Good day, ladies and gentlemen, and welcome to the Curtiss-Wright Second 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]. I would now like to turn the conference over to Senior Director of Investor Relations, Jim Ryan. Sir, you may begin.

Thank you, Shelby. Good morning, everyone. Welcome to Curtiss-Wright's second 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. Beginning this quarter, coinciding with the initial reporting of the acquisition of Dresser-Rand government business which we are now calling DRG, the company had elected to change the presentation of its financials and guidance to including adjusted non-GAAP view that excludes first year purchasing accounting cost associated with this acquisition. We believe this change in approach will provide improved transparency to measure Curtiss-Wright's core operating and financial performance including quarter-over-quarter comparisons and show better comparisons to company peers. Reconciliations for current and prior year period are available in the earnings release and at the end of this presentation as well as on our website. Also 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 second 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 second quarter performance as well as updates to our 2018 guidance. Finally, I will return to wrap up and then move on to Q&A. Before, I start talking about the quarter; I wanted to add a few remarks to Jim's introduction. We're fortunate to have found two great acquisitions in the last two years that provide solid, strategic, and financial benefits that will be accretive to our story for years to come. As an organization, we take pride in the fact that we've tried to be very clear and transparent with all of our disclosures adhering to a standard GAAP presentation of our financial information and guidance. So after conducting extensive research of our peers and numerous discussions with the investment community, we elected to provide an adjusted non-GAAP view of our financial performance for the first time beginning this quarter. We believe this view provides our investors the information necessary to better understand Curtiss-Wright's core operational and financial performance. Now on to the quarter, we delivered strong second quarter results exceeding our expectations as higher sales and improved profitability drove a strong operational performance particularly in the Commercial/Industrial, and Defense segments. Adjusted operating income rose 28% on a 9% increase in sales, generating a 260 basis point improvement in adjusted operating margin to 17.6%. This strong performance led to adjusted diluted EPS of $1.80, up 49% compared to the prior year's adjusted results. Free cash flow and new orders were also quite strong providing optimism for our full-year outlook where we increased all key metrics including sales, operating income, operating margin, diluted EPS, and free cash flow. As a result of our strong operational performance year-to-date and our outlook for continued momentum through the second half of the year, we increased our core diluted EPS guidance by $0.28. We also introduced an adjusted full-year 2018 diluted EPS guidance range of $6 to $6.15 representing year-over-year growth of 21% to 24%. And finally, we expect to deliver another robust performance overall this year led by our continued drive for operating margin expansion and free cash flow generation. Now I'd like to turn the call over to Glenn to provide a more thorough review of our second quarter performance and financial outlook for 2018. Glenn?

Thank you, Dave, and good morning everyone. I will begin with a review of our second quarter end market sales. Overall, we experienced a 19% increase in sales to our defense markets, while sales to our commercial markets increased 3% year-over-year. Starting with the defense markets, our results reflect strong organic growth of 9% with gains across all three markets partly due to timing of sales originally expected in the second half of this year. In aerospace defense, our results reflect solid demand for flight test equipment and actuation systems most notably on fighter jets including F-35 program. In ground defense, we benefited from higher sales of embedded computing products on various international programs. And finally, in naval defense, our results reflect increased aircraft carrier revenues most notably on the CVN-80 program as well as the solid contribution from our DRG acquisition. Moving to the commercial markets, beginning with commercial aerospace, core OEM sales of products and services were up a little over 10% in the quarter but were largely offset by reduced revenues from FAA directives that are winding down. In Power generation, our results reflect lower revenues on the domestic AP1000 program which was substantially completed in the second half of last year as well as a decline in the nuclear aftermarket sales as expected following seasonally strong outages in the second quarter of 2017. While we are expecting a sharp increase in the second half of 2018 on the China direct AP1000 program, revenues in the second quarter were essentially flat year-over-year. And finally, in the general industrial market, strong sales growth of 14%, 11% of which was organic reflects increased demand across a number of energy and industrial applications. Next, I'll discuss the key drivers of our second quarter 2018 operating performance. Please note that I…

Thanks, Glenn. Before my closing remarks, I wanted to provide a few updates on the on the AP1000 program. Westinghouse and its partners in China recently announced that the Sanmen Unit 1 AP1000 nuclear reactor has been connected to the grid and is working through power testing. Commercial operations are expected to start before year-end. In addition fuel loading has been completed at the high-end 1 reactor and plant heat-up has been initiated prior to reaching criticality. Commercial operations for this plant are also expected to start by year-end. We continue to expect that the successful commercial operation of the Chinese AP1000 plant should open our door for additional interest in new AP1000 reactors and Curtiss-Wright RCPs. Regarding the impact of China tariffs on our current China direct AP1000 order, I'm pleased to report that to-date no tariffs have been issued which impact this program. We have also assessed the impact of the first and second waves of U.S. tariffs and we do not expect these tariffs to have a material impact on our margin in 2018. Looking ahead, we will continue to assess the changing landscape and any potential impacts. In summary, Curtiss-Wright is performing well and we're positioned to deliver strong results in 2018. We expect synchronized sales growth in all end markets generating 5% to 6% organic growth and 8% to 9% overall growth including DRG. We're driving continued operating margin expansion with an adjusted 2018 guidance range from 15.2% to 15.4% led by increased sales and our ongoing margin improvement initiatives. We also expect to deliver strong double-digit growth and adjusted diluted earnings per share at more than $300 million in adjusted free cash flow. We continue to deliver on our strategy and produce 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.

Thank you. [Operator Instructions]. And our first question comes from Kristine Liwag from Bank of America. Your line is now open.

When I look at your 2018 operating results and compare that with adjusted 2017, it looks like incremental operating margin was 21%, is 21% a good juristic for the business going forward and considering the cost cutting you've achieved in the past few years, should we expect to see upside to that 21%?

I'll continue with what you say, it's very hard to put one number on the whole company because we're so diverse, every business has -- you'll see in some of our segments now has their own incremental kind of margin profile and there is many businesses within that that have their own but I've said 25% is a fair number for the overall enterprise. And yes, I think there could be upside to that for sure.

Great. And maybe to the China AP1000, congratulations on the fuel loading of Sanmen 1, if I recall correctly there was a parallel development by a Chinese producer for reactor coolant pumps for the AP1000, after you did the technology transfer. How is that manufacturer doing and at this point would you be able to get incremental volume from them, if they're not doing well and then also as a follow-up to that when would you expect to get more Chinese orders for the next set of power plants?

We're not sure when we'll get the next set of orders. We do believe as I indicated in the narrative and we've talked for a while now that with the -- going on the grid that will produce the excitement that's necessary to really start that ball rolling. So it can happen any time from the end of the year to maybe a year or so. These are long gestation kind of programs and so we're not counting those chickens before the eggs hatched this time around. So it could be a little while but on the other hand, it could come in relatively soon after they produce power. With regard to the indigenous production by Chinese National Company, we don't know of any qualified supplier of RCPs other than ourselves at this point last we heard, they're still working to build a unit and that as you followed us Kristine for a long time, you saw how long it took us to get there. So mainly the statement in the past so I do believe that they will be successful and they will build a unit -- will look identical to ours, will perform identically should but there is -- there are lot of nuances that go into one of those things. And we do believe there we’ll be a partner in this process for years and years to come. So we’re basically not looking over our shoulder in that regard but we don't have anyone in the plant there and the competitor let's call it competitors plant. So we're unable to really see the progress, we do hear through our people that are on the ground in China as far as what is passed around relative to the narrative over there and like I said, there is nothing qualified as of yet and so we don't know if anything has gone through testing at this point either.

And our next question comes from Nathan Jones from Stifel. Your line is now open.

Obviously, very, very strong performance here. I would just like to get a little bit of color on some of the things that may have been pulled forward into 2Q 2018, some of the things that might have been a little bit one-time in nature and a couple of bullets I will refer to specifically from the slide deck are highest sales in defense that were partly timing, I'm wondering if you could quantify what it was that coupled into second quarter that you were expecting later and the favorable contract adjustments for the naval business, I'm wondering if you can give us any color on that; is that something that's one-time in nature or is it something where your estimated profitability is timed out to be too low and you had to adjust that up and make it catch-up or something like that?

I don't, Nathan it's a good question, it is not, I don't wouldn't call onetime but we did have some timing issues certainly in the defense segment that impacted their sales and margin. So but first on the favorable contract adjustments these were earlier than planned close-out on a couple naval defense contracts and the adjustment was $4 million to both the sales and OI. So if you take that out -- the contract -- take the contract adjustments out, defense OI margin was more like 24% still not too savvy. But they also had benefit of favorable absorption on higher sales of their higher margin costs in TTC product lines which also helped their produced about $7 million in OI, now part of that is timing and part of it is not and it’s due to our early receipt of materials on certain contracts that were planned in the second half of the year, $10 million in sales and $4 million of the OI improvement.

Okay, that’s helpful. I appreciate the transparency as always. The volume was still quite a bit higher in the defense segment than I think we'd expected. Is there any more information you can give us on the timing of some of these contracts, has the acceleration in some of this revenue here not just accelerated 2H into 2Q maybe a little bit but accelerating 2019 into parts of 2018, it sounds like some of the JSF stuff might be proceeding faster than you had originally expected. Does that still affect the back half and your outlook on revenue there?

I can't -- I don't know about that, the 2019 but I don't know of any particular -- anyone remember sounds like defense embedded computing has like thousands of programs right, so I don't know of anyone particular one, I don't see -- I don't know the JSF moving any faster than the normal schedule as far as I know. But so I don't -- I don't see that.

Okay, one last one just on price cost which is still the topic of the day out there in industrials, I know you guys said that you don't expect any material impact on margins from Paris that we do have additional inflation out there in the market, where is Curtiss-Wright on price cost and do you expect that to be positive, negative, neutral in for the remainder of 2018?

Yes, we have checked with our supply chain team and it deemed to be immaterial impact for 2018. However we would pass any cost increases along to our customers where we are able to of course. However what we have seen is a shortage of electronic components which is causing some delay in deliveries to our customers and also some increase in cost because of the supply and demand we have to expedite and pay little bit more money to get what we need. It’s mostly in our embedded computing and industrial businesses and it's due to the increased use of passive components like capacitors and resistors primarily in automotive and smartphone applications. In the electronics is spreading so fast most all throughout the industrial arena but so that's -- that's where we've seen some activity on the cost -- input cost side.

So it sounds like you've said some cost inflation there, but you have also said profitability improved, so you’re being able to pass that along?

Right.

And our next question comes from Asher Carey from R. W. Baird. Your line is now open.

Hey, I wanted to turn back to the Power segment, the visibility and the nuclear aftermarket, difficult. I'm wondering could you talk a bit about the challenges you’ve facing here so far year-to-date in the aftermarket which has been a headwind on sales and profitability year-to-date, is it just timing related or should we expect this to persist in for naval defense to carry in the second half of the year in the segment?

No, the segment is going to -- well both the AP1000 I will do each one and the nuclear aftermarket both going to be up in the second half. So new -- in the aftermarket Q2 was down as expected because compared to the prior year because 2017 the second quarter was the seasonally highest for the outages in the industry. So that's what happened there. H2 we expect significant sequential quarterly improvement in this business due to the timing of outages which is heavily weighted to the second half in 2018. So in a way it is the timing issue and that’s what you're seeing there. On the AP1000 program in the second quarter, I think we said China Direct AP1000 revenues were flat. However we did improve the profitability but it was offset by under absorption on the lower domestic AP1000 sales. Year two, we expect the sharp increase in the China Direct AP1000 sales despite the $20 million adjustment we made out of 2018. So you’re going to see a good second half from Power segment, strong.

Thank you. And our next question comes from Michael Ciarmoli from SunTrust. Your line is now open.

Hey, good morning guys. Nice results year-to-date.

Thanks.

Maybe Glenn, just on the cadence of earnings here and sort of the split, you obviously laid out that pull-forward, so obviously the 40:60 earnings split, I mean it sounds like that's no longer applicable. Should we be thinking something about this sort of balance 55% in the back half, or you guys still thinking a 40:60 split?

No, it has changed obviously based on the second quarter. It's -- I think it’s more I want to say 54, 56 something like that.

Okay.

It's closer. It definitely has changed. And yes -- that's I think that was --

Okay. On the commercial segment I mean the topic of incremental margins came up earlier, I think you were close to 39% in the second quarter for the Commercial/Industrial segment you obviously raised that forecast, is there any reason why those incrementals in that segment can continue, I mean based on the margin outlook for that second half, it seems like the incremental margins would be a little bit more pedestrian below 20%, I mean is there any mix, any sort of changes with the profitability that that would relegate you guys to a sub 20% incremental margin for the second half in that segment?

No, no that segment has been very strong in the restructuring in the past and this current year and they've set themselves up with a cost structure, they get any tailwinds from revenues, it’s going to be a good solid incremental margin and you're seeing that in the second quarter. But now I don't see anything, there's sales will be somewhat flat, I think in the second half but their margin will be up. They will continue to again they continue to get any sales tailwind it could be a good sign, good trend.

Okay, that's fair. Then I have asked about it in the past, I think your ground defense forecast is unchanged, but yet you continue to put up strong double-digit growth here, I think the comps get a little bit tougher but I mean any dynamics there that would predicate a potential slowdown or lack of follow-through, I mean, I think you called out $150 million in defense orders, I mean it seems like the tempo is going to continue there and to get down to that flat to 2% really, really implies. Again you got tougher comps but is there any changing dynamic in that ground defense market that we should be aware of?

Well, I know in the domestic, they are -- we've been starting to hear more and more about modernizing deals and we have the future combat system, we have the GCB and now that finally -- well we have these strikers -- all these ground vehicles around and they’re going to modernization. So that will be a dynamic that we would certainly help us improve in that market.

Okay. Is nothing changing to the negative though in the second half, right?

No, no, not to my knowledge.

Okay.

No.

Okay. Last one from me. Just more color on the orders, I mean that was a multi-year high, I think $700 million in orders, you talked $150 million on defense, can you give any color to the other segments on orders, was there any concentration of a particular product or were they pretty broad-based?

It's pretty broad-based and large because most of them defense -- although, almost all of them are defense-related. So in the Power segment we had $64 million of orders for CVN-80 and Block V subs for pumps and valves. We also had $54 million in the Power segment for the addition of DRG and part of that, that’s part of the order that we announced right after we bought it for the CVN-80 I believe. And in the defense segment, they had like $39 million of orders for international navies and flight test equipments specifically on the F-22. Those are those big, big ticket items organically; because the orders were up 18%.

Okay, commercial -- commercial segment orders, you have that number?

I think it's flat.

Flat.

That's just down slightly couple of million dollars that's all year-over-year.

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

Thank you very much. Good morning gentlemen, nice quarter.

Good morning, George.

Good morning, George.

Thank you. I just wanted to just make sure I heard that right; DRG Glenn in the quarter was $15 million on new order book?

$54.

$54 million and orders were up 18% organic, I just wanted to get that clear.

Yes.

That’s great. And then I heard you said about the cadence of earnings in the year being going from 40:60 split to more of a 45:55 split. Do you think the smoothing of revenue and earnings pattern takes place in 2019 as well at both the top and bottom-line that is a less cyclical on a quarter-to-quarter basis and more evens out?

We don’t know because quite frankly some of what when I mentioned material receipts, I don’t want to get too deep in the weeds on revenue recognition rules and all that stuff, but it basically in some cases where we used to ship and bill, record revenue when we ship and bill and now we recorded over time and some of that you see was happening in the second quarter. So for instance, in defense, you used to have humongous fourth quarter, some of those sales that we would have reported revenue in the fourth quarter we received material on now. So we would start to report over time. So we don’t know yet this is our first year in it, but it might be our new profile but it's too early for me to tell that.

That’s great, okay, thank you. And then Dave I heard your comments about China plant have been up and running and that's great, do you give us a sense that power officials in India might perhaps be monitoring that very closely and could be looking to move forward on their nuclear plants?

I do believe George that they are watching that very closely, I think the world is watching it extremely closely, from all the reports that we are getting it had generated that kind of buzz from being the latest greatest safest nuclear power plant in the world. So in that regard it's great question, moving right along I believe though that the Indians are not quite there yet, it is going to take them a while like it did the Chinese early on and I don’t think it’s going to hurry up their plan but it will certainly contribute to the recognition that these things are good, they are active, they can be built, they can be built on iron given the right infrastructure to do so and I know Westinghouse is working that very closely. In fact with the Indians right now and we’re both Westinghouse and Curtiss-Wright have been involved in dialogue with India on what sort of pricing expectations we might have and we’re still working through indemnification language. So it’s just reinforcing the activity in China, Sanmen and Haiyang is reinforcing what it is, we've said all along and but I think the orders out there in India are they are going to follow these -- the follow-on orders in China. So it might be a couple of years before we see it but certainly some very strong forecast opportunities out there for us.

I’m showing no further questions. I would now like to turn the call back to Chairman and Chief Executive Officer, Dave Adams for any closing remarks.

Thanks, Shelby, and thanks to all of you for joining us today. We look forward to speaking with you again during our third quarter 2018 earnings call. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.