Good day, ladies and gentlemen and welcome to the Curtiss-Wright Fourth Quarter 2021 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Jim Ryan, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Blu and good morning everyone. Welcome to Curtiss-Wright’s fourth quarter 2021 earnings conference call. Joining me on the call today are President and Chief Executive Officer, Lynn Bamford and Vice President and Chief Financial Officer, Chris Farkas. Our call today is being webcast and the press release as well as a copy of today’s financial presentation is available for download through the Investor Relations section of our company website at www.curtisswright.com. A replay of this webcast 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. As a reminder, the company’s results include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright’s ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions and divestitures unless otherwise noted. GAAP to non-GAAP reconciliations for current and prior year periods are available in the earnings release at the end of this presentation and on our website. Now, I would like to turn the call over to Lynn to get things started. Lynn?

Thank you, Jim, and good morning, everyone. I am pleased to share our results this morning upon the completion of my first year as CEO. I am proud of where Curtiss-Wright is today and where we are headed. Over the course of this year, we took a number of steps to execute on the pivot to growth strategy presented during our Investor Day last May, including simplifying the business model, deepening and expanding our customer relationships and advancing the One Curtiss-Wright vision. The strong results we delivered in the fourth quarter and full year 2021 are early proof points that our strategy is working. With that, let me turn to the key highlights of our fourth quarter and full year 2021 performance and some notable events that have taken place during the past 2 months. Then I’ll turn the call over to Chris to provide a more detailed review of our 2021 financial results and initial 2022 guidance. Finally, I’ll wrap up our prepared remarks before we move to Q&A. Starting with the fourth quarter 2021 adjusted highlights. We delivered a solid performance as sales and operating income each increased 2%, while adjusted operating margin was strong at 19.7%. Our results reflect the strength of our combined portfolio, where top line pressures from continued challenges within the supply chain were more than offset by strong commercial revenues and the benefit of our operational excellence initiatives. It’s important to note that we achieved these results while overcoming a push-out of defense sales as well as lower CAP1000 revenues as this program continues to wind down. With our strong operational performance and the benefit of our share repurchase activity, adjusted diluted EPS was $2.40 in the fourth quarter. This was slightly above our expectations, especially considering that we overcame a higher-than-expected tax…

Thank you, Lynn, and good morning, everyone. I’ll begin with key drivers of our fourth quarter results by segment. Starting in Aerospace and Industrial, we experienced an 8% increase in sales driven by solid demand across all of our major markets. This included double-digit growth increases in general industrial, where we continue to benefit from strong order activity and also within aerospace defense, where we had higher revenues on various fighter jets. Within the segment’s commercial aerospace market, we experienced improved demand on narrow-body aircraft, which was partially offset by the wide-body delays due to the 787 certification. The segment’s adjusted operating income increased 20%, while adjusted operating margin increased 200 basis points to 19.5%. Our results reflect favorable absorption on strong sales and various pricing and operational excellence initiatives that mitigated supply chain headwinds across our business. In the Defense Electronics segment, sales increased 10%, reflecting strong demand for PacStar’s communication equipment in ground defense and higher revenues in Virginia class submarines in naval defense. Our results would have been even stronger, if not for the timing and delayed receipt of electronic components resulting from the continued challenges affecting global supply chains. In Aerospace Defense, while we had higher revenues on the F-35 program, revenue timing was once again a factor as we experienced a shift of approximately $20 million in sales out of 2021. The segment’s adjusted operating income increased 17%, while adjusted operating margin increased 160 basis points to 26.5%, reflecting favorable absorption on sales and improved mix based upon the push-out of lower margin system sales. Next, in Naval & Power segment, our results reflect the timing of sales of our naval nuclear propulsion equipment and reduced CAP1000 revenues as this program continues to wind down. Conversely, we experienced higher valve sales due to continued strong…

Thank you, Chris. I’ll begin with some exciting news on the AP1000, where we have a significant opportunity to revitalize our long-term position on this critical Generation 3 plus nuclear reactor program. As I noted in my initial comments, we reached a settlement agreement with Westinghouse, covering all outstanding claims on both sides dating back to 2007. This agreement, in addition to resolving these legacy matters, strengthens the relationship between Curtiss-Wright and Westinghouse at a critical turning point for AP1000 technology where the demand continues to increase throughout Eastern Europe. Under the terms of the agreement, Curtiss-Wright has agreed to pay Westinghouse $25 million over the course of the next 2 years. In turn, we have secured Westinghouse’s commitment to Curtiss-Wright’s RCP technology in future AP1000 plants for their next multiunit project, likely in Poland, while also opening a vast opportunity to new AP1000 plants emerging in Eastern Europe. We now have a clear path moving forward that secures our future economic value with the potential to generate new RCP orders from Westinghouse within the next 3 to 5 years. Further, a reminder that our long-term guidance does not include any RCP orders and that this would be upside potential to any current guidance. We view this as positive news for our long-term shareholders. Turning to Slide 9, I’d like to spend the next few minutes discussing some of the ongoing portfolio shaping that is taking place at Curtiss-Wright as we continue to drive our mix towards a higher percentage of A&D sales, which comprises two-thirds of our total sales. Starting at a high level, as you’ve seen over the years, we are actively looking for acquisitions to support our continued drive for profitable growth. In addition, we will not shy away from occasionally pruning businesses or product lines that…

Thank you. [Operator Instructions] Your first question comes from the line of Kristine Liwag from Morgan Stanley. Your line is now open.

Hi, good morning, guys.

Good morning, Kristine.

Yes. Good morning.

Hey, Lynn, can you provide more color on what drove the Westinghouse settlement? With Curtiss-Wright as the only company able to build the AP1000 reactor coolant pump today, one would assume that you have a lot of leverage for getting the future contracts?

So this whole situation has been going on for a long time as we stated since back to 2007. We believe the opportunities to build-out AP1000s across Eastern Europe is within line of sight, and we really needed to move past this situation in a manner that was deemed to create economic value for both us and Westinghouse. And we feel as if it was the right way for us to set the relationship in a manner that we can really lean forward and work proactively together to attack this market, which we see as quite significant in Eastern European standalone. And so it felt like a good choice for Curtiss-Wright to create long-term economic value, which is what we’re consistently focused on.

Thanks, Lynn. And in Eastern Europe today, I mean, it’s clearly the topic of the day and your opportunities are for Poland, Ukraine, Bulgaria, Czech Republic and Slovenia. So how do unfolding events in Ukraine today change your outlook for these AP1000 plants or is it too early to understand long-term effect?

I think it’s too early to really know the long-term effect, I mean, knowing that was going on. I mean, Westinghouse has signed an MOU with Ukraine. So we surely didn’t want to discount it and not represent it in part of the total potential business. But I can assure you that as we went through the negotiations at the end of December and into this year, we’ve very much thought of that business very cautiously and discounted it significantly in our thinking as we went forward. But I think there is two sides to this. If you look into today’s Europe, it very significantly dependent on Russian natural gas, Finland gets 94% of its natural gas. Bulgaria 74%, Slovakia 70%, Germany 49%, Italy 46%, Poland 40%, France 24%. And they also – from Russia, and they also get about third of Europe’s total crude oil. And so I think if anything, the determination of why these countries were moving was both green and energy independence and security. And so I think these – the events of today, however, plays out in Ukraine, and we surely hope it plays out well for the Ukrainian people. But I think we will surely increase the resolve of nations to wanting to have that energy independence. So it’s two sides.

That’s really great color. And if I could squeeze one more, and I’ll get back in the queue, how much of AP1000 is included in your 2022 outlook and also in your long-term outlook from the Investor Day? Can you just remind us?

So I’d say just to make sure everybody is baselined with the same fact. No new orders are included in our ‘22 or ‘23 guidance. And I’ll let Chris go ahead and speak to the wind down of the current contract.

Yes, Kristine. We have – we reached peak program revenues for this program. It was $105 million a year for 2018. As we were entering into ‘21, we said we had about $80 million of revenue remaining that would be ramped down over the next 2 years. That is through this year. Right now, we have about $30 million of revenue remaining on that project. So it’s a pretty significant headwind that we talked about here in our prepared remarks. It’s 1% to total Curtiss-Wright organic sales. And as we’ve said in the past, it is a profitable program. It’s 23% plus margin. So to be able to continue to maintain those strong 18% margins in Naval & Power and then also reach upward to the 17% goal that we had, I mean this has been a significant headwind that we’ve been fighting and the team has done a great job through operational excellence and to expand margin to position ourselves for this headwind.

Great. Thanks, Lynn. Thanks, Chris.

Yes.

Thanks, Kristine.

Your next question comes from the line of Myles Walton from UBS. Your line is open.

Thanks. Just hoping to pick up just quickly on the AP1000 for a second, does the agreement with Westinghouse continue to cover your global presence of the AP1000 and you’re just highlighting some recent MOUs? Or is it an expansion in the relationship that is triggered by the settlement?

Yes, it’s not limited to Eastern Europe. It’s just that is the opportunities that seem to be the closest at hand. And that’s why we’re really focusing on it in the presentation, but clearly not limited to there.

Okay. And just a quick one on that. You took a charge in the quarter, but I think it was $13 million with the charge by $25 million of the cash outlay through next year. Is there a provision you’ve previously taken?

Yes. So we handle this basically two different ways. I mean – so the settlement, first of all, was to resolve any and all open claims between the parties, Myles. This wasn’t only the LDs, but there were significant claims and counterclaims between us and Westinghouse. And that also included certain warranty matters for first-of-a-kind reactor coolant pump technology. So the portion of the settlement that was not covered in our warranty reserves was $13 million. We recognize our warranty reserves as a percentage of sales over time, and that really covered the remainder of the settlement. We view the warranty side of the claim to be more in the normal course of business. We don’t expect to change our accrual rates going forward. So that closes the balance.

Okay. Perfect. And then on the supply chain issues, can you just give us some color? Is it mostly out of embedded computers? Is it coming from anywhere else within actuation? And then sort of the recovery profile that you’re baking in for the year, I heard the comment you made about more back-end loaded than even usual, but maybe just put a finer point on that, if you can, to your visibility in the recovery?

Sure. Thank you. It definitely is. I think the area we’re most focused on is Defense Electronics with the component connection and being one of the greatest areas being impacted. But there are pockets of impact around the organization is certain materials and sheet metal and steel like different things are – that is really broad spread. But clearly, the team that is feeling the impact the great is Defense Electronics. And we’re doing – I’m proud of what the team is doing to mitigate it. They were continuing to spend time to qualify dual sourcing options, working with their partners, leveraging their DPAS rating. So a lot of this stuff we talked about last year is continuing ongoing. And we continue to refine our systems to look further out into our forecast and continuously be doing long lead item orders and working the data to maximize that. But to put some more specificity on it, overall, at CW level, we’re expecting about a 2% revenue push to the back half of the year versus our normal split and most of that is in Defense Electronics. The other team that slightly impacted is the aerospace. And in aerospace and industrial, we do have some of that business is tied to components, and it is also feeling some of that impact.

Okay, okay. And then in terms of the industrial growth that’s implied in the guidance, one of the faster recoveries, I think it’s embedded in the guidance right now. Can you give some picture as to your visibility of that recovery? How much is the backlog sort of which markets in particular are driving that high single-digit growth?

Yes. Sure. I mean I’ll start off, Myles, and then if Lynn wants to offer any additional color. But as we approach ‘22, our strongest end market growth is going to be within commercial aerospace, and that’s 9% to 11% growth. In Q4, we saw sales in crucial aerospace. We’re up $7 million or about 11%, and that was both in the Aerospace and Industrial and Defense Electronics segments, mainly narrow body. I think we talked about how we have a little bit of wide-body headwinds to start off the year and narrow-body would pick up. So overall on the year, sales finished flat as we had projected. But orders in commercial aerospace have been sequentially improving since those lows of the pandemic within both our short and long order cycle businesses. But in the fourth quarter, those orders were up 90% year-over-year. So our total orders in ‘21 across the entire year were up nearly 40%. So we’ve got a real strong order book and backlog in supporting that business as we enter into the full year, and most of it is within our long cycle. I mean, our surface tech has still been kind of one slower and steadier as it’s improved. But we feel very good about the trajectory of that business and where we’re headed in 2021. On the GI side, another strong year ahead of us, mainly due to industrial vehicle product orders, from this last year in Q3, I think we were talking about achieving historic highs in orders in ‘21. For the full year, our backlog nearly doubled. Now as we’re watching orders, they are starting to come down. So we’re watching that cautiously to avoid any slack in demand. But I will say that those orders, even though they are down, are still above 2019 levels. So we’re looking at ‘22 and expect the general industrial markets to grow roughly 6% to 8%. So, some solid movements.

Okay. Go ahead.

Yes, I was just going to mention one other thing that is out there to drive some growth across the segment is as hopefully, we get an appropriations bill and we start spending some of the infrastructure money, we really think there’ll be some tailwinds for us in both on-highway and off-highway vehicles as they are funding for electric buses and things of that sort and more construction work. And so that’s something else that outside the aerospace, we feel optimistic about.

Okay. And just one quick one. In terms of the acquisition of the Arresting Systems, do you have a sense as to cash versus incremental debt you’d use for that deal just as we look at your free cash flow this year and how much you would sort of have available or access for incremental above the $50 million placeholder of repo?

No. We have capacity, and we will have capacity on our revolver to do that, Myles, at that point in time. But I think it’s always in our best interest to really take a look at where the market is headed long-term and ensure that we’re balancing our overall effective interest rate long-term for the company. So I’m not going to say that we’re not thinking about other financing options at this point in time. We certainly are. But right now, I feel comfortable that we could execute that transaction on our revolver.

Okay, thank you.

Thank you.

Thank you.

Your next question comes from the line of Nathan Jones from Stifel. Your line is now open.

Good morning, everyone.

Good morning, Nathan.

I just wanted to follow-up on the comment that you made there that general industrial orders are coming down a little bit. Maybe you can provide a little more color on where, what and your expectations for that going forward?

Yes. So they have declined, Nathan, but they are still above pre-pandemic levels. I mean they are really strong. I think this last year, when you look at historic highs and your backlog doubling, I mean, more color ‘21 was up 20% versus our next highest order year, which was back in fiscal year ‘18. So just an incredibly strong year last year and we spend a lot of time talking to our customers about what’s happening here, just trying to make sure that they are not placing orders to get ahead of what’s happening here with the electronic component shortages and some of the other issues that we’re facing in the supply chain to avoid a slack in demand. But the feedback has been, there is a little bit of a mix of both that’s going on here, but we feel very comfortable entering into the year with what we’ve seen here in January and February so far that order levels continue to be strong. So we’re certainly well positioned here for 2022. And I think as we look out into 2023, I mean, we’re going to continue to watch this closely. And if we see anything that makes us think that there is a potential change coming then we will react accordingly.

Okay, thanks for that. And I do have one on the AP1000 RCP. You called out the potential for $1.5 billion in orders. Based on your understanding, are those projects highly likely for Westinghouse to win them? And then obviously, you’re the only approved supplier on that. Could you talk about the – how confident you are Westinghouse is going to win those projects? And then what the timing of this would be? I mean, obviously, these things are very long-term contracts. When would you start seeing the orders? When would you likely start seeing revenue and over what kind of period would it be spread out?

Okay. Thank you. It’s a very reasonable question and one that we anticipated. So, I appreciate you asking it. This is – it is a long-term values that we are looking for. And clearly, there is potential in Ukraine. We don’t know how Ukraine is going to – what’s going to happen across the country. But we definitely discounted it in how we thought about putting forth that $1.5 billion number. But to go more directly to the timing, Poland is where we believe we will pick back up on building AP1000s with Westinghouse is the most likely. And it’s very public – Poland has put forth the timeline of when they want to see the commissioning of the first nuclear reactor, and that is 2033. That’s very put out in the press. And if you just simply back up from that, that means they really need to be pouring out the plant foundation in 2028 and equipment needs to be procured 40 months before the concrete date. And so that puts you into 2024 to start procuring concrete. Now we know these things don’t always go to schedule. They have been making nice progress so far with kicking off the feed studies and stuff last summer and are marching along with it. But that would have implied procurement in 2024. We said 3 years to 5 years as to allow for there are some delays. And so we feel like that’s a conservative timeframe, but that’s how we got to putting forward the timeframe. And if you go through not all the – not everything is in the public. But I think today, as mentioned earlier, is just going events regardless how it goes, it’s going to increase the resolve of a lot of Eastern European nations and European nations to drive for their own energy independence. And there is definitely – we have een saying it a growing recognition that nuclear reactors need to be a part of that. But that also continue to increase our enthusiasm and optimism for all the work we are doing with SMRs and NuScale and X-Energy and the work on that side that some will be more traditional plants is really what Eastern European seems to be talking about, but I think it will be a mix with the others. So, I think we have just got a great capability or in a good position to really attack this trend that’s happening around the world.

And just to give you a little more color, and certainly, there is a lot to be determined yet in terms of pricing and how that will all play out in the quantities that will come in that first multiunit order. But if we turn back to 2015 when we signed the last agreement with China in December, that was a $450 million contract for the RCPs, and those RCPs were about $28 million a top. As I said earlier, we reached peak revenues on that in 2018, and that was $105 million. So, as you look at it, it’s kind of on a bell curve. I think this contract has been extended a little bit based upon the China contract based upon the customers’ needs. But that hopefully gives you kind of a good idea as to what this could mean. And that last contract was the one we are closing out on now is 23% plus, plus. We haven’t really said how much higher than the 23% plus, but it’s a plus, plus.

Yes. And just one other piece of color on Poland as you said is the example to walk back the timeline. We have received a budgetary RFP for 24 RCPs tied to those plants. And so we are pleased at the pace we are seeing things move along.

Okay. Just for one clarification. Assuming that the timeline goes as planned there and you are commissioning in 2023, when would you actually say the order and when would you actually start realizing revenue?

So 2033, I know that’s what you meant, but just to make sure we are all…

2033, yes.

Yes. Backing in, the traditional timelines would imply they start procuring in 2024. We are saying the way things go in the world, we will predict a 1-year slip to that. But if you just take a straight traditional timeline of 5 years prior for concrete and 40 months prior for procurement, it would imply 2024.

Yes, straight public information since 2024.

Yes.

Perfect. Thanks very much.

Your next question comes from the line of Peter Arment from Baird. Your line is now open.

Yes. Good morning Lynn. Hi Chris, thanks for the details on the kind of the headwinds that you have been fighting on the AP1000. You guys are doing a great job. But can you maybe talk a little bit how you are kind of managing the inflation headwinds that are out there and what you are able to pass along? Just any commentary there would be helpful.

Sure. Thank you for that. We really started feeling the inflation. I think most in the components as the component shortage was going up, but we really are seeing it across the board in metals and shipping materials and transportation prices. So, it is real – between Kevin and myself, we put in some new reporting mechanisms. We started this in last year, but added it to our monthly financial reviews with the team that give us much more detailed tracking of what we are seeing with inflation and how we are passing it on when possible to our customers with price increases, which people are understanding is going to come as all the raw materials kind of go up across a lot of our product offering. So, it’s very much top of mind, something that we started tackling last year, and we have just continued our focus on it.

That’s helpful. And then if I could just follow-up on your R&D investments that you are – that are a little bit of a headwind this year in Defense Electronics, can you give a little more color around that? Is that a continuation? I think you have had some R&D spending last year. And do you see that increasing as we go forward, or is this wrapping up this year?

Really, we kind of resisted putting out predictions for year-over-year R&D decreases in other than the year we are in to really allow ourselves to have a free hand to make those judgments and trade-offs as we enter the years as to what the potential projects are and what’s the best use of dollars. But much of the increases this year are continuation along the lines of things that you have heard us talk about in the past. Predominantly, it’s in the Defense Electronics area around continuing to build out the most of the product lines, some are more traditional board type of offerings, some within the PacStar type of equipment. So, that push for the adoption of MOSA across the defense industry is just keeps gaining speed, and we believe we are in a leading position right now with it and want to make sure we maintain that leading position. But we are also spending some money around our – in our A&I segment around the electrification that, again, we have positioned ourselves well with technology and as more and more vehicle manufacturers look to convert, often we have to make investments to have the right products for them to fit their specific vehicles, and that’s money that we are very much leaning forward in spending.

Yes. And I would just add, I mean to Lynn’s point, it’s really all about seizing the opportunity, but we are doing and have been doing a lot of work to ensure that the R&D monies that we are spending are going to the highest and best use. And we talked a little bit about this at Investor Day, and we feel like we have an opportunity to be a little more influential and how that works at the local levels and feel very good about where we are investing right now. We also look – although it’s less relevant to where we are relative to our peers in the industry, and we feel like we are well positioned. We are not in an overspend position. I think maybe creeping up a little bit past the 50th percentile. But really, it’s mostly about just kind of seizing the opportunities and making sure that we are really being effective with the way that we are spending that money. And I feel like things are – we are doing a good job there.

Thanks.

[Operator Instructions] Your next question comes from the line of Christopher Rieger from Berenberg Capital. Your line is now open.

Good morning Lynn, Chris and Jim. Thank you very much for the time.

Thank you.

Could you walk through the assumptions you have baked into your guidance with regard to the ongoing continuing resolution and sort of your defense budget expectations and sort of somewhat related? Is there anything in particular that you are looking for in the upcoming 2023 budget request?

So, I will start that off, and Chris might want to add a little color when I am done. So, I would start off to say we are pleased to have our A&D growth this year to again exceed the DoD budget and speaks to our track record of being able to outgrow the defense budget in a wide variety of environment, our long-term visibility on the key platforms still maintains very strong bipartisan support. And I guess as much as we are not liking, but we are still in the continuing resolution. This really isn’t new. The average days our country has faced, the CR since back in the mid-70s is 53 days. This has been increasing over the past 2 years, and the 2 years that it was the longest was 2017 and 2018, which were 200 days and 170 days, respectively. If we come out of this CR on March 11, it would have been 160 days, so nearing the highest levels. And as much as we say, we are largely insulated from the continuing resolutions, a lot of our naval business is long-term, there is some impact. And one specific example that I thought it would just put a little color on it if people were interested is across our Defense Electronics group, we sell a reasonable amount of computer equipment into labs for new R&D, T&E programs part. It’s our all new programs. But as you probably know, the continuing resolution limits their ability to start new programs and it also clamps down their ability to drive increases in volumes on some things they were intended to ramp up the volume of productions on. And so across the Defense Electronics, we have about $30 million of business we do annually from lab equipment that is usually largely tied to new program starts, not all, but a good portion of it. And so that’s a headwind for us as it continues on through the year that some of that – those revenues get delayed. And so we are anticipating the delays to be about 1% for Defense Electronics in 2022, but that’s included in the guidance that we put forward.

Yes. And I would only add that if – obviously, if this continues and goes further into the year, 1% might become 2% or 3% or 4%, right? I mean depending on the severity and if they decide to hold the budgetary level flat year-over-year, which would be the case under a CR that could be the case. But Chris, just to kind of reemphasize one – a couple of things that we talked about a little bit earlier. We are expecting a 1% to 2% push in total Curtiss-Wright sales to the back half of the year. The majority of that is going to be within the Defense Electronics group. We have provided this, I will call it, harder guide to Q1, which we don’t normally do to really help people understand the headwind that we are facing. The majority of that 1% to 2% push is going to be within Defense Electronics. We do expect that to improve sequentially as we get deeper into the year, but it’s a fairly dynamic issue within the supply chain and also the continuing resolution adds makes it a little less clear. But we feel good about where we are positioned and are trying to take a conservative approach given what we know today.

Thank you very much. That was very helpful. And one more, Lynn, I guess just looking back at your first year as CEO, what are your biggest takeaways? What were the challenges perhaps a little bit more pronounced than you would have anticipated? And is there anything you know now that you wish you would realized a year ago?

That’s an excellent question, something I think about a lot. I think the challenges are things that I think – I would say first, I would like to lead off and say one of the things I have been really pleased with, and that is really the way the team members across Curtiss-Wright have embraced the pivot to growth and the challenges to increase the innovation across the company and our ability to collaborate and really look for opportunities together across the organization. And we have unearthed a lot of examples of places that we are able to pull commercial technology into defense environment. We have a recent example that we hope to be press releasing here in the next couple of months of taking some of our commercial actuation technology and applying it to defense opportunities. And this is a great way for Curtiss-Wright to grow, and it’s something that surely I set my hand to at the beginning of my tenure, but I think the significance and the magnitude of what we have to gain business by working more collaborative across the organization, I would say is something that we could have turned the heat up on that. I would have turned the heat up on that sooner in my tenure. So – but I am pleased we have done it. It’s only 1 year, and we have got a lot of opportunities and examples of things like that from whether it’s electrification, the actuation, just a whole variety of different opportunities where we are finding that working together, we can take technology to new markets, which is just great. So, I would say that’s probably one of the biggest takeaways and things I wish I would have known and maybe put more emphasis on earlier, but we are here today and it’s surely something that’s high on my mind and something we talk about across the teams. And so it’s something we are going to continue to drive.

Great. Thank you very much.

Your next question comes from the line of Michael Ciarmoli from Truist Securities. Your line is now open.

Hi. Good morning guys. Thanks for taking the question. I guess just on the Defense Electronics segment, I am assuming you kind of mentioned some of the delays and headwinds there. But I think you called out $20 million getting pushed out of ‘21 into ‘22? And it kind of implies, I guess then even though you got the growth there of 2% to 4% with that slide out, you kind of just have almost flat growth. Is there anything else going on there, that $20 million push out? Does that hit this year, or is it just – are we looking at kind of what you just said, general continuing resolution supply chain constraints kind of pressure on that?

Yes. I mean our backlog is strong heading into the year, Mike. It’s not a backlog issue really for the business. I mean we are in that low-single digits growth and that really aligns to kind of what we are projecting there. Obviously, PacStar is doing well. There is a little bit of a push-out. But we are approaching the year here with some caution, mainly based upon what we have been seeing. And I think that it’s safe to say that this issue is certainly going to continue as we get deeper into the year. We do expect conditions to improve. But there could be some hangover here going into 2023. So, just given what we are facing here, particularly as we are entering into Q1, I think it’s important to look at that. The only other thing I am going to say about Q1 here, while we have that opportunity and really talking about that push out of the lower-margin system sales from Q4 is that I will supplement the guide to say that for modeling purposes, we expect both the Defense Electronics and Naval & Power operating margins to be 14% in Q1. Now these businesses have been at these levels in the past, but they are slightly down. And within Defense Electronics, a lot of this has to do with the mix and the push out of that $20 million of lower-margin system sales. So, it’s a little bit – you will see a little bit more than usually see in our decremental margins, which those – that 25% to 30% range we give is generally more over time. But in the initial quarter of a decrease in revenue, those can be more steep and then just once again, we are dealing with a little mix on lower AP1000 and lower-margin system sales for those two segments.

Got it. Helpful. And maybe that’s a good segue. I wanted to go back to what Peter was asking on inflation. And can you give more specifics, I mean where you are specifically able to pass along pricing within, say, commercial aerospace? I mean you just mentioned defense. I mean are you kind of getting squeezed under current fixed price contracts until they get re-upped or just any specifics you can give on the ability to push through pricing? And maybe related, I know you had kind of a dedicated – I think you have a dedicated slide towards your pricing strategies at the Investor Day. I mean are you implementing more of that above and beyond sort of the inflationary environment?

So, it’s an excellent question. And it is not something that we can kind of universally go across our revenues and just raise prices. A lot of our business is on for long-term agreements. We have businesses in backlog. One thing I would say – so we are making sure we understand that, and we are very crisp on when LTAs expire and as we are implementing new LTAs. And this really did start last year as the inflationary prices were already there of making sure we have appropriate indices tied to us being able to raise our prices. And so it’s a journey to work through all your contracts and LTAs to be able to make sure they are priced appropriately. But it is a high, high priority for the team. And I will say we are not – cases where we have LTAs and some long-term contracts where we are seeing high levels of pressure, we are going back to our customers and working with them to get some adjustments even though the contract may be technically didn’t allow it. And in general, I would say most of our customers are trying to work with us in a reasonable level where they know things that have been hit the hardest, even though we have locked pricing that to go ahead and make some adjustments for us. But that’s – you got to go really be a little transparent with your customers and show them some data and work with them. But it is something that is – again, we are – the teams are reviewing it consistently. It’s reviewed by me on a monthly basis on what progress we have made in that journey really customer-by-customer or part-by-part. And so it’s a lot of work by the team, but we are on it.

And I will just supplement that real quick, Mike. I mean in the fourth quarter, I think you can see that we had 200 basis points of operating margin expansion in the Aerospace and Industrial segment. We are starting to see those pricing initiatives take hold. And just to echo what Lynn said, we are seeing more opportunity on the commercial side in the short-term than we would on the defense side of the business. But some good things are starting to happen, and we are improving the quality of information supporting those people that are pricing in the field by trying to get ahead of inflation indicators and other material cost increases.

Got it. And then just the last one I had, going back to the AP1000. Looking at the kind of $1.5 billion opportunity through out there, I guess that would imply maybe 50 pumps or so using your $28 million. Does anything change as part of the settlement in terms – I think you mentioned you are still looking at pricing. But pricing and margin profile, was that as part of the conversation with the settlement with Westinghouse?

I think it’s really too early to comment on pricing. I think when you take a look at the pricing that we had offered on that last contract, I mean it’s out there. It’s $28 million. But we are talking about pricing right now and trying to figure out, well, how do we make sure that we are doing the right thing for the business going forward. So, as we get deeper into those commercial negotiations to resolve that, I think that will become clear. But we are really pleased with the program, the profitability and the work and relationships that we have done with Westinghouse to-date.

Got it. Thank you.

Thanks Mike.

There are no further questions at the time. I would now like to hand the conference back over to Lynn Bamford, President and Chief Executive Officer.

So thank you, everyone, for joining us today and please enjoy the rest of your day. Goodbye.

This concludes today’s conference call. Thank you for participating, and have a wonderful day. You may all disconnect.