Woodward, Inc.

year 2025 earnings call. In today's call, Chip will comment on our strategies and related markets. Bill will then discuss our financial results as outlined in our earnings release. At the end of our 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. A webcast of this call will be available on our website for one year, and all references to years in this call are references to the company's fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on slide two of the presentation material. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. 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 with the SEC. These statements are made as of today, and we do not intend to update them except as required by law. In addition, we're providing certain non-US GAAP financial measures. We direct your attention to the reconciliation of non-US GAAP financial measures, which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. Now, I'll turn the call over to Chip.

Thank you, Dan, and thanks to everyone for joining us today. I'm pleased to report that the first quarter of 2025 was a strong start to our year. with robust market demand from most corners and results that highlight the strength of our strategy, continued improvement in execution, and our members' commitment to serving our customers. While our first quarter reported results are down slightly compared to last year, we delivered strong growth in both our aerospace segment and core industrial business. While our aerospace team managed through a pause in deliveries of some product lines to Boeing, we were able to balance the labor across other product lines in both aerospace and industrial. We made the most out of the situation with additional Kaizen events and workstation rearrangement for improved flow in the facility prior to Boeing's restart of 737 MAX production. Woodward now has clear demand signals from airframe and engine OEMs that represent growth, and we will be ready to meet that demand. We have some direct labor hiring to do ourselves, and we have a lot of work to do with suppliers to support the increased demand signal. As other companies have acknowledged, there are still some suppliers struggling with output and quality. We remain forward deployed, working with our suppliers on problem solving to ensure we are able to serve customers. Core industrial performance was strong in the quarter with sustained robust demand across power generation, oil and gas, and marine transportation markets. The $65 million year-over-year decline in China on-highway sales overshadowed the 7% core industrial growth. Across industrial and aerospace, I'm pleased to see tangible results of our operational improvements and the acceleration of our lean transformation. This progress is enabling us to achieve stable operations and disciplined rate increase planning to keep pace with customer demand. As I visit our sites, I see a shift in mindset as our members build lean muscle and apply their problem solving skills to improve in areas such as safety, quality, delivery and cost. I'm also pleased with the progress we're making on our automation journey. The team at Rock Cut Campus commissioned an industry-leading bank of automated deburring stations last quarter with multiple co-bots and a myriad of end effect tools to accomplish tasks that we earlier dismissed as likely impossible. I'm extremely proud of our Rockford team and all our members contributing to automation across our Woodward production sites. I'd like to take a moment to highlight some strategic decisions that we made in the first quarter. These will contribute to shareholder value creation, strengthen our competitive position, and expand our technology offerings for the next single aisle aircraft. In December, we signed a definitive agreement to acquire Saffron's electronics and defense electromechanical actuation business. This includes technology, operational assets, and long-term customer agreements for the Horizontal Stabilizer Trim Actuation, or HSTA, system. The acquisition also includes electromechanical components for braking, steering, de-icing, and auxiliary power, and importantly, increases our ship set content on the Airbus A350. While this acquisition significantly bolsters our existing electromechanical flight controls capabilities, we're also investing organically in hydraulic flight control actuation. These investments enhance our ability to participate in single aisle aircraft trade studies and development programs with airframe OEMs and provide valuable insight with design experience and product pedigree on both sides of the trade study. Woodward can remain technology agnostic regarding the winning architecture as we offer electromechanical, hydraulic, or a hybrid system approach, whichever is best for the aircraft. In the quarter, we also announced that we were selling our build-to-print industrial fuel nozzle product business in Greenville to GE Vernova. The Greenville plant serves one customer which owns all service revenues. The divestiture allows us to concentrate on industrial products that create the most shareholder value while supporting our customers' goals. We remain focused on our gas and liquid fuel control systems for aero derivative and heavy frame gas turbine genset applications. These are industry leading product lines critical to our customers' ability to deliver gas turbine power generation growth. We've made additional progress on industrial product rationalization by selling certain small product lines, primarily legacy small engine diesel products. We're also strengthening our product management discipline by inserting it directly into our Woodward operating system. This will enable us to allocate resources more directly to the highest return opportunities throughout the lifecycle of our products and actively manage our product offerings in a timely fashion. These actions support our strategy of building a stronger, more focused Woodward that's both well equipped to compete in the near term and well positioned to drive future growth. Moving to our markets. In aerospace, commercial passenger traffic continues to grow. While market demand remains robust, industry supply challenges continue to affect OEM build rates. As I stated earlier, we see a stronger OEM demand signal starting in our second quarter, and we will respond accordingly. Our plan is designed to be flexible and responsive to actual product dynamics. Commercial aftermarket activity remains healthy, driven by high utilization rates of legacy aircraft and engines. This has resulted in high shop visit rates for extended periods. Low delivery rates of newer aircraft and early engine durability issues contributed to extending the legacy fleet high shop visit rate, and in some cases, increased the level of investment that airlines have been willing to make in engine and LRU work scopes. In defense, geopolitical developments continue to drive demand for defense products. For 2025, we continue to anticipate robust growth in smart defense, driven by substantial increase in order activity and production, which will fulfill the remaining open lots. We expect margin expansion from improved pricing in late 2025 or early 2026, depending on delivery rates. Turning to industrial, global demand for power generation capacity remains robust. Investment in gas-fired power generation equipment is increasing for both primary and backup power to enhance grid stability and support the expansion of renewable energy. Additionally, demand for data center power generation is expected to increase significantly. In transportation, the global marine market remains healthy. Elevated shipbuild rates support strong OEM engine demand and future aftermarket opportunity, and high utilization rates continue to drive current aftermarket revenue. Demand for alternative fuels across marine transportation continues to increase as an industry-wide strategy to support emissions reduction goals. As expected, demand for heavy-duty trucks in China remains subdued due to local economic challenges. In oil and gas, while production remains at record levels in the US, this is not translating into upstream service growth due to efficiency improvements and low commodity prices. Optimism is being fueled by sustained investment in refining and petrochemical activities in China, the Middle East, and India. In summary, we continue to see robust demand across most of our end markets, providing significant opportunities that we are effectively leveraging and will continue to capitalize on. As we seize these opportunities, we remain diligently focused on pursuing profitable growth, operational excellence, and innovating for the future to deliver on our purpose. We are on track to deliver our 2025 guidance and create long-term shareholder value. And now, I'll turn it over to Bill, who will share our financial results.

Thank you, Chip, and good afternoon, everyone. As a reminder, all references to years are references to the company's fiscal year, unless otherwise stated, and all comparisons are year over year, unless otherwise stated. Net sales for the first quarter of 2025 were $773 million, a decrease of 2%. Earnings per share for the first quarter of 2025 were $1.42, compared to $1.46. Adjusted earnings per share for the first quarter of 2025 were $1.35 compared to $1.45. Arrow segment sales for the first quarter of 2025 were $494 million compared to $461 million, an increase of 7%. Commercial OEM sales were down 10%, largely due to the impact from the Boeing work stoppage. This impact was more than offset by higher sales with commercial aftermarket up 19%, defense OEM up 21%, and defense aftermarket up 8%. Aerospace segment earnings for the first quarter of 2025 were $95 million, or 19.2% of segment sales, compared to $79 million, or 17.2% of segment sales. The increase in segment earnings was primarily a result of price realization partially offset by inflation, unfavorable mix, and lower volumes. Turning to industrial. Industrial segment sales for the first quarter of 2025 were $279 million compared to $326 million, a decrease of 15%. Transportation was down 33% due to a decline in China on highway sales, which we had anticipated because of local economic challenges. China on highway sales were $10 million in the first quarter. Our core industrial sales, which excludes China on highway, were up 7%, driven by broad-based strength across the business, with marine transportation, power generation, and oil and gas each up 7%. Industrial segment earnings for the first quarter of 2025 were $40 million, or 14.4% of segment sales, compared to $67 million, or 20.5% of segment sales. Industrial segment earnings decreased primarily due to lower China on highway volume and unfavorable mix, partially offset by price realization and favorable foreign exchange rates. Margins for our core industrial business were approximately 15% in the first quarter. We continue to expect core industrial margins of 14 to 15% of sales for the year. non-segment expenses were 22 million dollars for the first quarter of 2025 compared to 26 million dollars adjusted non-segment expenses were 28 million dollars for the first quarter of 2025 compared to 27 million dollars at the woodward level r d for the first quarter of 2025 was 30 million dollars or 3.9% of sales compared to $31 million or 3.9% of sales. SG&A for the first quarter of 2025 was $70 million or 9% of sales compared to $75 million or 9.5% of sales. The effective tax rate was 14.5% for the first quarter of 2025 compared to 17.9%. The adjusted effective tax rate for the first quarter of 2025 was 14% compared to 17.7%. Looking at cash flows, net cash provided by operating activities for fiscal 2025 was $35 million compared to $47 million. Capital expenditures were $34 million for fiscal 2025 compared to $42 million. Free cash flow was $1 million for the first quarter compared to $5 million, which is in line with our typical first quarter level. The decrease in free cash flow was primarily due to lower earnings, partially offset by lower capital expenditures. As of December 31st, 2024, debt leverage was 1.5 times EBITDA. Our capital allocation strategy remains unchanged. We continue to prioritize investing in organic growth, returning cash to stockholders, and pursuing strategic M&A. During the first quarter, we returned $50 million to stockholders comprised of $35 million of share repurchases, and $15 million of dividends. In aggregate, we are currently planning to return approximately $215 million in 2025, including approximately $150 million of sharing purchases and $65 million in dividends. Turning to our 2025 guidance, we are reaffirming our guidance for 2025 with the exception of adjusted effective tax rate and adjusted earnings per share. Based on the favorable tax rate in the first quarter, we now expect the adjusted effective tax rate for 2025 to be approximately 19%. As a result, we are narrowing our adjusted earnings per share range and now expect it to be between $5.85 and $6.25. This concludes our comments on the business and results for the first quarter of fiscal year 2025. Operator, we are now ready to open the call to questions.