Curtiss-Wright Corporation

Welcome to the Curtis Wright Second Quarter 2026 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, Angela, for a second quarter 2026 earnings conference call. Joining me on the call today are Chair and Chief Executive Officer Lynn Bamford and Executive Vice President and Chief Financial Officer Chris Farkas. The copy of today's financial presentation and the press release are available in the investor relations section of our website. 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 guaranteed for future performance. We detail those risks and uncertainties associated with the forward-looking statements in our public filings of 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. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I would like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. Curtis Wright delivered excellent second quarter results that exceeded our expectations. We also raised our full year earnings guidance to reflect the strong first half results, record backlog, and the outlook for the balance of the year. The successful and ongoing execution of our pivot to growth strategy has been the key to our quarterly performance, and I'm proud of our team's ability to deliver consistently strong results for our shareholders. With that, and turning to today's presentation, I'll begin with the highlights of our second quarter 2026 results. Sales of $924 million grew 5% year-over-year, reflecting solid growth across our overall A&D and commercial markets. Operating income increased 12% year-over-year, exceeding our sales growth, and resulted in 110 basis points of operating margin expansion. As a result, diluted earnings per share increased 15% year-over-year and was slightly ahead of our expectations, driven by the strong operational performance. We also generated $150 million of free cash flow, representing a year-over-year improvement of 37% and a strong cash conversion rate of 115%. Free Cash Flow Generation continues to be an important focus for the team, driving funding for continued investments back into the organization to support our future profitable growth. I'll provide more information about these targeted investments and our alignment to growth factors across our markets later in my prepared remarks. Regarding our order book, we experienced strong demand in the second quarter as new orders increased 8% and reflected an overall book-to-bill in excess of 1.1 times. We have a robust and growing pipeline which continues to demonstrate positive momentum across our A&D and commercial markets. Digging into the details by segment, I'll start with Defense Electronics, which delivered a record performance as orders grew nearly 50% year-over-year and are now up more than 30% year-to-date, reflecting the team's alignment to the strategic growth priorities of the U.S. and allied militaries. Notable bookings within the segment included some significant awards for turret drive stabilization systems, supporting international ground vehicles along with tactical communication equipment supporting the U.S. Army, Marine Corps, and Air Force operations. We also received numerous awards supporting the modernization of existing helicopter, UAV, and fighter jet platforms, some initial orders on Golden Zones, and various development contracts supporting next-generation programs. Next, in the A&I segment, and starting with our defense markets, we experienced strong demand for our industry-leading EM actuation technology, supporting the U.S. Army's IFPC program. This program is on track to receive another sizable increase in funding under the FY27 budget and maintains continued healthy growth projections. I would also emphasize the notable progress in our industrial vehicle order book, which has achieved strong growth for three consecutive quarters and contributing to our more positive outlook in the general industrial market. Chris will discuss this further in his remarks. Lastly, within the naval and power segment, following the strong Q1 order book, second quarter orders were down year over year principally due to the timing of naval defense orders on submarine programs. Aside from that, we continue to benefit from increasing demand in our commercial nuclear aftermarket, supporting plant outages and restarts, and also experiencing a strong demand for valve equipment in our process markets. To sum up our overall order activity, and based on the strong demand thus far in 2026, orders are up 12% year-to-date, exceeding sales growth of 9% to yield an overall book-to-bill in excess of 1.2 times. In addition, Curtiss-Wright's strengthening pipeline enhances our confidence in meeting our near-term targets and establishing a strong foundation for sustained medium and long-term growth across our end markets. Turning to our full-year 2026 guidance, overall sales are now projected to increase 8% to 9% driven by more favorable outlooks in our defense and general industrial markets. We continue to expect that operating income growth will outpace sales growth, and our increased guidance reflects 50 to 70 basis points of margin expansion in pursuit of a record 19.1 to 19.3%. As a result, diluted EPS is now projected to grow 14 to 16% as we continue to compound our earnings at a mid-teens pace over time. Last week, we raised our free cash flow guidance and continue to expect strong free cash flow conversion in excess of 105%. Overall, Curtis Wright's strong growth in revenue during the first half of 2026, along with gains in operational efficiency, have positioned our team to continue to deliver outstanding financial performance. Now, I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. During this slide 4, I'll begin by reviewing the key drivers of our second quarter 2026 performance by segment. Starting in aerospace and industrial, overall sales increased 12%, which was in line with our expectations. Beginning with the segment's defense markets, our results reflected higher sales of actuation and sensors equipment within our aerospace defense market, supporting various U.S. and foreign fighter jet programs. In addition, we experienced solid sales growth for EM actuation equipment supporting ground-based mobile launcher systems. Within the commercial aerospace market, we experienced solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms. And in the general industrial market, our results reflected modest growth in sales for industrial vehicle products. Regarding the segment's operating performance, operating income and margin grew 25% and 180 basis points respectively, driven by favorable absorption on higher revenues, favorable mix, and restructuring savings, which were partially offset by continued investments in development programs. Next, in the defense electronics segment, overall sales were down 3% and essentially in line with our expectations. within the second scrum defense market, and as anticipated, our results reflected lower sales of tactical communications equipment due to the timing of prior year orders, which were partially offset by higher turret drive stabilization systems revenues supporting international programs. Growth in the airspace defense market was driven by higher domestic sales of embedded computing equipment supporting various aircraft modernization, UAV, and next generation development programs. Regarding the segment's operating performance, we delivered stronger than expected second quarter operating margin of 28% of 120 basis points year-over-year, reflecting a favorable mix of business and cost containment, which more than offset higher investment in research and development. Moving for the naval and power segment, sales growth of 7% was primarily driven by strong growth in our naval defense markets associated with the timing of production on submarine programs. We also experienced the solid uplift in aftermarket revenues supporting naval shipyards, including increased support for the CDN-75 refueling and complex overhaul program. Growth in the power and process market was mainly driven by increased revenues in the commercial nuclear market supporting advanced small modular reactors. We also experienced prior government nuclear revenues supporting various DOE projects at national laboratories. Regarding the second's operating performance, operating income grew 12%, generating 80 basis points in operating margin expansion, mainly reflecting favorable absorption on higher revenues. To sum up Curtis Wright's second quarter results, our solid top-line performance generated a strong operating margin of 19.4%, driving 110 basis points in operating margin expansion. Turning to our full-year 2026 guidance, I'll begin on slide five of our on-market sales outlook, where we now anticipate total sales to grow 8% to 9%, driven by improved expectations in both our defense and general industrial markets. Starting in aerospace defense, we raised our full-year outlook to a new range of 12% to 14%, reflecting increased sales of actuation and sensors equipment supporting both domestic and international fighter jet programs. Additionally, we continue to project strong year-over-year sales growth for defense electronics, which we expect to accelerate across the remainder of this year. Within ground defense, while confident in the pipeline and growing strength in the 2026 order book, we maintained our full-year 2026 outlook based on the timing of production for our tactical communications equipment. Beyond the timing matters, we continue to expect increased actuation sales supporting the IFPC program, as well as increased demand for tertiary-tribe stabilization systems supporting international ground vehicle programs, most notably for our relationship with Lime et al. In naval defense, following our strong first graph results, we now project full-year sales growth of 7% to 9%. mainly due to expectations for higher production revenue on submarine programs, while we continue to expect solid growth on the CVN-81 carrier program. This raise in guidance also reflects increased aftermarket revenues supporting the CVN-75 refueling and complex overhaul program. Moving to commercial aerospace, our guidance continues to reflect the strength of our backlog supporting the ramp-up in OEM production across both major narrowbody and widebody platforms, Our outlook for 10% to 12% sales growth remains unchanged, and we remain on track to deliver steady, sequential growth over the remainder of the year. Wrapping up our aerospace and defense market outlook, we now expect total sales in these markets to increase 7% to 9%. Moving to our commercial markets, in power and process, we maintain our outlook for full-year sales to increase 13% to 15%. Starting in the commercial nuclear market, we expect to deliver mid to high teen sales growth this year, driven by the continued underlying strength of our order book. Of note, we anticipate sales in this market to be flat sequentially in Q3, as fewer outages are expected during peak electricity demand, followed by a strong fourth quarter performance. Shifting to the process market, we remain on track to demonstrate solid growth based on higher sales of MRO valves and instrumentation solutions, as well as higher revenues from subsea pump development and then similarly deliver a strong fourth quarter performance. Lastly, in general industrial, as Lynn mentioned earlier, we're seeing steady improvements in our industrial vehicles order book and now anticipate full-year sales growth of 1% to 3%. We remain encouraged by the improving outlook and expect continued momentum in this market as we approach 2027. Wrapping up our total commercial markets, we continue to project that total sales in these markets will increase 8% to 10%. Moving on to our updated full-year 2026 financial outlook by segment on slide 6, I'll begin in aerospace and industrial, where we increased our revenue guidance to a new range of 8% to 10%. Driven by the strong first-half performance in the segment's A&E markets, continued growth in our order book and the anticipated ramp-up in commercial aerospace production, Regarding the segment's profitability, operating income is now projected to grow 15 to 17% and drive operating margin expansion of 110 to 130 basis points, ranging from 18.5 to 18.7%. In addition to the improved top-line guide, this revised outlook reflects a more favorable absorption and mix on higher sales. For remodeling purposes, we expect strong second-half growth in total sales and profitability, with the results fairly evenly distributed between the third and fourth quarters. Moving to defense electronics, where we continue to anticipate sales will grow 4% to 6%, principally driven by strong growth in aerospace defense and partially offset by the timing of revenues in ground defense. Regarding the segment's profitability, we now expect operating income growth of 5 to 7% and operating margin expansion of 20 to 40 basis points, marking continued improvement in our industry-leading margins to a new range of 27.5 to 27.7%. For your modeling purposes, we expect the segment's third quarter sales to be flat with our second quarter results, mainly due to the timing of ground defense revenues, followed by a strong finish to the year. In addition, third-quarter operating income and margin are expected to be down sequentially as favorable mix experienced in the first half of this year is anticipated to normalize by year-end, while we also expect a higher level of second-half R&D investments. And in naval and power, we now expect sales to grow 10% to 11%, reflecting the increased naval defense market outlook and overall solid growth across the segment's commercial markets. For your modeling purposes, we remain on track to deliver steady, sequential sales growth over the remainder of the year. They expect the second- and third-quarter operating income and margin to be in line with our second-quarter results, with higher absorption mainly being offset by increased R&D investments. So, to summarize our 2026 outlook, overall, we now anticipate total Curtis Wright operating income will grow 11 to 13 percent and expect operating margin to range from 19.1 to 19.3 percent, now up 50 to 70 basis points. for your modeling purposes at the overall Curtis-Wright level, we expect third quarter 2026 sales to reflect modest growth relative to our second quarter results, while operating income and margin are projected to be flat sequentially based on the timing of revenues, unfavorable mix in defense electronics, and overall higher R&D investments. We anticipate the fourth quarter will reflect a record top-line performance, resulting in a strong operating margin in excess of 20% to conclude the year. Continuing with our financial outlook on slide seven and starting with our EPS guidance, building upon our strong first half performance, we've increased our full year 2026 diluted EPS guidance to a new range of $15.10 to $15.40 of 14 to 16%. And based upon the timing of sales and profitability as previously discussed, we expect our third quarter 2026 EPS will be on par sequentially with our second quarter 2026 results followed by a strong finish to the year. And lastly, turning to free cash flow, based upon our strong second quarter and first half free cash flow and the confidence that provides an execution, we raised our full year outlook and now project record free cash flow of $585 to $605 million. Please note that this guidance includes a nearly 30% increase year-over-year in capital expenditures associated with ongoing growth investments, which will be more than offset by strong growth in earnings and a record level of working capital as a percentage of sales below 18% as we continue to deliver a free cash flow conversion rate of approximately 105% again this year. 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, the team continues to deliver tremendous results under our Pivot to Growth strategy, reinforcing our confidence in achieving record financials across all major metrics in 2025. Our success in meeting these objectives is supported by the strength of our order book, close alignment with our customer priorities, focused investments back into the business, and our commitment to drive sustained margin improvements. At the same time, we are targeting record levels of profitability and are delivering strong results as we continue to accelerate investments in R&D at a faster pace than sales. This steady drive for top portfolio financial performance, combined with substantial and targeted reinvestment in the business, remains fundamental in our ability to compound earnings at a mixed pace over time. It also supports our ability to deliver strong and consistent free cash flow generation for our shareholders and drive strategic investments in growth paths across the portfolio. These efforts will ensure that our workforce and factories have the necessary tools, systems, and resources to continue to drive strong growth in sales and operational efficiency. I wanted to highlight one of those critical investment opportunities shared in a recent press release. In July, we announced an $80 million multi-year investment to expand our Chesley, Pennsylvania facility within our naval and power segment to support growing market demands across our naval businesses and also in anticipation of future commercial nuclear awards. This expansion, which began in 2025, will be financed through various channels, including internal capital investment, maritime industrial base or MIB funding, and state assistance. Regarding the NID funding, we've spoken quite a bit about it recently and the growing support from our U.S. Navy customer. This continues to accelerate, and Curtis Wright has now been awarded approximately $95 million in industrial-based funding to date. Note, this award value was $70 million as of the end of March. Overall, this funding provides us an opportunity to gain increased content and potentially become a second source to further support our customers' efforts as they look to expedite production on U.S. Navy's most critical platforms. This is one of many investment opportunities that we have been pursuing across our operations to position. Turning to the right-hand side of the slide and taking a broader perspective across Curtis-Wright's entire portfolio, we continue to build momentum Our teams remain focused on executing in the short term while investing to capture the strongest medium and long-term growth sectors globally in the markets in which we compete. While the slide outlines many of the meaningful end-market drivers, I'll direct your focus to the commercial nuclear market. For those less familiar, Curtis Wright possesses long-established and significant commercial nuclear expertise dating back to the industry's inception. Today, our technologies support the entire life cycle from the new build to the aftermarket. The company's extensive portfolio of aftermarket technologies support the continued performance, safety, and modernization of operating reactors worldwide, including content on every reactor across North America and South Korea. In the U.S., the administration has exhibited a clear dedication to expediting life extensions of existing nuclear facilities and expanding the reactor fleet with the goal of quadrupling U.S. nuclear generation capacity to 400 gigawatts by 2050, including restarts and new builds. Curtis Wright remains well positioned to serve this massive acceleration in demand. Leveraging For an established foundation, we also anticipate a substantial year and long-term opportunity to support the construction of Westinghouse AP1000 reactors. On that front, AP1000 efforts in the U.S. continue to advance. In June, the Department of Energy issued a conditional $17.5 billion loan commitment through its Office of Energy Dominance Financing to support the deployment of up to 10 new AP1000 reactors. The loans are expected to finance long-lead equipment purchases for up to five projects with two reactors at each site, potentially bringing all 10 reactors under construction by 2030, which remains in line with the President's 2025 Executive Order. It is anticipated that the long-lead equipment purchases would include Curtis Wright's reactor coolant pumps, and that these components will be served prior to the project's reaching final investment decision. As a close point, I'd like to highlight something which is not directly within the public site regarding the progress being made between Westinghouse, the Department of Energy and the launch customers. During the month of July, one of the DOE's initial launch customers, which we cannot name, visited our operation and they were overwhelmingly impressed with the quality of our critical manufacturing processes and our preparedness to support the impending build-out of AP1000 reactors. Overall, we continue to expect an AP1000 and many more. We intend to fully capitalize on the tremendous growth ahead in our commercial nuclear power business. In summary, we anticipate another record financial performance this year driven by the team's steadfast focus on execution. We can confidently state that we are on track to exceed all of the major financial metrics issued at our 2024 investor day at the top and bottom line. Looking forward to the coming year, we expect to share updated long-term financial targets during our next investor day, which is currently being planned for the second quarter of 2027. The future remains extremely bright. as the momentum continues to build at Curtis-Wright across all these end markets, and we remain well-positioned to continue to deliver long-term value for our shareholders. Thank you, and at this time, I would like to open up today's conference call for questions.

Thank you. 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, and then queue up again with any additional. Thank you. Our first question today comes from Nathan Jones with Stiefel. Your line is now open.

Good morning, everyone. Hi, Nathan. How are you? Very well, thanks. Good. Orders have been exceptionally strong for several quarters here in the $1.1 to $1.2 billion for the last three quarters, which is significantly above the revenue level that's averaging kind of $925 in the first half of 2016. Can you talk about the duration of the backlog and how we should expect those strong order rates to translate into higher revenue levels?

Yeah, thanks for pointing that out, Nathan. I mean, we are really, really pleased with what's happening here in the order book, and you can see the momentum. And I'll start by saying I think Q3 is shaping up to look pretty good as well. But when you step back and you take a look at what's happening in the Curtis Wright order book, there's a few dynamics at play. And number one is just kind of the alignment of our technologies to the overall strength in the defense budgets here in the U.S. and also internationally. You know, but if I dive a little bit deeper into that, you know, we started off the year talking about some of the delays in the Defense Electronics Order Book associated with the CR. You know, we were forecasting earlier this year that it would take about 60 to 90 days for that to kind of clear itself up. And, you know, given the strong Q1 orders in DE that were up 18% year over year, and now what we saw here in Q2 with the record and orders being up 47% year-over-year, that's corrected itself. But embedded within some of the defense electronics order book, there are some things that are a little bit longer term in nature. You know, we have the C-17 program press release that we talked about earlier this year. That's multi-year. We had an incredibly strong second quarter order book within ground defense, and that included some long-term production orders relative to tour drive stabilization systems. And we're seeing some things pick up just overall on the CR and D fund. And that all speaks very positively not only to this year, but then as we look outward. You know, looking across commercial airspace, continued strength, you know, following the ramp and what's happening across the, you know, Boeing and Airbus, and Lynn talked a little bit on the call here, too, about terminal industrial. We saw a strong surge in orders in Q4. We saw a strong surge in orders in Q1, here again in Q2. And the order book there is up 21% year-to-date. And, again, that business is having a strong July, again, one month. But, yeah, the order book is very strong. I think it speaks very positively not only to what's happening here in the current year, but also as we look forward into 2027 and beyond.

Thanks for that Tyler. I guess the second question I'll ask is on supply chain. There's obviously very high demand for chips and electronics and things like that these days from data center demand. I know you guys generally are in a priority position given the industries that you're in and managed through it extremely well during COVID but can you talk about any challenges that you're seeing in the supply chain you know, any inventory pre-positioning that you're doing or anything like that that we should be thinking about and thanks for taking the questions.

Thank you, Nathan, and it's a very worthy topic to bring up because the supply chain pressures have definitely increased in the first half of this year and I wouldn't say it's back like COVID, but, you know, there are some similarities to back into 2022. But, you know, as we talked about back then, you know, we learned a lot of things back in 2022. We installed a bunch of different tools, took on some different approaches to how we managed our inventory, and those are serving us well, and I think we're in very good shape, you know, really the team is, you know, we're largely secured for our 2026 revenue and the real focus at this point is positioning for 2027. So I feel positive about that. But, you know, we talked about, you know, things you mentioned, the D-pass rating and some different things. And, you know, we've also mentioned also the relationships we have with our supply base that we really focus on in a new and different way back in 2022. And, you know, kind of a recent example of where that's playing out that some of our leadership attended a meeting in Manassas, Virginia on May 22nd that was an initiation of the Alpha 1 DDR Made in America event at the Micron facility that was attended by the CEO of Micron and the Secretary of Commerce. So a really big deal. And during that time, you know, with the presence and their understanding of what we do. We have been assured that we have priority allocation out of Micron. And that's just one example, but it's in the press, so it's something that people can look at that I thought would be fun to mention for the work that this team is doing. But it's, you know, it's very systematic and it's across the board and, you know, they collaborate across Defense Electronics very much with the industrial team who also has dependencies on the electronics industry and we make our power of our business work together in that area. And it's not just electronics. I would mention that there are some pressures on some rare earth materials like across our surface treatment business. We use a couple compounds that have become under pressure. And again, the team is figuring out which ones are going to have dual sources and then also qualifying other powders with the customer base's to make sure we can support ongoing production, and they're doing a good job with that, and where there can't be movement or making sure we're adjusting our prices to reflect the increased pressure on the supply chain. So, you know, it's not something you can ever take your eye off of, but the team is doing a great job of managing it.

Thanks for the call.

Thank you, Nathan.

Thank you. Our next question comes from Christine Lewalk with Morgan Stanley. Your line is now open. Hey, good morning, everyone.

Good morning.

So Lynn, Chris, Jim, I mean, your pivot to growth strategy has clearly delivered. You're tracking well ahead of that 2024 investor day targets on margins, EPS, revenue growth, et cetera. I know it's premature to lay out another four months of your outlook today, but conceptually, for what you've said about the building blocks, whether it's Golden Dome, submarine production, acceleration, commercial nuclear with AP-1000 and SMR, plus you've got a very strong underlying cycle for your end markets in aerospace and defense. Are these enough to support double-digit revenue growth in the next three years, maybe even potentially mid-teens as we look out?

So I very much appreciate you starting out with running through our targets and that we are crushing them because that's something we're very proud of as a team. And, yes, it is. I mean, we're, you know, as you said, you know, we're well above the 5% where, you know, we're progressing 9% organic and 10% overall revenue growth. And, you know, just focusing on that because revenue growth gives you so much opportunity to have all the other metrics fall in line behind it. Really, when you do think of things that are coming in our end markets, you know, a 2027 defense budget of maybe $1.5 trillion with clear support for where we are focused, commercial aerospace continuing to ramp. It's early days in this, you know, new build commercial nuclear that, you know, really we, you know, confidently are, you know, stating that we expect our first AP1000 order this year. I know you remember well. what that can do for Curtis-Wright. And just really across the board, whether it's some of the businesses that have been a little bit more flattish, seeing the trends in our industrial vehicles and process markets, that when you have good momentum across the board, then the areas that are really strong just uplift the whole organization and aren't overshadowed by covering maybe some other areas that's not growing. So things are absolutely great. I really emphasize that we've been investing in R&D. It pays faster than sales for the past five and a half years and six years by the end of this year. And the team knows where to invest to drive growth. And when you think one of the things I think that the perspective that helps you understand why the future is so bright is Our industries are long-term industries, and when we bring new products forward or work on custom projects with customers, it would take several years for those to turn into production revenues. And when you think of when we started this and how you've seen our growth build and grow over the past, you know, the past several years in the Pivot to Growth strategy, the early investments are beginning to pay off. We have just a compounding list of those investments we've made year after year after year in continued pay that are going to build for the future. And I think our investor day in Q2 of next year is going to be pretty exciting. And so we will hold the thunder till then, as you know we would. But I think the future is really bright for Curtis-Wright.

Thank you, Lynn. Super helpful. Amy, if I could follow up. You know, you guys have also been very historically disciplined about how you run the business. When you think about defense and markets and commercial, you've also brought in that commercial-style approach for your defense business. That's why you're getting a pretty good margin. I was wondering, as you see the new generation of defense tech companies in the private markets where defense they succeed by moving fast, iterating quickly, getting capability into customer hands earlier, but also investing more of their internal R&D and spending capex ahead of programs of record How do you see that opportunity? Do you think that your business model lends itself to be more successful in potentially doing more of that kind of approach and getting technology faster to customers? Or do you see this as a potential win for market share or risk for margins? How do you think that ecosystem evolves?

It's early days with it, but the thinking today is It's a great growth opportunity for Curtis Wright, and I say that for some very specific reasons, and that is if you think of what most of the nontraditional defense contractors are trying to do and the products they're promoting, they are end products that will be delivered to our military. They are UAVs. They are underwater vehicles. They are ground vehicles. They are different weapons capabilities. And, you know, not many of them are focused on the Tier 2 and Tier 3 type of supply chain, which is really where we play. We are a Tier 2 and a Tier 3 supplier, and that's not the focus out of those. And their mantra is quick, nimble, agile, fast. And what supports that better than Cox capabilities, you know, that we have across our portfolio, specifically in defense electrics, but also some of the capabilities out of our A&I segment, also most specifically this. you know, we can get them products that they can use as part of their delivering those end systems in weeks where the development cycles for these products, you know, are well over a year, two years, even longer. And so, you know, from our standpoint, it's increased opportunities for different levels of capabilities and additional customers. And the other elements I would say that we have done very successfully over the past five years that makes that even more relevant is we've always had really some of the state-of-the-art technology. We talk about our NVIDIA processing line with the chips and such that are really geared for some of the most complex systems that the militaries are needing. But we've also very much broadened our product offering to work very much across the size, weight, and power offerings to be able to have products at different price points with different weights and different processing capabilities that fit a much broader range of products. And so when you think of the types of things these guys, a lot of the nontraditional defense contractors are bringing to market, they're not the largest, most complex radar systems. They're more nimble things. And I think our product offering has the span that it very much fits that wide range of capability needs. So I feel like we're very well positioned. Our sales team is very active in being engaged across, you know, across the U.S. with many of these different companies and we're sought after as a supplier to them.

Thank you for the caller.

Thank you, Christine.

Thank you. Our next question will come from John Engelbrecht with Baird. Your line is now open.

Morning, Lynn, Chris and Jim. Congrats on another set of strong results. I think I'll start with aerospace and industrial. I think the guidance implies, you know, around 20% second half margins, and I think you did around 17% in the first half. Can you just describe the various puts and takes? It does look like aerospace defense accelerates in the second half of the year sequentially, but commercial aerospace looks like it's are down around 8% sequentially, despite Boeing and production rates going higher. So I just wanted to understand that better. Thanks.

Yeah, so I think as we step back and just specifically talk about commercial aerospace, we see strong growth in orders. We're planning to be up 11% here in Q2, and we feel very confident in the guide of 10% to 12% on the full year. As you take kind of a more holistic view across the aerospace and industrial segment, and we did just recently lift Our sales guidance, we raised it another $15 to $17 million, and that was primarily driven by what's happening in aerospace defense and then also general industrial. We definitely expect to see continued strong revenue growth in commercial aerospace going forward. And with some of the good things that are happening in there from the margin perspective, and absorption is part of that, but mix is also part of that story. We're going to see, you'll see that we raised our margin 10 basis points for $3.5 million. So that sales volume absorption is in line with historical levels, 20% to 25% on the higher sales, but favorable mix in products. And you've heard us talk a lot about EM actuation. That's another example of commercial technology being spun off into the defense space, and that's got great margins that are associated with it. We're also getting equally strong uplift. from our current year and prior year restructuring actions. And, you know, despite that, I mean, we still are investing in research and development. We'll see that increase here in the back half, and we'll deliver 110 to 130 basis points of margin.

Perfect. Thanks, Chris. And then if I may, a quick follow-up. Just if you look at the second half for defense electronics, strong growth. It looks like high single digits, low double digits. Just how much of that second half revenue for that segment is already in backlog and is there sort of, can you give us a sense of how many is sort of book and ship business that you still need to sort of book in the second half to meet the guidance?

Yeah, I'm not going to provide an exact percentage of sales and backlog figure. We are very well positioned following the record second quarter, and as I had mentioned, Q3 is expected to be very strong as well. I think as you take a look at the second half revenue profile, really what you're seeing there, and we talked about this in last quarter, is the pressure that's associated with the timing of those orders coming in. and the ability to quickly turn that here at year end. So we will see relatively flat revenues down in defense electronics here in the third quarter, sequentially from Q2. And we will have a big fourth quarter. We've had those in the past. We've been doing a lot of work to make sure that we're not facing those. But unfortunately, just given the timing of the orders, it's going to be a big fourth quarter for that business.

Perfect. Thanks for taking my questions.

Thank you. We'll go next to Myles Walton with Wolf Research. Your line is now open.

Hey, good morning, Lynn, Chris, Jim. You have Lua Federal on for Myles. Hey, Lynn.

You guys have these, or not you guys, but there were these large contracts signed for subs. What if any flow through have you seen from these or do you think you could see?

So there was a lot of pressure on that, and it's great to see. It shows the commitment and the willingness of the government to make sure the industrial base is funding, starting at the shipyards, which is where the big announcements were around our $77 billion going to our two main shipyards. Really, that was fully funding work that is in our pipeline, of which some we were already under contract for. It's good for the industry. It's good for the shipbuilders, which is good for Curtis-Wright, so I don't want to minimize it, but it isn't a dramatic change in our order flow or how our business is going to transpire over the next couple years.

Okay, great. And maybe, Lynn, just the latest thoughts on the M&A market?

Yeah, so, you know, we, you know, adamantly, you know, state that it is still our top priority for our use of CapEx, and we are very active. Our last acquisition was closed at the end of 24, so it's been a bit of time since we've closed on an acquisition. I will assure you and everyone that we have been very active during that time. We have looked at a lot of properties. The market's a bit scrappy right now, and you've seen some of the multiples that have properties that have executed within our space since that we remain very disciplined in understanding that we are going to assure that we want a strategic fit and a financial fit that's going to create value for our shareholders. So we look at that very carefully, and we have a significant property we're looking at right now that seems optimistic, but I've learned in this process that many seem optimistic until they're not. And so we shall see but we absolutely will continue using capital for acquisitions over time but we will also put our capital to work so we look broadly at the various use of capital but I'm proud to say that over the past few years we've increased our capital quite significantly investing back into ourselves to assure our factories are ready and that's going to continue into the next couple years so it's great to be able to fund that out of our free cash flow and really as stated in the prepared remarks, make sure we're prepared for the growth that's coming our way and whether that's potentially taking on second source work, which really would be incremental and new for Curtis-Wright, but making sure we're a top quality supplier into all of our customers, not just our military customers, but with that as a focus.

Thank you very much.

Thank you. And once again, if you do have a question, you may press star 1 on your telephone keypad at this time. We'll move next to Louie DePalma with William Blair. Your line is now open.

Jim, Chris, and Jim, good afternoon.

Good afternoon, or morning, depending on where you are.

Yes, earlier this year you announced the C-17 Globemaster Modernization Award. How has those upgrades progressed and are there similar electronics modernization upgrades in the pipeline?

Yes, so thanks for bringing it up. The program is off to a great start. We've had quite a few face-to-face meetings with Boeing on a lot of the early stage parts of a program. But I personally sit on a monthly review of the project. If there's a significance and it's really kind of a different scale of work than we have traditionally done out of that team to monitor the progress. And the team is doing a great job executing to it and keeping the customer happy. The customer is very happy. and other items like that. There is a chance that Boeing will leverage that capability specifically on just some other platforms, which would be quite exciting. It's always great to see what you've done the work to develop, finding more production homes. So that's very exciting. But this has really been a focus across the team for the past several years is to take on greater scopes of work with our customers. And so there are definitely other things in the pipeline that I hope will be able to make announcements on later this year. A lot of things that we do in that team, our customers don't want us making press releases around the scopes that we have won. And so there's a lot of, you know, some other things that we've won that we just can't talk about publicly. But that team is doing a great job.

great and um also what is um when what is your long-term view of the the ground defense and market right now it's your smallest pen market and it's been shrinking and there's a viewpoint that ground defense vehicles are highly vulnerable to to drones on the modern battlefield but do you see any improvement on the horizon and i know you've said in the past that you're involved in the Army's Next Generation Command and Control program, but are there other catalysts that could turn around that end market?

Well, I think the connectivity on the battlefield and across Golden Dome, you know, with a lot of land equipment that is either radars or assessors to, you know, for incoming attacks from our adversaries. You know, that is obviously, you know, a fairly new program that we have not seen reach volume yet, and that is going to be a great driver for Curtright. We are very well positioned across so many aspects of how that will be rolled out. There's a major push within – I mean, there are changes, and you are right that, you know, building the very large tanks and stuff. There are shifts in that. But again, as we talked about with the non-traditional defense contractors, we've changed our product portfolio to be much more relevant to different size weights of vehicles, whether it's track vehicles or wheeled vehicles and not even track vehicles, to be prepared for that. and the build-out across Europe with Ryan Mattel, I mean, really, it's early days to see where that is going to take us. And so there's those, you know, international opportunities that are very, very strong and, you know, the domestic opportunities. And there's, you know, some new things going on, you know, with ground defenses and how, you know, everyone's talking about munitions and restocking munitions. We've been transparent saying that it's not that we have no content, but it's, you know, relatively minor and it's, you know, not necessarily at this point. They might be able to change that, I would say, but at this point, you know, it's going to be a significant revenue driver for Curtis Wright. But there's also a big push towards different ways of shooting down incoming missiles that are not shooting off, you know, munitions, but directed energy and lasers. And those are two areas that we're very active in and have very relevant technology for. So, Again, I think the team just always knows the industry so well inside and out and where trends are going that we're making sure we're talking to the right people and have the right products to solve the challenges as the markets evolve, and they always evolve. And so you can't be afraid of that. You've got to embrace it, and it's opportunities to differentiate yourself.

Great. Thanks, Lynn, Chris, and Jim.

Thank you. Thank you. Thank you. We'll move next to Scott Deutschel with Deutsche Bank. Your line is now open.

Hey, good morning. Sorry I joined a bit late, so I apologize if this is already addressed. But Chris, for Tactical Poms specifically, are you expecting growth to step up in the second half? Yeah, I think if you take a look at tactical communications, we are expecting growth to improve in the second half. Now, given some of the pressure here in the timing of the order book, you're not going to see that in Q3, but you will see that in Q4. You know, we're expecting a very strong fourth quarter.

Okay.

And then, Lynn, have you seen any signs as to whether the timing delays in defense electronics could be more than timing or potentially reflecting customers evaluating, you know, the actual products they want to buy?

or have you gotten pretty explicit signals from the customer that it really is just timing?

It definitely feels like it's timing, and I think you can see the evidence of that. It's a really great Q1 order book, a really great Q2 order book. We had a strong July and are anticipating a very strong Q3 and then, you know, that carrying into Q4. So I think, you know, we've seen the snapback in our order book. There's obviously a delay to being able to turn that all into revenue, but – Yeah, I do not believe there's any demand disruption. It's just in timing. Perfect. Thank you.

Thank you. Our next question comes from John Godman with Citi. Your line is now open.

Hi, good morning. This is Bradley Eisner for John Godman. Thanks for taking my question. So I just wanted to circle back on your prepared remarks. where you've initially received awards for both UEBs and Golden Dome. So I was hoping you could take a step back and just talk a bit about the opportunities in these two markets for Curtis-Wright. What role do you play here and how these opportunities take shape throughout the fullness of time for you guys?

Yeah, so... You're correct, and you did make this comment. So, the opportunities across Golden Dome are really multiple, and I kind of don't want to repeat myself, but really just speaking about that, that there is, you know, the major detector systems where there are radars or different types that we have established footprint in, and they're looking to evolve those systems. That's a rich opportunity base. The fundamental point of Golden Dome is to deploy these systems first and foremost, which has never been done, but then have them work together as a network capability that is all interconnected with communications networks. Then our communications equipment and our tactical data links are absolutely right in the sweet spot, and we're winning work in those areas to help with that networking and the secure networking, even more importantly, across those. And then, you know, we do things with a lot of, you know, launchers, and, you know, we talked pretty much about the ISPC program, which was part of it, but, you know, we definitely talked about, you know, other platforms over the years where, you know, we have content, and we're continuing very much to pursue new content across those, and that's The launchers were, you know, traditional munitions and then things like directed energies and laser systems that are, you know, coming on as new ways that are more sustainable for being able to have your defenses. And so it's really, you know, across those, you know, areas that we're, you know, pursuing things is, you know, kind of the main focus. and across UAVs, I mean, we participated in the UAV market for decades, starting back with Global Hawk a few years ago, winning major systems on that. And so it's just a broad focus for us. Our technology is very relevant. I mean, there obviously need high-tech systems to be able to fly unmanned, you know, to process sensor data from, you know, surveillance types of missions, command and control types of capabilities. There's quite a variety of pursuits we have going on there that you can see how our technology just aligns to that.

Yeah, that's very helpful. And I also just want to touch base on the General Industrial Outlook. I know you called this out a couple times throughout this call and the strength of the industrial vehicles. I know that the in-market is not really the focus quite with so much other things around the business. I was hoping you could shine the spotlight here in terms of what you're seeing, the and what gave accountants in this increase and give us the future opportunity here. Thank you.

Yeah, so just starting maybe with last year, we talked about the fourth quarter orders. They were up 26%. We entered into the year, and Q1 was strong as well. Q2 has been strong year-to-date. Our order books up 21%. and a number of other people. are all forecasting that on-highway is going to be up high single digits for the year, tracking in line with North America, Class 5 through 8, and the rest of the world. And when you look at off-highway, we had some good things happen here in the order book here for the second quarter. We're now forecasting that that'll be up mid-single digits, and that's tracking ahead of global construction and ag per the industry forecast. We're still seeing a little bit of... Delays in specialty vehicles and industrial automation services, we're forecasting those to some markets to be down those single digits on the full year. But certainly with what's happening here in the order book and continues to happen, it is improving our confidence and not only what we're seeing here for 26 to 27. And I'll also say that as you look at ACT and off-highway research, those outlooks for 27 and beyond are looking favorable as well. So with a 1% to 3% guidance race here on the year, we remain somewhat conservative. given the order book in the macro environment. And we're looking forward here to seeing what happens in Q3. And it definitely represents an opportunity for us on the year.

Great. I appreciate all the color. Thank you.

Thank you. I'm showing no additional questions at this time. I will now turn the floor over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Thank you, everybody, for joining us today, and we look forward to seeing many of you again on the road or at our third quarter results. Have a great day.

Thanks, everyone.

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