Woodward, Inc.

Thank you for standing by. Welcome to the Woodward Inc. third quarter fiscal year 2022 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question and answer session. Joining us today from the company are Mr. Chip Blankenship, Chairman and Chief Executive Officer, Mr. Mark Hartman, Chief Financial Officer, and Mr. Dan Pravasnik, Director of Investor Relations. I would now like to turn the call over to Mr. Pravasnik.

Thank you, Operator. We would like to welcome all of you to Woodward's third quarter fiscal year 2022 earnings call. In today's call, Chip will comment on some of his initial observations after joining Woodward, as well as our markets and related strategies. Mark will then discuss our financial results as outlined in our earnings release. And at the end of the presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We've included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone through August 15th, 2022 or on our website. The phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call. I would like to refer to and highlight our cautionary statement as shown on slide three. As always, elements of this presentation are forward looking or based on our current outlook and assumptions for the global economy and our businesses more specifically, including the expected and potential effects of the ongoing supply chain and labor disruptions and net inflationary pressures. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-US GAAP financial measures. We direct your attention to the reconciliations of non-US GAAP financial measures, which are included in today's slide presentation and our earnings release and related schedules. We believe this additional financial information will help in understanding our results. Also, all comparisons made during this call are to the same period of the prior year unless otherwise stated. Turning to our results for the third quarter. Net sales for the third quarter of fiscal 2022 were $614 million compared to $557 million, an increase of 10%. Net earnings were $39 million or 64 cents per share compared to $49 million or 74 cents per share. Net cash provided by operating activities for the first nine months of fiscal 2022 was $86 million compared to $318 million. Free cash flow for the first nine months of fiscal 2022 was $49 million compared to $297 million. Adjusted free cash flow was $52 million. Now I will turn the call over to Chip to comment on his observations as well as further commentary on our results, strategies, and markets.

Thank you, Dan, and good afternoon, everyone. Before we discuss the quarter, I wanted to share some observations from my first few months as CEO. During this time, I met with customers, visited many of our production facilities, and engaged with team members. I'm impressed by what I've seen so far. I'm energized by the role that Woodward has played in helping solve our customers' fuel and motion control challenges, resulting in improved fuel efficiency and reduced emissions in both aerospace and industrial applications. Woodward has and will continue to develop new technologies to reduce fuel consumption and associated emissions. In addition, our newest R&D efforts, executed alongside our customers, are enabling a wide variety of clean fuels to power the engines of tomorrow. These efforts are enabling multiple paths to a cleaner, decarbonized world, and I'm excited about the opportunities ahead of us. Drawing on my industry leadership experience, I'm focused on four main areas, customers, products, operations, and our members. Woodward has deep, longstanding customer relationships that allow us to collaborate at component or systems levels and help customers solve some of their most challenging problems. I'm impressed by our engineering expertise, our technology portfolio, and our product roadmaps. Over the last decade, we've executed aggressive growth strategies to win significant ship-set content on some of the most successful platforms in the aerospace and industrial markets. Several years ago, Woodward introduced the Woodward Production System, our company's approach to the lean enterprise journey. We have some showcase facilities, and our talented members are engaged in continuous improvement. As a result of our approach, significant value has been delivered to customers and returned to shareholders. My assessment so far, we still have a fair amount of variation site to site, and our sites are at different levels of maturity on their lean journeys. This is an area of opportunity for us across the board for safety, quality, delivery, and cost improvements. Enhancement in these areas will benefit our customers, shareholders, and members. Woodward also has substantial machining capabilities and a history of producing complex precision engineered components and systems. We can further leverage this capability to improve quality, delivery, and cost in the near future. We have the opportunity to selectively dual source critical components and relieve capacity constraints in our supply chain. which should reduce lead times and solve some of the challenges we face today. While we largely have the equipment in place, this approach puts more pressure on hiring, training, and retaining talent. But we believe it will set us up for long-term, sustainable success. We are already increasing investment in our members to enable superior performance and have ramped up our recruiting and hiring efforts. We continue to prioritize developing our members and helping them build a career at Woodward. Turning to the third quarter, the team delivered double digit sales growth in a challenging operating environment. Orders are up in nearly all market segments and our backlog has grown, but we have not been successful at reducing our past due commitments to customers. This is due to a combination of part shortages from suppliers and inefficiencies associated with newly hired production workers. This is one of the most complex operating environments that we have seen. Our continued investments in the next generation of machinists and technicians will be a key element in resolving these complex challenges and improving on-time delivery, increasing production velocity, and lowering cost of goods sold. Profitability was negatively impacted by ongoing global supply chain and labor disruptions, increased material and labor inflation, and foreign currency exchange rates, all of which had a larger than expected impact during the quarter. We don't expect these issues to improve substantially during our fourth quarter, and as a result, we are reducing our fiscal year outlook. However, demand is robust in nearly all market segments. Orders are not lost, and our sole source positions are intact. Our long-term outlook remains strong. Mark will provide more details on the financials in a few minutes. Moving to our markets. Rising global passenger traffic is driving increased utilization of commercial aircraft fleets. U.S. and European domestic passenger traffic is nearly at pre-COVID levels, and China domestic passenger traffic is now rebounding. International travel continues to improve as well. In the defense market, we expect U.S. procurement to increase slightly in the near term, and geopolitical tensions may lead to increased international defense spending. In power generation, demand for industrial turbo machinery is driven by strong growth in Asia. Global aftermarket activity continues to increase and demand for backup power at data centers remain strong. In transportation, the global marine market is strong, with increasing shipbuild rates, higher utilization, and elevated transport pricing, all of which drive current and future market activity. Demand in China for natural gas trucks remains at depressed levels. The oil and gas market is favorable, as prices and equipment utilization remain elevated, both of which are driving higher rig counts and should result in additional capital investment and increased aftermarket demand. In summary, we believe our markets will remain strong. Increased demand signals for fiscal year 2022 and 2023 continue to be received from our customers. We are focused on improving operations to mitigate the challenges we face related to supply chain disruptions. We remain committed to delivering value to our customers and shareholders and positioning Woodward to capitalize on future market opportunities. I'm excited to be here, and I'm energized by the bright future ahead for the company. I will now turn the call over to Mark to review our quarterly results and our revised fiscal year outlook.