Welcome to the Curtiss-Wright Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.

Thank you, Jamie and good morning everyone. Welcome to Curtiss-Wright’s fourth quarter and full year 2023 earnings conference call. Joining me on the call today are Chair 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 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 better 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 and on our website. Now, I’d like to turn the call over to Lynn to get things started.

Thank you, Jim and good morning everyone. Curtiss-Wright delivered a solid operational performance in the fourth quarter and strong finish to 2023. For the second consecutive year, we achieved several new financial records as we continue to execute our pivot to growth strategy. We generated double-digit growth in sales and earnings per share in 2023 as we benefited from the underlying demand within our core portfolio. We achieved these results while maintaining our commitment to incremental investments in R&D, and we generated significant growth in orders, which are proof points that our strategy to build momentum in our organic growth is working. Overall, we delivered another outstanding year for our shareholders and I look forward with confidence to Curtiss-Wright’s future. Turning to today’s presentation. I’ll begin by covering the highlights of our fourth quarter and full year 2023 performance and a brief preview of our 2024 financial outlook. Then I’ll turn the call over to Chris to provide a more in-depth review of our financials. Finally, I’ll wrap up our prepared remarks with a recap of our performance and the notable achievements against our 2021 Investor Day commitment before we move to Q&A. Starting with our fourth quarter 2023 highlights. Sales of $786 million increased 4% year-over-year and exceeded our expectations due to a stronger-than-expected performance in the Defense Electronics segment, which continues to benefit from a healthy backlog and easing in the supply chain. Our performance was once again led by growth in our aerospace and defense markets as we benefited from 20% growth in commercial aerospace along with higher tactical communications equipment revenues and ground defense. We also experienced solid growth in our commercial nuclear and process markets. Adjusted operating income grew 2% year-over-year to a quarterly record of $163 million and resulted in a strong operating margin…

Thank you, Lynn. On Slide 4, I’ll review the key drivers of our fourth quarter 2023 performance by segment. I’ll begin in Aerospace and Industrial, where overall sales growth of 7% is at the high end of our expectations. Within the segment’s commercial aerospace market, we experienced a strong 20% growth in OEM sales, supporting the ramp-up in production across narrow-body and wide-body platforms. This performance was partially offset by the timing of actuation development programs across the segment’s A&D markets. In the general industrial market, improved demand for our new power management electronics supporting the on-highway market was essentially offset by lower off-highway sales to the construction market. And turning to the segment’s profitability, our results reflected favorable absorption on higher sales and a strong operating margin of 18.5%. Next in the Defense Electronics segment, our results exceeded our expectations and were slightly ahead of last year’s record fourth quarter results. This performance was principally driven by better-than-expected sales growth in our ground defense market resulting from continued stability in the supply chain and the conversion of our strong order book. Of note, we experienced higher sales of tactical communications equipment as well as increased sales of embedded computing equipment, most notably on the Stryker platform. Within Aerospace Defense, despite higher sales for flight test instrumentation on the F-35, our fourth quarter results were impacted by the timing of a bedded computing sales supporting C5ISR programs, principally on the Blackhawk helicopter. Regarding the segment’s operating performance we delivered a strong 28.8% operating margin, reflecting favorable absorption on higher A&D revenues, mainly offset by higher strategic R&D investments. Turning to the Naval and Power segment. Overall sales growth of 3% was slightly ahead of our expectations. Starting in the naval defense market, our performance reflected higher revenues supporting the Columbia…

Thank you, Chris. And turning to Slide 8. As I reflect upon the past 3 years, our Pivot to Growth strategy and the Investor Day commitments established in 2021, I’m pleased with our team’s execution and our overall financial performance. I’d like to spend the next few minutes revisiting the four key messages from our 2021 Investor Day as shown on the top of the slide, and discuss how our accomplishments have translated into meaningful results for Curtiss-Wright, providing confidence that our strategy is working. First, our commitment to accelerating Curtiss-Wright’s top line growth, both organically and through acquisitions, as discussed throughout our prepared remarks, we have maintained our commitment to incremental R&D investments and supplemented this target spending with an intense and dedicated focus on innovation and collaboration across our three segments. We’ve also discussed the alignment of our technologies to key secular trends, which has propelled organic growth in all of our markets over the past 3 years. In addition, our top line growth has been underpinned by a very disciplined approach to capital allocation, and we have grown through acquisitions as a means to enhance our customer offering and the strategic accelerator of top line growth. Closely following the strategic and financial criteria that we laid out in 2021, we have added some very complementary businesses such as the arresting systems business acquired in 2022, which has expanded our market share and international presence. Second, our focus on the customer, where we have been leveraging the critical mass of one Curtiss-Wright through our sales channels and technologies to provide better value to our customers, expand relations and build upon the content on key platforms such as the inclusion of our critical commercial nuclear technologies on several advanced small modular reactor designs. In addition, our continued execution provides…

Thank you. [Operator Instructions] Our first question is coming from Myles Walton with Wolfe Research.

Thanks. Good morning. If I look back on the 2023 performance on revenue, it looks like the ground defense was actually probably the largest single contributor. Can you correct me if I’m off on that. And it even looked like you had momentum carrying you into the fourth quarter above where you were thinking. So just looking at the 2024 outlook, could you talk maybe about ground defense specifically, but more broadly, the areas of upside and downside risk on your end market growth rates?

Yes. Thank you for that. And maybe I’ll speak a bit at a high level, and then Chris can put a little financial details behind that. So we’re really pleased with what happened this past year, very strong demand for our tactical communications system sales. It was really the primary driver in that outstanding growth. But it is more broad than that. We’re looking to move towards the initial volumes towards Enduring Shield and our current stabilization capability that is produced over in Europe that we’ve talked about as being aligned with some of the increased foreign military spending as countries move towards funding their NATO commitments. So really a lot of different pockets across the organization driving that. And I’ll have maybe Chris to speak to what we’re expecting here in ‘24.

Yes, sure. It certainly was a significant part of what we had this last year, Myles. And across 2023, I mean, we saw a fairly strong improvement in the supply chain, right? And that acceleration of material continued as we got deeper into 2023, which contributed towards our beat in sales here at year-end. For ‘24, we’re entering the year with a very strong order book, and we – we are not expecting lead times to improve, we expect continued stability in the supply chain and on-time delivery from our suppliers, which will continue to strong growth in tactical comms for ‘24, we expect that business is going to grow at a mid-teens pace. So – and it’s been on a mid-teens pace since we bought the PacStar acquisition several years back. Within the Defense Electronics segment, though, we do have a few things that are going to offset that growth rate. And one is the timing of sales to international PDSs and we spent a lot of time earlier this year talking about the opportunities that were emerging in the European theater, with international PDS and some of the programs we’re working on, such as the challenger. And those programs can be a little bit lumpy, and there is timing. And then beyond that, there – we talked a little bit about how the Stryker program had benefited our ground defense market this year with some of the modernization that was going on there for that ground vehicle. So this helped to boost ‘23. I’ll say those kind of more lumpy ground defense items are not going to exist here in 2024, but it’s still a very healthy growth rate in tactical comps as we look forward. And then as Lynn had mentioned, just briefly outside of the Defense Electronics segment, we’ve got the CM actuation on the enduring shield platform, which was a development contract for us a little over a year ago and now that’s starting to kind of transition into production. So we will see a little bit of benefit there to a much lesser extent than the things I’ve talked about within the A&I segment sales.

Okay. And then maybe, could you comment on the M&A pipeline? It’s been a bit since the last larger deal. And just curious as the leverage has come down here, but the size that you’re looking at is as well as end market preferences at this point?

Yes. I mean, definitely, we booked a lot of properties in ‘23 and didn’t find one that we felt really matched the criteria. And I’ll tell you, when I do reflect on how the ESCO business and the PacStar business are contributing to our growth, I mean, Chris just talked a little bit about the PacStar acquisition. It really reinforces why you remain very diligent in not acquiring for acquiring’s sake. But with that said, I will say that the acquisition pipeline right now is as healthy as I can remember it being for many years. And it’s not just there is acquisitions, there is always properties coming available. These are properties that we see as being potentially very strong strategic fit for Curtiss-Wright and rounding out product capabilities and customer access in markets that are very important and critical to our growth. Several of these, we’ve had pre looks at, and you’ll know they will be coming to the market. Any chance we can have them be exclusively with Curtiss-Wright, we always have a keen eye to pursue that, whether we accomplish that or not, it’s TBD. We are in due diligence with a fairly small property right now that I anticipate we will close on. It’s not meaningful, really, from a revenue standpoint, but in a critical piece of technology. So that might be something coming out in the near future. But the other properties we’re looking at that are in the pipeline will significantly move the needle revenue and profitability wise for Curtiss-Wright, and we feel that they can become part of Curtiss-Wright, and over a couple of years, continue to be accretive to our overall margin expansion. So the acquisition pipeline is really great, and some of that is with our current cash position, knowing that and the cost of capital to borrow is – we’ve given ourselves a bit of a pause of how we’re using the cash we have on hand to make sure we’re ready to act and can do it in the most affordable way for Curtiss-Wright.

That’s great. Thanks so much.

Thank you.

We will go next to Nathan Jones with Stifel.

Good morning. This is Adam Farley on for Nathan Jones.

Hi, Adam.

Hi, good morning. I was wondering if we could first start with some of the increased R&D spend? Can you talk about where the investments are being made? Expected commercialization and maybe sort of an impact on growth for the future?

Sure. I’d love to take that question. So I’m pleased to say that we have really opportunities across all three of our segments that we have products and technologies that are very much aligned to healthy end market trends that we feel passionate about the investments we’re making. Just to restate what you heard, we increased our total engineering spend in ‘23 by $20 million, and we’re targeting another $20 million increase in 2024. Those are some significant investments that are really, very laser-focused, that driving organic growth that we know will be profitable organic growth going forward. And so just as walking across the segments, we spend most of our IRAD in Defense Electronics. We continue to look to drive increased IR&D spending in that segment again this year, with very much of focus around building out our MOSA and SOSA cost product offering, which is just really the open standard approach that our DoD is demanding as being the key criteria and system selection and just continuing to gain force across all branches of the government. So, that’s kind the most notable from R&D. But right behind it, in the A&I segment, we are building out of our power electronics capability, and we’ve talked about that as – are bringing new products to market in this area is really what’s underpinning our ability to put forth growth in this industrial area that is not seen a lot of natural growth in the market, but it’s really our new product injunctions and bringing new products and winning new customers that is driving that. So that’s another area of the IR&D. And then I think of some of the CR&D increases, also up in the A&I segment, a lot of there were a lot of electromechanical actuation capabilities. We’re still…

That’s really helpful detail. Thank you. I will leave it there.

Thank you.

We will turn next to Peter Arment with Baird.

Hi, good morning, Lynn and Chris. Maybe just to pick up on the R&D question. Just – where do you see you are like in – kind of like baseball analogy of like – I mean, it feels like electronics and kind of the investments that you’re making there on an IRAD perspective would be – you’d be further along, just given your market position and where you are. Whereas I would think that the kind of the investments you’re making in Naval and Power, particularly tied to the commercial nuclear, is probably still earlier innings and that might linger. I guess I’m just trying to wonder whether we see this as a further headwind as we get into ‘25 and beyond? Things like that.

So very reasonable question. I think we’re really proud in the Defense Electronics space. I’d say we’re very proud of the product offering we have in industry today. We have a couple – actual quite a handful of really major developments that will hit the market in this calendar year. But I’d say, to some degree, I appreciate your point. We will be very solidly into delivering what we need to do to have the state-of-the-art product offering. Always in this area, though, there is new technology coming to bear, that are of interest by our defense department for finding different applications. And we are also always – our goal isn’t to just have next generation on the current platforms we have, but to really broaden our product offering to be able to attack more and more of the market. I mean we have talked, I think at our last Investor Day that it’s hard to exactly size, but the belief for us is that the total spend just in the U.S. on ruggedized electronics is somewhere north of $40 billion. And it’s probably because we are – the size of our Defense Electronics team, which is still under $1 billion, there is a heck of a lot of electronics content out there that we can go after with maybe doing customer-funded projects that are spins of our own technologies we have invested in. And so I don’t think we are going to see a rapid acceleration in that space, but I think we don’t – certainly don’t want to let our foot off the pedal as we really become such a dominant player and without going too deep into it, but there are some issues going on in the industry across some of our competition. And when you have…

That’s super helpful color on that. Thanks. How do you see – not to take any thunder from your Investor Day, where you are going to spend all this time on nuclear, but how do you see the bookings environment right now in terms of, I guess the timeline?

I missed it, you said, how do I see what environment?

The bookings environment in terms of the kind of SMR and some of the other projects that you are working on in commercial nuclear going forward.

So, it seems steady as these companies secure their funding and move to their contracts that we just continue to work with them. We saw a pretty nice surge in 2023. I don’t think we are going to see a big surge in 2024 over top of that. I will say though, where the order book does remain very strong compared to these next-generation reactors is in the aftermarket work. And talking with some key individuals in that business yesterday, really celebrate how strong the order book is already out of the gate this year. And then obviously, the needle-moving activity of when the first AP1000 RCP pumps, obviously unlike any other type of orders, we really get across this organization. So, I would say the SMR development is more steady than expanding.

Great. I will leave it there. Thanks again. Nice results.

Thank you, Peter.

We will turn next to Michael Ciarmoli with Truist.

Hi. Good morning guys. Nice results.

Good morning.

Thanks for taking the questions. Chris, maybe just a housekeeping modeling, first. I think I heard you correct. First quarter ‘24 earnings are going to be up low teens. I guess you gave the margins for each segment, but I guess it implies Defense Electronics would be somewhere maybe 18% or so? Do we have that right? Did I hear that correct?

Well, I didn’t provide an exact number, but we definitely said that Defense Electronics margins were going to be very strong here in the first quarter. So, I think you are thinking in the right direction for sure.

Okay. Got it. I just want to make sure I heard EPS low-teens. And then maybe just on to the last question, defense kind of disruption in that Defense Electronics marketplace, some of your competitors. Are you guys looking to move anything to any different market segments like higher-end radar processing or some of that subsystem or are you kind of sticking to your knitting and maybe taken some of the opportunities in your sweet spot?

So, I think we are going to protect the core always as a priority. But we kind of talk – adding at a high level without tipping our hands of some strategic investments we are making as part of always pushing the window of what types of products we can bring to bear in the market. And we have talked about an area for focus for investments is around the topics of encryption and cyber security and the anti-tamper, and so that is an area that I will say, hopefully, that we are continuing to focus on and is a critical capability that we could bring there in the markets that will allow us to grow our market share. And I will leave it at that.

Okay. And then, yes, Lynn, not to kind of make you spill the beans here on the upcoming Investor Day, but you guys have done a tremendous job with margin expansion. But if I – I guess I am just trying to figure out, you have got the R&D investment. You have got, I guess some of the initial dilutive development work for SMRs. I mean should we think about the sort of operating model being mature here for the next kind of couple of years? And maybe even just color on when some of these SMR development programs might flip to margin accretion? And I guess this is also thinking absent any big high-margin AP1000 orders that would come in, that would clearly – you guys haven’t modeled for that, but just thinking about kind of steady state business. Should we think about some – just some normal margin pressure with some of these bigger development programs?

Yes. So, I mean obviously, we are projecting modest margin expansion next year. I don’t want to at all project that, that is the new normal, and there isn’t more opportunity long-term outside of that. I mean these – all this has – we are doing a significant amount of work in developing these SMRs. And even the subsea pump that – the Petrobras press release last week. When you are getting paid development work from your customers, you are not making margins that are going to be accretive to the corporation. And we are the development work is significant. Shell and TITAN continue to go on. And so we have all that going on. Those projects will turn to production revenue, all of them, late in this decade and later this decade and really have the ability to provide meaningful margin expansion as the low-margin work goes away and is replaced with a very solid margin production work. And so – and then I think we can drive the type of growth, we think there are the possible in our Defense Electronics team, which delivers very accretive margin to Curtiss-Wright. That continues to provide uplift across the organization. And I will comment that a couple of the acquisitions we are looking at, the devil is in the detail and you have to do due diligence, but some of those have very healthy looking margin profile. So, right now, the guide for ‘24 is doing the right things in this year to really secure a fantastic future for Curtiss-Wright. Again, we will continue to look at top quartile and challenge ourselves to be in the top quartile. We do talk about that openly inside of the company with everyone that we have a goal quite a few years ago, getting to 17%, but that was then. And top quartile margins continue to go up amongst our peer group. And so we need to continue to challenge ourselves to do that. So, I know that you weren’t expecting me to say, yes, here is our new 3-year margin target, but hopefully, that puts some color on the thinking.

Last one and I will get out of the way. Bookings looked like the weakest level since first quarter ‘22. I know you called out off-highway, just in general being weaker. Anything to read into that timing, or even if you could parse through the bookings a little bit more strength, weaknesses in there?

Sure. Let me take that one, Mike. So, in the fourth quarter, we continue to see like positive order trends across Commercial Aerospace and Commercial Nuclear, both fairly strong quarters for us. But we definitely faced some softness in aero and ground defense. We saw pressure in A&D from – turn back to the fourth quarter of this last year, we had a few large multiyear orders. And the main decline year-over-year was actually within Defense Electronics for us. We were down about $45 million. So, that was really the timing of some of those large multiyear orders, but also the continuing resolution. Within Defense Electronics, I mean we had these F-30 FTI orders that we – on the F-35, we talked a little bit about that earlier this year in the press release. But we also had large multiyear orders outside of Defense Electronics and the arresting systems business and then also a large multiyear laser peening contract on the F-35 within the A&I segment. As we look at ground defense, ground defense, in fact, the full communications, we saw this is last year, with that direct connectivity that they have to the government customer, they feel the CRs a little bit harder than most. So, sometimes you get a rush to get ahead of those orders into Q3 before things said and – but I would say year-over-year, Q4-to-Q4 within that business, very similar levels. So, nothing there that would kind of concern us. And then I think on a positive note, I mean as you look forward into 2024, we had a very strong January. Our order book was up $70 million over the prior year January, and $40 million of that within Defense Electronics. So, I know the NDA got signed here in December. People are feeling a little bit more confident in their spending. Obviously, we have got the CR, that’s still kind of an overhang. But I think in 2024, we feel good about the guidance that we are providing in sales. And if there is any watch areas for us here from a market perspective, it’s really just in the general industrial space and maybe a little bit in processing doubts, but those are more economically sensitive and prudent to be cautious as you approach those.

Got it. Thanks guys.

Thanks Mike.

We will go now to Louie DiPalma with William Blair.

Lynn, Chris and Jim, good morning.

Good morning.

There has been higher volumes for many of the end market ground defense and aero defense platforms that you are providing content to associate it with the elevated geopolitical tensions and higher commercial aero demand. Beyond the higher volumes, were you able to increase scope of content that you are providing to the different platforms in 2023? And are there expectations for like market share increases and scope increases for the next several years based on your research and development investments?

Thank you for that. So, I would say, broadly, the content stays relatively stable on the platform. So, that’s a starting point. Now, we are always looking to change that. And there are tech refreshes. There has been a lot of tech revisions in ground vehicles over the past years. And they will – we are consistently chasing those, which are opportunities for new content on those platforms. And there is a lot of special operations provisions and new capabilities added to older fighter jets. So, as much as the F-35 is relatively stable to funding [ph] in TR-3, that’s a growth area for us as we have all our support we provide for the testing of those aircraft. It’s – we look to grow our content on those – across those production platforms as they have new and incremental capabilities that they are looking for. But the default is they are stable. So, I don’t know if that’s the answer to your question, but…

Yes. No, I was thinking also along the lines of the Columbia-class and Virginia-class submarines in which the supply chain has repeatedly been described as fragile. And you seem to be executing very well on those platforms. So, I was thinking, perhaps, there is the potential for you to add content from other suppliers that may be struggling to handle the demand?

Those are not decisions that the Navy would make on a very rapid fire basis. I mean they – these are very stable platforms that they want stable suppliers. But we are a solid supplier across the submarine platforms and stay in close contact with our customers that if there is opportunities to take over supply and capability, that we are there to explore new opportunities. They don’t come very often, but our reputation across Virginia and the Columbia-class program would afford us to be that person or that company, I think if a relevant opportunity became available. But I would be cautious to speak to anything specifically as that’s not really how the Navy runs itself on a normal basis.

Great. And one final one, you spoke very enthusiastically about the Enduring Shield program. I believe you are partnering with Dynetics/Leidos for that. Is there significant growth for that program in 2024?

Go ahead, Chris. I will let you…

Yes, sure. So, we are, as I mentioned, transitioning out of a development contract and into production this year. And it’s a significant program for us. I mean it showcases our EM maturation technology and ground defense applications. And leading-edge ground defense applications. So, we are very proud of what’s happening there. Overall, I think as you look at the increase year-over-year, the contribution to the A&I segment, I would put that somewhere in the range of about $5 million. But despite the size, it’s enough to kind of move the ground defense market. And there are some other things that are happening there clearly to offset what we are seeing. But it’s an exciting program and we are excited about its future.

Yes. I think Louie, when you put it in perspective, quite frankly, some of the things going on around the world and the ever visible critical role that these types of systems play for countries where there is active conflicts, I think our enthusiasm isn’t tied only to 2024. It’s more what we know is going on and the long-term potential for where this capability will be deployed around the globe to provide protection. That is some of the excitement.

Great. Thanks everyone.

Thank you.

[Operator Instructions] We will turn next to Kristine Liwag with Morgan Stanley.

Hi. This is Justin on for Kristine. Thanks for taking the questions. Just a quick one on AP1000, there was some reporting earlier this week. It looks like the Polish Government might be reevaluating the feasibility of the 2033 target. I know you have laid out a framework for when to expect an order to materialize, but just any updates on this at this point? Is there sort of around timing expectations?

No, not at this point in time. I know there is some pressure. But really broadly, things have gone very well in Poland, and they are making steady progress. And so I think from our perspective, and working closely with Westinghouse, we don’t see any change out of what we are expecting.

I mean I will say though, that we have learned enough in time regarding these large orders and these large projects that there is a lot of people and a lot of things that need to get aligned to get them off the ground. And that’s why we provided this range when we said, hey, this is the timing for our next order. I think you could back into the initial production timelines and schedules that they provided and the order. Initially, what we are looking at, it should have been in our hands immediately, but these things do take a little bit of time, they are moving through some engineering contracts, and we still continue to hold to the timeline that we initially established.

Okay. It makes sense. Thanks.

Thank you.

At this time, as there are no further questions standing by, I would like to turn the floor over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Thank you everybody and I look forward to speaking with you again at our Q1 earnings call, and hopefully seeing all of you at our Investor Day. Thank you.

Thank you. This concludes today’s Curtiss-Wright earnings conference call. Please disconnect your line at this time and have a wonderful day.