Reiterates full year adjusted 2023 earnings per share guidance

Moog Inc. (NYSE:MOG), a worldwide designer, manufacturer and systems integrator of high-performance precision motion and fluid controls and controls systems, today reported second quarter 2023 diluted earnings per share of $1.34 and adjusted diluted earnings per share of $1.42.

(in millions, except per share results)
	Q2 2023			Q2 2022			Deltas
Net sales	$	837		$	771			9	%
Operating margin		10.0	%		7.4	%	260 bps
Adjusted operating margin		10.4	%		10.6	%	-20 bps
Diluted net earnings per share	$	1.34		$	0.91			47	%
Adjusted diluted net earnings per share	$	1.42		$	1.49			(5	) %
Adjusted free cash flow	$	(101	)	$	(24	)	$	(76	)
See the reconciliations of adjusted financial results to reported results included in the financial statements herein for the quarters ended April 1, 2023 and April 2, 2022.

Quarter Highlights

Net sales were $837 million, an increase of 9% compared to the second quarter from a year ago, with increases across all three reporting segments. Excluding divestitures and foreign exchange impacts, sales increased 11%.

Adjusted operating margin of 10.4% was relatively unchanged from a year ago. Stronger operational performance was offset by several program charges and an unfavorable sales mix.

Adjusted diluted earnings per share decreased 5%, as $7 million of higher interest expense was partially offset by increased operating profit.

Adjusted free cash flow use in the second quarter of $101 million was driven by working capital consumption and elevated capital expenditures.

"Our sales were remarkable this quarter, a proud record for our company," said Pat Roche, CEO. "Adjusted operating margin performance through the first half of the year was better than prior year and will be stronger in the second half of FY23. We took a big step in our simplification journey by moving away from a matrixed structure in Aircraft Controls towards two separate businesses. This change will drive greater clarity and performance."

Segment Results

Aircraft Controls sales in the second quarter of 2023 increased 11%. Sales for commercial OEM programs increased significantly, up 56%, driven by market recovery in widebody aircraft and business jet activity. Commercial aftermarket increased 21% due to higher spares volume. Military OEM sales were down 5% reflecting lower funded development activity. Military aftermarket was down 18% compared to a very strong quarter a year ago. Adjusted operating margin was 9.5%, a 50 basis-point decrease, the result of an unfavorable sales mix in the quarter.

Space and Defense Controls sales increased 10% in the second quarter of 2023, mostly driven by increased activity in the avionics business and the ramp to full-rate production for the reconfigurable turret. Adjusting for the divestiture of the security business last year, segment sales increased 12%. Adjusted operating margin was 11.7%, 10 basis points higher than last year's second quarter. Benefits associated with higher sales and improvements in the core business were mostly offset by additional charges on our space vehicle development programs.

Industrial Systems sales increased 3%. Excluding foreign currency movements and last year's sonar business divestiture, sales increased 8%. The underlying sales growth was related to continued recovery in industrial automation products. Sales of medical products were mostly unchanged while simulation and test products were lower on order timing. Adjusting for last year's divestiture, energy sales were unchanged. Adjusted operating margin of 10.4% decreased 10 basis points, reflecting operational charges taken in the quarter, offset by incremental sales volume.

Free Cash Flow Results

Adjusted free cash flow in the second quarter was a use of cash of $101 million. Capital expenditures were $60 million in the quarter and included $28 million for the purchase of a building to support business growth. Working capital pressure was tied to receivables growth associated with higher sales, supply chain constraints, and the work-down of customer advances for defense programs.

2023 Financial Guidance

"We are increasing our sales guidance slightly to $3.2 billion," said Jennifer Walter, CFO. "In addition, we are reiterating our fiscal year 2023 guidance for the company's adjusted operating margin and adjusted earnings per share. Overall, we had a good first half of the year and our outlook for the rest of the year looks strong."

(in millions, except per share results)
	FY 2023 Guidance
	Current			Previous
Net sales	$	3,190		$	3,175
Operating margin		11.1	%		11.2	%
Adjusted operating margin		11.0	%		11.0	%
Diluted net earnings per share	$	5.81		$	5.89
Adjusted diluted net earnings per share	$	5.70		$	5.70
Free cash flow	$	—		$	100
Earnings per share figures are forecasted to be within range of +/- $0.20.

Free cash flow guidance is now zero. This change reflects an increase in working capital requirements largely due to the second quarter pressures, and investments to support the business.

In conjunction with today's release, Moog Inc. will host a conference call today beginning at 10:00 a.m. ET, which will be broadcast live over the Internet. Pat Roche, CEO, and Jennifer Walter, CFO, will host the call. Listeners can access the call live or in replay mode at www.moog.com/investors/communications. Supplemental financial data will be available on the webcast web page 90 minutes prior to the conference call.

Cautionary Statement

Information included or incorporated by reference in this press release that does not consist of historical facts, including statements accompanied by or containing words such as "may," "will," "should," "believes," "expects," "expected," "intends," "plans," "projects," "approximate," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume" and "assume," are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. In evaluating these forward-looking statements, you should carefully consider the factors set forth below.

Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties that arise from time to time are described in Item 1A "Risk Factors" of our Annual Report on Form 10-K and in our other periodic filings with the SEC and include the following:

Strategic risks

We operate in highly competitive markets with competitors who may have greater resources than we possess;
Our research and development and innovation efforts are substantial and may not be successful, which could reduce our sales and earnings;
If we are unable to adequately enforce and protect our intellectual property or defend against assertions of infringement, our business and our ability to compete could be harmed; and
Our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or as we conduct divestitures.

Market condition risks

The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate;
We depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs;
The loss of The Boeing Company or Lockheed Martin as a customer or a significant reduction in sales to either company could adversely impact our operating results; and
We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects.

Operational risks

A reduced supply, as well as inflated prices, across various raw materials and third-party provided components and sub-assemblies within our supply chain could have a material impact on our ability to manufacture and ship our products, in addition to adversely impacting our operating profit and balance sheet;
We face various risks related to health pandemics, such as the COVID-19 pandemic, which have had material adverse consequences on our operations, financial position, cash flows, and those of our customers and suppliers;
If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted;
We face, and may continue to face, risks related to information systems interruptions, intrusions or new software implementations, which may adversely affect our business operations;
We may not be able to prevent, or timely detect, issues with our products and our manufacturing processes, which may adversely affect our operations and our earnings; and
The failure or misuse of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages.

Financial risks

We make estimates in accounting for over-time contracts, and changes in these estimates may have significant impacts on our earnings;
We enter into fixed-price contracts, which could subject us to losses if we have cost overruns;
Our indebtedness and restrictive covenants under our credit facilities and indenture governing our senior notes could limit our operational and financial flexibility;
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements;
A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth; and
Unforeseen exposure to additional income tax liabilities may affect our operating results.

Legal and compliance risks

Contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting standards, and any false claims or non-compliance could subject us to fines, penalties or possible debarment;
Our operations in foreign countries expose us to currency, political and trade risks and adverse changes in local legal and regulatory environments could impact our results of operations;
Government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business;
We are involved in various legal proceedings, the outcome of which may be unfavorable to us;
Our operations are subject to environmental laws and complying with those laws may cause us to incur significant costs; and
We may face reputational, regulatory or financial risks from a perceived, or an actual, failure to achieve our sustainability goals.

General risks

Future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our business; and
Our performance could suffer if we cannot maintain our culture as well as attract, retain and engage our employees.

While we believe we have identified and discussed above the material risks affecting our business, there may be additional factors, risks and uncertainties not currently known to us or that we currently consider immaterial that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to update any forward-looking statement made in this report, except as required by law.

Moog Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(dollars in thousands, except per share data)

	Three Months Ended					Six Months Ended
	April 1, 2023			April 2, 2022		April 1, 2023			April 2, 2022
Net sales	$	836,792		$	770,787	$	1,596,895		$	1,494,873
Cost of sales		615,477			556,070		1,171,894			1,085,776
Inventory write-down		—			1,705		—			3,205
Gross profit		221,315			213,012		425,001			405,892
Research and development		26,743			30,720		50,605			58,428
Selling, general and administrative		116,695			111,019		229,860			222,816
Interest		14,963			8,263		28,095			16,245
Asset impairment		1,219			15,236		1,219			15,236
Restructuring		2,017			7,793		3,095			7,793
Gain on sale of businesses		—			—		—			(16,146	)
Gain on sale of buildings		(527	)		—		(10,030	)		—
Other		3,901			1,268		5,552			1,384
Earnings before income taxes		56,304			38,713		116,605			100,136
Income taxes		13,291			9,626		27,576			24,784
Net earnings	$	43,013		$	29,087	$	89,029		$	75,352

Net earnings per share
Basic	$	1.35		$	0.91	$	2.80		$	2.35
Diluted	$	1.34		$	0.91	$	2.79		$	2.34

Average common shares outstanding
Basic		31,848,140			31,984,674		31,797,071			32,021,036
Diluted		32,043,910			32,120,726		31,959,315			32,154,442

Moog Inc.
RECONCILIATION TO ADJUSTED NET EARNINGS BEFORE TAXES, INCOMES TAXES, NET EARNINGS AND DILUTIVE NET EARNINGS PER SHARE (UNAUDITED)
(dollars in thousands)

	Three Months Ended						Six Months Ended
	April 1, 2023			April 2, 2022			April 1, 2023			April 2, 2022
As Reported:
Earnings before income taxes	$	56,304		$	38,713		$	116,605		$	100,136
Income taxes		13,291			9,626			27,576			24,784
Effective income tax rate		*23.6*	%		24.9	%		*23.6*	%		24.8	%
Net earnings		43,013			29,087			89,029			75,352
Diluted net earnings per share	$	1.34		$	0.91		$	2.79		$	2.34

Loss (Gain) on Sale of Business:
Earnings before income taxes	$	—		$	—		$	—		$	(16,146	)
Income taxes		—			—			—			(4,273	)
Net earnings		—			—			—			(11,873	)
Diluted net earnings per share	$	—		$	—		$	—		$	(0.37	)

Loss (Gain) on Sale of Buildings:
Earnings before income taxes	$	(527	)	$	—		$	(10,030	)	$	—
Income taxes		(100	)		—			(2,086	)		—
Net earnings		(427	)		—			(7,944	)		—
Diluted net earnings per share	$	(0.01	)	$	—		$	(0.25	)	$	—

Other Charges:
Earnings before income taxes	$	3,830		$	24,734		$	5,363		$	26,234
Income taxes		926			5,883			1,200			6,237
Net earnings		2,904			18,851			4,163			19,997
Diluted net earnings per share	$	0.09		$	0.59		$	0.13		$	0.62

As Adjusted:
Earnings before income taxes	$	59,607		$	63,447		$	111,938		$	110,224
Income taxes		14,117			15,509			26,690			26,748
Effective income tax rate		*23.7*	%		24.4	%		*23.8*	%		24.3	%
Net earnings		45,490			47,938			85,248			83,476
Diluted net earnings per share	$	1.42		$	1.49		$	2.67		$	2.60
The diluted net earnings per share associated with the adjustments in the table above may not reconcile when totaled due to rounding.

Results shown above have been adjusted to exclude impacts associated with the sale of the NavAids business in Aircraft Controls, sale of buildings formerly used in Industrial Systems, as well as, restructuring, inventory write-downs and other charges related to the impact of continued portfolio shaping activities and the Ukraine crisis. While management believes that these adjusted financial measures may be useful in evaluating the financial condition and results of operations of the Company, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP.

Moog Inc.
CONSOLIDATED SALES AND OPERATING PROFIT (UNAUDITED)
(dollars in thousands)

	Three Months Ended						Six Months Ended
	April 1, 2023			April 2, 2022			April 1, 2023			April 2, 2022
Net sales:
Aircraft Controls	$	347,004		$	311,268		$	657,263		$	614,585
Space and Defense Controls		245,853			223,349			463,638			431,205
Industrial Systems		243,935			236,170			475,994			449,083
Net sales	$	836,792		$	770,787		$	1,596,895		$	1,494,873
Operating profit:
Aircraft Controls	$	31,862		$	12,441		$	61,580		$	54,356
		*9.2*	%		4.0	%		*9.4*	%		8.8	%
Space and Defense Controls		27,507			24,075			47,801			45,374
		*11.2*	%		10.8	%		*10.3*	%		10.5	%
Industrial Systems		24,397			20,723			61,148			37,914
		*10.0*	%		8.8	%		*12.8*	%		8.4	%
Total operating profit		83,766			57,239			170,529			137,644
		*10.0*	%		7.4	%		*10.7*	%		9.2	%
Deductions from operating profit:
Interest expense		14,963			8,263			28,095			16,245
Equity-based compensation expense		2,791			1,920			5,765			4,578
Non-service pension expense		3,115			1,472			6,214			2,957
Corporate and other expenses, net		6,593			6,871			13,850			13,728
Earnings before income taxes	$	56,304		$	38,713		$	116,605		$	100,136

Moog Inc.
RECONCILIATION TO ADJUSTED OPERATING PROFIT AND MARGINS (UNAUDITED)
(dollars in thousands)

	Three Months Ended						Six Months Ended
	April 1, 2023			April 2, 2022			April 1, 2023			April 2, 2022
Aircraft Controls operating profit - as reported	$	31,862		$	12,441		$	61,580		$	54,356
Gain on sale of business		—			—			—			(16,146	)
Restructuring and other		1,000			18,826			1,000			18,826
Aircraft Controls operating profit - as adjusted	$	32,862		$	31,267		$	62,580		$	57,036
		*9.5*	%		10.0	%		*9.5*	%		9.3	%

Space and Defense Controls operating profit - as reported	$	27,507		$	24,075		$	47,801		$	45,374
Inventory write-down		—			—			—			1,500
Restructuring and other		1,324			1,837			1,500			1,837
Space and Defense Controls operating profit - as adjusted	$	28,831		$	25,912		$	49,301		$	48,711
		*11.7*	%		11.6	%		*10.6*	%		11.3	%

Industrial Systems operating profit - as reported	$	24,397		$	20,723		$	61,148		$	37,914
Inventory write-down		—			1,705			—			1,705
Gain on sale of buildings		(527	)		—			(10,030	)		—
Restructuring and other		1,506			2,366			2,863			2,366
Industrial Systems operating profit - as adjusted	$	25,376		$	24,794		$	53,981		$	41,985
		*10.4*	%		10.5	%		*11.3*	%		9.3	%

Total operating profit - as adjusted	$	87,069		$	81,973		$	165,862		$	147,732
		*10.4*	%		10.6	%		*10.4*	%		9.9	%

Moog Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)

	April 1, 2023			October 1, 2022
ASSETS
Current assets
Cash and cash equivalents	$	107,012		$	103,895
Restricted cash		2,642			15,338
Receivables, net		1,079,980			990,262
Inventories, net		679,045			588,466
Prepaid expenses and other current assets		64,501			60,349
Total current assets		1,933,180			1,758,310
Property, plant and equipment, net		737,599			668,908
Operating lease right-of-use assets		62,569			69,072
Goodwill		826,498			805,320
Intangible assets, net		82,421			85,410
Deferred income taxes		9,327			8,630
Other assets		48,015			36,191
Total assets	$	3,699,609		$	3,431,841
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt	$	728		$	916
Accounts payable		238,603			232,104
Accrued compensation		73,999			93,141
Contract advances		317,253			296,899
Accrued liabilities and other		212,267			215,376
Total current liabilities		842,850			838,436
Long-term debt, excluding current installments		958,414			836,872
Long-term pension and retirement obligations		148,693			140,602
Deferred income taxes		58,080			63,527
Other long-term liabilities		111,795			115,591
Total liabilities		2,119,832			1,995,028
Shareholders' equity
Common stock - Class A		43,807			43,807
Common stock - Class B		7,473			7,473
Additional paid-in capital		576,506			516,123
Retained earnings		2,432,225			2,360,055
Treasury shares		(1,056,187	)		(1,047,012	)
Stock Employee Compensation Trust		(99,880	)		(73,602	)
Supplemental Retirement Plan Trust		(81,634	)		(58,989	)
Accumulated other comprehensive loss		(242,533	)		(311,042	)
Total shareholders' equity		1,579,777			1,436,813
Total liabilities and shareholders' equity	$	3,699,609		$	3,431,841

Moog Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

	Six Months Ended
	April 1, 2023			April 2, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	89,029		$	75,352
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		36,810			38,316
Amortization		5,862			6,735
Deferred income taxes		(9,970	)		4,834
Equity-based compensation expense		5,765			4,578
Gain on sale of business		—			(16,146	)
Gain on sale of buildings		(10,030	)		—
Asset impairment and inventory write-down		1,219			18,441
Other		3,292			2,692
Changes in assets and liabilities providing (using) cash:
Receivables		(76,676	)		(4,223	)
Inventories		(72,346	)		6,951
Accounts payable		1,971			24,388
Contract advances		17,067			60,392
Accrued expenses		(33,030	)		(28,324	)
Accrued income taxes		11,965			8,217
Net pension and post retirement liabilities		7,119			8,927
Other assets and liabilities		(11,063	)		(30,933	)
Net cash provided (used) by operating activities		(33,016	)		180,197
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired		—			(11,837	)
Purchase of property, plant and equipment		(89,743	)		(74,087	)
Net proceeds from businesses sold		959			38,611
Net proceeds from buildings sold		18,825			—
Other investing transactions		(4,241	)		(835	)
Net cash used by investing activities		(74,200	)		(48,148	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of credit		503,232			463,950
Payments on revolving lines of credit		(381,300	)		(455,476	)
Payments on long-term debt		(188	)		(80,181	)
Payments on finance lease obligations		(1,899	)		(1,085	)
Payment of dividends		(16,859	)		(16,351	)
Proceeds from sale of treasury stock		9,148			8,701
Purchase of outstanding shares for treasury		(20,457	)		(26,481	)
Proceeds from sale of stock held by SECT		9,795			7,574
Purchase of stock held by SECT		(7,221	)		(10,396	)
Other financing transactions		(2,024	)		—
Net cash provided (used) by financing activities		92,227			(109,745	)
Effect of exchange rate changes on cash		5,410			(1,087	)
Increase (decrease) in cash, cash equivalents and restricted cash		(9,579	)		21,217
Cash, cash equivalents and restricted cash at beginning of period		119,233			100,914
Cash, cash equivalents and restricted cash at end of period	$	109,654		$	122,131

Moog Inc.
RECONCILIATION OF NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES TO FREE CASH FLOW AND ADJUSTED FREE CASH FLOW (UNAUDITED)
(dollars in thousands)

	Three Months Ended						Six Months Ended
	April 1, 2023			April 2, 2022			April 1, 2023			April 2, 2022
Net cash provided (used) by operating activities	$	(41,099	)	$	23,012		$	(33,016	)	$	180,197
Purchase of property, plant and equipment		(59,618	)		(37,028	)		(89,743	)		(74,087	)
Free cash flow		(100,717	)		(14,016	)		(122,759	)		106,110
Securitization		—			(10,400	)		—			(100,000	)
Adjusted free cash flow	$	(100,717	)	$	(24,416	)	$	(122,759	)	$	6,110
Amounts may not reconcile when totaled due to rounding.

Free cash flow is defined as net cash provided (used) by operating activities less capital expenditures. Adjusted free cash flow is defined as free cash flow adjusted for securitization activity. The securitization under GAAP reduced 2022 receivables and net debt and increased cash flow from operations. Free cash flow and adjusted free cash flow are not measures determined in accordance with GAAP and may not be comparable with the measures as used by other companies, however management believes these adjusted financial measures may be useful in evaluating the financial condition and results of operations of the Company. This information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP.

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