Woodward, Inc.

Thank you for standing by. Welcome to the Woodward Inc. fourth quarter fiscal year 2022 earnings call. At this time, I'd 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 were 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 Probasnik, Director of Investor Relations. I'd now like to turn the call over to Mr. Provesnik.

Thank you, Operator. We would like to welcome all of you to Woodward's fourth quarter fiscal year 2022 earnings call. In today's call, Chip will comment on our strategies and related markets. Mark will then discuss our financial results as outlined in our earnings release. 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 December 1st, 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. Our forward-looking statements are subject to a number of 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. I'll turn the call over to Chair.

Thank you, Dan. Good afternoon, everyone. During fiscal 2022, our market strengthened and demand was solid with the exception of China. Challenges from supply chain and labor disruptions, record high inflation, and unfavorable foreign currency exchange rates negatively impacted our performance. We expect some improvements in fiscal 2023, and we are taking specific actions to manage key constraints that are within our control. We remain focused on operational excellence, talent development, and innovation to help drive the company's performance and create value for our shareholders. Orders are up in nearly all market segments, and we finished the year with a strong backlog. Moreover, our past due commitments to customers remain elevated as a result of part shortages and labor inefficiencies. On our last call, we discussed our strategy to mitigate supply chain risk and better position Woodward for long-term success. I'd like to update you on three actions we've taken. We have redeployed talent and added indirect resources to factories to stabilize the production environment. This support includes material planning resources, operations specialists, leadership support, and engineers. Secondly, we reinforced the global sourcing team to secure additional supplier capacity and allocated experienced resources to help suppliers resolve issues. We have also found and qualified a number of new quick-turn suppliers that we're using to augment specific supplier shortages. Third, our advanced Manufacturing engineers across the company are working to transfer selected machined components into our own plants. This insourcing activity leverages our substantial machining capabilities and capacity, which we expect will deliver improvements in quality, delivery, and cost, and reduce our lead times. To date, more than 2,000 parts have been transitioned to alternative sources either in-house or to a more capable third-party supplier. While significant work remains, we believe these investments will help stabilize our supply chain and improve output. To support the insourcing initiatives, we're more effectively utilizing existing equipment to relieve capacity constraints at suppliers. While we have the capital largely in place, we're investing $10 million of new capital to create rapid response machining centers at four of our sites. These machining centers include flexible CNC machines that will have a portion of their capacity available for rapid response when a supplier has unforeseen problems. That capital will begin arriving in our plants in the second quarter, and our target is to produce parts in less than 10 days from the time we identify a supplier shortage. I'd like to take this opportunity to thank our members for their efforts and commitment to Woodward and our customers. They have stepped up in the face of adversity to help us serve customers better and deliver for our shareholders. From members meeting elevated build rate targets, to engineers redeployed to assist problem solving its suppliers, and advanced manufacturing engineers bringing automation and insourcing initiatives online, just to name a few examples. Like others in the industry, we continue to grapple with the increasingly competitive labor market, challenging attrition rates, and skills gaps. Hiring, developing, and retaining talent are critical components to our long-term sustainable success and remain a top priority. We have initiatives underway to improve training and development. Our new machinists and technicians undergo a rigorous multi-month training and skills development process that enables them to perform to Woodward's high standards. We're focused on compressing the training cycle time to develop our members quickly and efficiently without compromising safety or quality. We're partnering with select technical schools to help augment our training bandwidth. We're also increasing our focus on automation with multiple technology paths, including expanded use of co-bots or collaborative robots. We're encouraged by the results and believe the increased use of automation will deliver productivity and mitigate risk in a difficult labor market. Turning to innovation, Woodward is committed to solving our customers' fuel and motion control challenges, enabling improved fuel efficiency and reduced emissions in both aerospace and industrial applications. While we are investing in and developing innovative technologies that reduce fuel consumption and associated emissions, we're seeing rising interest in the use of alternative fuels across both industrial and aerospace industries. Together with our customers, we are developing solutions that enable a wide variety of clean fuels to power the engines of tomorrow. Our focus on innovation enables multiple paths to a cleaner, decarbonized world, which we believe represents significant opportunity for our company in the future. Woodward has been selected as a partner to provide substantial content on a very large breakthrough aerospace project involving carbon emissions reduction that will be announced in the next few weeks. This is a significant project for Woodward involving resources and test facilities across both our aerospace and industrial businesses. Additionally, our industrial segment is working on projects with eight different customers on a variety of clean fuels, including ethanol, hydrogen, methanol, ammonia, and bio-derived natural gas. These projects are for a wide variety of applications, including power generation, marine, agriculture, and mining. targeting both new engines as well as conversion and upgrade opportunities for engines currently in service. Now moving to our markets. Demand from both aerospace and industrial customers remains strong. In aerospace, utilization rates for commercial airline fleet continue to rise driven by increasing global passenger traffic. U.S. and European domestic passenger traffic has returned to near 2019 levels. International travel continues to improve, yet China domestic passenger traffic remains volatile. In the defense market, we anticipate near-term U.S. procurement to increase slightly, and geopolitical tensions may lead to increased international defense spending. In industrial markets, we are seeing robust demand and power generation, driven by strong growth in Asia, continued increases in global aftermarket activity, and ongoing demand for backup power at data centers. In transportation, the global marine market remains healthy with higher ship utilization, which drives increases in current and future aftermarket activity. Cruise and ferry operations are back at near 2019 levels which should result in increased spare parts demand. In addition, the global marine market interest for alternative fuels is increasing as more projects are announced and under development. Demand for China natural gas trucks remains at depressed levels. The oil and gas market is favorable as equipment utilization remains elevated. These factors should result in increased aftermarket demand. In summary, We believe our markets will remain strong as heightened demand signals for fiscal year 2023 continue to propagate throughout our markets as customers continue to increase orders. We remain focused on improving operations to catch up on past due orders and deliver on future customer demand. We are committed to operational excellence initiatives, talent development, and innovation, which we believe will deliver value to our customers and shareholders. and will position Woodward to capitalize on future market opportunities. I will now turn the call over to Mark to review our quarterly and full year results and our fiscal year 2023 outlook. Thank you, Chip.