Kaman : Second Quarter 2020 Earnings Call Supplement

Creating Tomorrow's

Today

Q2 2020 Earnings Call Supplement

August 11, 2020

Forward Looking Statements

FORWARD-LOOKING STATEMENTS

This presentation includes "forward looking statements" relating to the announced transactions and future operations of the Company, which can be identified by the use of words such as "will," "expect," "poise," "believe," "plans," "strategy," "prospects," "estimate," "project", "seek," "target," "anticipate," "intend," "future," "likely," "may," "should," "would," "could," and other words of similar meaning in connection with a discussion of future operating or financial performance or events. 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 statements are based on assumptions currently believed to be valid but involve significant risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ from those expressed in the forward looking statements. Such risks and uncertainties include, among others, the ability to implement the anticipated business plans following closing and achieve anticipated benefits and savings; and future and estimated revenues, earnings, cash flow, charges, cost savings and expenditures. Additional risks and uncertainties that could cause our actual results to differ from those expressed in the forward looking statements are identified in our reports filed with the SEC, including our Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K, and our Current Reports on Form 8-K. The forward looking statements included in this presentation are made only as of the date of this presentation, and the Company does not undertake any obligation to update the forward looking statements to reflect subsequent events or circumstances.

Non-GAAP Figures

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 presentation 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. Reconciliations from GAAP measures to the Non-GAAP measures are presented herein.

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Q2 2020 Overview

Financial

Performance

(from continuing operations)

• Net Sales up 1.8%; Organic sales* down 8.5%
• Gross margins in excess of 30% and SG&A controls improve profitability
• Adjusted EBITDA* of 13.4%, a 370 bps increase over prior year period
• Adjusted diluted earnings per share* more than doubled to $0.36
• Available cash on hand of $236 million

Key

Messages

• High level of execution despite continued challenges from COVID-19
• Delivering on cost savings initiatives with approximately $34 million in annualized savings; Identified opportunities to deliver $16 million in additional savings
• Maintained discipline in application of our COVID-19 policies and procedures to protect employees and maintain operations
• Strong balance sheet and significant capacity under our revolving credit facility
• No debt maturities until 2024

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Diversified Portfolio

Year-To-Date Sales up 12.9% to $385.2 million; Organic Sales* up 1.0%

Actual YTD Q2 2020		Commercial, Business & General Aviation
Sales By End Market		Sales 29% of Total

54% Defense

29% Commercial, Business & General Aviation

(formerly Commercial Aerospace)

9% Medical

8% Industrial and Other

Boeing & Airbus	43%
(Commercial Aviation)(direct and indirect)
All Other	57%
(Business & General Aviation)

OEM (1)	80%
Aftermarket (1)	20%

1. % totals are an approximation based on the mid-point of our
   initial 2020 Sales Outlook which was withdrawn with the release of our First Quarter Results on May 11, 2020.

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Meaningful Long Term Growth

Diverse End Market Exposure with Meaningful Long Term Growth

Platform /	Near Term	Long Term
End Markets	Expectations	Growth Drivers

Defense

Commercial, Business &

General Aviation

Medical

Industrials

+

-

• / -
• / -

Performance on pace with initial expectations for 2020; Increase in sales expected in second half of year

Headwinds from Commercial Aviation offset by growth in Business & General Aviation

COVID-19 resurgence in US resulting in continued deferral of elective procedures

Opportunity for growth in industrial market in second half of the year

• Defense exposures provide stability and growth opportunities
• Gaining market share on key defense programs, such as the F-18, the Joint Strike Fighter, the BLACKHAWK Helicopter
• Breadth of content on a wide range of fixed wing and rotary
• Continued investment in R&D through the downturn
• Positioned to capture share from COVID-19 headwinds
• Aging population
• Increasing biopharma capital budgets
• Strong technical advances and product development pipelines
• Increasing number of robotics applications
• Maintenance and replacement of industrial equipment

5

A Focus on Cost

Significant Cost Savings Achieved; Additional Actions Identified

Instituted Cost Savings

Actions:

• Execution on G&A Transformation Initiative
• Workforce reductions
• Employee furloughs
• Salary reductions across senior management
• Reduced discretionary spending

Result: $22 Million of Savings in 2020; $34 Million Annualized Savings

Additional Actions

Actions:

• Adjust production capacity to meet future demand
• Completion of our G&A Transformation Initiatives

Result: $16 million of Annualized Savings

~$50 million of Annualized Savings

							$6.0
$3.0					$21.0
$21.0					$3.0
			$3.0
			$3.0		$20.0
$10.0	$10.0
Instituted Actions		Additional Actions	Total Savings
		G&A Transformation		Additional Actions		Workforce Actions		Discretionary Spending

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Looking Ahead

	Diverse Mix of	Strong Balance Sheet		Disciplined		Focus on
Products and End Markets	and Ample Liquidity		Operating Approach		Health and Safety
Expanded portfolio of high	Financial strength		Greater impact to our		Policies and procedures
positions us to manage		commercial aerospace
	margin products with			to protect the health &
	through the downturn	business; productivity and
	diverse end		safety of employees and
	and invest in R&D and		efficiency headwinds
	market exposure			maintain operations
	growth initiatives		across organization
	~50% Defense	 $236M of cash available		Adjusting production		Appropriate PPE
	~30% Commercial,	on hand		needs to meet demand		Temperature checks
	Business & General	 Significant capacity		Reduced discretionary		Shift flexibility
	Aviation	under our $800M credit		spending		Social distancing
	~10% Medical	facility		Salary reductions across		Segregated workspaces
	~10% Industrial and	 No debt maturities until		our senior management		Remote work
	Other	2024		Board reduced retainers
				20%

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Non-GAAP Reconciliations

8

Non-GAAP Reconciliation

Organic Sales

Organic Sales is defined as "Net Sales" less sales derived from acquisitions completed during the preceding twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term "Organic Sales" may be interpreted differently by other companies and under different circumstances. No other adjustments were made during the three-month and six-month fiscal periods ended July 3, 2020 and June 28, 2019, respectively. The following table illustrates the calculation of Organic Sales using the GAAP measure, "Net Sales".

		For the Three Months Ended			For the Six Months Ended
		July 3,		June 28,		July 3,		June 28,
(in thousands)		2020			2019			2020			2019
Net Sales From Continuing Operations	$	177,890		$	174,712		$	385,212		$	341,146
Acquisition Sales		18,056			-			41,417			-
Organic Sales	$	159,834		$	174,412		$	343,795		$	341,146
$ Change	$	(14,878)					$	2,649
% Change		(8.5)%						0.8%

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Non-GAAP Reconciliation

Adjusted EBITDA from Continuing Operations

Adjusted EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company's for the period presented. Adjusted EBITDA from continuing operations differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items that are not indicative of the operating performance of the Company for the period presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Adjusted EBITDA from continuing operations. Adjusted EBITDA from continuing operations also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted EBITDA from continuing operations provides 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 it provides 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 from continuing operations is not presented as an alternative measure of operating performance, as determined in accordance with GAAP. No other adjustments were made during the three-month and six-month fiscal periods ended July 3, 2020 and June 28, 2019. The following table illustrates the calculation of Adjusted EBITDA from continuing operations using GAAP measures, "Earnings from Continuing Operations, net of tax".

	For the Three Months Ended				For the Six Months Ended
	July 3,			June 28,				July 3,			June 28,
(in thousands)	2020			2019				2020			2019
Net Sales From Continuing Operations	$	177,890	$	174,712	$	385,212	$	341,146
(Loss) earnings from continuing operations, net of tax	$	(100)	$	6,389	$	(507)	$	12,211
Interest Expense, net		5,808			5,236			9,055			10,537
Income Tax Expense		(1,258)			(487)			(1,701)			947
Non-service pension and Post-Retirement Expense		(4,062)			(100)			(8,125)			(199)
Other expense (income), net		(108)			(463)			110			(552)
Depreciation and Amortization		10,305			6,243			19,814			12,365
Other Adjustments
Restructuring and severance costs		4,484			206			6,279			472
Cost associated with corporate development activities		679			-			2,466			-
Bal Seal acquisition costs		(36)			-			8,447			-
Expenses associated with Bal Seal purchase accounting		6,882			-			13,762			-
Transition service agreement cost, net of transition service agreement income		1,323			-			2,489			-
Reversal of prior year accruals in current period		-			-			(1,475)			-
Gain on sales of U.K Tooling business		-			-			(493)			-
Adjusted EBITDA from Continuing Operations	$	23,917	$	17,024	$	50,121	$	35,781	10
Adjusted EBITDA Margin		13.4%			9.7%			13.0%			10.5%

Non-GAAP Reconciliation

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations

Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations are defined as GAAP "Earnings from Continuing Operations" and "Diluted earnings per share from continuing operations", less items that are not indicative of the operating performance of the business for the periods presented. These items are included in the reconciliation below. Management uses Adjusted Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations 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 Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations using "Earnings from Continuing Operations" and "Diluted earnings per share from continuing operations" from the "Consolidated Statements of Operations" included in the Company's Form 10-Q filed with the Securities and Exchange Commission on August 10, 2020.

		For the three months ended July 3, 2020
	Adjustments to	Tax Effect of	Adjustments to	Calculation of
	Net Earnings,	Adjustments to	Net Earnings,	Adjusted Diluted
(in thousands, expect per share amounts)	Pre Tax	Net Earnings	Net of Tax	Earnings Per Share
Net loss from continuing operations			$(100)	$(0.00)
Adjustments
Restructuring and severance costs	$4,484	$1,143	$3,341	$0.12
Cost associated with corporate development activities	679	173	506	0.02
Bal Seal acquisition costs	(36)	(9)	(27)	0.00
Expenses associated with Bal Seal purchase accounting	6,882	1,755	5,127	0.18
Transition service agreement cost, net of transition service agreement income	1,323	337	986	0.04
Adjusted earnings from continuing operations			$9,833	$0.36
Weighted Average Shares Outstanding - Diluted			27,659

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