Curtiss-Wright Corporation

Welcome to the Curtis Wright third quarter 2022 earnings conference call. At this time all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, so you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.

Thank you, Gretchen, and good morning, everyone. Welcome to Curtis Wright's third 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 objections 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 our forward-looking statements in our public filings of 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 and non-gap 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 today by covering the highlights of our third quarter 2022 performance and some recent events that are influencing our business and financial outlook. Then I'll turn the call over to Chris to provide a more detailed review of our quarterly 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 third quarter 2022 results, sales increased 3% overall, reflecting the strength of Curtis Wright's combined portfolio. We delivered strong sales growth across our commercial aerospace, nuclear aftermarket, process, and general industrial end markets. This strength was partially offset by the impact of continued supply chain challenges in our defense markets, mainly impacting the timing of revenue in our defense electronics segment. Despite this headwind, we delivered 70 basis points in overall operating margin expansion to achieve 18.2% in the third quarter. This reflects a strong performance within our aerospace and industrial segment and the benefit of our company-wide operational excellence initiatives, which are helping to combat rising inflationary pressures. Adjusted diluted EPS increased 10% year over year to $2.07 and up 13% sequentially, which exceeded our expectations. New orders were strong, up 32% year over year to $818 million, reflecting 1.3 times book-to-bill overall, with orders exceeding one-time sales in each of our three segments. Notably, this was the highest level of quarterly orders since fourth quarter of 2015, which as a reminder included the last AP1000 award, which was valued at $450 million. It is also worth noting that our defense electronics segment achieved a record bookings quarter. This was driven by strong demand for C5ISR and tactical communications equipment as we benefited from the improved pace of defense outlays during the past few months. Our new engineered arresting systems business, which we acquired on June 30th, also recorded a strong bookings quarter, including an award announced yesterday to support the United Arab Emirates Ministry of Defense. In naval defense, we secured several significant orders to support aircraft carrier and submarine platforms, including various contracts announced via press releases during the third quarter. Outside of defense, orders remain strong in commercial aerospace, nuclear aftermarket, and process as these markets continue their recovery to 2019 levels. Collectively, our orders, along with our strong backlog, which is now up 19% year-to-date, provide heightened visibility and tremendous confidence to support Curtis Wright's long-term growth outlook. Before I review the guidance highlights, I'd like to spend the next few minutes reviewing the macro level headwinds that influenced our third quarter sales, which came in lighter than our expectations. This was principally driven by two factors, supply chain and foreign exchange. First, I'll discuss the global supply chain challenges, which continue to have a considerable impact on the timing of revenues in our defense electronics segment. While our year-to-date order activity is really encouraging, the delays in deliveries of semiconductors continues to defer our conversion of bookings to revenue, which has typically been within six to nine months. We had expected this to ease up in the second half of this year, and even more importantly, for supplier decommits on critical components to decline more significantly as we move through the balance of the year. Unfortunately, this was not the case and we continue to experience greater volatility in these areas. In addition, as we have mentioned over the past year, lead times on more complex devices have extended from a typical 10 to 12 weeks to 52 weeks or even greater in some cases and also remain quite volatile. As a result, we now expect approximately $45 million of defense electronics revenue to push out of 2022. We have revised our 2022 guidance to reflect this more de-risk scenario for the timing of revenues and the related impact on free cash flow. Despite the delays, our defense electronics business remains fundamentally sound. We fully expect to recover these sales and related strong profitability as these conditions subside. This remains a timing issue with a strong but extended tail of revenues and free cash flow. Aside from the supply chain, FX headwinds, due to the strength of the US dollar, are beginning to have a more pronounced impact on our sales performance for the first time in years. This resulted in a slightly greater than 1% impact on our third quarter sales, or nearly $10 million, mainly within our aerospace and industrial segment. We expect these FX headwinds to continue into the fourth quarter, and likely have a modest impact on our top-line results in 2023. We are closely monitoring this situation and the related impact on our business. Next to our updated full-year 2022 adjusted guidance, our sales guidance for both our A&I enable and power segments remain unchanged, with each reflecting mid- to high-single-digit growth. Regarding our defense electronic segment, as I shared earlier, we now expect $45 million in segment revenues to push out of 2022. As a result, we have reduced our overall Curtis Wright sales growth outlook to a range of 2% to 4%. While total Curtis Wright operating income guidance has also been reduced, we continue to expect strong year-over-year margin expansion based upon improved profitability within our A&I segment and our overall focus on operational excellence. As a result, we were able to maintain our prior guidance to reflect 10 to 30 basis points in margin expansion this year, despite the top line reset. We also remain on track to achieve double-digit growth in diluted EPS. While Chris will discuss our free cash flow in more detail, we have revised our expectations lower based upon the timing of the defense revenues, as well as the revised timing for receipt of a significant cash payment on the China AP-1000 contract, which we now expect to collect in 2023. To summarize our guidance updates, we've certainly had our challenges during the quarter and a year with the supply chain situation, but business fundamentals and underlying demand across our portfolio remain strong. Next, I'd like to provide a few updates on some recent events. First, we were pleased to announce in September that we signed a preferred strategic supplier agreement with Xenergy for the design and deployment of their advanced small modular reactor. We were selected to provide several critical systems for the reactor, which we expect to generate in excess of $100 million in revenue per plant. We'll discuss this agreement in more detail later in our prepared remarks. We are also excited to share the recent news that Westinghouse was selected by Poland to build the country's first nuclear power plant, initially expected to include three AP1000 reactors with a potential for six total reactors. As the reactor colon pump or RCP provider for this reactor, this provides us an opportunity for new RCP orders from Westinghouse within the next three to five years to support these reactors in Poland. which are expected to begin producing electricity in 2033. In summary, we are well positioned to capitalize on the tremendous secular growth trends across our end markets, including emerging technologies and nuclear power and an increasing global focus on defense, which will enable Curtis Wright to deliver long-term profitable growth. Now, I would like to turn the call over to Chris to provide a more thorough review of our third quarter 2022 performance, and our outlook for the remainder of the year. Chris?