Curtiss-Wright Corporation

Good day, ladies and gentlemen, and welcome to the CursusRight fourth quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Jim Ryan, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Blue, and good morning, everyone. Welcome to Curtis Wright's fourth quarter 2021 earnings conference call. Joining me on the call today are President and Chief Executive Officer Lynn Bamford and Vice President and Chief Financial Officer Chris Farkas. Our call today is being webcast and the press release as well as a copy of today's financial presentation It's available for download through the investor relations section of our company website at www.curtiswright.com. A replay of this webcast also can be found on the website. Please note, today's discussion will include certain projections and statements that are forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guaranteed for future performance. We detail those risks and uncertainties associated with our forward-looking statements and our public filings with the SEC. As a reminder, the company's results include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtis Wright's ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions, and divestitures unless otherwise noted. Gap to non-gap reconciliations for current and prior year periods are available in the earnings release at the end of this presentation and on our website. Now I'd like to turn the call over to Lynn to get things started. Lynn?

Thank you, Jim, and good morning, everyone. I am pleased to share our results this morning upon the completion of my first year as CEO. I'm proud of where Curtis Wright is today and where we are headed. Over the course of this year, we took a number of steps to execute on the pivot to growth strategy presented during our investor day last May, including simplifying the business model, deepening and expanding our customer relationships, and advancing the one Curtis Wright vision. The strong results we delivered in the fourth quarter and full year 2021 are early proof points that our strategy is working. With that, let me turn to the key highlights of our fourth quarter and full year 2021 performance and some notable events that have taken place during the past two months. Then I'll turn the call over to Chris to provide a more detailed review of our 2021 financial results and initial 2022 guidance. Finally, I'll wrap up our prepared remarks before we move to Q&A. Starting with the fourth quarter 2021 adjusted highlights, we delivered a solid performance as sales and operating income each increased 2% while adjusted operating margin was strong at 19.7%. Our results reflect the strength of our combined portfolio, where top-line pressures from continued challenges within the supply chain were more than offset by strong commercial revenues and the benefits of our operational excellence initiatives. It's important to note that we achieved these results while overcoming a push-out of defense sales as well as lower cap 1,000 revenues, as this program continues to wind down. With our strong operational performance and the benefit of our share repurchase activity, adjusted diluted EPS was $2.40 in the fourth quarter. This was slightly above our expectations, especially considering that we overcame a higher than expected tax rate, which created a headwind of about six cents in the quarter. Free cash flow was strong, as expected, reflecting free cash flow conversion of 230%. Turning to our fourth quarter orders, we achieved 19% growth overall, driven by 26% increase in our A&D markets and a 6% growth in our commercial markets. As a result, book-to-bill exceeded one-time sales and supports our strong backlog heading into 2022. Next, I'll briefly touch upon our full year 2021 adjusted results, where we delivered a strong performance across the board, highlighted by 7% growth in sales and double-digit growth in operating income and diluted EPS. Similar to the discussion on the fourth quarter, our full year sales growth was within our guidance range and reflected the strength and resilience of our combined portfolio as we achieved 8% growth in our A&D markets, including PACSTAR, and 6% growth in our commercial markets. We also achieved 116% free cash flow conversion in 2021, building on our streak with our ninth consecutive year exceeding 100% conversion. Investors who have followed us for some time might recall that we originally set an operating margin target of 17% committing to achieve that three-year objective by the end of 2021. In the face of the pandemic, we lost more than $300 million in sales across our commercial markets, and we moved our target out by one year to 2022. However, I am pleased to report that this year we reached this target on our original timeline, a full year ahead of our pandemic schedule. Through the team's determination, we delivered a strong performance in our A&I segment this past year, eclipsing its 2019 profitability on significantly lower revenues. Beyond this, we have sustained high margins in both the defense electronics and the naval and power segments while continuing to reinvest in our innovation pipeline to the tune of $14 million or 60 basis points in incremental R&D this past year. In addition, the team has overcome the significant headwind associated with the wind down of the profitable CAP 1000 program in achieving this goal. So as I reflect on our performance, I'd like to commend the Curtis Wright team for its strong drive for operational excellence to achieve that margin target by its original date and position the company for continued profitable growth. Another major highlight from 2021 was our continued focus on returning capital to our shareholders, which reflects our Board of Directors' continued confidence in the company's strong financial position. We executed a record annual share repurchase of $350 million in 2021, building on the $200 million that we repurchased in 2020. Looking ahead, we will continue to incorporate share repurchases as a key component in our balanced approach to capital allocation. Next, I want to provide a brief overview of some recent events, which we'll discuss in greater detail later in the presentation. First, we reached a settlement agreement with Westinghouse covering both the U.S. and China AP1000 reactor coolant pump, or RCP, contracts dating back to 2007, including all outstanding claims on both sides. We are pleased to put this legacy matter squarely behind us, as this now has cleared the runway for Curtiss-Wright to receive new AP1000 orders for plants outside of China, where we see opportunity in Eastern Europe within the next three to five years. We're excited about the future for this Generation 3 Plus technology. We've also been active in the continued shaping of our portfolio, which, as you know, is a key part of the strategic vision articulated at our Investor Day in May. Last month, we announced the acquisition of Safran's arresting systems business, increasing the breadth of our global defense portfolio and firmly establishing Curtis Wright as a leader in these technologies. We also closed on the sale of the German valves business, allowing us to move past this legacy matter. Finally, I would like to introduce our full year 2022 adjusted guidance, where we are projecting organic sales growth of 3% to 5% driven by increases in all of our major end markets. We expect continued operating margin expansion while once again making incremental investments in R&D to enable future organic growth. We expect to achieve double-digit growth in diluted EPS while also generating strong pre-cash flow. To sum up, we are well positioned for continued profitable growth in 2022, and we remain very much on track to achieve our three-year financial targets for 2023. Now, I'd like to turn the call over to Chris to provide a more thorough review of our fourth quarter 2021 performance and our outlook for 2022.