales.

Three months ended September 30, 2022 versus three months ended October 1, 2021 – Operating income decreased $0.8 million, Adjusted EBITDA increased $0.3 million and margin decreased 180 basis points versus the third quarter of 2021. Within the third quarter 2022, we incurred an inventory step-up of $0.8 million dollars related to the acquisition of Aircraft Wheel & Brake. Compared to the prior period, results for Adjusted EBITDA and margin were impacted by lower sales of defense and industrial bearings. This was partially offset by higher sales of commercial aerospace bearings and seals, springs and contacts in industrial applications.

Precision Products – Our Precision Products segment serves the aerospace and defense markets providing precision safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our heavy lift K-MAX® manned helicopter, the K-MAX TITAN unmanned aerial system and the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle.

Table 3. Precision Products Results

 

 

 

 

 

 

Thousands of U.S. dollars

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2022

 

July 1,

2022

 

October 1,

2021

 

September 30,

2022

 

October 1,

2021

Net sales

 

$

46,282

 

 

$

41,267

 

 

$

63,584

 

 

$

135,098

 

 

$

195,656

 

Operating income

 

 

5,730

 

 

 

2,550

 

 

 

13,792

 

 

 

11,689

 

 

 

46,274

 

Adjusted EBITDA

 

 

6,534

 

 

 

3,593

 

 

 

14,814

 

 

 

14,567

 

 

 

49,381

 

Adjusted EBITDA margin

 

 

14.1

%

 

 

8.7

%

 

 

23.3

%

 

 

10.8

%

 

 

25.2

%

Three months ended September 30, 2022 versus three months ended July 1, 2022 – Operating income increased $3.2 million, Adjusted EBITDA increased $2.9 million and margin increased 540 basis points versus the second quarter of 2022. Compared to the prior period, results improved driven by higher sales and associated gross profit for our JPF program partially offset by lower sales and margins for K-MAX® spares and support as well as for our SH-2G program.

Three months ended September 30, 2022 versus three months ended October 1, 2021 – Operating income decreased $8.1 million, Adjusted EBITDA decreased $8.3 million and margin decreased 920 basis points versus the third quarter of 2021. Results declined compared to the same period last year, primarily due to lower sales and associated gross profit for our JPF program and our K-MAX® program and higher research and development expense.

StructuresOur Structures segment serves the aerospace and defense and medical end markets providing sophisticated complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft, and medical imaging solutions.

Table 4. Structures Results

 

 

 

 

 

 

Thousands of U.S. dollars

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2022

 

July 1,

2022

 

October 1,

2021

 

September 30,

2022

 

October 1,

2021

Net sales

 

$

33,670

 

 

$

29,734

 

 

$

31,853

 

 

$

92,451

 

 

$

103,056

 

Operating income (loss)

 

 

71

 

 

 

(830

)

 

 

330

 

 

 

(1,376

)

 

 

(871

)

Adjusted EBITDA

 

 

941

 

 

 

57

 

 

 

1,187

 

 

 

1,287

 

 

 

1,702

 

Adjusted EBITDA margin

 

 

2.8

%

 

 

0.2

%

 

 

3.7

%

 

 

1.4

%

 

 

1.7

%

Three months ended September 30, 2022 versus three months ended July 1, 2022 – Operating income and Adjusted EBITDA increased $0.9 million and margin increased 260 basis points versus the second quarter of 2022. Results improved primarily due to increased sales and margin in our Sikorsky UH-60 Black Hawk program.

Three months ended September 30, 2022 versus three months ended October 1, 2021 – Operating income, Adjusted EBITDA and margin were relatively unchanged compared to the third quarter of 2021. Compared to the prior period, sales and associated gross profit for certain composites programs declined mostly offset by increases in our sales and margin for our Boeing P-8A program and our Rolls Royce programs.

Please see the MD&A section of the Company’s Form 10-Q filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.

OUTLOOK

Table 5. Outlook

Millions of U.S. dollars (except share data)

2022 Outlook

 

Low End

 

High End

Net Sales

$

695.0

 

 

$

710.0

 

Earnings from continuing operations

$

12.1

 

 

$

16.3

 

Adjusted EBITDA

$

72.5

 

 

$

77.5

 

Adjusted EBITDA margin

 

10.4

%

 

 

10.9

%

Adjusted diluted earnings per share

$

0.95

 

 

$

1.10

 

Cash flow from operating activities

$

15.0

 

 

$

30.0

 

Adjusted free cash flow

$

(10.0

)

 

$

5.0

 

Please see the supplemental presentation relating to the third quarter 2022 on our Company’s website for a full outlook summary.

CONFERENCE CALL

A webcast and conference call has been scheduled for tomorrow, November 2, 2022, at 8:30 AM ET. Participants must register for the teleconference. Once registration is complete, participants will be provided with a dial-in number containing a personalized PIN to access the call. While not required, it is recommended that participants join 10 minutes prior to the event start. A live webcast will be available during the call and a replay will be available two hours after the call. Registration and webcast can be accessed at www.kaman.com/investors/quarterly-earnings-calls. In its discussion, management may reference certain non-GAAP financial measures related to company performance. A reconciliation of that information to the most directly comparable GAAP measures is provided in this release. In addition, a supplemental presentation relating to the third quarter 2022 results will be posted to the Company’s website prior to the earnings call at www.kaman.com/investors/quarterly-earnings-calls.

ABOUT KAMAN CORPORATION

Kaman Corporation, founded in 1945 by aviation pioneer Charles H. Kaman, and headquartered in Bloomfield, Connecticut, conducts business in the aerospace & defense, industrial and medical markets. Kaman produces and markets proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; wheels, brakes and related hydraulic components for helicopters, fixed-wing and UAV aircraft; complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft; safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our heavy lift K-MAX® manned helicopter, the K-MAX TITAN unmanned helicopter and the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle. More information is available at www.kaman.com.

NON-GAAP MEASURES DISCLOSURE

Management believes that the Non-GAAP financial measures (i.e. financial measures that are not computed in accordance with Generally Accepted Accounting Principles) used in this release or in other disclosures provide important perspectives into the Company’s ongoing business performance. The Company does not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the Non-GAAP measures used in this release and other disclosures as follows:

Adjusted EBITDA and Adjusted EBITDA margin – Adjusted EBITDA for the consolidated company results is defined as net earnings before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company for the periods presented. Adjusted EBITDA for the segments is defined as operating income before depreciation and amortization. Adjusted EBITDA margin is defined as Adjusted EBITDA as a percent of Net sales. Management believes Adjusted EBITDA and Adjusted EBITDA margin provide an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods because they provide a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other expense (income), net and certain items that are not indicative of the operating performance of the Company for the period presented. Adjusted EBITDA and Adjusted EBITDA margin are not presented as an alternative measure of operating performance, as determined in accordance with GAAP. The following tables illustrate the calculation of Adjusted EBITDA:

Table 6. Adjusted EBITDA and Adjusted EBITDA Margin (unaudited)

 

 

 

 

 

 

Three Months Ended

Thousands of U.S. dollars

 

September 30, 2022

 

 

Consolidated

 

Engineered Products

 

Precision Products

 

Structures

 

Corp/Elims**

Net sales

 

$

172,004

 

 

$

92,052

 

 

$

46,282

 

 

$

33,670

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

3,614

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

128

 

 

 

 

 

 

 

 

 

Non-service pension and post retirement benefit income

 

 

(5,142

)

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

1,221

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

446

 

 

$

14,156

 

 

$

5,730

 

 

$

71

 

 

$

(19,511

)

Depreciation and amortization

 

 

9,383

 

 

 

6,856

 

 

 

804

 

 

 

870

 

 

 

853

 

Restructuring and severance costs

 

 

(243

)

 

 

 

 

 

 

 

 

 

 

 

(243

)

Cost associated with corporate development activities

 

 

10,725

 

 

 

 

 

 

 

 

 

 

 

 

10,725

 

Inventory step-up associated with acquisition

 

 

760

 

 

 

760

 

 

 

 

 

 

 

 

 

 

(Gain) loss on sale of business

 

 

(457

)

 

 

 

 

 

 

 

 

 

 

 

(457

)

Other Adjustments

 

$

20,168

 

 

$

7,616

 

 

$

804

 

 

$

870

 

 

$

10,878

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

20,614

 

 

$

21,772

 

 

$

6,534

 

 

$

941

 

 

$

(8,633

)

Adjusted EBITDA margin

 

 

12.0

%

 

 

23.7

%

 

 

14.1

%

 

 

2.8

%

 

 

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $0.7 million of unallocated income that is shown on the Condensed Consolidated Statement of Earnings as their own line items.

Table 7. Adjusted EBITDA and Adjusted EBITDA margin (unaudited)

 

 

 

 

 

 

Three Months Ended

Thousands of U.S. dollars

 

July 1, 2022

 

 

Consolidated

 

Engineered Products

 

Precision Products

 

Structures

 

Corp/Elims**

Net sales

 

$

160,766

 

 

$

89,765

 

 

$

41,267

 

 

$

29,734

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

4,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,993

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

557

 

 

 

 

 

 

 

 

 

Non-service pension and post retirement benefit income

 

 

(5,024

)

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

690

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

2,280

 

 

$

15,467

 

 

$

2,550

 

 

$

(830

)

 

$

(14,907

)

Depreciation and amortization

 

 

8,822

 

 

 

6,147

 

 

 

1,043

 

 

 

887

 

 

 

745

 

Restructuring and severance costs

 

 

2,927

 

 

 

 

 

 

 

 

 

 

 

 

2,927

 

Cost associated with corporate development activities

 

 

2,400

 

 

 

 

 

 

 

 

 

 

 

 

2,400

 

Other Adjustments

 

$

14,149

 

 

$

6,147

 

 

$

1,043

 

 

$

887

 

 

$

6,072

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

16,429

 

 

$

21,614

 

 

$

3,593

 

 

$

57

 

 

$

(8,835

)

Adjusted EBITDA margin

 

 

10.2

%

 

 

24.1

%

 

 

8.7

%

 

 

0.2

%

 

 

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $2.9 million of unallocated expenses that are shown on the Condensed Consolidated Statement of Earnings as their own line items.

Table 8. Adjusted EBITDA and Adjusted EBITDA margin (unaudited)

 

 

 

 

 

 

Three Months Ended

Thousands of U.S. dollars

 

October 1, 2021

 

 

Consolidated

 

Engineered Products

 

Precision Products

 

Structures

 

Corp/Elims**

Net sales

 

$

179,836

 

 

$

84,399

 

 

$

63,584

 

 

$

31,853

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

14,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

3,646

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

4,447

 

 

 

 

 

 

 

 

 

Non-service pension and post retirement benefit income

 

 

(6,612

)

 

 

 

 

 

 

 

 

Income from TSA

 

 

(14

)

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

(172

)

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

15,962

 

 

$

14,931

 

 

$

13,792

 

 

$

330

 

 

$

(13,091

)

Depreciation and amortization

 

 

9,083

 

 

 

6,557

 

 

 

1,022

 

 

 

857

 

 

 

647

 

Restructuring and severance costs

 

 

2,611

 

 

 

 

 

 

 

 

 

 

 

 

2,611

 

Costs associated with corporate development activities

 

 

136

 

 

 

 

 

 

 

 

 

 

 

 

136

 

Costs from transition service agreement

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Other Adjustments

 

$

11,854

 

 

$

6,557

 

 

$

1,022

 

 

$

857

 

 

$

3,418

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

27,816

 

 

$

21,488

 

 

$

14,814

 

 

$

1,187

 

 

$

(9,673

)

Adjusted EBITDA margin

 

 

15.5

%

 

 

25.5

%

 

 

23.3

%

 

 

3.7

%

 

 

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $2.6 million of unallocated expenses that are shown on the Condensed Consolidated Statement of Earnings as their own line items.

Table 9. Adjusted EBITDA and Adjusted EBITDA margin (unaudited)

 

 

 

 

 

 

Nine Months Ended

Thousands of U.S. dollars

 

September 30, 2022

 

 

Consolidated

 

Engineered Products

 

Precision Products

 

Structures

 

Corp/Elims**

Net sales

 

$

490,818

 

 

$

263,269

 

 

$

135,098

 

 

$

92,451

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

8,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

8,088

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

1,992

 

 

 

 

 

 

 

 

 

Non-service pension and post retirement benefit income

 

 

(15,429

)

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

2,415

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

5,783

 

 

$

40,665

 

 

$

11,689

 

 

$

(1,376

)

 

$

(45,195

)

Depreciation and amortization

 

 

27,037

 

 

 

19,230

 

 

 

2,878

 

 

 

2,663

 

 

 

2,266

 

Restructuring and severance costs

 

 

2,853

 

 

 

 

 

 

 

 

 

 

 

 

2,853

 

Cost associated with corporate development activities

 

 

13,253

 

 

 

 

 

 

 

 

 

 

 

 

13,253

 

Inventory step-up associated with acquisition

 

 

760

 

 

 

760

 

 

 

 

 

 

 

 

 

 

(Gain) loss on sale of business

 

 

(457

)

 

 

 

 

 

 

 

 

 

 

 

(457

)

Other Adjustments

 

$

43,446

 

 

$

19,990

 

 

$

2,878

 

 

$

2,663

 

 

$

17,915

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

49,229

 

 

$

60,655

 

 

$

14,567

 

 

$

1,287

 

 

$

(27,280

)

Adjusted EBITDA margin

 

 

10.0

%

 

 

23.0

%

 

 

10.8

%

 

 

1.4

%

 

 

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $2.5 million of unallocated expenses that are shown on the Condensed Consolidated Statement of Earnings as their own line items.

Table 10. Adjusted EBITDA and Adjusted EBITDA margin (unaudited)

 

 

 

 

 

 

Nine Months Ended

Thousands of U.S. dollars

 

October 1, 2021

 

 

Consolidated

 

Engineered Products

 

Precision Products

 

Structures

 

Corp/Elims**

Net sales

 

$

533,846

 

 

$

235,134

 

 

$

195,656

 

 

$

103,056

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

34,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

12,232

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

10,156

 

 

 

 

 

 

 

 

 

Non-service pension and post retirement benefit income

 

 

(19,832

)

 

 

 

 

 

 

 

 

Income from TSA

 

 

(931

)

 

 

 

 

 

 

 

 

Other expense (income), net

 

 

275

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

36,407

 

 

$

29,595

 

 

$

46,274

 

 

$

(871

)

 

$

(38,591

)

Depreciation and amortization

 

 

27,474

 

 

 

19,726

 

 

 

3,107

 

 

 

2,573

 

 

 

2,068

 

Restructuring and severance costs

 

 

5,479

 

 

 

 

 

 

 

 

 

 

 

 

5,479

 

Costs from transition service agreement

 

 

1,728

 

 

 

 

 

 

 

 

 

 

 

 

1,728

 

Cost associated with corporate development activities

 

 

551

 

 

 

 

 

 

 

 

 

 

 

 

551

 

(Gain) loss on sale of business

 

 

234

 

 

 

 

 

 

 

 

 

 

 

 

234

 

Other Adjustments

 

$

35,466

 

 

$

19,726

 

 

$

3,107

 

 

$

2,573

 

 

$

10,060

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

71,873

 

 

$

49,321

 

 

$

49,381

 

 

$

1,702

 

 

$

(28,531

)

Adjusted EBITDA margin

 

 

13.5

%

 

 

21.0

%

 

 

25.2

%

 

 

1.7

%

 

 

**Corp/Elims Operating income (loss) represents the Corporate office expenses and $7.4 million of unallocated expenses that are shown on the Condensed Consolidated Statement of Earnings as their own line items.

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share – Adjusted net earnings and adjusted diluted earnings per share are defined as GAAP “Net earnings” and “Diluted earnings per share”, less items that are not indicative of the operating performance of the business for the periods presented. Management uses adjusted net earnings and adjusted diluted earnings per share to evaluate performance period over period, to analyze the underlying trends in our business and to assess its performance relative to its competitors. We believe that this information is useful for investors and financial institutions seeking to analyze and compare companies on the basis of operating performance. The following table illustrates the calculation of adjusted net earnings and adjusted diluted earnings per share:

Table 11. Adjusted Net Earnings and Adjusted Diluted Earnings per Share (unaudited)

Thousands of U.S. dollars (except share data)

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

September 30, 2022

 

October 1, 2021

 

 

Pre-Tax

 

Tax-Effected

 

Diluted EPS

 

Pre-Tax

 

Tax-Effected

 

Diluted EPS

Net earnings

 

$

753

 

 

$

625

 

 

$

0.02

 

 

$

19,114

 

 

$

14,667

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

 

(243

)

 

 

(189

)

 

 

(0.01

)

 

 

2,611

 

 

 

2,003

 

 

 

0.07

Costs associated with corporate development activities

 

 

10,725

 

 

 

8,363

 

 

 

0.30

 

 

 

136

 

 

 

104

 

 

 

Inventory step-up associated with acquisition

 

 

760

 

 

 

593

 

 

 

0.02

 

 

 

 

 

 

 

 

 

Costs from transition services agreement

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

18

 

 

 

Income from transition services agreement

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(11

)

 

 

(Gain) loss on sale of business

 

 

(457

)

 

 

(356

)

 

 

(0.01

)

 

 

 

 

 

 

 

 

Adjustments

 

$

10,785

 

 

$

8,411

 

 

$

0.30

 

 

$

2,757

 

 

$

2,114

 

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net earnings

 

$

11,538

 

 

$

9,036

 

 

$

0.32

 

 

$

21,871

 

 

$

16,781

 

 

$

0.60

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

 

 

 

 

28,088

 

 

 

 

 

 

 

27,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

July 1, 2022

 

 

 

 

 

 

 

 

Pre-Tax

 

Tax-Effected

 

Diluted EPS

Net earnings

 

$

4,621

 

 

$

4,064

 

 

$

0.14

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

 

2,927

 

 

 

2,574

 

 

 

0.09

Costs associated with corporate development activities

 

 

2,400

 

 

 

2,111

 

 

 

0.08

Adjustments

 

$

5,327

 

 

$

4,685

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net earnings

 

$

9,948

 

 

$

8,749

 

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

 

 

 

 

28,059

Table 12. Adjusted Net Earnings and Adjusted Diluted Earnings per Share (unaudited)

Thousands of U.S. dollars (except share data)

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

September 30, 2022

 

October 1, 2021

 

 

Pre-Tax

 

Tax-Effected

 

Diluted EPS

 

Pre-Tax

 

Tax-Effected

 

Diluted EPS

Net earnings

 

$

10,709

 

 

$

8,717

 

 

$

0.31

 

 

$

44,663

 

 

$

34,507

 

 

$

1.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and severance costs

 

 

2,853

 

 

 

2,225

 

 

 

0.08

 

 

 

5,479

 

 

 

4,280

 

 

 

0.15

 

Costs associated with corporate development activities

 

 

13,253

 

 

 

10,334

 

 

 

0.37

 

 

 

551

 

 

 

432

 

 

 

0.02

 

Inventory step-up associated with acquisition

 

 

760

 

 

 

593

 

 

 

0.02

 

 

 

 

 

 

 

 

 

 

Costs from transition services agreement

 

 

 

 

 

 

 

 

 

 

 

1,728

 

 

 

1,370

 

 

 

0.05

 

Income from transition services agreement

 

 

 

 

 

 

 

 

 

 

 

(931

)

 

 

(739

)

 

 

(0.03

)

Tax expense on sale of UK operations

 

 

 

 

 

 

 

 

 

 

 

287

 

 

 

287

 

 

 

0.01

 

(Gain) loss on sale of business

 

 

(457

)

 

 

(356

)

 

 

(0.01

)

 

 

234

 

 

 

234

 

 

 

0.01

 

Adjustments

 

$

16,409

 

 

$

12,796

 

 

$

0.46

 

 

$

7,348

 

 

$

5,864

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net earnings

 

$

27,118

 

 

$

21,513

 

 

$

0.77

 

 

$

52,011

 

 

$

40,371

 

 

$

1.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

 

 

 

 

28,076

 

 

 

 

 

 

 

27,889

 

Free Cash Flow – Free cash flow is defined as GAAP “Net cash provided by (used in) operating activities” in a period less “Expenditures for property, plant & equipment” in the same period. Management believes free cash flow provides an important perspective on our ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company’s financial performance. Free cash flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions. Management uses free cash flow internally to assess overall liquidity. The following table illustrates the calculation of free cash flow.

Table 13. Free Cash Flow (unaudited)

Thousands of U.S. dollars

 

Three Months Ended

 

Last Twelve Months

 

 

December 31,

2021

 

April 1, 2022

 

July 1,

2022

 

September 30,

2022

 

September 30,

2022

Net cash provided by (used in) operating activities

 

$

34,575

 

 

$

(1,017

)

 

$

(25,937

)

 

$

(6,746

)

 

$

875

 

Expenditures for property, plant & equipment

 

 

(6,166

)

 

 

(6,877

)

 

 

(3,643

)

 

 

(7,106

)

 

 

(23,792

)

Free cash flow

 

$

28,409

 

 

$

(7,894

)

 

$

(29,580

)

 

$

(13,852

)

 

$

(22,917

)

FORWARD-LOOKING STATEMENTS

This release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “would,” “could,” “will” and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.

Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company’s actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration); (iii) the global economic impact of the COVID-19 pandemic; (iv) risks and uncertainties associated with the successful integration of our Aircraft Wheel and Brake acquisition; (v) changes in geopolitical conditions in countries where the Company does or intends to do business; (vi) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; (vii) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the USG; (viii) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (ix) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (x) the successful resolution of government inquiries or investigations relating to our businesses and programs; (xi) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed specifications required and recover start-up costs and other investments in the programs; (xii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (xiii) the receipt and successful execution of production orders under the Company’s existing USG JPF contract, including the exercise of all contract options and receipt of orders from allied militaries, but excluding any next generation programmable fuze programs, as all have been assumed in connection with goodwill impairment evaluations; (xiv) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our investments in the K-MAX® production line; (xv) the accuracy of current cost estimates associated with environmental remediation activities; (xvi) the profitable integration of acquired businesses into the Company’s operations; (xvii) the ability to recover from cyber-based or other security attacks, information technology failures or other disruptions; (xviii) changes in supplier sales or vendor incentive policies; (xix) the ability of our suppliers to satisfy their performance obligations, including any supply chain disruptions; (xx) the effects of price increases or decreases; (xxi) the effects of pension regulations, pension plan assumptions, pension plan asset performance, future contributions and the pension freeze, including the ultimate determination of the USG’s share of any pension curtailment adjustment calculated in accordance with CAS 413; (xxii) future levels of indebtedness and capital expenditures; (xxiii) compliance with our debt covenants; (xxiv) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xxv) the effects of currency exchange rates and foreign competition on future operations; (xxvi) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxvii) future repurchases and/or issuances of common stock;(xxviii) the occurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; (xxix) the ability to recruit and retain skilled employees; and (xxx) other risks and uncertainties set forth herein and in our 2021 Form 10-K and our third quarter 2022 Form 10-Q filed November 1, 2022.

Any forward-looking information provided in this release should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Thousands of U.S. dollars, except share data) (unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2022

 

October 1, 2021

 

September 30, 2022

 

October 1, 2021

Net sales

 

$

172,004

 

 

$

179,836

 

 

$

490,818

 

 

$

533,846

 

Cost of sales

 

 

116,179

 

 

 

116,771

 

 

 

332,299

 

 

 

355,930

 

Gross profit

 

 

55,825

 

 

 

63,065

 

 

 

158,519

 

 

 

177,916

 

Selling, general and administrative expenses

 

 

49,009

 

 

 

39,335

 

 

 

127,980

 

 

 

116,182

 

Research and development costs

 

 

3,937

 

 

 

2,540

 

 

 

14,265

 

 

 

10,004

 

Intangible asset amortization expense

 

 

3,118

 

 

 

2,624

 

 

 

8,024

 

 

 

7,898

 

Costs from transition services agreement

 

 

 

 

 

24

 

 

 

 

 

 

1,728

 

Restructuring and severance costs

 

 

(243

)

 

 

2,611

 

 

 

2,853

 

 

 

5,479

 

(Gain) loss on sale of business

 

 

(457

)

 

 

 

 

 

(457

)

 

 

234

 

Net loss (gain) on sale of assets

 

 

15

 

 

 

(31

)

 

 

71

 

 

 

(16

)

Operating income

 

 

446

 

 

 

15,962

 

 

 

5,783

 

 

 

36,407

 

Interest expense, net

 

 

3,614

 

 

 

3,646

 

 

 

8,088

 

 

 

12,232

 

Non-service pension and post retirement benefit income

 

 

(5,142

)

 

 

(6,612

)

 

 

(15,429

)

 

 

(19,832

)

Income from transition services agreement

 

 

 

 

 

(14

)

 

 

 

 

 

(931

)

Other income, net

 

 

1,221

 

 

 

(172

)

 

 

2,415

 

 

 

275

 

Net earnings before income taxes

 

 

753

 

 

 

19,114

 

 

 

10,709

 

 

 

44,663

 

Income tax expense

 

 

128

 

 

 

4,447

 

 

 

1,992

 

 

 

10,156

 

Net earnings

 

$

625

 

 

$

14,667

 

 

$

8,717

 

 

$

34,507

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.02

 

 

$

0.53

 

 

$

0.31

 

 

$

1.24

 

Diluted earnings per share

 

$

0.02

 

 

$

0.53

 

 

$

0.31

 

 

$

1.24

 

Average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

28,037

 

 

 

27,882

 

 

 

27,997

 

 

 

27,855

 

Diluted

 

 

28,088

 

 

 

27,888

 

 

 

28,076

 

 

 

27,889

 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Thousands of U.S. dollars, except share data) (unaudited)

 

 

September 30, 2022

 

December 31, 2021

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

31,358

 

 

$

140,800

 

Accounts receivable, net

 

 

102,477

 

 

 

73,524

 

Contract assets

 

 

117,828

 

 

 

112,354

 

Contract costs, current portion

 

 

822

 

 

 

850

 

Inventories

 

 

221,815

 

 

 

193,100

 

Income tax refunds receivable

 

 

15,865

 

 

 

13,832

 

Other current assets

 

 

15,749

 

 

 

12,083

 

Total current assets

 

 

505,914

 

 

 

546,543

 

Property, plant and equipment, net of accumulated depreciation of $260,640 and $251,888, respectively

 

 

198,866

 

 

 

197,822

 

Operating right-of-use assets, net

 

 

7,523

 

 

 

11,011

 

Goodwill

 

 

390,734

 

 

 

240,681

 

Other intangible assets, net

 

 

385,478

 

 

 

138,074

 

Deferred income taxes

 

 

15,711

 

 

 

15,717

 

Contract costs, noncurrent portion

 

 

9,865

 

 

 

10,249

 

Investment in Near Earth Autonomy

 

 

10,000

 

 

 

 

Other assets

 

 

40,443

 

 

 

38,385

 

Total assets

 

$

1,564,534

 

 

$

1,198,482

 

Liabilities and Shareholders’ Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable – trade

 

$

37,267

 

 

$

42,134

 

Accrued salaries and wages

 

 

31,952

 

 

 

38,892

 

Contract liabilities, current portion

 

 

3,932

 

 

 

2,945

 

Operating lease liabilities, current portion

 

 

3,633

 

 

 

4,502

 

Income taxes payable

 

 

183

 

 

 

386

 

Other current liabilities

 

 

38,404

 

 

 

32,076

 

Total current liabilities

 

 

115,371

 

 

 

120,935

 

Long-term debt, excluding current portion, net of debt issuance costs

 

 

609,800

 

 

 

189,421

 

Deferred income taxes

 

 

6,194

 

 

 

6,506

 

Underfunded pension

 

 

5,574

 

 

 

21,786

 

Contract liabilities, noncurrent portion

 

 

20,477

 

 

 

16,528

 

Operating lease liabilities, noncurrent portion

 

 

4,569

 

 

 

7,140

 

Other long-term liabilities

 

 

35,940

 

 

 

39,837

 

Commitments and contingencies

 

 

 

 

Shareholders’ equity:

 

 

 

 

Preferred stock, $1 par value, 200,000 shares authorized; none outstanding

 

 

 

 

 

 

Common stock, $1 par value, 50,000,000 shares authorized; voting; 30,620,003 and 30,434,269 shares issued, respectively

 

 

30,620

 

 

 

30,434

 

Additional paid-in capital

 

 

243,330

 

 

 

248,153

 

Retained earnings

 

 

749,007

 

 

 

750,445

 

Accumulated other comprehensive income (loss)

 

 

(134,256

)

 

 

(111,385

)

Less 2,604,564 and 2,573,896 shares of common stock, respectively, held in treasury, at cost

 

 

(122,092

)

 

 

(121,318

)

Total shareholders’ equity

 

 

766,609

 

 

 

796,329

 

Total liabilities and shareholders’ equity

 

$

1,564,534

 

 

$

1,198,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KAMAN CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Thousands of U.S. dollars) (unaudited)

 

 

Nine Months Ended

 

 

September 30, 2022

 

October 1, 2021

Cash flows from operating activities:

 

 

 

 

Net earnings

 

$

8,717

 

 

$

34,507

 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation and amortization

 

 

27,037

 

 

 

27,474

 

Amortization of debt issuance costs

 

 

1,882

 

 

 

1,406

 

Accretion of convertible notes discount

 

 

 

 

 

2,191

 

Provision for doubtful accounts

 

 

619

 

 

 

373

 

(Gain) loss on sale of business

 

 

(457

)

 

 

234

 

Net loss (gain) on sale of assets

 

 

71

 

 

 

(16

)

Net loss on derivative instruments

 

 

2,670

 

 

 

815

 

Stock compensation expense

 

 

6,145

 

 

 

5,684

 

Non-cash consideration received for blade exchange

 

 

(827

)

 

 

 

Deferred income taxes

 

 

1,600

 

 

 

4,822

 

Changes in assets and liabilities, excluding effects of acquisitions/divestitures:

 

 

 

 

Accounts receivable

 

 

(23,640

)

 

 

71,434

 

Contract assets

 

 

(5,405

)

 

 

(19,940

)

Contract costs

 

 

452

 

 

 

(99

)

Inventories

 

 

(21,187

)

 

 

(12,435

)

Income tax refunds receivable

 

 

(2,040

)

 

 

3,145

 

Operating right of use assets

 

 

3,347

 

 

 

1,739

 

Other assets

 

 

(3,682

)

 

 

1,042

 

Accounts payable – trade

 

 

(8,780

)

 

 

(21,829

)

Contract liabilities

 

 

4,246

 

 

 

(24,036

)

Operating lease liabilities

 

 

(3,296

)

 

 

(1,810

)

Acquired retention plan payments

 

 

 

 

 

(25,108

)

Other current liabilities

 

 

(4,591

)

 

 

(2,698

)

Income taxes payable

 

 

(227

)

 

 

1,173

 

Pension liabilities

 

 

(13,309

)

 

 

(29,256

)

Other long-term liabilities

 

 

(3,045

)

 

 

(4,689

)

Net cash used in operating activities

 

 

(33,700

)

 

 

14,123

 

Cash flows from investing activities:

 

 

 

 

Proceeds from sale of business, net of cash on hand

 

 

1,200

 

 

 

(3,428

)

Expenditures for property, plant & equipment

 

 

(17,626

)

 

 

(11,364

)

Investment in Near Earth Autonomy

 

 

(10,000

)

 

 

 

Acquisition of businesses

 

 

(441,340

)

 

 

 

Other, net

 

 

1,238

 

 

 

(502

)

Net cash used in investing activities

 

 

(466,528

)

 

 

(15,294

)

Cash flows from financing activities:

 

 

 

 

Net borrowings under revolving credit agreement

 

 

412,000

 

 

 

 

Purchase of treasury shares

 

 

(762

)

 

 

(459

)

Dividends paid

 

 

(16,760

)

 

 

(16,672

)

Debt issuance costs

 

 

(4,285

)

 

 

 

Other, net

 

 

1,725

 

 

 

4,086

 

Net cash provided by (used in) financing activities

 

 

391,918

 

 

 

(13,045

)

Net decrease in cash and cash equivalents

 

 

(108,310

)

 

 

(14,216

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,132

)

 

 

(415

)

Cash and cash equivalents and restricted cash at beginning of period

 

 

140,800

 

 

 

136,089

 

Cash and cash equivalents and restricted cash at end of period

 

$

31,358

 

 

$

121,458

 

Kary Bare

Investor Relations

(860) 243-7485

[email protected]

Source: Kaman Corporation