Good day, ladies and gentlemen, and welcome to the Curtiss Wright First Quarter 2018 Financial Results Conference Call. At this time all participants are in a listen only mode, later we will conduct a question and answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Jim Ryan, Senior Director of Investor Relations. You may begin.

Thank you, Gigi. Good morning, everyone. Welcome to Curtiss-Wright's First Quarter 2018 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 detail 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. A reconciliation is available in the earnings release and at the end of this presentation. Please note, 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 and an update on our full year 2018 outlook. Then I'll turn it over to Glenn to provide a more detailed review of our first quarter performance with updates to our guidance as well as the financial overview of our two most recent acquisitions: TTC and Dresser-Rand. Finally, I'll return to wrap up our prepared remarks before we move on to Q&A. We were pleased with our first quarter results as higher sales and improved profitability drove a strong operational performance. As a result, we delivered a 35% increase in diluted EPS to $0.98, which exceeded our expectations. We experienced sales gains in most of our end markets, driving solid growth of 5%, 3% of which was organic. We also generated solid margin expansion in the first quarter, achieving an operating margin of 11.8%, up 270 basis points. So in summary, we exceeded expectations in the first quarter, and we raised our full year 2018 organic EPS guidance by $0.06. For the remainder of 2018, we expect sequential quarterly improvement in diluted EPS and are positioned to deliver another strong performance this year. On an organic basis, we continue to expect solid sales growth, operating margin expansion and free cash flow generation. In addition, in early April, we closed on the acquisition of the Dresser-Rand government business. And I want to take this opportunity to welcome our new employees to Curtiss-Wright. In recent news, Westinghouse and its partners in China announced that initial fuel loading has commenced at the Sanmen Unit 1 AP1000 nuclear reactor. Over the past few months Sanmen 1 has successfully completed all of the necessary functional tests as well as technical, safety and regulatory reviews. This is a tremendous project milestone, which puts this reactor on pace to connect to the electric grid and slowly begin to ramp up power on the world's first AP1000 plant. As a reminder, the AP1000 is the only generation 3 plus design licensed by the NRC NRC utilizing the newest and safest technology available. We continue to expect that the successful commercial operation of the Chinese AP1000 plant should open the door for additional China interest in new AP1000 reactors and Curtiss-Wright RCPs. Now I'd like to turn the call over to Glenn to provide a more thorough review of our first quarter performance and financial outlook for 2018. Glenn?

Thank you, Dave, and good morning, everyone. I will begin with a review of our first quarter end-market sales. Overall, we experienced a 12% increase in sales to our defense markets, while sales to our commercial markets were flat year-over-year. Starting with the defense markets, our results reflect strong organic growth of 11% with gains across the board. In aerospace defense, our results reflect solid demand for data acquisition and flight test equipment, primarily on the F-18 program, as well as higher sales of actuation systems on the F-35 program. In ground defense, we benefited from higher sales on domestic ground radar systems, most notably the G/ATOR program. And finally, in naval defense, our results reflect increased CVN-80 aircraft carrier revenues, partially offset by lower Columbia-class submarine revenues as we have substantially completed our development phase of this program. Moving to the commercial markets. I will begin in commercial aerospace, where we experienced higher sales of sensors, actuation systems and surface treatment services, primarily on narrowbody aircraft that were largely offset by reduced revenues from FAA directives. In power generation, our results reflect lower revenues on the domestic AP1000 program and the domestic nuclear after market. This was partially offset by higher revenues on the 2015 China direct AP1000 program and the international nuclear aftermarket. And finally in the general industrial market, solid sales growth of 5% was primarily driven by increased demand for industrial vehicle products to the on- and off-highway submarkets. In addition, we experienced higher sales in surface treatment services across a number of industrial applications. Next, we'll discuss the key drivers of our first quarter 2018 operating performance. Starting with the Commercial/Industrial segment, operating income increased 28% and operating margin was up 220 basis points to 13.2%. This performance reflects favorable absorption on solid sales growth…

Thanks, Glenn. Before I provide additional comments on the Dresser-Rand acquisition, I'll reiterate some of the points that Glenn communicated on the previous slide. Based on that analysis, we're pleased to be able to provide a deeper level of visibility and transparency on our recent acquisitions compared to what we presented in the past. We believe it's important for our investors to understand the strategic focus on the types of businesses that we're looking to acquire as well as the solid returns that we're generating on those transactions. Our strategic approach to acquisitions is focused on long-term performance. Operationally, we look for technologies to complement our existing portfolio, increase our content on existing programs or provide expansion in high-growth markets. Both TTC and Dresser-Rand enjoy solid competitive advantages within their markets and maintain similar customer bases to our existing Curtiss-Wright businesses. As a result, we're confident that we have achieved our strategic criteria with each of these acquisitions. Financially, we seek acquisitions that will contribute to Curtiss-Wright's long-term success. We have raised the bar over the past few years based on our strong margin expansion and our achievement of top four type performance within our peer group. So it should come as no surprise that we're focused on buying very high-quality companies. We'll not shy away from paying more for extremely solid businesses in line with current market rates that meet our strategic and financial requirements. Key to that focus is that they are accretive to our long-term story, and the previous slide highlighted two examples of what we can achieve. We have extensive experience integrating acquisitions and improving their profitability. And we expect these acquisitions to be strong contributors to Curtiss-Wright's performance for years to come. Moving on, I'd like to make a few additional points on the recently…

[Operator Instructions] And our first question is from Peter Arment from Baird. Your line is now open.

I wondered just for a second, first question regarding organic growth in Defense was very strong, up 11% in the quarter. But I think when we started the year, you kind of guided to us an organic number that was closer to 3% to 5%. So if I look at that guidance and I compare with the first quarter, that means the organic revenue cadence would have to drop off pretty considerably for the balance of the year. Is there -- am I missing something in that? Is there a timing issue? Or is this just conservatism?

It's probably -- without going for the detail, probably a little conservatism, for sure. I can't think of anything major that sticks out as far as a timing issue right now. Yes. That's what I would...

And then just if I could just quickly ask on Power. You mentioned there was a little bit of softer domestic nuclear aftermarket but higher international. Was overall -- nuclear aftermarket, was it positive for the quarter? And do you expect this end market to still grow in 2018?

The aftermarket was positive in the quarter. The international was a little bit higher -- was definitely higher than the -- well, I should say the international was up and the domestic was down. But when we look at the year, the domestic is going to, we expect, increase sequentially. And they have a big second half due to the timing of the outages this year, which is heavily weighted to the second half. International, even though they were up in the first quarter, expect to be flattish for the year. And when you put those two together, overall aftermarket, we do expect to be up for the year. It's just -- it's going to sequentially improve, as we expected.

And just lastly, Glenn, you mentioned I, think, on the last call that the repatriation numbers are around, potentially for cash, somewhere between $150 million to $175 million. Any update on that timing there on any repatriation activity?

Not officially, but we know we have that -- those numbers are still our best estimates in the area. And we actually have our board meeting in two weeks. And we -- the topic of discussion is to make a decision on that repatriation. So more to come on that.

Our next question is from Sam Pearlstein from Wells Fargo. Your line is now open.

So if I just think about where you are after Dresser-Rand in terms of just leverage. I guess, the question is really how much capacity do you think you have to do further acquisitions? Or should we be thinking about one of this kind of size every year like we saw TTC last year and Dresser? And just -- if you can talk a little about the M&A environment as to what you're seeing.

Well, I'll talk a little to leverage, and then I'll let Dave take the outlook. But -- well, first of all, TTC we paid for in cash. Dresser-Rand, we did -- we paid partially in cash and partially on our revolver. We expect to pay that down by the third quarter. So it's going to be neutral to our leverage this year. From a debt to cap standpoint, which had debt -- net debt to net cap, I guess, is the -- where we used to have a 45% limit, we're going to be like 16% by the end of this year, maybe 17%. So we have a lot of dry powder to make acquisitions. And we won't be into the revolver, and we'll have cash on the balance sheet.

To the outlook, Sam, great question. When we put a pause on acquisitions for three years, it was so that we could get up to the numbers of the margin in top quartile, as you know. And we said we'd never back to becoming serial acquirers, and we remain steadfast in that regard. And there are plenty of opportunities in terms of outlook for spending money on acquisitions, but I would say that there are more opportunities to not to spend money. And with that, I mean, as I said in that one slide, our long-term approach to high-value acquisitions, they have to fulfill several criteria that we've now established as basically table stakes to getting into the hunt for us, and so they're further and fewer in between. And if I had my opportunity which is not -- I'll never get that's on timing of, of acquisitions. If it worked out perfectly, I would love to have a nice acquisition of around $100 million in terms of revenue size every 12 to 18 months. It just so happened that this one, TTC, was first quarter last year and Dresser-Rand first quarter this year, both superior acquisitions, and we flushed many other ones that didn't quite meet the type watermark that we had expectations for. And so I expected that will continue. Now it's all about timing of when these things crop up. As Glenn indicated, we have plenty of dry powder, but we're not by any means anxious to go out and frivolously spend it on less than the type of companies that we're -- that we've proven ourselves over the last, basically, 18 months to acquire. So strategy is very important to us. You saw that in the slide, talked about it and outlook. Looks great. I mean, a lot of opportunities. Like I said, timing is where it's at. And we have other companies that we're continuing to look at currently that sound pretty interesting. But it's probably 1 out every 10 make the cut.

Okay and then just lastly on the dilution and the purchase accounting issues. Since you'll have it for roughly eight months this year, will we be done with that dilution this year so that 2019 you start at an accretive level?

Yes. The step-ups having wind out for us roll out in second and third quarters, and then you're down to steady just the amortization. So that'll be done this year.

Our next question is from Nathan Jones from Stifel.

Just to follow up on the, the purchase accounting on Dresser there. Could you break out for me what is step-up amortization versus what the level of continuing amortization from that business is going to be?

We don't normally provide that level of detail, Nathan.

To kind of give you an idea, what it would be without all of that, but we don't really -- it's not our practice to, to provide that level of detail.

On the timing of revenue from Dresser, does that -- does it follow along roughly the same bell curve as the legacy business would. I mean, I know the nuclear propulsion system's going to go in pretty early. I would think the Dresser products are going in fairly closely thereafter. So should we think about that, that bell curve ramping up in '18, getting to peak levels in '19 and '20 before declining again, running the same way for Dresser that it does for your legacy business?

No, you're talking about the CVN-80 order that we just now -- yes, that would be the same cadence, very similar to our existing Navy business, yes -- bell curve.

I know you guys have also increased the level of R&D spending this year to develop new products looking to drive revenue that way. Can you give us an update on where you are in product development traction from that initiative, et cetera.

Well, it's many initiatives. I mean, what we said is, we were looking at a $10 million increase overall across all of Curtiss-Wright, $10 million increase in R&, D and there's several projects going on in our -- for instance, in our Defense segment, which is where both of our Defense electronics technologies they're looking at antitamper technologies and encryption, cybersecurity and some of the big technology infusions they're looking to do. In the Power segment, they're looking at a 50 hertz AP1000 product, which will be the next generation, I guess, of the AP1000. Commercial/Industrial, the big product there that we're looking at is a world traction inverter. We've signed 2 LTAs with two major customers last year, and this is the product that, that we're going to provide to them. So those are the big products there, will be ongoing throughout the year.

So I'd assume there that the 50 hertz AP1000 products not the market yet. But are any of these other things getting to market? When do you expect them to kind of hit the market and actually generate increased revenue?

I'm not exactly sure of those dates -- the exact dates.

It's on a -- basically, Nathan, on a continual release of products, not only those large ones that Glenn mentioned. For example, the 50-hertz reactor coolant pump on the AP1000, we are talking with several users and potential users for the 50 hertz and a lot of interest in that. Now the gestation period for reactor coolant pump of any type is pretty long, but with what's out there now, the 60 hertz and with the success that we've had to-date and with now the powering up, then that's going to further the interest there, and then with new countries like India and others that want the 50 hertz, that will increase that demand for that particular technology. So that was a little bit longer, but you get into stuff like medical mobility and then some of the joysticks and/or the on-road, off-highway, on-highway kind of product, and those can churn pretty quickly, like within six to eight weeks, couple of months. And then you get to the COTS, commercial off-the-shelf electronic, that can be several months, six months-or-so. So it's kind of a spread all the way across the board, and what Glenn described to you were some of the larger ones that -- they're the headline grabbers, but there are a lot of nonheadline grabbers that make up the bread and butter of the company.

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

Maybe, Glenn, back to Peter's initial question on defense. And I'm sure it's conservatism, but you kept the ground defense revenues, I guess, sort of in that flat to 2%. You had a really strong quarter. I mean, those revenues would almost have to be down for the remaining 3 quarters. I mean, I guess you called out the G/ATOR, but was there anything pulled forward, specifically, in the ground revenue segment? Or should, again, is it just conservatism there?

I can't think anything that pulled forward. That's why there's nothing so small, but we don't have a lot of stuff going on there. So, no, I don't have -- nothing really comes to mind...

Okay. Okay and then on the commercial segment, the margins were up nicely, I guess, 220 basis points. The incremental margins were very strong in the quarter there, I guess, almost 49%. You did mention you even had some restructuring in there. But how should we be thinking about some of the leverage you're getting in the commercial segment. And I think you called out surface treatment. I recall that always used to be a very high incremental margin business, volumes were flowing through those facilities. So maybe just some color on the margin strength there, the leverage you're getting and how we should be thinking about that going forward.

Yes. I mean, we had some relative large things flow through in the first quarter. But when you talk about -- think about this stuff is in our guidance. So I would look to our guidance as an overall -- how we think they're gonna to do. But they did have $5 million of restructuring benefits in the first quarter. It's pretty much most of their restructuring benefits. It's from prior year actions that we took. They also had some benefit from our ongoing margin improvement initiatives, in particular, supply chain management of a couple million bucks, so besides their favorable absorption on the higher sales. So you've got a couple of that going on. And this is a big quarter for them. That's not going to be -- I'm not going to have $5 million of restructuring benefits every quarter. This is the big quarter, and there isn't a little bit more, but it's obviously less than the rest of the year.

And then maybe just, Dave, can you give us sort of, maybe, the state of the union on the AP1000 kind of with Westinghouse potential orders, kind of where we stand and how you guys are thinking about the market as it evolves here and whether it's India or UK or just kind of expectations.

Yes. As I said in my narrative, we're really excited over the fact that Westinghouse was finally able to come up with a press release with the fuel loading commencing. And there was no way to print it for a long time. And I kind of went silent on it for a while because I stopped guessing as to when it would be loaded. And now they're in the process of doing that, and that's fantastic. It's going take -- I'm guessing it's going to take them -- this is hypothetical, but let's say six months before they would get up to full speed with the loading and actually produce energy at some level I might consider full. But again, that's hypothetical. And things are going well so far. So, as we've said in the past, once that gets humming along nicely and they're able to light up some electricity, then I think that we're going to see a resurgence in certainly interest from the energy providers in China and asking the questions, as I know they have been up until now to go ahead and start digging new holes for a new plant. So somewhere in that time frame, we would hope to also see a resurgence in interest in the timing of when new orders might be placed. But it's not imminent like a couple of days or weeks-or-so from now. It's still a little ways out we think. And our timing is still well within what I've been saying for the last couple of years, and that is, I said a few years ago as we know 24 months-or-so, we're still in good shape from a bathtub that we might experience. And so given both our Navy pickup and the stuff that's going on there as well…

Our next question is from Kristine Liwag from Bank of America Merrill Lynch. Your line is now open.

How does Dresser-Rand's contract structure for the Navy compare to your existing Navy business. Are these mostly fixed price or cost plus?

It's fixed price, very similar to our existing contracts. Usually, if it's a production contract, it's fixed price, and usually development contracts are more cost plus, but their contacts are very similar to ours.

And there's discussion of doing a multiyear buy of two aircraft carriers at a time, and then right there's also the discussion of the Virginia going to three per year. Can you discuss your operating leverage if this materializes? These two programs are mature at this point, and they're in production. How should we think of your margins if this volume does come through?

Well, again, our margins are -- on those contracts are in accordance with our customer, right, which is the U.S. Navy. So, this is -- I don't think we have a tremendous operating leverage on those contracts. They're very healthy margins, and they're great cash. As you know, we talk about it a lot. They're good cash providers. But we haven't seen anything about that. Yes, we hear about it, but we haven't really seen anything about it. So we hope it happens.

There is a lot of buzz out there. And then with these -- that's partially why we wanted to provide you all with some of the -- a little more transparency on the shipset value, and where we're at with these, particularly these new acquisitions because you can just do the math. And if they're going to go, you're doing 2 Virginia class. If you popped that with another one or you bring in the Columbia a little bit earlier, you got that. And then if you do the carrier, break it in the four years instead of five and or double down on it, you've got the numbers to model there. We forecast just the two a year on the Virginias and the one carrier every five, so that's just north of our conservative stance on it. But the numbers are pretty interesting, certainly, a bump to the revenue side.

And then to meet this higher volume, how should you think about -- how are you thinking about your CapEx? And is Dresser-Rand's preparation similar to your preparation already?

Yes, I mean, we took a look at that because we've been asked about our capacity by a customer. And I think the biggest thing we might have to put in is a new test loop, and that's -- I don't -- $5 million, $10 million maybe. So we have the brick and mortar. We have the footprint. We may need another test loop. And I would imagine, again, Dresser-Rand is going to be similar to us. I don't know that exactly for them. They're a little tuned in for us right now. But I would think they would be similar to us in terms of their needs.

That's great, and then just looking at their exposure. So it's a steam turbine business. Is this all U.S. Navy for the aircraft carrier? Or are there any exposures at all to the industrial end markets for the business that you acquired?

Very little industrial exposure.

Very little, predominately Navy.

And lastly from me. I know you provide a lot of color with the India AP1000 and then the fuel loading of the China AP1000, I guess, my question is are you expecting any orders at all to materialize this year? Is that something that's realistic? Or is this something that could occur realistically next year?

64,000 -- maybe $64 million question. To me, a $500 million question. Depending on where you look at. A good one, Kristine. I can't say. I don't know. It's -- there is a lot of interest, certainly, from the, like I said, the energy providers locally in China, but we're not counting those chickens before the eggs hatch. And I do believe that they're going to have to do a little prove-out of the production of electricity before the Chinese government allows them to go forward. And on this time line, I mean, we're certainly a little behind in -- from last August, we were hoping they'd be fueling, but I know that that's going pretty quickly. We're getting pretty much weekly updates on it. And things are moving along really nicely. So given some really positive results out of it, who knows. It's a guess right now. It could happen at the end of year. It could happen next year, either way looks good for us. We're still humming along on our big China direct order right now and just terribly excited about this opportunity. And it's getting traction with the Secretary -- Energy Secretary Rick Perry. He's been talking about it. So all kinds of news out there that seems very positive.

And can you remind us again today with a China order that you're building, what's your utilization of the RCP plant. And then what's your total capacity if an order does come through?

We can handle 24 pumps a year. And we're -- right now, we're building over, what, a four-year period we're delivering...

16.

16 pumps. So we've got plenty of capacity.

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

I wanted to ask about the acquisition of TTC and Dresser-Rand. And Dave, I was listening to your comments about how there's a lot of targets in your acquisition funnel, and they fall out and you picked the one that you want and you get it on favorable terms. So my question is how competitive is the bidding when you finally identify a target because, presumably, if it's attracted to you, I think it would be attractive to somebody else. So therefore, getting it on very favorable terms would seem counterintuitive. So if you could just maybe highlight how that negotiation process goes through and how much the back and forth? And is there a third -- does the target company try to bring in a third bidder?

Yes, it's really an interesting dynamic, George. And all of them have little nuances to the deals, and the art of deal making is certainly at play on all these -- I'll tell you quickly about TTC and then about Dresser. TTC, we met those folks a long time ago. We befriended them. We felt that it was a great company we wanted to follow and get close to. We worked with them. And then at one point, we were talking about an acquisition, and it didn't happen years ago. And we continued to remain in contact with them. And I believe that for all the strategic reasons that either company -- that both companies entertained was the reason that their management ownership decided to sell to Curtiss-Wright. And we're so proud of them. As a matter of fact, in two weeks, we're hosting our board meeting at their facility. And it's just that kind of a company that fits so well both ways. With us, they felt the same way about us, and we did and do about them. So that worked out super. Now do you get into an auction scenario in other cases? You take Dresser-Rand, for example, there are very few companies in the domestic marketplace -- in the domestic defense market that look like Curtiss-Wright and Dresser-Rand and a couple others. And if you were to go into their plant and squint your eyes and not look at the nameplates, you might think that you had have walked into a Curtiss-Wright plant. It is somewhat of a little bit different in that it makes steam turbines, and we do big rotating machinery, much like steam turbine machinery that they make, but it's the type of people that are working there, the product. The customer is…

And then one question for Glenn. Orders 605 million this quarter, down 6% year-over-year, and you call out the timing related to naval defense orders. When I hear timing, does that mean next quarter, it could be back or next year it would be back? And would you expect if it is just a short-term timing issue that order on organic basis would resume next quarter?

The issue with the Q1 orders for us is that Q1 last year contained two large multiyear contracts, one order, I should say. One was a $52 million CVN-80 pump order in the Power segment. The other was a $27 million helicopter landing system for Italy in the Defense segment. If you take those two out, our orders were up 7% the first quarter. So that's what's skewing the year-over-year, Q-over-Q comparison.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to David Adams, Chairman and CEO, for closing remarks.

Thanks, Gigi. Appreciate it. Thank you, everybody, for joining us today. We look forward to speaking with you again in the second quarter 2018 earnings call. Have a great day.

Bye-bye.

Ladies and gentlemen, thank you for your participation today's conference. This concludes the program. You may now disconnect.