Kaman Reports Fourth Quarter and Full Year 2022 Results
Full Year 2022 Highlights:
Net sales: $688.0 million
Net loss: $(46.2) million, inclusive of $79.0 million of impairment charges
Adjusted EBITDA*: $80.2 million; Adjusted EBITDA margin*: 11.7%
Diluted (loss) earnings per share: $(1.65) per share, $1.12 per share adjusted*
Fourth Quarter 2022 Highlights:
Net sales: $197.1 million
Net loss: $(54.9) million, inclusive of $79.0 million of impairment charges
Adjusted EBITDA: $31.0 million; Adjusted EBITDA margin: 15.7%
Diluted (loss) earnings per share: $(1.96) per share, $0.42 per share adjusted
2023 Outlook Highlights:
Net sales: $730.0 million to $750.0 million
Net earnings: $4.0 million to $11.6 million
Adjusted EBITDA: $95.0 million to $105.0 million
Adjusted EBITDA margin: 13.0% to 14.0%
Diluted EPS: $0.14 per share to $0.41 per share; adjusted $0.30 per share to $0.57 per share
Cash from operating activities: $60.0 million to $70.0 million
Free cash flow: $35 million to $45 million
BLOOMFIELD, Conn., February 23, 2023--(BUSINESS WIRE)--Kaman Corp. (NYSE:KAMN) today reported financial results for the fourth fiscal quarter and full year ended December 31, 2022.
Table 1. Summary of Financial Results (unaudited) | ||||||||||||||||||||
Thousands of U.S. dollars (except share data) | Three Months Ended | Twelve Months Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
Net sales | $ | 197,143 | $ | 172,004 | $ | 175,147 | $ | 687,961 | $ | 708,993 | ||||||||||
Net (loss) earnings | (54,943 | ) | 625 | 9,169 | (46,226 | ) | 43,676 | |||||||||||||
Adjusted EBITDA* | 30,987 | 20,614 | 23,591 | 80,216 | 95,464 | |||||||||||||||
Adjusted EBITDA margin* | 15.7 | % | 12.0 | % | 13.5 | % | 11.7 | % | 13.5 | % | ||||||||||
Diluted (loss) earnings per share | $ | (1.96 | ) | $ | 0.02 | $ | 0.33 | $ | (1.65 | ) | $ | 1.57 | ||||||||
Adjusted diluted earnings per share* | $ | 0.42 | $ | 0.32 | $ | 0.48 | $ | 1.12 | $ | 1.93 | ||||||||||
*See the end of this release for an explanation of the Company's use of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash flow and Adjusted diluted earnings per share from continuing operations. See tables 5-11 for reconciliations to the most comparable GAAP measure.
"Both the quarter and full-year results came in ahead of our expectations that we communicated last quarter. For the twelve-month period, net sales at Engineered Products segment grew by 6.5% due to the acquisition of Aircraft Wheel and Brake and by 12.2% in the base business. For the full year, operating income grew by 40% organically in our Engineered Products segment, highlighting the recovery in the commercial aerospace market and continued growth in medical and industrial end markets," said Ian K. Walsh, Chairman, President and Chief Executive Officer.
"During 2022, Kaman entered the next phase on its journey to positioning the company for long-term growth. As announced in December, Kaman is consolidating its Joint Programmable Fuze production and optimizing cost structure to align with our highest return opportunities. In January, we announced further initiatives to streamline Kaman’s facilities and functions by reducing headcount, eliminating non-value added activities, discontinuing K-MAX® production and right-sizing Kaman’s total cost structure."
"At the forefront of our transformation is the execution on our long-term growth strategy for our Engineered Products segment. During the fourth quarter we continued to integrate the Aircraft Wheel and Brake acquisition and we're seeing results in line with our expectations for this business which reaffirms that this investment was a key part of supporting the overall strategy for the Engineered Products segment. Organically, the order intake across these businesses during the fourth quarter grew substantially compared to levels in the previous year. The actions that we have taken and the strength in our underlying performance will enhance our earnings power and position us to deliver improved sales, adjusted EBITDA and free cash flow in 2023," said Walsh.
OUTLOOK DISCUSSION
Revenue and earnings growth is driven by the addition of Aircraft Wheel and Brake to the portfolio. Organically, Adjusted EBITDA is expected to improve due to margin expansion from the Engineered Products segment driven by strategic price increases and lean initiatives the Company is taking. Higher interest expense will remain a headwind on cash expectations for the year and, while the Company will be vigilant on cash outlay, it has committed to key capital projects and research and development spend associated with new autonomous technologies. The expected decline in the adjusted diluted earnings per share is primarily a result of significantly lower pension income, attributing to $0.50 cents per share of the total decline, higher interest expense and lower JPF DCS orders. For further information, the Company's supplemental presentation relating to the fourth quarter 2022 results and 2023 outlook will be posted to the Company's website, as detailed below.
KAMAN BUSINESS RESULTS DISCUSSION BY REPORTING SEGMENT
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 | Twelve Months Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
Net sales | $ | 113,972 | $ | 92,052 | $ | 82,549 | $ | 377,241 | $ | 317,683 | ||||||||||
Operating income | 17,168 | 14,156 | 13,502 | 57,833 | 43,097 | |||||||||||||||
Adjusted EBITDA | 30,698 | 21,772 | 20,082 | 91,353 | 69,403 | |||||||||||||||
Adjusted EBITDA margin | 26.9 | % | 23.7 | % | 24.3 | % | 24.2 | % | 21.8 | % | ||||||||||
Three months ended December 31, 2022 versus three months ended September 30, 2022 - Operating income increased $3.0 million, Adjusted EBITDA increased $8.9 million and margin increased 3.2 percentage points versus the third quarter of 2022. Results improved compared to the prior period driven by the contribution of sales and gross margin from our Aircraft Wheel and Brake acquisition and higher sales and gross margin on our commercial and defense bearings, partially offset by lower volume on our springs, seals and contacts used in industrial applications.
Three months ended December 31, 2022 versus three months ended December 31, 2021 - Operating income increased $3.7 million, Adjusted EBITDA increased $10.6 million and margin increased 2.6 percentage points versus the fourth quarter of 2021. Results improved compared to the prior period driven by the contribution of sales and gross margin from our Aircraft Wheel and Brake acquisition and higher sales and gross margin on our commercial bearings.
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; support of our heavy lift K-MAX® manned helicopter, and development of 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 | Twelve Months Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
Net sales | $ | 49,925 | $ | 46,282 | $ | 60,673 | $ | 185,023 | $ | 256,329 | ||||||||||
Operating income | 6,016 | 5,730 | 9,092 | 17,705 | 55,366 | |||||||||||||||
Adjusted EBITDA | 6,801 | 6,534 | 10,133 | 21,368 | 59,514 | |||||||||||||||
Adjusted EBITDA margin | 13.6 | % | 14.1 | % | 16.7 | % | 11.5 | % | 23.2 | % | ||||||||||
Three months ended December 31, 2022 versus three months ended September 30, 2022 - Operating income and Adjusted EBITDA increased $0.3 million and margin decreased 0.5 percentage points versus the third quarter of 2022. Operating income and EBITDA benefited from higher sales and gross profit on our SH-2G program with New Zealand and K-MAX® spares and support, partially offset by lower JPF sales. Additionally impacting margin was higher R&D spend associated with new technologies, such as the KARGO UAV unmanned aerial system.
Three months ended December 31, 2022 versus three months ended December 31, 2021 - Operating income decreased $3.1 million, Adjusted EBITDA decreased $3.3 million and margin decreased 3.1 percentage points versus the fourth quarter of 2020. Results declined compared to the prior period, driven by lower JPF sales and higher R&D spend associated with new technologies, partially offset by higher sales and margin on our K-MAX® spares and support.
Included in our consolidated fourth quarter results were $25.3 million and $51.0 million of one-time charges for the goodwill write-down and K-MAX® program impairment charge, respectively, associated with the Precision Products segment. These charges are captured in our other unallocated expenses and therefore are not reflected in the segment operating results above.
Structures - Our 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 | Twelve Months Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
Net sales | $ | 33,246 | $ | 33,670 | $ | 31,925 | $ | 125,697 | $ | 134,981 | ||||||||||
Operating income (loss) | (1,624 | ) | 71 | 531 | (3,000 | ) | (340 | ) | ||||||||||||
Adjusted EBITDA | (768 | ) | 941 | 1,420 | 519 | 3,122 | ||||||||||||||
Adjusted EBITDA margin | (2.3 | )% | 2.8 | % | 4.4 | % | 0.4 | % | 2.3 | % | ||||||||||
Three months ended December 31, 2022 versus three months ended September 30, 2022 - Operating income and Adjusted EBITDA decreased by $1.7 million, and margin decreased 5.1 percentage points versus the third quarter of 2022. Results were impacted by lower gross profit due to changes in profit estimates for long term contracts partially offset by higher sales volumes on certain composite programs.
Three months ended December 31, 2022 versus three months ended December 31, 2021 - Operating income and Adjusted EBITDA decreased by $2.2 million, and margin decreased 6.7 percentage points versus the fourth quarter of 2021. Results were impacted by lower gross profit due to changes in profit estimates for long term contracts partially offset by higher sales volumes on our composite programs.
Included in our consolidated fourth quarter results was $2.7 million of a one-time charge for the Jacksonville facility's portion of the K-MAX® program impairment charge. This charge is captured in our other unallocated expenses and therefore not reflected in the segment operating results above.
Please see the MD&A section of the Company's Form 10-K filed with the Securities and Exchange Commission concurrently with the issuance of this release for greater detail on our results and various company programs.
CONFERENCE CALL
A webcast and conference call has been scheduled for tomorrow, February 24, 2023, 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 fourth 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; support of our heavy lift K-MAX® manned helicopter, and development of 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) identified by an asterisk (*) 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 - 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 5. Adjusted EBITDA (unaudited) | ||||||||||||||||||||
Thousands of U.S. dollars | Three Months Ended | |||||||||||||||||||
Consolidated | Engineered | Precision | Structures | Corp/Elims** | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
Consolidated Results | ||||||||||||||||||||
Net sales | $ | 197,143 | $ | 113,972 | $ | 49,925 | $ | 33,246 | $ | — | ||||||||||
Net (loss) earnings | $ | (54,943 | ) | |||||||||||||||||
Interest expense, net | 8,786 | |||||||||||||||||||
Income tax expense (benefit) | (18,724 | ) | ||||||||||||||||||
Non-service pension and post retirement benefit income | (5,145 | ) | ||||||||||||||||||
Other income, net | (2,100 | ) | ||||||||||||||||||
Operating income (loss) | $ | (72,126 | ) | $ | 17,168 | $ | 6,016 | $ | (1,624 | ) | $ | (93,686 | ) | |||||||
Depreciation and amortization | 13,675 | 11,231 | 785 | 856 | 803 | |||||||||||||||
Goodwill impairment | 25,306 | — | — | — | 25,306 | |||||||||||||||
Program assets impairment | 53,677 | 53,677 | ||||||||||||||||||
Restructuring and severance costs | 6,989 | — | — | — | 6,989 | |||||||||||||||
Cost associated with corporate development activities | 1,167 | — | — | — | 1,167 | |||||||||||||||
Inventory step-up associated with acquisition | 2,299 | 2,299 | — | — | — | |||||||||||||||
Other Adjustments | $ | 103,113 | $ | 13,530 | $ | 785 | $ | 856 | $ | 87,942 | ||||||||||
Adjusted EBITDA | $ | 30,987 | $ | 30,698 | $ | 6,801 | $ | (768 | ) | $ | (5,744 | ) | ||||||||
Adjusted EBITDA margin | 15.7 | % | 26.9 | % | 13.6 | % | (2.3 | )% | ||||||||||||
**Corp/Elims Operating income (loss) represents the Corporate office expenses and $86.0 million of unallocated expenses that are shown on the Consolidated Statement of Earnings as their own line items.
Table 6. Adjusted EBITDA (unaudited) | ||||||||||||||||||||
Thousands of U.S. dollars | Three Months Ended | |||||||||||||||||||
Consolidated | Engineered | Precision | Structures | Corp/Elims** | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
Consolidated Results | ||||||||||||||||||||
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, 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 | ) | — | — | — | |||||||||||||||