Curtiss-Wright Corporation

Growth in the aerospace 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% up 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 to 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 a 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 higher government nuclear revenues supporting various DOE projects at national laboratories. Regarding the second's operating performance, operating income grew 12%, generating 80 basis points on 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 end-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 prototype stabilization systems supporting international ground vehicle programs, most notably for our relationship with Rheinmetall. Enable Defense, following our strong first half 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 revenue 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 narrow-body and wide-body 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 maintained 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%. who 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&D 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 your modeling 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 this 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 Enable Empower, 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. Regarding the segment's profitability, we now expect operating income growth of 14 to 16% and operating margin expansion of 50 to 70 basis points with this uplift mainly driven by the stronger revenue outlook. For your modeling purposes, we remain on track to deliver steady sequential sales growth over the remainder of the year. In addition, we expect the second to third quarter operating income and margin to be in line with our second quarter results, with higher absorption mainly being lost by increased R&D investments. So to summarize our 2026 outlook, overall, we now anticipate total Curtiss-Wright operating income will grow 11 to 13% and expect operating margin to range from 19.1 to 19.3%, now up 50 to 70 basis points. For your modeling purposes at the overall Curtiss-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 then 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, up 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 2026. 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 improvement. At the same time, we are targeting record levels of profitability and are delivering to accelerate investments in R&D at a faster pace than sales. This steady drive for top quartile financial performance combined with substantial and targeted reinvestment in the business remains fundamental in our ability to compound earnings at a mid-teens 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 demand 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 MID 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 Curtis Wright for long-term growth. 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 factors globally in the market 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 lifecycle from the new build to the aftermarket. The company's extensive portfolio of aftermarket technology supports 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 and many more. Curtis Wright has been involved in the development 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. For our established foundation, we also anticipate a substantial near 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 procured prior to the project's reaching final investment decision. As a proof 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 order this year. We remain excited for the opportunity to support the build-out of AP1000 reactors, not only domestically through the DOE, but also through the Department of Commerce and across Eastern Europe and internationally. 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 Stifel. Your line is now open.

Good morning, everyone. Hi, Nathan. How are you? I'm very well, thanks. Good. Orders have been, you know, exceptionally strong for several quarters here in the $1.1 to $1.2 billion range. for the last three quarters, which is significantly above the revenue level that's averaging 925 in the first half of 26. 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. 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. 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 turret drive stabilization systems. And we're seeing some things pick up just overall on the CR&D front. And that all speaks very positively not only to this year, but then as we look outward. And then looking across commercial airspace, continuing strength, following the ramp and what's happening across the Boeing and Airbus, and Lynn talked a little bit on the call here, too, about general industrial issues. We saw a strong surge in orders in Q4. We saw a strong surge in orders in Q1, here again in Q2. 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, Kyle. 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 There are some similarities back into 2022. But as we talked about back then, 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. 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 you mentioned the dpass rating and some different things and you know we've often mentioned also the relationships we have with our supply base that we really focused on in a new and different way back in 2022 and 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, you know, 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. you know, we make our power of our business work together in that area. And it's not just electronics. You know, I would mention that there are some pressures on some rare earth materials, like across our surface treatment business. You know, we use a couple compounds that have become under pressure. And again, there, you know, the team is figuring out where, you know, which ones are going to have dual sources. And then also qualifying other powders with the customer bases to make sure we can support ongoing production, and they're doing a good job with that, and where there can't be movement, we're 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 Lewog 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, etc., I know it's premature to lay out another formal three-year outlook today, but conceptually, from what you've said about the building blocks, whether it's Golden Dome, submarine production acceleration, commercial nuclear with AP1000 and SMR, plus you've got a very strong underlying cycle for your end markets and 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%. We're, 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 had 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 you know, covering maybe some other area that's not growing. So things are absolutely great. I, you know, really emphasize that, you know, we've been investing in R&D. It pays faster than sales for the past, you know, five and a half years and, you know, in six years by the end of this year. And the team knows where to invest to drive growth. And, you know, when you think one of the things I think that the perspective that says 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 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 and 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 what we would. But I think the future is really bright for Curtis Wright.

Thank you, Lynn, super helpful. And 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, 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 a 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 non-traditional 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 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 our Tier 2 and the Tier 3 supplier, and that's not the focus out of those. And their mantra is quick, NIMBL, Agile, Fast, and what supports that better than COTS capabilities 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. 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 are well over a year, two years, even longer. And so from our standpoint, it's increased opportunities for different levels of capabilities and additional customers. And the other element that I would say that we have done very successfully over the past five years that makes that even more relevant is You know, we've always had really some of the state-of-the-art technology, and we've talked about our NVIDIA processing line, you know, with the Blackwell 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, you know, 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 non-traditional 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 operating 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 the U.S. with many of these different companies, and we're sought after as a supplier to them.

Thank you for the color.

Thank you, Christine.

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

Morning, Lynn, Christensen. 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 it around 17% in the first half. Just sort of, 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, I mean, we continue to 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% 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 a margin perspective, and absorption is part of that, but mix is also part of that story. you know, we're going to see, you'll see that we raised our margin, you know, 10 basis points or $3.5 million. So that sales volume absorption is in line with historical levels, you know, 20 to 25% on the higher sales, but favorable mix in products. And you've heard us talk a lot about, you know, EM actuation. You know, 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, you know, equally strong uplift this year from our, you know, 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 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, Lynn. 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 that $77 billion going to our two main shipyards. Really, that was the 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 anime 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 sprocky right now, and you've seen some of the multiples that have properties that have executed within our space in we remain very disciplined in understanding that we are going to assure that we want the strategic fit and the 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, you know, we look broadly at the various use of capital. But, you know, I'm proud to say that, you know, over the past few years, you know, we've increased our capital quite significantly, you know, 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 Louis DePalma with William Blair. Your line is now open.

Good afternoon, Chris, and Jim, good afternoon.

Good afternoon. Or morning, depending on where you are. All right.

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. It is the significance, and it's really kind of a different scale of work. 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 so, you know, other items like that, you know, there is a chance that Boeing will leverage that capability specifically onto some other platforms, which would be quite exciting. 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 like this that I hope we'll 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 also, what is, Lynn, what is your long-term view of the ground defense end market? Right now it's your smallest end market and it's been shrinking and there's, a viewpoint that ground defense vehicles are highly vulnerable 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 effectors to, you know, fort 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 growth driver for Courage, right? 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. And we've been transparent in 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, 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 Deuschel with Deutsche Bank. Your line is now open.

Scott Deuschel Hey, good morning. Sorry I joined a bit late, so I apologize if this is already addressed. But Chris, for tactical comms specifically, are you expecting growth to step up in the second half? Yeah, I think as you take a look at tactical communications, we are expecting growth to improve in the second half. Now, given some of the pressure here and the timing of the order book, you're not going to see that in Q3, but you will see that in Q4. 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 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 of 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, you know, Yeah, I do not believe there's any demand destruction. It's just been timing.

Perfect. Thank you.

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

Hi, good morning. This is Bradley Isser on for John Godden. 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. We did make this comment. So the opportunities across Golden Dome are really multiple and I kind of don't want to repeat myself, but it was really just speaking about that that you know, there is, you know, the major detector systems, whether they're radars or different types that we have established footprint in and they're, you know, looking to evolve those systems, that's a rich opportunity base. The, you know, the fundamental point of Golden Dome is to, you know, 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. And our 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 talk very much about the ISPC program, which will be part of it, but, you know, we've definitely talked about, you know, other platforms. over the years where we have content and we're continuing very much to pursue new content across those. And those launchers were traditional munitions and then things like directed energies and laser systems that are coming on as new ways that are more sustainable for being able to have your defenses. And so it's really across those areas that we're pursuing things is kind of the main focus. and across UAVs, I mean, we participated in the UAV market for decades, you know, 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've called us out a couple times throughout this call on the strength of the industrial vehicles. I know that the market's not really the focus point with so much other things going on in the business, but I was hoping you could shine the spotlight here in terms of what you're seeing, and what gave the confidence on this increase, and basically what's 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 others. 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. You know, we're now forecasting that that'll be up mid-single digits, and that's tracking ahead of global construction and ag, you know, per the industry forecast. We're still seeing a little bit of... you know, delays in specialty vehicles and industrial automation and services. We're forecasting those to submarkets 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 in 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 raise 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.