Curtiss-Wright Corporation (CW) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Curtiss-Wright First Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Mr. Jim Ryan, Senior Director of Investor Relations. Sir, you may begin.

Thank you, Skyler, and good morning, everyone. Welcome to Curtiss-Wright’s first quarter 2017 earnings conference call. Joining me on the call today are Dave Adams, our Chairman and Chief Executive Officer; and Glenn Tynan, our Vice President and Chief Financial Officer. Our call today is being webcast, and the press release as well as a copy of today’s financial presentation are available for download through the Investor Relations section of our company website at www.curtisswright.com. A replay of this call also can be found on the website. Please note, today’s discussion will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are not guarantees of future performance. We detailed those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. In addition, certain non-GAAP financial measures will be discussed on the call today. The reconciliation is available in the earnings release and at the end of this presentation. Our discussions today of current and future results, except for cash flow, are on a continuing operations basis which excludes all previously announced divestures. In addition, any references to organic growth exclude the effects of foreign currency translation, acquisitions, and divestitures unless otherwise noted. Now I’d like to turn the call over to Dave to get things started. Dave?

Thanks, Jim. Good morning, everyone. For our agenda today, I’ll begin with the key highlights for the first quarter 2017, followed by Glenn who will provide a more thorough review of our quarterly financial performance along with updates to our 2017 guidance. Then I’ll return to wrap up our prepared remarks before we move onto Q&A. We’re off to a great start in 2017. Our reported EPS for the first quarter was $0.73 which was ahead of expectations. In spite of the expected purchase accounting cost associated with the acquisition, we produced a solid first quarter. Along with a great start for EPS, I’m also very excited about the solid 3% organic growth generated in the first quarter which our team achieved despite continuing softness in our energy and nuclear aftermarket businesses. Our positive momentum was led by improved demand within several of our industrial markets as well as higher AP1000 revenues as we continue to ramp up on the recent China Direct contract. This is a testament to the breadth of our diversified portfolio of businesses which allows us to mitigate those commercial market headwinds. Included in our first quarter results is the sales contribution of $10 million from the recent acquisitions of Teletronics Technology Corporation or TTC. We remain excited about the future opportunities we see with TTC as part of the Curtiss-Wright family. Excluding the TTC purchase accounting, organic operating margin was nearly 11%. Moving forward, we expect sequential quarterly improvement and profitability which will position us to deliver another solid performance this year, with continued organic sales growth and operating margin expansion. We also experienced increased orders in the first quarter, most notably for our helicopter handling system and the defense segment and naval pumps supporting the ramp up on the CVN-80 aircraft carrier in the power segment. As a result, book-to-bill was solid at 1.23 in the first quarter. Now I’d like to turn the call over to Glenn to provide a more thorough review of our first quarter performance and updates to our 2017 financial outlook. Glenn?

Thank you, Dave and good morning everyone. I’ll begin with a review of our first market end market sales. Overall, we experienced a 5% increase in sales to our defense market and a 3% increase in sales to our commercial markets, both of which included solid organic growth. In the defense market, our results reflect $10 million contribution from TTC, primarily for flight test instrumentation equipment for the aerospace defense market. Elsewhere, in aerospace defense improved demand from embedded computing products or UAVs was offset by lower sales on several helicopter programs due to production timing. And in ground defense, our results reflect higher sales of turret drive stabilization systems to our international customers. And finally, naval defense, higher development revenues on the new Columbian class submarine program were more than offset by reduced production on Virginia-class submarines due to timing. We also experienced lower CVN-79 aircraft carrier revenues as production continues to advance towards program completion. Moving on to the commercial markets, I will begin in commercial aerospace where sales were down slightly due to lower sales of actuation equipment and surface treatment services. In power generation, sales were up 6% as higher AP1000 revenues on the 2015 China Direct order were partially offset by lower demand in the nuclear aftermarket business. And finally, in the general industrial market, sales increased 7% overall, led by better than expected performance in industrial vehicle and automation products. This was principally due to higher off-highway sales with medium duty commercial vehicle products particularly in China where new emission regulations drove sales growth. Partially offsetting this performance was lower sales of our severe-service industrial valves principal to the oil and gas market, as expected. Next I will discuss the key drivers of our first quarter 2017 operating performance. Starting with the Commercial/Industrial segment, operating income was up 2% and operating margin was 10 basis points to 11%. This performance was driven by higher sales and improved profitability on our industrial vehicle products and the benefit from our prior year margin improvement initiatives. However, those gains were partially offset by unfavorable mix as well as unfavorable overhead absorptions due to lower industrial valve and surface treatment sales. Next in the Defense segment, operating income decreased 34% and operating margin was down 630 basis points to 9.7%. As expected, these results reflect the initial purchase accounting charges at TTC which were quite dilutive for first quarter margins. On an organic basis, and as shown on the right side of the slide, operating income for the defense segment improved 2% and operating margin was up 20 basis points to 16.2%, reflecting the benefit of our ongoing margin improvement initiatives despite unfavorable mix. In the Power segment, our first quarter results were solid as operating income improved 13% and operating margin was up 80 basis points to 12.7%. The strong improvement in operating income and margins is due primarily to higher production volumes on the China Direct AP1000 contract. We also benefitted from higher profitability in our nuclear aftermarket business despite lower sales due to previously implemented cost containment initiatives. In corporate cost, we’re up in the first quarter due primarily to higher FX transactional losses. In summary, overall first quarter operating income decreased 11% which led to 160 basis points decrease in margins to 9.8%. However, as shown on the right side of the slide, overall organic operating income would have only been down 1% while operating margin would only have been down 50 basis points to 10.9% excluding the 110 basis points in margin dilution from acquisitions. Moving on to our 2017 end markets sales guidance. We continue to expect total Curtiss-Wright overall sales to grow between 3% and 5%. In the defense markets, overall sales are still expected to grow between 7% and 9% reflecting the contribution from TTC and the favorable trends in defense spending. In addition, we made a few modifications within the aerospace, ground and naval defense market growth rate based on improved platform visibility. Moving on to the commercial markets where overall sales are still expected to be flat-to-up 2% and our end market guidance remains unchanged. Regarding the general industrial market, despite the solid first quarter performance, we remain conservative in our outlook. We continue to expect sales to decline between 1% and 3%, although there are some encouraging signs in this market. And if those trends continue, we may become more optimistic of our outlook later in the year. And finally, in the appendix of our presentation you will find the 2017 end market sales waterfall chart. Continuing with our 2017 outlook where we are reaffirming our sales, operating income and operating margin guidance, total Curtiss-Wright operating income is expected to grow 3% to 5% while operating margin is expected to be flat-to-up 10 basis points through a range of 14.6% to 14.7% including 50 basis point dilution from the TTC acquisition. This outlook reflects the benefit of restructuring of facility consolidation initiatives implemented in 2016, along with ongoing cost mitigation actions and anticipated increased investments in R&D in 2017. Next I’d like to provide some additional color on TTC. As expected, the inventory step-up amortization will be reflected in the first half of 2017 and will therefore be dilutive to operating margins and EPS during this period. Beginning in the second half of this year and continuing into the future, TTC will be accretive to both the defense segment and overall CW margins and contribute solidly to our EPS. While we continue to project TTC to be breakeven to operating income and EPS in our full year 2017 guidance, lower amortization estimates along with potential integration synergies could result in TTC being accretive to our overall full year results. However, since it’s still early in the year, we have left it to maintain our overall Curtiss-Wright guidance as it pertains to the acquisition. Continuing with our 2017 outlook, during the first quarter, we adopted the accounting standards update for share-based compensation which resulted in a tax benefit of $4 million or $0.09 per share and drove the increase in our full year EPS guidance. As a result, our guidance for diluted earnings per share is now in range of $4.40 to $4.50 which represents EPS growth of 5% to 7% over 2016 results. In addition, we continue to forecast 44.9 million diluted shares which, as a reminder, includes our expectations for $50 million in share repurchases in 2017 to offset dilution from stock issuances. For your EPS purposes, we anticipate each quarter increasing sequentially and the fourth quarter being our strongest as we have done historically. Moving on to our free cash flow, which as expected, declined year-over-year. As a reminder, the prior included significantly higher advanced payments on the AP1000 program and $20 million one-time benefit from unwinding our interest rate swaps. We remain on track for solid free cash flow in 2017 ranging from $260 million to $280 million with an expected conversion rate of approximately 135%. Note that the revised conversion rate shown on this slide is solely the result of the $4 million increase in net income resulting from the accounting change previously discussed. Both of our cash flow metrics are in line with our long-term guidance which includes maintaining an annual based free cash flow of at least $250 million and an average free cash flow conversion of at least 125%. Now I’d like to turn the call back over to Dave to conclude our prepared remarks. Dave?

Thanks, Glenn. Before I wrap and we move on to Q&A, I wanted to provide a few brief remarks on the AP1000 program and our Reactor Coolant Pumps. Plant construction continues in China as they draw closer to the start-up of Sanmen 1 which is expected to be the first AP1000 reactor in operation in the world. Fuel load is anticipated to begin sometime this quarter, with plant start-up expected by the end of 2017. In addition, as you saw by our first quarter results, production revenues on the 2015 China Direct contract are continuing to ramp up. We expect to see strong revenue in margin contribution from this order over the next three years. I’ll remind you that China is the largest potential market in the world for the AP1000 Reactor. The successful commercial operation of the Sanmen and Haiyang plants in China should open the door for additional China interest in new AP1000 plants in Curtiss-Wright RCPs. I also want to reiterate that for the 2015 contracts, our pumps are being sold directly to the Chinese for the new AP1000 plants that are being constructed in China. As a result, we do not believe that the Westinghouse bankruptcy will have a direct impact on our ability to secure new orders from China to support future AP1000 plants. Further, as it pertains to our 2008 U.S. contract and the remaining RCPs yet to be delivered, these are based on percentage of completion accounting and we have already recognized approximately 95% of revenue and cash on this contract. So while there may be some near-term risks - the remainder of those contract dollars, the overall financial impact is not expected to be material to us. Regarding future in the China markets for AP1000, we’re in a wait and see situation at this time, though the demands from countries like India and the UK remains very strong. In summary, Curtiss-Wright is well positioned to deliver solid results in 2017. Although our industrial markets, many of which have been depressed for several years, are showing some signs of relief, we remain cautiously optimistic about those markets for the remainder of the year. Overall, operating margin is expected to be up slightly despite the purchase accounting charges from the TTC acquisition. On an organic basis, we expect 50 basis points to 60 basis points in margin expansion driven by our team’s ongoing solid execution. In addition, we are focused on continuing to generate strong free cash flow as evidenced by our performance over the past few years. We remain committed to maintaining a balanced capital allocation strategy between operational requirement, including increased investment in R&D, returning capital to our shareholders and acquisitions. We’re dedicated growing the top-line which we intend to accomplish through a combination of internal growth and strategic acquisitions. As you saw with TTC, we are taking a prudent approach to find suitable targets that closely align with our long-term financial objectives. We are fully committed to achieving and maintaining top quartile status compared to our peers for all of our key financial metrics particularly, operating margin and [indiscernible]. We also look forward to continue to deliver on our strategy in producing solid financial results to drive long-term value for our stockholders. At this time, I’d like to open up today’s conference call for questions.

[Operator Instructions]. And our first question comes from Ryan Cassil from Seaport Global. Your line is open.

Good morning. Nice quarter.

Thank you, Ryan.

Good morning, Ryan.

I wanted to maybe start with the C&I segment if I could, the growth was good in the quarter, and you guys maintained the outlook. Is there anything in early in Q2 that’s given you a little bit of a pause there that you want to see either pick up or is it just a little bit of conservatism as you called out?

We do not see anything different in the beginning of the second quarter, it’s really conservatism. It was a good quarter. We’re excited about it, orders are good as well, but we’re going to let – get a little bit of the more trend going before we’re going to make any adjustments at this point, but nothing else. No reason to pause.

Okay. And in that book-to-bill, 1.23 times maybe you could dissect that a little bit, with respect to either the segments I’m really trying to look at, get a sense for what C&I contributed there on the order front?

Well, most of the - C&I was up somewhat but the two big ticket items in the quarter was a big order in the defense segment for our helicopter landing systems for a project in Italy and then obviously we had in TTC in the Defense segment as well. Then the other big ticket item was about $52 million CVN-80 pump order in the Power segment.

Okay. And then, any positive signs on the severe-service valve side, some of your competitors have noted some better trends there, just curious if you’re seeing that yet?

Well excluding the navy pumps you mean right? I mean the navy valves, or the… well, I will say put the navy aside because it’s lumpy and all that stuff, but on the commercial side, with first quarter, it was another good month for them and I think it’s probably the highest in the last five quarters. So, it’s encouraging but again, not enough to really make us to move the needle and make us change our guidance at this point. That’s another area where we – first quarter order intake was pretty good.

Okay, great. And then just looking at the AP1000, continue to get a lot of questions there, could you give us an update on the 2008 order, how you hear tests are progressing there? I know there was kind of rumbling or rumors of vibrations or some issues that may have arisen there. Can you give us an update on what you’re hearing there?

I haven’t heard of any vibration issues on that order, so I’m unfamiliar with that one Ryan. As far as the technology and the operational attributes of the pumps that we’ve supplied everything is a go and very positive from what the experience has been. As you know, we would do hot functional testing and that was very successful. So they continue on and particular in China with the process of going to possibly by the end of ‘17 everything is talking about right now, they are going to live production of energy. So, fuel upload by middle of the year but other than that, everything is very positive on that.

Okay. So still largely on track from what we were hearing three to six months ago, sounds like?

Oh yeah, no change from what we’ve been saying.

Okay, great. I’ll jump back in queue. Thanks guys.

Thanks.

And our next question comes from Sam Pearlstein with Wells Fargo. Your line is now open.

Good morning.

Good morning, Sam.

How you’re doing?

Can you talk a little bit more about TTC, I know you said it’s $65 million in revenues this year but, how does that look year-over-year if we were to compare last year obviously, we don’t have the numbers which is the trajectory last year to this year into next year?

Well, I don’t have the exact number from last year, but it’s up slightly, I won’t say it’s up big, but it is up from the prior year and I don’t have next year’s – nor do we normally talk about 2018 at this point. But 2017 is up from 2016, that I do now.

And just to add a little note to that Sam, generally, what – in TTC is so interesting to us was obviously the performance and historical and margin performance and then platform applications and so forth. But another was the absolute fit within Curtiss-Wright and they share with Curtiss-Wright the traditional lower front half and higher second half in terms of revenue and so forth. So I mean there are so many different ways that this company fit into our portfolio that it’s uncanny. So you’re going to see a little bit of that.

Okay. Thank you. And then, when you do your sales waterfall, it looked like there was a little bit of an uptick in the percentages sold from the valves and a little bit decline the vehicles, can you just talk about what shifted around there?

On the waterfall… say that again, Sam?

I guess I looked at I saw the industrial valves looks like it’s up couple of percent and vehicles is down about the same, so I just wasn’t sure if there was anything that I can read into that in terms of the percentages?

No, nothing, it’s probably -- we did some internal reallocations, not in the industrial but TTC gave some reallocations as well, but that’s all there is, it really isn’t -- nothing fundamentally has changed.

All right. And the last question is just, how do you think about the Westinghouse bankruptcy, what it means to your long-term growth opportunity for the AP1000? Does it change your view of that opportunity?

We’ve obviously watched this very closely for a period of time, certainly since March 29. We don’t really think that it does and there are a couple of reasons for that; one, let’s talk domestic for a moment and we’ve got the Southern SCANA building those plants at the moment and they do utilize AP1000, RCPs and they’re considering their options right now, they’ll make a determination here shortly whether they continue with those and proceed with regard to other opportunities in United States, they’ve been slow for a long time and they’re not -- it has never been for us really the real opportunity for growth. The real opportunity exists as we’ve talked in China and we have a China Direct contract as you know and that was not through Westinghouse whatsoever. So, it’s completely autonomous from the Westinghouse situation. We feel that the India opportunity that we talked about, it remains as a matter of fact, we’re in recent discussions I’ve had with our folks, they instruct me or inform me that the ongoing discussions between Westinghouse and India continue with a high degree of optimism that there will be a way to make things work. They have to get over two hurdles; one is what occurred last year in June and that was to get over the liability side of – India’s liability laws and that was supposed to be actually be addressed here mid-year this year and then sometime after that, we don’t know when, they got their liability laws fixed and made it something that would be compelling for U.S. domestic suppliers like ourselves, then we would all be able to enter into contracts with them. And I think that it has been -- from the press, it has been very clear that the interest remains extremely strong. There are five regions in India that have been designated to be new areas for nuclear power plants and we are among those five with the AP1000 design, Westinghouse is looking for a partner for the construction. I believe that they’ll find one and there are plenty of suitors out there that could take that on both domestic and foreign. And so, they remain engaged in that process and through that, we find a high degree of optimism for ourselves in terms of that second largest opportunity for future growth. So, the outlook is China still needs roughly 72 RCPs over the next, let’s call it 8 years to 10 years for their new reactors that they plan on which have been committed and funding has been committed. So that’s a great opportunity for us and India being the next one with roughly 26 that we would be involved with and then more side in the UK, which they are looking very positive. They go their approvals and it’s the same situation there. The Westinghouse folks are talking to people about someone who can do the construction and Westinghouse made it clear that they want to remain in the aftermarket, ongoing support business along with the design aspect of AP1000. So overall, we’re still very excited about the opportunities here.

That’s great. Thank you very much.

Thanks, Sam.

And our next question comes from Myles Walton with Deutsche Bank. Your line is now open.

Good morning. This is actually Lou Raffetto on for Myles.

Hey, Lou.

Hey guys. You guys called out the lower actuation systems in commercial aero, just curious if you can add some more colors, that’s sort of the - some of the wide bodies coming down, narrow bodies not quite ramping up yet, is there another dynamic going on there?

It is a combination of the both. Narrow bodies are expected to increase and -- could just be a pace at this point in the first quarter and the wide body coming down. We also did some work in the prior year on an FAA directive on a 767 ring gear program which was kind of like a one-off thing, it was a really good one-off thing. That’s the only other thing that might be in the mix besides the mix of the wide body and narrow body.

Alright, great. Thanks.

Thanks, Lou.

Our next question comes from Kristine Liwag with Bank of America. Your line is now open.

Hey, good morning everyone.

Good morning.

Hey, Kristine.

I was wondering, in your release you mentioned this lower sales on the Boeing 737 and 787 programs. From my understanding, the 737 production should increase by end of 2Q and 787 flat, can you discuss what’s driving the difference in what you’re seeing this quarter?

I know on the 787 program we had some lower work, we have our EO operation and that does fluctuate, so it’s a matter of timing on that. 737, again, last year we did have an FAA directive on the 737 program albeit smaller than the 767 but, that was in last year and not in this year. But for the full year, 737 is of course going to be up and so the 787.

Great. That’s helpful. And Dave, on the AP1000 in India, how should we think about possible margins for these contracts? Would there be a difference in your expected profit if you sell to Westinghouse versus a direct contract with India?

It’s probably – well certainly something I can’t talk about openly with regard to margin, but I wouldn’t see a big change frankly between China and India, remains to be seen how that all shakes out and comes in and the quantities and so forth. But I mean just right off the top, I wouldn’t necessarily see a big change in that.

Great. And Glenn, maybe a housekeeping question, can you just discuss what your purchase accounting adjustment was in 1Q ‘17? And can you walk us through the cadence for the rest of the year, if you can have some specific figures?

No, I don’t have the specific figures, but I will tell you the big ticket item is the inventory step up which is the highest in the first quarter, somewhat lower than second quarter and then goes away in the third, fourth quarter. So we expect sequential improvement in TTC, typical of our defense business anyway in 2017, with the fourth quarter being the highest.

Thank you very much.

Yes, you got it.

And our next question comes from Jim Foung with Gabelli & Company. Your line is now open.

Hi, good morning. Good quarter guys.

Thanks, Jim.

Thanks.

Just to follow up on the nuclear business, is there an opportunity to sell directly to India like you did with the China 2015 contract?

Well I suppose that there would be an opportunity there, I’m not sure that it would gain us much. We have been working with Westinghouse on this as it has been their program and they are the ones that are leading the sale there. Unlike the Chinese, Chinese wanted to go autonomous and they had, continue on with theirs. But there’s nothing to say that it could not happen I think with Westinghouse’s continued design aspect and the maintenance side of those plants, I would think that they would certainly keep in there and we would work through Westinghouse with them into India.

So with the Westinghouse bankruptcy, there hasn’t been a real slowdown at all, I mean [indiscernible] shipment Q1 was in the pipeline so it’s just hard to tell if there is going to be a foreseeable slowdown there, right?

You mean… I didn’t understand your question, Jim.

With the Westinghouse bankruptcy, you didn’t see any slowdown at all in your shipments to China, right?

No, none whatsoever. Actually we think that, we completed the China, original contract and that’s done and then now we have the remnants that are going to the two domestic plants and they’ll be ready to ship complete by the end of Q3. And then of course China Direct, new contract continues on. So there’s really been no stop in those slowdown in anything that we’ve been doing in that regard.

And you’re still looking about $70 million of revenue this year from the China contract, that was kind of your number roughly from your Investor Day?

Yes, we’re still in line with that, Jim.

On track… just last one your contracts, you mentioned early in your remarks that, there could be a number of partners that would be willing to work with Westinghouse in the construction part. Who are some of these partners?

Well, we know that Westinghouse has spoken to the Chinese and the Koreans and I think some of these utilities have had the same kind of conversations and then other domestic ones. I mean it’s really what I’ve been reading in the trade journals and what I’ve been hearing from our folks. So there’s some very formidable people out there, companies that can handle it, it’s just a matter of the mass and the scale and who wants to do it. I think a lot gets proved up certainly by the operational aspects of the China plants, Sanmen and Haiyang, that’s going to come up here pretty soon. So they have to - that out but it looks to me that they certainly want to stay in the design side of it and there is being the first generation three nuclear reactor in the world, there is a lot of demand for that because of the safety attributes of it. So, like I said, we are very positive over it and I think that someone’s going to be out there to raise their hand to build these facilities.

Okay. And then just one last question on the severe-service valves, you saw some kind of little uptick in that business in Q1. How much revenue was down from the peak in this business for you?

From the peak, well not sure if peak was couple of years ago Jim, I’m not sure. Year-over-year, last year for instance…

Just over the last year, how -- I guess how much was it down last year?

Last year it was down 25%, this year, we’re expecting it to be down 5%. So it’s moving in the right direction but beyond that, I don’t know, I have it right here.

Okay, fair enough. Okay. Thank you. Good quarter.

Thank you.

Thanks, Jim.

Our next question comes from Michael Ciarmoli with SunTrust. Your line is now open.

Hey good morning guys. Nice quarter and thanks for taking my questions.

Hi, Mike.

Hey, Mike.

Maybe Dave, just to stay on what Jim was just asking on the revenue cadence for the China Direct. Even if the Westinghouse bankruptcy lingers here and while there are some big players out there, do you see any potential change to that revenue recognition I guess it was close to 70 this year moving I guess ballpark based on your slides from Investor Day into the 125 range? I mean could any of that change? Could your billed rate or shipment schedule change depending on any of the scenarios or outcomes with Westinghouse?

I suppose if SCANA and Southern were not to continue on with the completion of their facilities, then I could speculate that some of those units, if not all that we have ready by Q3, could begin to go to China and because it’s the hardest thing – so I think that’s a possibility but in terms of the cadence of the recognition and so forth, I don’t think there is a change there.

Okay, okay. And should the, I know you were talking about India, are there – I think they were planning on having that order done by June? What’s the -- clearly there is still interest, clearly they are going through the process of that liability but just the timing of that order and I know we saw this with the China order, it took some time to get the deal done I mean any expectations, that it gets on in June, does it slide a couple months or how are you guys viewing that sort of deal with India right now?

Well, we never really thought that the order would come in June of ‘17. We knew that there would be a follow up meeting that would hopefully resolve the liability issue and that’s what we’ve been watching closely. And they are seemingly on track, they’ve been talking since June, to work out these angles and as I understand it, I’ve heard recently that Prime Minister Modi might be visiting the U.S. to visit the new administration, once again sort of talk about the liability aspect of it. But we don’t have any indication of when it would occur, we do know that the strong desire to make it happen on behalf of not only India but domestic at least in prior administration and certainly Westinghouse. So, lot of impetus there behind making it work in a positive direction. Now as you know, what we live through with the orders from the Chinese, that took a while to happen, it did occur and we were absolutely thrilled when it happened. And like I said in the past, we’re going to be thrilled when the India order happens as well, it’s just now we can’t speculate on the timeframe with which that would occur. But like I said, I think they’re making very positive momentum and it looks that way from what we’re hearing and if everything continues to work in the way it has so far, then, it looks like it will be a positive outcome. When? I’m not sure, but it’s going to be a nice one for us when it does happen.

Got it. That’s helpful. And just last one for me, on the overall defense market, we’ve got what looks to be a deal on place here to fund the department of defense for the remainder of the year. I know you talked about timing impacting from your naval related revenues, but how does your outlook -- has your outlook changed there, given what’s happening with potential submarine built schedules and do you see -- I know it looks like you bumped up your naval growth from the fourth quarter, but I don’t know if that was more of a function of just TTC, I know you had it in there, back in the fourth quarter. But anything really changing in your view with kind of the defense budget or naval ship building plans?

I don’t think so. It’s all positive for us, it’s not really going to impact this year as you know, but I think going forward, it’s going to be beneficial to us. So I think it’s better than, who would have thought before, so…

I spoke with two of our VPs that really drive the defense market, yesterday afternoon, just to get a light read on that Mike, and the read I got from both of them was just like Glenn said, it doesn’t necessarily affect this year in certain ways, from the long-term programs like this ship building side. However on the shorter term, the commercial off the shelf business that we have, that is very positive for them and certainly very positive for the long term ship building, but real positive for the platforms that we provide cox[ph] product on across the board in that moving away from the historical what we’ve had over the last several years of being budget-less if you will, and with the continuing resolutions and so forth, this opens the door for a more long-term approach that the primes can take now in making their decisions on where they’re going to spend their money; how they’re going to outsource; which will absolutely benefit us. So, the folks at our cox[ph] facilities are very excited over this and basically, breathing a sigh of relief. This is a real great step forward to having added that money to the procurement cycle, in particular, in the areas that we participate in. So we feel very good about that.

Got it. That’s helpful. Thanks a lot guys. Good quarter.

Thanks, Mike.

Thanks.

[Operator Instructions]. And our next question comes from George Godfrey with CL King. Your line is now open.

Thank you. Good morning, Dave and Glenn.

Good morning, George.

Hey, George.

Nice quarter. Just two questions and I jumped on the call late, so I apologize if you’ve covered this first topic. The first one, commercial/industrial organic revenue growth 3% but in the press release and commentary you called out that orders were a little bit soft there in that segment. Can you just provide any color on that disconnect for me?

Well, I think it’s the general industrial piece, the vehicle piece absolutely we had a good quarter from a sales standpoint and we did talk about it before, the orders look pretty good there, that we’re going to – in the first quarter, but we got to kind of wait and see. The valve side of it though was down, so that’s probably what brought us moderately down, wasn’t big, but it was probably through the big drives either way or the general industrial vehicles and automation up and valves down.

Got it. And then, and I did hear the commentary on the AP1000 orders and the wins poetically in China and India, I imagine the competition for those bids is intense with the competitors of Westinghouse. I’m just wondering if customers have expressed the Westinghouse that you’ve heard indirectly or directly that they might have concerns about Westinghouse being in bankruptcy and that the competition other – nuclear designs are flowing back to you, you’ve heard anything there?

We haven’t, it’s been more of the positive aspects of the generation three that the AP1000 represents and the design is good, it’s robust, it’s strong. It’s just in the construction side. So, from all appearances that we see and what we hear is that there are certain countries like let’s take India for example, India, you probably missed this, I indicated that there are five regions of the country that the Prime Minister and parliament so forth has agreed on that they would install the AP1000 and one of the regions and then the Russians have another region and I believe the French have another and there are couple of others out there as well. So, the Indian are looking at having essentially all their areas represented by different type reactors and then the AP1000 as far as we know was one of the first that was designated. So that’s real positive…

Ladies and gentlemen, your conference call will resume momentarily.

I’m still there.

Yeah, okay. I’ll keep talking.

We are too.

It’s been very positively received. They’re going to go with the five different ones and then the UK Moore[ph] side like I was talking about earlier has designated the selected the AP1000 because of the generation three aspect. So it’s – we have not seen competitors rushing in from our vantage point, competitors rushing in to try to take these and just the mere fact that Moore[ph] side designated AP1000 as their choice and then the Indians, the same thing. And then other ones like Bulgaria and few others aren’t as far along, Brazil is probably the last in line and while they’ve expressed their interest, there will be some time before that happens. They did express interest in the AP1000 though.

Understood. Thank you for taking my questions.

Skyler, are you there? Well I’m going to assume that there are no other questions then. I thank you all for joining us today. We look forward to speaking with you again during our second quarter 2017 earnings call. Have a great day.

Bye.