Curtiss-Wright Corporation

Welcome to the Curtis Wright Second Quarter 2022 Financial Results Conference Call. My name is Darrell and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touchtone phone. As a reminder, this conference is being recorded. I will now turn the call over to Jim Ryan, Vice President, Investor Relations. Jim, please proceed.

Thank you, Daryl, and good morning, everyone. Welcome to Curtis Wright's second quarter 2022 earnings conference call. Joining me on the call today are Chair 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, 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 guarantees of future performance. We detail those risks and uncertainties associated with the forward-looking statements in 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. GAPs and non-GAAP reconciliations for current and prior year periods are available in the earnings release 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'll begin our remarks by covering the key highlights of our second quarter 2022 performance and some recent events that are influencing our business. Then I'll turn the call over to Chris to provide a more detailed review of our financial results and updates to our 2022 guidance. Finally, I'll wrap up our prepared remarks before we move to Q&A. starting with our second quarter 2022 performance. Overall sales of $609 million was in line with our expectations for high single-digit sequential growth. Our results highlighted the strength of our combined portfolio driven by strong demand within our commercial aerospace, nuclear aftermarket, process, and industrial end markets. Outside of those areas, our performance was once again impacted by the timing of revenues, in our defense markets, particularly for defense electronics due to the ongoing global supply chain disruption. Regarding our second quarter operational performance, the team has done a commendable job of mitigating the supply chain challenges in combating rising inflation and pricing pressures to ensure that we remain on a path to provide long-term profitable growth. We demonstrated solid operating margin expansion in the second quarter, mainly driven by a better than anticipated mix in naval and power and continued operational excellence. Based on that performance, adjusted diluted EPS increased 18% to $1.83 and exceeded our expectations. New orders were strong, up 13% year over year, reflecting increases in naval defense and commercial aerospace within our A&D markets, and in nuclear and process within our commercial markets. Book the bill was 1.27 times in the second quarter, building upon our already strong backlog, which is now up 9% year to date. This backlog provides additional comfort and visibility as we manage through the ongoing supply chain constraints, which are likely to continue into 2023. Next, I'd like to provide a few updates on some recent events. First, on the financing front, we have made recent moves that provide us greater efficiency and flexibility in capital allocation. In May, we announced a new and expanded revolving credit facility, and this past week, we priced $300 million in senior notes to reinforce our strong and healthy balance sheet. These actions strengthen our ability to execute on our pivot to growth strategy. Chris will provide additional color later on in the call. We're also excited to announce that on June 30th, we completed the acquisition of Safran Aerospace Arresting Systems Business, or SAA, which is a leading supplier of fixed-wing military aircraft arresting systems. In 2021, SAA generated approximately $70 million in sales, and we are projecting that it will contribute approximately $40 million in the second half of 2022. As a reminder, 25% of its sales are based in the U.S., with 75% in rest of the world. In addition, SAA's revenues are fairly evenly split between OEM and aftermarket business, providing a steady recurring stream of revenue for its strong global installed base of more than 5,000 systems worldwide. We believe this is an exceptional strategic and financial fit. and we expect this business to align with our long-term organic sales growth rate of 3% to 5% for the foreseeable future. Further, in addition to steady top-line growth, SAA supports our corporate-wide financial objectives to achieve continued operating margin expansion and greater than 110% pre-cash flow conversion. Next to our full-year 2022 adjusted guidance, where we raised our sales, operating income, and diluted earnings per share. We are maintaining our outlook for organic growth of three to five percent, driven by increases in the majority of our end markets, and we now expect total sales growth of four to six percent, including the contribution from SAA. As we'll discuss this morning, our updated guidance reflects higher sales and profitability within our A&I and naval and power segments, offset by a more conservative outlook within our defense electronics segment in the second half of the year. I'd like to provide a couple additional notes about timing of revenues in defense electronics as lead times and the availability of key electronic components continue to be delayed due to supply chain disruption. Additionally, following the signing of the FY22 DoD budget late in the first quarter, we saw an immediate acceleration in defense orders that were delayed by the continuing resolution. This activity continued early in the second quarter, providing greater optimism for a stronger second half recovery. The speed of defense electronics orders, however, has since returned to a more normal cadence as our customers manage their inventory levels in response to the ongoing challenges in the supply chain. Together, this is impacting the timing of about $25 million in defense electronic revenues that have now pushed out of 2022. As we've experienced historically, and despite the pushout, we expect a strong increase across all our A&D markets during the second half of the year and the continued solid growth of commercial markets. Our operating income guidance has been increased to a new range of 5% to 7% growth, and we are driving solid operating margin expansion while continuing to invest in the business. We also remain on track to achieve double-digit growth in diluted EPS, and generate strong pre-cash flow. In summary, we are well positioned to deliver strong results in 2022. Now, I would like to turn the call over to Chris to provide a more thorough review of our second quarter 2022 performance and our outlook for the remainder of the year. Chris?