Curtiss-Wright Corporation

Welcome to the Curtis Wright first quarter 2025 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, you may remove yourself from the queue by pressing star 2. In the interest of time, we ask that you limit yourself to one primary question and one follow-up. 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, Chelsea, and good morning, everyone. Welcome to Carter Straits' first quarter 2025 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. A copy of today's financial presentation and the press release are available for download through the investor relations section of our website at curtiswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that 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, including the impacts of tariffs and our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency in the Curtis-Wright's ongoing operating and financial performance. Gap-to-non-gap reconciliations 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.

Thank you, Jim, and good morning, everyone. We are off to a great start in 2025 as we delivered fantastic results that exceeded our expectations. Before getting into the details, I would like to say a few words about the momentum that continues to build with respect to our Pivot to Grow strategy and how that translates into value for all of our stakeholders. First and foremost, I commend the team for embracing our strategy and their drive and execution, which has yielded better than expected results in both growth and efficiency. As we discussed at our May 2024 Investor Day, we continue to enhance customer engagement while leveraging our strong domain expertise as a highly valued supplier of mission-critical technologies to help solve our customers' most challenging problems. In addition, we are implementing the core principles of our operational growth platform, remaining focused on both commercial and operational excellence to expand margins and free up funding opportunities for investments that will accelerate profitable growth across the portfolio. Regarding our improved 2025 outlook, we take pride in meeting our commitments and being a company that investors can rely on to deliver strong results, even in the face of macroeconomic uncertainty. Whether it was the quick return to providing guidance during the pandemic with minimal margin dilution or the rapid response of our team to the electronic supply chain challenges in 2022, in all cases, our team has responded quickly to adapt as needed and to deliver superior results. This is a testament not only to our strategy but also to our leadership positions in our end markets as well as the people, the systems, and the processes that we continuously invest in to ensure that Curtiss-Wright is built for long-term success. As a result, and in the face of a number of macro-level uncertainties, we are confidently raising our overall full-year 2025 guidance. With that, I'll turn to today's presentation. Starting with our first quarter 2025 highlights, sales of $806 million represented an increase of 13% year over year, or 11% on an organic basis, driven by stronger than expected growth in our airspace and defense markets. Operating income increased 34% year over year, once again exceeding our sales growth and resulted in 260 basis points of overall operating margin expansion. This performance reflected the strong growth in sales, the benefits of our corporate wide restructuring actions initiated last year to support future growth and efficiency and our ongoing commercial and operational excellence programs. Diluted earnings per share increased 42% year-over-year, which also exceeded our expectations and was primarily driven by our higher A&D sales. Free cash flow, while typically a first-quarter outflow, reflected a year-over-year increase of 5% while we continued to support investments across all three segments. New orders increased 13% year-over-year to a record of more than $1 billion and resulted in an overall book-to-bill of 1.26 times. Within our A&D markets, we experienced strong demand for neighbor nuclear propulsion equipment, supporting the U.S. Navy's current and next-generation submarine programs. Orders within our commercial aerospace market were mainly driven by higher demand for avionics equipment within our defense electronics segment. Within our commercial markets, we continued to benefit from increasing demand for commercial nuclear aftermarket products supporting the upcoming spring outage season, advanced SMRs, and the contribution from ultra-energy. Overall, we reached a new record backlog in excess of $3.6 billion, which provides us great visibility and confidence in our long-term growth outlook. Regarding our full year guidance, we have raised our overall outlook for sales, operating margins, and earnings per share, and are on track to deliver strong top and bottom line growth this year. We now expect overall sales to increase 8% to 9%, reflecting an improved outlook in the majority of our A&D markets and the strength of our order book. In addition, the organization's continuous drive for commercial and operational excellence is fueling some tremendous margin expansion this year. We now anticipate an increase of 80 to 100 basis points in pursuit of a record operating margin of 18.3 to 18.5%, and we expect to generate these strong returns while maintaining incremental investments in research and development. In addition, we expect to overcome the impact of tariff-related headwinds, which Chris will cover in more detail in a few minutes. Diluted EPS is now expected to grow 14% to 17%. In addition, we raised our free cash flow guide to reflect higher confidence in the full-year outlook and continue to expect strong free cash flow conversion. In summary, Curtis Wright remains well-positioned to deliver another exceptional performance in 2025. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Anne. I'll begin on slide four by reviewing the key drivers of our first quarter 2025 performance by segment. Starting in aerospace and industrial, overall sales increased 4%, which is slightly ahead of our expectations. Beginning with this segment's defense markets, we experienced solid increases in actuation equipment sales, most notably within our aerospace defense markets supporting the F-35 and F-18 programs, and also in ground defense for the enduring shield platform. Within the second commercial aerospace market, our results reflected solid OEM sales growth supporting increased production on both narrowbody and widebody platforms. In the general industrial market, our results reflected a modest increase in sales for our industrial automation equipment, which was essentially offset by reduced sales of industrial vehicle products. And turning to the segment's first quarter profitability, operating income and margin were ahead of expectations, growing 15% and 140 basis points respectively, driven by favorable absorption on higher sales and restructuring savings, as well as a tailwind from FX. Next, in the defense electronics segment, sales growth of 16% reflected increases in embedded computing equipment sales supporting a variety of C5ISR programs as we continue to benefit from increases in global demand. Within the segment's aerospace defense market, we experienced higher revenues supporting various helicopter platforms, most notably on the Black Hawk, in addition to higher sales on the Triton UAV program. While in ground defense, our results mainly reflected higher revenues supporting U.S. Army vehicle modernization and replenishment. Regarding the segment's operating performance, we delivered a record first quarter operating margin of 27.5%, mainly reflecting favorable absorption on higher revenues, as well as a shift in mix towards higher margin C5ISR programs. In addition, we continue to improve the efficiency of our operations to support this business's future growth and further bolster our position as a leading supplier of defense electronics. First quarter profitability also reflected the benefits of our prior year restructuring program to expand our manufacturing capacity, as well as our ongoing operational and commercial excellence initiatives, which are now expected to promote further margin expansion in 2025. Turning to the naval and power segment, sales growth of 18% exceeded our expectations, principally driven by higher revenue across several key platforms in naval defense. Within this market, our results reflected strong performance and execution on the submarine programs, as well as the timing and acceleration of material receipts from suppliers. In the power and process market, our results mainly reflected the contribution from acquisitions driving strong growth in both our commercial nuclear and process markets. On an organic basis, we experienced high single-digit revenue growth in commercial nuclear, supporting the maintenance of operating reactors, as well as the ramp-up in development across several SMR designs, including the X-Energy and TerraPower advanced reactors. Elsewhere within the process market, higher domestic MRO valve sales were essentially offset by the timing of large capital projects. Regarding the segment's operating performance, favorable absorption on higher organic revenues was partially offset by unfavorable mix, as well as increased investment in customer-funded development programs supporting future growth in our naval defense and commercial nuclear businesses. As a reminder, last year's results included an unfavorable naval contract adjustment that did not occur in 2025. Beyond that, and as expected, while it was a strong contributor to our first quarter sales growth, we did experience margin delusion from the Ultra Energy acquisition as we integrate this business into our operations. To sum up Curtis Wright's first quarter results, overall we generated a strong operating margin of 16.6%, driving 260 basis points in operating margin expansion on the stronger than expected top line performance. Turning to our full year 2025 guidance, I'll begin on slide five with our end market sales outlook, where we now expect total sales to grow 8% to 9%, reflecting 5% to 7% organic growth, mainly driven by continued momentum in defense electronics and more broadly across our A&D markets. Starting in aerospace defense, our outlook for 6 to 8% sales growth remains unchanged, mainly reflecting our strong order book for embedded computing equipment on various C5ISR programs. Within ground defense, we now expect full year sales growth of 6 to 8% driven by increased throughput for our tactical communications equipment resulting from our recent restructuring actions. In naval defense, we now expect full-year sales growth of 5% to 7% based on expectations for higher production revenue on submarine programs following the strong Q1 results, as well as higher aftermarket revenues supporting overhauls and retrofits on prior generation carriers. Elsewhere, within our defense electronics business, we continue to anticipate strong growth in embedded computing revenues supporting various domestic and international programs. Looking more broadly across all three defense markets, we now expect high teams growth in direct foreign military sales in 2025, driven by the alignment of our technologies, such as C5ISR and arresting systems equipment, to support increased global defense spending priorities. Turning to commercial aerospace, we now expect full-year sales to increase 13% to 15%, with the increased outlook fully driven by an exciting new avenue for growth in avionics equipment within our defense electronics segment. Building upon our legacy flight data recorder technology used in both defense and commercial applications, we're bringing improved cockpit voice recorder solutions to the commercial aerospace market to meet new safety mandates for longer recording capability. Lynn will provide additional color on these efforts and our opportunities for growth later in her prepared remarks. Wrapping up our aerospace and defense outlook, we now expect total sales in these markets to increase 7 to 9 percent in 2025. Moving to our commercial markets, In power and process, our outlook for 16 to 18 percent sales growth remains unchanged and continues to reflect a combination of mid to high single-digit organic revenue growth, as well as the contribution from ultra-energy. Within our commercial nuclear market, we continue to expect increased aftermarket sales, supporting the maintenance of U.S., U.K., and South Korea reactors, as well as a ramp-up in development revenues across several SMR and advanced reactor designs. Next, within the process market, we continue to expect solid organic growth, mainly reflecting increased development on subsea pumps. And lastly, in the general industrial market, we continue to take a cautious approach and anticipate sales to be flat in 2025, where modest growth in industrial automation and surface treatment services will be offset by reduced sales of industrial vehicle products. Of note, the order book for our vehicle products has remained stable over the past five quarters in spite of ongoing industry headwinds. Wrapping up our total commercial markets, we continue to target full-year sales growth of 9 to 11 percent. Moving on to our full-year 2025 outlook by segment on slide six, I want to begin by discussing the tariff impact on our operations. Of note, approximately 20 percent of our businesses are currently subject to tariffs. For those areas where we have exposure at the gross level, we estimate approximately $30 million in impacts for the remainder of 2025, most of which is related to imports from China. As we instituted in 2018 and 2019, we have tariff mitigation strategies in place, including various pricing and operational actions to improve our competitive positioning and to protect our operating margin. As a result, we expect the 2025 net impact in tariffs to be approximately $10 million, about two-thirds within our aerospace and industrial segment, and one-third in naval and power. We're also updating our expectations for the corporate-wide restructuring program that we initially launched in 2024, where we had originally anticipated $15 million in total costs to yield $10 million in annualized savings through operating income by the end of 2025. Due to additional actions being implemented this year, we now anticipate total cost of approximately $20 million, with the increase mainly impacting the aerospace and industrial segment driven by additional facility consolidations. As a result, we now expect approximately $12 million in total annualized savings, the majority of which we'll recognize in 2025. Regarding the updates to our outlook by segment, I'll begin in aerospace and industrial, where we continue to expect to grow 3 to 5 percent, reflecting strong growth in our A&D markets and flat sales in general industrial. Regarding the segment's profitability, and as a result of potential tariff impacts, we reduced the low end of the guidance range for operating income and margins slightly to reflect our net exposure. In the event that the latest tariffs are lessened or lifted, we still see a path to the high end of our original segment guide, driven by our expectation for higher sales and the savings generated by our restructuring actions. We now project operating income to increase 3% to 8% and operating margin to be flat to up 60 basis points in range from 17% to 17.6%. Next, in defense electronics, we now expect sales to grow 9 to 11% following the strong first quarter performance and the strength of this business' record 2024 order book, which is driving solid growth across all A&D markets. Regarding the segment's profitability, we now expect operating income growth of 15 to 18% and operating margin expansion of 140 to 160 basis points to a new all-time high range of 26.3 to 26.5%. The dramatic improvement in our outlook results from a combination of the higher top-line guide, the acceleration of our commercial and operational excellence initiatives, and better-than-anticipated savings resulting from our prior restructuring efforts. And in Naval Empower, we now expect sales to grow 10 to 12 percent, reflecting increased confidence following the strong first-quarter performance in Naval Defense and overall solid growth across the segment's defense and commercial markets. Regarding the segment's profitability, we now expect operating income growth of 14% to 17% on the higher sales. And of note, we're holding our margin guidance despite a tariff impact in this segment, which we plan to mitigate through higher sales, pricing, and commercial excellence initiatives. As a reminder, our outlook also reflects the contribution from Ultra Energy, which will initially be diluted to operating margin in its first year with Curtis Wright, as well as approximately $4 million in incremental investments to support internally funded R&D programs. So, to summarize our 2025 outlook, overall, we now expect total Curtis Wright operating income to grow 13 to 16 percent, and operating margin to range from 18.3 to 18.5 percent, up 80 to 100 basis points. Next, to aid in your quarterly modeling of sales and operating margin, we expect second quarter 2025 sales to grow by high single digits relative to the second quarter of 2024, reflecting increases in all three segments, and most notably driven by the timing of higher naval defense and commercial nuclear revenues in the naval and power segments. Within the A&I segment, we expect the operating margin to be up slightly compared with our second quarter 2024 results along the strong year-over-year growth and profitability within our defense electronics and naval and power segments. In summary, at the overall Curtis Wright level, we're expecting high team second quarter operating margin on strong sales growth. Continuing with our financial outlook on slide seven and starting with our EPS guidance. Building upon our strong first quarter performance, we now expect full-year 2025 diluted EPS to range from $12.45 to $12.80, up 14% to 17%, mainly reflecting improved sales and profitability within defense electronics. Aging your quarterly EPS modeling, we expect second quarter 2025 EPS to reflect low double-digit growth sequentially relative to our strong first quarter results. We then expect modest sequential EPS growth over the remainder of 2025 based on the timing of strong first half revenues, with the fourth quarter EPS being our strongest. And lastly, turning to free cash flow, in Q1, while we experienced our typical outflow, we delivered a solid year-over-year improvement of 5% driven by the strong growth in earnings. Overall, we had a good start to the year, and that provides us with confidence to raise our full-year free cash flow projections to a new range of $495 to $515 million, up 2% to 7% over 2024. And as a reminder, our outlook includes an increase in capital expenditures of nearly $20 million year over year relative to the midpoint of our guide as we continue to invest in support of our future growth. Of note, we also remain on track to deliver a healthy free cash flow conversion rate in excess of 105% again this year, which remains in line with our long-term targets. Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to slide eight, as we have discussed today, our strategy continues to build momentum. While we remain cautious in light of the uncertain geopolitical and macroeconomic environment, Curtis Wright remains well positioned to deliver strong, profitable growth again in 2025. Our execution during the first quarter is a perfect illustration of how we are focused on managing Curtis Wright's consolidated portfolio, which in turn supports our revised outlook targeting record financial performance across all major metrics this year. I'm particularly excited about the team's ability to target robust operating margin expansion of 80 to 100 basis points to nearly 18.5% and to generate at least $500 million in free cash flow this year. Overall, the team continues to deliver at a high level in support of our three-year objectives provided at last May's Investor Day. Next, regarding our capital allocation, Curtis Wright maintains a very healthy balance sheet supporting our disciplined and strategic approach to capital deployment. While we continue to foster significant financial flexibility to pursue acquisitions and continued share repurchase, we're also driving steady investments in our systems and infrastructure, which support the team's efforts to capture positions on both current and next generation platforms across our A&D and commercial businesses. Finally, as I look across our operations, we remain very well positioned to capture the medium and long-term secular growth trends across our end markets. I'll highlight a few examples. And starting with defense, we believe the fundamentals of our industry remain strong, and Curtis Wright is poised to grow in all facets of our defense and markets. The passage of the FY25 budget, even when considering the full-year continuing resolution, helps remove some uncertainty while still allowing for critical new program starts. Further, we are encouraged by the release of the initial FY26 budget, which includes the benefit of budget reconciliation to drive a total defense spending of more than $1 trillion, which would reflect strong year-over-year growth of more than 13%. Given our alignment across many of the platforms and priorities in those bills, including shipbuilding, missile defense, and air superiority, we expect our defense businesses to be well-positioned entering into 2026. Turning to our world-class defense electronics portfolio, which remains a growing and very profitable business for Curtis Wright, we take pride in being an industry leader, leading supplier of commercial off-the-shelf embedded computing technology. We continuously invest in research and development to maintain our technological leadership, stay ahead of our customers' needs, and speed the delivery of next-generation technology to the battlefield. This includes our alignment to rugged, modular open systems approach or MoSA-based solutions to accelerate the development of leading-edge computing technologies into multi-platform solutions In addition, through our Fabric 100 product line, this ecosystem of very high performance processors, network switches, and processing units such as GPU and FPGA modules bring state of the art expertise to enable faster data communication capabilities for sensor and mission processing applications. Through our recent alignment with NVIDIA, their OEM partner program, Curtis Wright is integrating NVIDIA's cutting edge AI technology into rugged deployable systems that bring commercial innovation to the tactical edge. Today, with the markets we serve, we are the only company to hold the distinction covering the three major competencies, embedded computing, networking, and AI, reinforcing Curtis Wright's ability to meet the growing demand for higher performance and advanced processing solutions across our customer base. Next, in commercial aerospace, and as Chris alluded to earlier, we have traditionally served the aerospace and defense markets with our fortress ruggedized cockpit voice and data recorder solutions, essentially the back box used in aviation. More recently, we built upon our commercial successes and were awarded a contract to support the DOD T6 Texan primary training fleet. We have also aligned with Honeywell to develop critical technology mandate for longer recording capability in commercial aviation, which well exceeds the current standards for only two hours of recorded audio. Our jointly developed flight recorder innovation complies with both the FAA and the European Aviation Safety Agency, or EASIM mandate, and allows us to support our OEM customers, including Boeing and others, still in pursuit as well as the airlines as they prepare to implement this critical upgrade. In addition, the FAA's Reauthorization Act of 2024 applies to both new OEM installations as well as retrofit applications in the U.S., providing Curtis Wright with an opportunity to serve thousands of registered aircraft. Further, order activity supporting these efforts has been accelerating since late 2024 and has begun to translate into meaningful revenues for defense electronics this year. Lastly, in commercial nuclear, we have steadily communicated our vast opportunities for growth in this market and are well positioned to provide continued value to our shareholders over the near, medium, and long term. Curtis Wright's dedication and expertise to safeguarding existing operating reactors provides us with strong, immediate opportunities for growth. Beyond the aftermarket, we remain well positioned with Wessinghouse and their pursuits to construct new AP1000 power plants globally as they move closer to production orders from Poland and Bulgaria. At the same time, we continue to grow our presence with the leading designers of advanced and small modular reactors as current design and development will begin to translate into prototypes and eventually into production units. Overall, Curtis Wright's technologies remain well aligned globally to support the entire commercial nuclear lifecycle from the new build to the aftermarket for decades to come. These are some of the many exciting pursuits that we expect to support our pivot to growth strategy. In summary, I remain confident in Curtis Wright's ability to demonstrate strong profitable growth this year. Our agility as an organization and drive for operational and commercial excellence runs deep, providing confidence in our proven ability to mitigate the impacts of economic uncertainty on our financials while leveraging our record order book and growing backlog to position us to drive strong returns for our shareholders. Thank you, and at this time, I would like to open up today's conference call for questions.

The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. We ask that you pick up your handset when posing your questions to provide optimal sound quality. Again, we ask that you please limit yourself to one question and one follow-up question. Thank you. And our first question will come from Pete Skibitsky with Alembic Global. Please go ahead. Pete, your line is open.

I'm sorry. Good morning, Lynn and Chris and Jim. Very nice quarter. Thank you. But wonder if we could start just a little more specificity on the tariff impact. Sounds like you can mitigate it, you know, pretty well. But could you give us some details just in terms of the products impacted and how China plays into it? And, you know, the cost side sounds pretty well mitigated. But just on the sourcing, any concerns about sourcing in this tariff environment?

Yeah, it is. Thank you for that question, Pete, and it surely is a dynamic situation, but we have really been very purposeful in how we're approaching as a company. Quite a few months ago, we put together a Tiger team, which was very cross-functional to really make sure we understood aspects of our of our contracts, and honestly, the optionality we had to try and mitigate the tariffs. And so we're, I'm really, you know, I'm pleased, you know, the numbers that Chris put forward, you know, reducing, you know, mitigating over $20 million of the potential impact is pretty impressive, and it's hats off to the team for being able to do that. There's a lot of hard work that has gone behind that. And that mitigation comes through a variety of avenues. It's a blend of operational outcomes and how we go about sourcing and supplying products to our customers. We learned a lot back in 2018 and put a lot of flexibility into our operational footprint at that time, so we'd be prepared if there was a similar situation. And so we didn't have to start from ground zero. That was really important. And, you know, pricing is also part of it, and that is something that, you know, We're very purposeful in talking to our customers about and working with them and being fairly transparent, and they're willing to work with us largely as we approach, you know, some targeted price increases for where we're seeing the tariffs. So a lot of hard work by the team to be able to achieve what, you know, we spoke about during our prepared remarks. And maybe with that I'll turn it over to Chris to answer. put a little more color on some parts of your question. Sure.

So you heard in the prepared remarks that, you know, roughly 20% of our product portfolio is subject to tariff risks. And the way you kind of break that down is you look across our defense markets. It represents 50% of our business today. Most of that's domestic sourcing. But where it's not, there are tariff exclusions for military products that allow us to effectively mitigate that exposure. You know, tariffs are not applied to service revenue today. That's roughly 15% of our total business. And then, you know, when we look across our non-U.S. sites to non-U.S. customers, today that's roughly, you know, 10% to 15% of our business. So within that 20%, the greatest pressure is certainly within the aerospace and industrial segment, you know, mainly with industrial products like you saw back in the 2018-2019 timeframe. But then also there's some process product exposure within the naval and power segment. Stepping back and looking at what we're being tariffed on, really not a big impact in Canada and Mexico. The majority of those products are covered by USMCA, nothing material from the salatory tariffs. And then steel and aluminum tariff imports are low volume, and our largest consumers are really sourced domestic. So we feel good about the position and our guide in the full year.

Okay. Very helpful. Thanks, guys. Just one follow-up. You raised the commercial aerospace guide quite a bit for the year, and I'm just wondering, was the Boeing kind of returned to production and accelerated production post-strike? Was that a part of that, or was it all kind of the FAA safety mandate in terms of the recorder sales there? And I'm just wondering, you know, how long should we expect a safety mandate-related sales to kind of drive revenue for you?

Well, maybe I'll start off with the guide and then just in terms of the longevity, I'll turn that back over to Lynn. But I want to be clear that the guidance increase that we made here on the call is entirely related to the new cockpit voice recorders. We do still have got some conservatism that's embedded within the guide. You know, there's obviously a lot happening in commercial aerospace right now, you know, relative to Boeing and Airbus's supply chain. So we're trying to approach that situation cautiously. But we feel good about, you know, being able to increase our guide in this environment. And it's mainly the CVR.

And you've taken up from What Chris just commented on, this is definitely a long-term sustainable revenue source for Curtis Wright. The FAA mandate gives airlines through the end of this decade to do the retrofit. So we are really at the very beginning of that, and it's mandated in new production aircraft. And so this is an area that we are continuing to grow. We have a very solid position with Boeing, having received There's various certifications for new and retrofit airlines back in the end of 2023, but it takes a while for these things to kick in. We're working very hard to receive certification across the Airbus A320 fleet, and there's a lot of work going on to receive certification across a lot of the regional jets that are also subject to the mandate. So this has been a very exciting portion of our business that has been you know, building, you know, really even in 2024, but, you know, it doesn't get talked about a lot, and that's why we really wanted to bring it to the forefront as it really begins to see some really dynamic growth and bring it a bit more to the forefront during the call.

Thank you. Our next question will come from Christine Liwag with Morgan Stanley. Please go ahead. Good morning, everyone.

Hey, Christine. Nice to hear your voice. Yeah, welcome back.

Thanks. I'm back. Happy to send some pictures if you guys want.

Absolutely.

She's seven months and just blowing raspberries all day long. She's a raspberry factory. So maybe starting on commercial nuclear, with the Trump administration and their approach to energy, has their approach on nuclear been more supportive to the degree you were expecting, or has there been a change? And so, you know, I just want to understand the outlook for U.S. nuclear. And then also the second piece is once we get out to the international orders, Poland and Bulgaria, how has this geopolitical environment and uncertainty with tariffs affected their plans to go build new nuclear power plants?

So I would say, you know, we were cautiously positive before, you know, we moved to the new administration, that there would be ongoing support. And that was largely based on the stances. We knew a lot of the cabinet members were very pro-nuclear, and so you could see that that was in the underpinnings of the people he put around himself. But I think it has played out maybe even better than we would have anticipated. And, you know, I give two examples. Secretary Wright, you know, was, you know, You know, very much front and center in both a recent announcement in Poland, you know, that was extending their engineering contract to the end of the year, which will, you know, really be the final stage before construction contracts are awarded, and was front and center in Bulgaria with, you know, then declaring, you know, the site of their first AP1000 plant and their goal of being the first AP1000 plant in Europe jumping ahead of Poland. So a little bit of a foot race is not a bad thing in our world. And, you know, I think every time you see the executive orders that come out across the U.S. about, you know, energy dominant, it always includes nuclear in a very positive way. So, you know, we feel very good about, you know, the support from this administration and, you know, even some of the things, you know, about, you know, ties to deregulation and making the NRC more efficient will also, you know, fundamentally, you know, lend themselves to the build out. So, there's a lot of different angles to it, but it's, you know, it's positive from what we see today.

Thank you for that. And shifting gears to shipbuilding, there's a clear shipbuilding emphasis from this administration, but starting out new programs take time and building ships take time. How do you think this plays out and how does that flow get to you? And when would you start expecting to see significant orders to come through? You are generally in the earlier side of those projects.

Yeah, it's a fair point. You know, these industries don't, you know, turn on a dime. I do think it's interesting to see that, you know, obviously there's great support for shipbuilding and what we see in both the reconciliation bill and the skinny budgets, so to speak. A lot of money for the industrial base. I think one point that's noteworthy is, you know, We commented in our investor day back in May of 2024 that we had received $15 million over the prior few years for industrial-based funding. That's up to $21 million as of today, and we have a lot of money in pursuit. maybe the more immediate here and now, but we also are seeing, you know, opportunities to take WorkShare as there's a real push to get the existing fleet more operational, and it is leading to opening up some new opportunities for ourselves, as well as the ongoing, you know, work that we have across, you know, Virginia, Columbia, you know, the aircraft carriers. And, you know, one subtlety that was in the reconciliation bill was putting the second Virginia class back in 27. So that's just a good thing. So it will build over time, but, you know, we're very conscious of things we can do in the near term to try and, you know, win businesses as we build our long-term positions.

Thank you. Our next question will come from Miles Walton with Wolf Research. Please go ahead.

Thanks. Good morning. I was wondering if you could comment on the defense electronics margin performance or maybe the absolute EBIT dollar performance. I think the rest of the year is implied to be below the run rate of the first quarter, which would be pretty unusual given your historical tendency in that segment. Is there anything that was accelerated in the first quarter or is this more conservatism for the rest of the year?

So, thank you for that question, Miles. I guess I'd like to honestly start and back up for a second and talk about the corporations in total because I think it's important to set the stage about how we're viewing our guidance and, you know, the raise that we did put forward is, you know, we started the year, And I will definitely come to the details of what you asked. So if you give me two seconds, I'm not dodging your question. Okay. So, you know, we started out with a reasonable amount of conservatism in our initial guide this year. You know, I mean, there was talks of tariffs, you know, what was going to happen with the continuing resolution. recession, fears, you know, just a lot of different things going on, and some things going on inside the business, you know, specifically in defense electronics with, you know, our restructuring and, you know, setting the stage for growth and ERP implementation. So with that, you know, we took a pretty cautionary tone to our guide, and I will say, you know, we've raised our guidance. by thinking that we can more clearly see line of sight on some of those things. But there's definitely still areas, you know, and Chris mentioned one just a moment ago, where we are still You know, we know we have conservatism in our guidance, and, you know, whether that's, you know, commercial aerospace, which you just mentioned a minute or two ago, you know, what's going on in general industrial, you know, with, you know, recessionary signals and, you know, our risk with tariffs and how that's going to play out. Within defense electronics, you know, we're doing a full ERP implementation, you know, across that group, and we have a lot of big projects going on in enable and power, and, you know, I'm not, throwing up any alarms on any of these things, but we try and make sure we are, you know, putting forth numbers that we will be able to deliver onto the street. That's important to us. It's how we operate as a management team. And so, you know, with that, there is conservatism, you know, across the board in what we've put forward. But there's also a lot of things, you know, that all the ongoing, you know, programs around commercial excellence and operational excellence, you know, they're bearing fruit. And, you know, turning those, you know, to talk about defense electronics specifically, You know, there's a blend of things. And maybe I'll ask Chris to speak about a few of the things that are driving the margin, and then I would like to come back and touch on pricing.

Yeah, so absolutely. You know, we're trying to approach this cautiously as we move through the rest of the year. But, Miles, specifically, you know, as you look at the Q1 margin, we talked a little bit about, you know, the mix that's going on. You know, we're certainly seeing some expansion from commercial and operational excellence. Also in Q1, we had some FX benefits. So we saw the U.S. dollar strengthen against key currencies. And using our bank, you know, our five-bank forecast, we're looking out across the remainder of the year. You know, we're expecting some of that FX benefit to go away as the dollar weakens against some of those currencies. We expect research and development to ramp as we progress through the rest of the year. And then it's important to know, we've talked about this in past calls, the sequential ramp in defense electronics, this team has really been working hard to try to balance that out and to not have it be such a fourth quarter spike. So as you look at defense electronics over the remainder of the year, it will be very modest sequential growth for that segment. So it's really the combination of

very not a sequential growth in those other things that I just talked about yeah the last element that you know is meaningful but I want to be very purposeful and how I speak to it is our ability to drive pricing across the products that we provide to our customers in this segment and so We're very focused on delivering a fantastic value to our customers and being a rock-solid supplier that is there for them in all aspects of how they take advantage of our products and work them into their systems and overall solutions. And with that, we launched the operational growth platform. you know, back at the beginning of my tenure, commercial excellence was a big part of that. And that's really understanding the value you're bringing to customers and pricing appropriately. And, you know, keeping in mind competition and a win-win with your customer and all those things. So it's not just, you know, all about margin, but it's about charging for the value you bring. And I think the team has done a great job to evolve over the past few years and to be able to understand the value they're bringing and price appropriately. And that's also part of the margins that we're receiving in that team.

All right. Thanks for the color. And then one follow-up, if I could. The book-to-bill for the company was 1.26. Was there much to be differentiated by segment, or if you can just provide book-to-bill by segment?

Sure, yeah. Within the aerospace and industrial segment models, it was a 1.1 time, approximately a 1.1 time book to bill in the quarter. We had great commercial aerospace orders for the quarter. Within defense electronics, it was about a one time book to bill on 16% sales growth. Anything really unusual here? You know, we obviously started off the first quarter with a CR. That kind of creates some slowness in terms of the order patterns. But then, you know, if you look back at Q1 of 2024, there were some pretty big, you know, lumpy orders that had come on in at that point in time for multi-year orders that had come in at that time for potential electronics. So pipeline still looks great as we look ahead. Within Naval Empower is a 1.6 times book to bill, very strong naval order quarter. You know that that can be somewhat lumpy, but I think, you know, when you start to take it into context of what we did last year with naval orders, what we're seeing this year, it's really helping to drive our expectations for these very strong first half revenues. A lot of material timing in there, but very strong first half revenues for Naval Empower. Thank you.

Our next question will come from Jason Gursky with Citi. Please go ahead.

Good morning, everybody. I've been asking everybody this quarter a similar question around There's a change that's afoot in Washington, particularly around acquisition reform and the proposal to rewrite FAR and DFARS. I'm just kind of curious if you can maybe step in and provide some context from your perspective on what you think is in front of us on that front. the implications you know both for the industry and for curtis right in particular is this going to end up being a a positive a negative kind of a neutral i'm just kind of curious how you're thinking about the prospects of what seems to be the pretty significant efforts to reform the way that the government is going to buy goods and services going forward thanks

Thank you for that question. It's definitely something there's been a lot of activity in, so a lot of executive orders. And, you know, many of them very good in the line, broadly speaking, before we talk specifically about acquisition, you know, around shipbuilding and energy production and all areas that should be, you know, really strong forces for Curtis Wright's growth going forward. You know, I think it's interesting. You know, as we are digging into this, I very much feel it's going to be a strong positive for Curtis Wright. And there's a couple avenues of that that, you know, a lot of where the focus is has been the, you know, large cost plus type contracts that, you know, you know, keep growing in size. Curtis Wright's almost exclusively a firm fixed price, you know, contracting across our defense work, and that's very much where there's pushes to move to. You know, one of the things that's buried down in those executive orders, we're comfortable taking business in that approach, and we deliver great value. And I always want to make that point that I really do know that we provide a great value to our government for the contracts that they afford to give to Curtis Wright. And so that's the most fundamental basis of saying why I think we will win. But that's one of the pushes, and that's how we like to do business. Another big focus out of... some of the EEOs is a push towards more commercial practices and more commercial, you know, commercial buying practices. And really our defense electronics segment, you know, that is they go to market commercially. So we are very much have, know how to go about working commercially with the government and know how to do that and think it's great to see that there'll be more buying practices pushed in that direction. And we'll look to see where else in our portfolio we can, leverage commercial pricing and drive more business that way. And I think it will be great for the customer, great for our defense department, and great for Curtis Wright. And so those are two things. The other thing that's in there is something that's called the OTAs or the other transaction authority. And it's an area where Curtis Wright, we don't have an extensive experience in it, but we absolutely have worked, you know, are set up through the partnerships to be able to take OTA money. And we'll absolutely are seeing that part of the executive orders and building out to make sure we're ready as money flows through those OTAs that we're you know, have the fundamental relationships that we're able to take those types of partnerships. So I do – I feel proud of the value we bring to the Defense Department for what we do, and I think as they look to drive efficiencies and value fundamentally in how they spend their money, I think Curtis Wright will be at the forefront of winning for that.

That's helpful. I appreciate it. Thanks, Molly. Which one?

Thank you. Thank you, Jason.

Our next question will come from Louis De Palma with William Blair. Please go ahead.

Great. I was wondering, Sam, you discussed your exposure to different drone platforms with the on the broader budget and then the for unmanned platforms. I think you mentioned the but you Yeah, sorry.

We're not able to hear you. Would you mind repeating that?

You're just kind of coming through mumbled. I'm not sure what's going on with the line, so sorry about that, Louie.

Okay. We'll move on next to Nathan Jones with Steeple. Please go ahead.

Good morning, everyone. Hey, Nathan. Good morning. Just a couple of follow-up questions. You said the commercial aerospace guidance was raised solely on that voice recorder, incremental business that you're winning. I think it works out to be about $12 million or something for 2025. But you also talked about this being the very beginning and extending out to at least the end of this decade. Could you use a bit more color on what you think that the market potential there could be over the next few years? You know, obviously, I would imagine it's growing fairly quickly, given that you're right at the start of that.

Yeah, I mean, we are definitely on, you know, and, you know, it clearly was part of our forecast at the beginning of the year, and as Chris said, it was, you know, the entirety of why we raised our commercial aerospace as, you know, we're getting more clarity with, you know, our partnership with Honeywell and how the ramp is, you know, beginning to become visible. And, you know, there's still some undetermined. It's going to continue to grow for many years to come. And, you know, we're in the work of, you know, we're in the process of, you know, getting certification, you know, across the Airbus platforms that will happen, you know, probably in 2026. So that's still a future dynamic that's coming and across some of the regional jets. So it's a little hard at this point until we've really sized the opportunity, you know, and figure out who all, you know, where we're going to win and have content to put a dollar figure to it. But I think we're – I will agree with you, we are at the very beginning of – what's going to be a long, steady ramp for that product family. Fair enough. I'll ask again in a couple quarters time.

Okay, fair enough. Defense electronics margins, I know you got asked about the progression through the year. It's obviously significantly higher than where you started. And then based on all of the things you talked about, it doesn't sound like any of those are one time in nature for 2025. Your commercial excellence restructuring, higher levels of volume that don't sound like they're going away either. There's no reason why we think there's any step down next year or something like that in the defense electronics margin. This is kind of a new higher baseline that we're starting from now. And then maybe you could just comment on what kind of incremental margins we should expect in that business. Thanks.

So I could, I'll ask Chris to put a little more color on the defense electronics margins, but we're really not putting forward a prediction for 2026 at this time. And I can appreciate the question and wanting to know, but, you know, we're, you know, going to take it, you know, a year at a time and we have our current guide, you know, we've updated that and we feel good about it. But I would agree, there's not, there is not a one-time thing in that, across that product portfolio, but we really do like to afford ourselves the flexibility to invest as we see a strong return for the company going forward. And so that's really the caution around trying to lock in or foreshadow margins coming in and out here.

Yeah, and I would just say in terms of incremental margins for that segment absence, R&D investments or other things that we're doing, you know, you're going to see that in that 30% to 35% range. I mean, that is the pivot to growth for your top line and free up that funding for investment beneath, right? So, team's doing a great job. And all those things you talked about are absolutely things that we're excited about and, you know, see as we look out into the future. Thanks very much for taking my questions.

Thank you, Jason.

Thank you. Once again, if you have a question, please press star 1 on your telephone keypad at this time. And we'll move next back to Louis de Palma with William Blair.

Lynn, Chris, and Jim, good morning. I hope you can hear me more clearly this time. But I was just wondering, how are the SMR content partnerships progressing?

So thank you, and yes, you're coming through loud and clear, so glad we could get your question. So it's, you know, they're definitely progressing, and I think, you know, made reference to, you know, ramping, you know, development dollars across Parapower and Xenergy for some of the projects we're working on there, and that's just indicative of, you know, we're, you know, ever becoming more, you know, clear and you know where we're you know going to bring products to market with them our our work with rolls-royce from the ultra energy acquisition we talked about that being you know critical to helping us you know even extend our partnership with them that is going very well um so it it's all you know steady as she goes and you know we're beginning to be able to more clearly see you know, the designs take form and line of sight that we will be moving to prototyping here in the next 12, 24 months and, you know, working with them to get their first plants online. So it's exciting.

Excellent. That's it for me. Thanks, Lynn. Thanks, everyone.

Thank you, Louis.

Thank you.

Thank you. Our next question will come from Miles Walton with Wolf Research. Please go ahead.

Thanks for the follow-up. Lynn, you mentioned Westinghouse's press releases in the last week or two regarding Poland and Bulgaria. And one of the dates that Westinghouse referred to was the engineering procurement and construction agreement by the end of 2025. If that timeline stuck, would you expect to have a construction contract of your own by the end of 2025 or early 2026?

Yeah, I mean, we're, you know, I think, you know, I'm really pleased to be able to say, you know, we three years ago started seeing three to five years and have whittled that down. And, you know, we're very much saying, you know, we expect in order you know, in 2026 at some point in time. And, you know, by the end of the year, but it, you know, it could come mid-year. So I feel like we're, we believe we're triangulating in on that timeframe, but I wouldn't say by the end of this year.

That was it. Thanks so much.

Thank you.

Thank you. And at this time, there are no further questions, so I'd like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking with you again on the road or at our next quarter results call. Thank you. Have a great day. Thank you.

Thank you. This concludes today's Curtis Wright Earnings Conference call. Please disconnect your line at this time and have a wonderful day.