Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the CIRCOR International First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

I will now turn the conference over to Mr. President company’s Vice Sharon Relations Senior Associates. Merrill Solomon, of Investor the firm, Scott sir. you, Thank

begin. may You

Scott Solomon

Thank you, morning, and good everyone.

CIRCOR’s Before we and on release that our at begin, let me presentation remind are you earnings website investors.circor.com. available

cir@investorrelations.com to like provide of please team would you and you. receive IR If our for these copies materials, e-mail them will

only and XXXX. Today’s the XXXX. Securities contain to remarks. the Slide forward-looking or views as differ provisions Harbor Turning These expectations Litigation Safe known they Act the as represent X. of and anticipated to today, Private May today’s of XX, and could are unknown These statements other results those discussion by will subject risks, actual from U.S. company’s uncertainties materially Reform of under implied statements factors are defined

choose forward-looking so. to duty a While statements disclaims company update do the CIRCOR these at specifically may date, later any to

our XX-Qs Form You filings also can in factors find on CIRCOR’s these a discussion other and of website. XX-K, full located

on Slide measures. The As financial management the measures press the non-GAAP our available to of comparable earnings non-GAAP X, to refer in call, referenced release. measures and reconciliation are GAAP on today’s GAAP will

Slide to turn Please X.

for the of today’s market and management results. quarter our XXXX to be A.J. Vice Development. and then CIRCOR’s take Tony quarter A.J. will our are Executive review second first will your guidance and Officer; year begin with our and Chief will will Tony and and and Joining financials XXXX. the full outlook provide Najjar, highlights Tony President overview questions. on Sharma, me happy discuss the Officer call Financial Business Chief President Senior of strategic a

Tony. as Slide the I to call over turn to hand please X Now,

Tony Najjar

you everyone, discuss Thank and us XXXX quarter for Scott. to you, financial results. morning, joining Good first our thank

including want year-end call, macroeconomic execution despite spent I Since I our another most our having we of for continued and one our globe their teams customers that customers in participate for to with a of in our across program thank supplier supporting. earnings and up to with U.S. discuss challenges. quarter ramp the opportunity the focus Before the we defense key top ongoing on my are new defense our North teams America, time and the results, the delivering to expected of Europe review conference solid have

Recently, I growth lean electromechanical products our and commercial optimize aerospace from Tangier, to dedicated site XXX our customers. of than had also for support to more the opportunity and Morocco our and processes hydraulic manufacturing there, team members the continues our demand visit to manufacturing

by our This Our capabilities captured. team Motors. programs Brushless established the in to geared applications we DC added supporting the expected manufacturing recently is has California growth Morocco Corona, new from supported capability for recently and A&D from advanced team also

that level the teams family brands and by delighted industries be are and intimacy to throughout continue the innovation CIRCOR the by driving, I we our of customer of serve. strength the of

Our team in by quarter, excellent exceptionally supported delivering segments. both performed first the results well

of on or than orders margin initiative value as XXX of inflation. by the our expansion. benefit organic basis, as organic delivered offsetting We points impact X% margin more XX% well pricing supported growth, basis a XX% growth, was from The expansion revenue with an pricing

Slide Turning X. to

manufacturing simplification, margin sourcing and Our team’s underscores strategic expansion, best in success first, These QX priorities. country focus and our include includes performance cost modernization. which factory executing our continued and pricing, on value

outlook solid QX in remarks. product to third, aftermarket we a of prepared new development leverage and adjusted accomplished in our A.J. his And our reducing our growth, will provide organic improved growth. details EBITDA leverage, Second, more which strong on leverage position. and

A&D pricing up Slide in and Defense both on was XX% in driven in value year increased both strength the segments. versus Naval by growth driven first quarter organic were Orders recovery strength in programs, market, of XX% our the aerospace in orders commercial highlights by foremarket to A&D the aftermarket. our Turning X, organically. continued prior The and

Industrial our strong and pricing, orders provide. primarily oil and aftermarket. in organically gas the brands of value Pricing and our on which our was teams by indicative services the were and aftermarket, the in supported downstream strength both XX% is in maximizing up segments, power focused products we of from

the up Backlog same at a the year positioning the end of $XXX remainder from XX% well record million to last of QX period year. for us was

increased On X%, supported easing orders backlog the pressures. and the supply $XXX revenues by and our million top of line, strong chain

across compared income to expansion both was by segments prior also Our of supported delivering operating step XXX% industrial quarter year. in with margin another increase adjusted performance change

to addition teams the by prepared continue driven businesses to provide at controls, the margin was and additional the on our pricing, remarks. corporate. the in In A.J. cost value the color execute will margin quarter and his expansion during drivers

growing for The environment strength backlog. demand our be as our evidenced to order products and healthy by sustained continues

the We we quarter of ahead through for the business rest as look second are and our about move the year. positive of XXXX

our from areas Slide segments Today, X. of to teams specific each to like I Moving I’ll our Each the across company. that the teams showcase discuss driving that driving. that on are one highlight growth are focus quarter growth our growth area

Germany. control highlighting in area industrial we growth from The are valve is business first our

production control applications battery Our ion process. with for lithium the two contamination. able temperature avoid precise manufacturing capture to ion valve to different and moisture team was requires battery Lithium control OEMs humidity

used support in valves overall manufacturing efficiency. electrode process battery are equipment the to control Our

and energy expected by a over to storage Lithium mainly ion XX% of infrastructure is market between CAGR This XXXX. grow XXXX and driven battery is eMobility. at renewable growth

We technology strategy valve this fast growth expect to and from control leverage growing industrial continue pump our market. our support to to

area A&D aircraft. nautical single burn per AXXXXLR. a previous XX% is a team range recent launch, of aisle and for California a the with growth and our highlighting X,XXX Corona, completed we’re than aircraft The second product lower The is miles Airbus AXXXXLR seat new generation fuel

event the We application new failure. core system with A&D aircraft. Airbus. high and leveraged to ceiling aircraft design important breaking strategy Circuit the of supports and part of is in tire protect is our hydraulic to of with Fuse valve This technology capture growth family Rate critical our Hydraulic controlling this this intended CIRCOR’s the product pressure and Hydraulic

turn our with call quick over I I review like process. you strategic on to update A.J., a provide would Before to the

number company. we Dialogue all As have reiterated review. mentioned morning’s by earnings release, parties in expressed underway mid-March and the external supported and with interest with to in Board in progress team our or the of that advisors continues this the our parts a acquiring of is management

over cover detail. the to Now, call the in more turn let to A.J. me financial results

A.J. Sharma

morning, everyone. Thank you, good Tony, and

financial our three X. validating we posted margin We to quarter the and a strong believe Slide With of first creation to and orders growth quarter the growth highlights we expansion another potential turn for and consecutive and runway XXXX in currently have portfolio. margin of on value performance, solid quarters inherent Let’s expansion, benefits ongoing the expansion. see early in financial long transformation margin launched of we further

were driven aerospace continued and by growth orders XX%, recovery. platforms markets. and downstream, We pricing, primarily commercial aftermarket, end Organic up orders across saw our

in Aerospace our organic delivered businesses line, both posted sales the On growth revenue quarter. and Industrial teams in our Defense, of & growth double-digit most the organic top

of efforts generate drive We growth. continue adjusted increase income margin pricing, controls These in value XXX% cost and to operating helped execute basis operating and adjusted maintain expansion. points XXX

expenses, million. free special for XXX% was grew flow $XX.X negative quarter, or $X.XX by and We interest EBITDA and Adjusted adjusted XX% of working to EPS of adjusted offset XXX% up cash of cost, an period. was $X.X the over AOI the delivered improvement capital. prior million $XX.X million Higher seasonality

cash free reminder, us. the seasonally quarter a As first is negative flow a quarter for

cash the free to full expect We positive be flow for year.

growth. medical continued volume driven broad-based of Slide operating XX% basis medical XX and by by commercial solid growth We results. margins timing UK points segment commercial Joint Fighter Organic aerospace, revenue was expanding year. in to defense expansion prior XX% on Defense delivered adjusted organic grew pricing prior AOI XX.X%, Navy, & partly Turning margin with orders margin pricing, growth. XXX of Strike by Aerospace and and our Aerospace year. order recovery by AOI over led saw offset and

downstream, our growth momentum especially pleased Industrial aftermarket, which our posted in industrial were XX% continued Engineering. segment We XX% Pipeline results to year-over-year. pricing, by from XX. on of offset exit Organic aftermarket orders organic to see core orders were partly Moving up and Slide driven by

continue business our We of share. take to we as part remain margin laser growing value on this high leverage and pricing focused

business growth of to pricing, more margin of our of of modernization margins was points margin Organic XXX% that points. the expansion AOI We contributed our revenue AOI years. in and by to differentiation transformation delivering Pipeline AOI grew the execution. Industrial The exit quarter continues XX% we At with ongoing XX% of next the the broad-based than trend basis factory expansion improving across and and offset confident Navy value four XXX growth, our first value Pumps between exceptional result posted three margin fueled margin execution, Industrial Engineering largely With potential. of of Pipeline to XXX AOI from continued improving are basis success businesses of increasingly expansion. expansion and XX.X%, Engineering. XX% margin and aftermarket validate pricing, platform decline exit

XX, of turns turns leverage expectation first quarter and expansion it ended of We and Slide quarter X.X the continued lower top Turning our EBITDA, to X.X, continued X.X expect delivering first exit exclusive mid-Xs fourth we on focused divestitures. leverage leverage to which than net remain low than net to of compliance improve. was net to We XXXX With our and remains now the quarter at priority. of XXXX leverage in have with XXXX. lower any

operating QX quarter our and $XX.X we continued and improving and performance, strong Reported quarter $XX.X quarter XX for Slide increase adjusted XX% expect year and of at to last million, by to of backlog, an growth, XXXX execution increasing the Turning from second first the of XXXX. expectations midpoint million second orders year. income full

full now million This of AOI $XXX million, prior XX% midpoint. an of full guidance to expect million. XXXX, to of $XXX is increase For $XXX increase $XX year million year an our from the at we

margin cost to growth strong growth optimization and pricing, initiatives expect of remain AOI We drivers and expansion.

easing to of constraints Pumps execution, of supply signs our improving chain see We particularly in businesses. and continue

Interest expected in for cost approximately million is million result to higher the The rates. prior increase to $XX interest year. up be $XX year, is compared expense full of a approximately

higher cost. operating income, As a result stronger of by offset partly interest adjusted

be are the $X.XX. to and to EPS XXXX adjusted very year we the by in full ongoing our transformation range bullish increasing encouraged of Overall, the $X.XX of are beyond. momentum are very about We and

to for Slide Tony I’ll hand our back call outlook market XX. to the discuss orders on

Tony Najjar

Thank results we market and low up XXXX now conditions, expect be you, digits. Based single current full to our year AJ. orders on QX

be pricing. will X, be we lower by expect Strength Marine, ratio single low and by the business, Industrial our over somewhat we the driven increased organic utilization In also market continued by aftermarket to a We offset digits. expect activities. also digit supported orders Commercial growth. aftermarket low General pricing growth supporting In book-to-bill and future up in mostly expect single core

In in capital projects year. a and of we Oil is be orders Downstream very of primarily high timing driven large Gas, following double by This strong XXXX. digits, expect down to last booked QX

team segment, be we expect actively improve which America, in Europe. in opportunities digits, and significantly naval by several and Elsewhere double U.S. major Our the orders North the America to high India, the could pursuing outlook. up primarily is driven programs Latin in

Initial increased driven from Boeing. This air platforms due single expect Elsewhere expect mid-double-digit the expect by business, in driven pricing and high the at primarily aisle the we markets. for digits devices single space medical Airbus we as timing products continued programs, activity orders in rebound digit and in aftermarket fusing Aerospace growth. naval single-aisle Airbus with segment, Aerospace, the missile supported and recovery growth new be defense large we as expect growth end activities the digit by the to orders platforms, to the twin market of solid order. high and well pricing. recovery for down Turning and we by travel. of a applications growth, low Commercial orders Defense increased commercial and contributions double Defense, our to is orders In & In the

balance Slide to our we the extremely in start strong QX year. with In Turning we of we pleased well positioned into for and XX. the and move QX are look summary, as are ahead

and deploy We continue margin of our inflation. leverage and expansion ahead principles our and aftermarket in staying generating XX-XX value-based strong segment to the expect across pricing position organization, Industrial our to

look development, product and We in product strategic pursuing the shareholders, the organic creation through of in continue pricing, by for actions, value-based positions while time, market growth our potential pursuing from margin parallel to benefit the strength aerospace rebound to of revenue the a the our our business, driven for transaction. momentum maximize development key and We path and further commercial at aftermarket. simplification platforms, on strive defense value new new cost-out and same

strategy growth We drive continue in expect to beyond. expansion to value and pricing our and XXXX margin

opportunities to also further continuing at corporate. in evaluate We’re the and simplification businesses

industry continues and fully our minimize within remain and be we from macroeconomic factors, the growth deliver margin these our various expansion. the While areas to affected focused by headwinds impact control on to

Now, questions. Operator, happy take Q&A. to your please AJ the and I be for would line open

Operator

Thank you.

We will question-and-answer Instructions] now be session. conducting you. a Thank [Operator

Our proceed comes with Jones from Nathan first with question Please line of your question. Stifel.

Adam Farley

across through should go businesses that is into the on wanted maybe you initiatives. Could value-based I year? on initiatives Jones. to layer place more then Farley the Adam on various margins a your Nathan have the detail Good value-based operating how for morning. This and just pricing start in pricing you into little

Tony Najjar

is morning, Good Adam. Yes. This Tony.

specific places. So long-term takes months come a new with we renewal, usually that that’s conclude on year. agreements from pricing negotiations, are concluded six been and one last part year. when foremarket, – up a some drive it’s we supporting very that actions this really cycle we the two And able the for have pricing In of start to to with coming year that and

piece and aftermarket is spot the The other orders. of it

that said continue. activities past as calls, So in we

saw significant results as Our myself We QX been in in of a the and leadership the fully do last as track that of and basis, the targets regular QX teams establish that businesses, team you delivered what in focused are that. we year. well and a on that’s QX on factor AJ

where same deployed have in continuing, have, a quite strongly that is pricing for in pricing the and So we that deploying year from. the and the strategy is industrial our the been initiatives last understanding simplification, value value years the the XX-XX business that’s is few we in position coming market A&D really

started We we margin implementing. year, the expansion stronger last last we to did what QX, expect stronger we’ve QX year. full what significant a similar cost that to than in been that’s year to expected, be the in than been and addition in controls factor

Adam Farley

just Maybe industrial a strong and May? cycle over specifically early the through there? April the Okay, maybe trends did orders. part growth, some the Industrial, helpful. that’s then Are on long and And continuing trend orders similar at organic for of some the And really orders markets through orders you’re shifting seeing of short quarter? how pace color versus

Tony Najjar

our said So as installed in pricing both strong. some the aftermarket It’s the industrial as well be base of we impact. in prepared from the remarks continues recapturing as to share market the

a and quite that’s continues activities with processing. pumps as type generation America. The to foremarket North in significant screw strong as well three midstream portion power be So chemical our

to quite be America. to be in So industrial markets North – general, strong continues in

valves. manufacturing the We’re one control processes. seeing with with good activities battery the We example mentioned

continues the to board. the bit So overall, North is foremarket in solid, solid in be little aftermarket is but a Europe America slower, foremarket across

Adam Farley

Okay.

downstream mentioned, and could you the provide potentially additional large any outlook. that pursuing some within could Is gas think you color opportunities oil were you there there? improve I

Tony Najjar

in Yes. There’s the large activities is that the There’s as activities even refiners. and lot in There Middle well U.S. the Dhabi in Brazil activities refiners. East, Abu Mexico. of some with with in markets region quoting then a in activities in

on very strong quite than full for to the we the that expecting booked activities are to downstream least I industrial relatively what because and year QX well well your QX expected. we as we QX. compared we answer what orders will But improvements didn’t had as for question guess the that be of is simply across then in downstream that significant part And the the in the businesses. QX, repeat. But large down prior was there’s still not Board, both So seeing rest I based in started are stronger of at quite year, of

Adam Farley

for you Thank taking Okay. my questions.

Tony Najjar

you. Thank

Operator

Please Andy with proceed Kaplowitz line Our next a from of Citi. your question. question with comes

Andy Kaplowitz

morning, everyone. good Hey,

Tony Najjar

Good morning, Andy.

A.J. Sharma

Andy. Good morning,

Andy Kaplowitz

Tony, pricing this to you easing you pricing value-based you But assume you you the is more And strong down much and of how maybe it, about color get on of margin progress XX% there for value-based still come that runway some I incremental supply be talked starting next progression. do you’re of model, talked how business? mid-teens industrial regarding a XX% you to think lot needs margin to more Obviously, much us normalized that’s over give I or mentioned about this. really sort about do your how three chain. there cost into sort saying could of and have know to the what years, four done

Tony Najjar

Yes.

of So starting to has half been Andy to critical pricing, this last inflation last a pricing, year factor, addition certainly, ease. in year, QX in is

pretty starting in significant Energy So inflation in which our last headwind year a is was muted was to in ease factory QX. especially cost, Germany.

spoken starting equipment that The place of other factor we’ve about some to productivity. is, support factory is modernization, in and

The in is supporting supply productivity. improvement also chain

be at pricing So there’s the largest looking but the QX results, continues pieces, piece. to various

control OpEx. side is other The of with it cost

So we grow. and team as are our significant we leadership controlling focus costs by

So from the we’ll get as growth well. leverage the

So pricing had reiterated achieving all stronger than that’s other largest that the there’s because various into that point three XX% confidence the factors, plus four ahead, we pricing, come factors will on of but the to and started as to in play, what we QX is look in next the why which continued in XX% years, again, expected. focus we significantly element our this at

Andy Kaplowitz

been you’ve ask, could again, simplification We and the for Tony, projects, and delivered margin sort out stuff cost like, QX. on growth evaluating this there new just a in working I of know while. think, you follow-up maybe and you’re I you mentioned

transformation? are of use to American inning your what you in maybe an So term,

Tony Najjar

about about this $X basis, believe $XX have rate will cost we taken happened of on million portion We this still year, run we happen than So last a $X what out and higher portion OpEx we happen year, last million basically million spoke need. about year. will to year, businesses

expect So it India. of do – makes sense doing what businesses, two with have we’re in attrition some grow we is and shared the we’re total happens same then replacing whole plan more that’s sales the as for and look a the the OpEx leverage to in we resources we get. lower at basis service we things that as we where company doing And XXX that have. those percentage been year. as And expect to to roles our in to points the XXXX, a be we for our If about last compared it of that center

to these continue the and various again, is So are have a we ahead. actions that lot been of implemented drive, elements more

Andy Kaplowitz

What’s And can the has strategic to you obviously it on additional the then any decision to needs but all timeline? it board realistic the anyway, on like, now, ask make been about for think I’ll timeline to to thoughts that sure if going make? a not a I’m review of you us while for for this, answer –

Tony Najjar

to process said the we difficult as underway. is and Andy, reiterated for very comment it’s obviously, on timing, us

that be timing, really if go the has it If we you cycle up recall, process to was were we difficult catching will process spoke we last focused and filing, in all last guess through of year, launched year, we the initially this restatement wrong. now at year it. early is about It’s formally even provide with we strategic going had review – been our to said of to through likely March and back not timing, but on

and board review. process completing into but timing not to the we’re So committed that the is getting underway is discussions,

Andy Kaplowitz

this on more like where weak. you of you you like, capital, about improvement Totally generation, XXXX, feel sort commentary year do of positive cash last start sort working seasonally of be me, on mentioned sort question it’ll you Maybe how in out at fine. One year from this entered A.J., for versus time?

A.J. Sharma

Yes.

in Consistent there say, year. digit we in mid performance have growth dollar the So last would would dollar are single year. said terms so the line sort of full we the with to this top still in be terms, digit growing mid expect through single free we in earnings working call, flow Andy, I the capital cash for what year,

critical The maintaining CapEx first and half would be is half large factories. as modernize elevated while negative, of the positive, this the and our to we continue levels turns second

Andy Kaplowitz

Thank you guys.

Tony Najjar

Thank Andy. you,

Operator

Our question. next Kearney proceed Brett line Gabelli. question your of comes with from Please with

Brett Kearney

momentum. Thanks continued and taking my guys. the for question on congrats Hi

Tony Najjar

Good morning.

Brett Kearney

You a coming get this teams, you but the the already, meet you guys there’s bit process like re-energization touched results, as out taking factories, on visit, Tony, place. with more feels that’s it doing

I a at investments or have what opportunities on the spoken number can sites wondering be you you’ve bit there whether You’ve drivers. a and of of factory made if to your made performance about was expand modernization been continuing those the initiative, seen core today. some

Tony Najjar

Yes.

our centers, new type machining robotic screw we for So on centers product our the have in with focus – line. including type several pump being key machining

stages can that that put year in in growth, from So this well, in equipment but still and that into to as into there are signs are – the to order We more starting to solid the been use, investments production. continue year of already early this there’s continuing this we continue we’ve well. have put been to receive see that’s on significant and year, starting that, as And it’s drive we our backlog to year. its expect revenue and the to leverage last we late able benefits expect

XX%, of modernization most to this we planning equipment and expect it year. year, continue So of end XX% are order the that and to well. the to be and throughout on about we’re we’ll next will down path of by this year come probably into XX% as get maybe And invest that

Brett Kearney

key a mapping more market growth teams segmentation way? some doing these of the and highlight touched them you guess, about you line. on talk in can you work then another control win broadly, really to deeper the identify the Excellent. of impactful product And more valve I product development, are that on terms verticals lastly with after and just in great, new what go

Tony Najjar

Yes.

but in on segments, the So segment. Industrial specifically, that’s going both in

other we the the applying carbon we renewable The market I on about opportunities growth growth think type in little see There’s capture various already we pumps. of pumps just have is touched one various control a spoke and valves specifically in we’re and that bit and high I batteries, element control area. applications. So the or area, valves, metering energy, those beyond obviously control the that high applications markets growth with clean but that’s valves, have this

And we pumps that pumps. also are our progressive side, moving have of of pumps cavity pumps slurry to and our in applications the our some some propeller with – addition lithium used on the mining large

various to that in our portfolio, from It’s early we that have whole market chain as of and continue the It’s we it, in at for drive we’re market potential still So look stages. side but see on supply elements hard to we the number to put ahead. significant in looking growth.

Brett Kearney

Thanks much. so Excellent. Very helpful.

Tony Najjar

Thank you, Brett.

Operator

you. Thank

We conclude have this and Ladies time. questions no more at today’s gentlemen, this does teleconference.

wonderful disconnect may have and a your day. at for your time. this lines participation you Thank You

Circor International (CIR) 11 May 232023 Q1 Earnings call transcript