Welcome to the Curtiss-Wright First Quarter 2025 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open to your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Mr. Jim Ryan, Vice President of Investor Relations.

Thank you, Chelsea, and good morning, everyone. Welcome to Curtiss-Wright's First Quarter 2025 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. A copy of today's financial presentation and the press release they are available for download through the Investor Relations section of our website at curtiswright.com. A replay of this webcast will be available on the website. Our discussion today include certain projections and forward-looking statements that 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, including the impacts of tariffs in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency and a curries ongoing operating and financial performance. GAAP to non-GAAP reconciliations 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. We are off to a great start in 2025 that exceeded our expectations before getting into the details, I would like to say a few words about the momentum that continues to build with respect to our Pivot to Growth strategy and how that translates into value for all of our stakeholders. First and foremost, I commend the team for embracing our strategy and their drive and execution, which has yielded better-than-expected results in both growth and efficiency. As we discussed at our May 2024 Investor Day, we continue to enhance customer engagement while leveraging our strong domain expertise as a highly valued supplier of mission-critical technologies to help solve our customers' most challenging problems. In addition, we are implementing the core principles of our operational growth platform remaining focused on both commercial and operational excellence to expand margins and free up funding opportunities for investments that will accelerate profitable growth across the portfolio. Regarding our improved 2025 outlook, we take pride in meeting our commitments and being the company that investors can rely on to deliver strong results even in the face of macroeconomic uncertainty, whether it was the quick return to providing guidance during the pandemic with minimal margin dilution or the rapid response of our team to the electronic supply chain challenges in 2022. In all cases, our team has responded quickly to adapt as needed and to deliver superior results. This is a testament not only to our strategy but also to our leadership positions in our end markets as well as the people the systems and the processes that we continuously invest in to ensure that Curtiss-Wright is built for long-term success. As a result and in the face of a number of macro level uncertainties, we are…

Thank you, Lynn. I'll begin on Slide 4 by reviewing the key drivers of our first quarter 2025 performance by segment. Starting in Aerospace & Industrial, overall sales increased 4%, which was slightly ahead of our expectations. Beginning with the segment's defense markets we experienced solid increases in actuation equipment sales, most notably within our aerospace defense markets supporting F-35 and F-18 programs, and also in Ground Defense for the enduring Shield platform. Within the segment's commercial aerospace market, our results reflected solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms. In the general industrial market, our results reflected a modest increase in sales for our industrial automation equipment, which was essentially offset by reduced sales of industrial vehicle products. And turning to the segment's first quarter profitability, operating income and margin were ahead of expectations, growing 15% and 140 basis points, respectively, driven by favorable absorption on higher sales and restructuring savings, as well as a tailwind from FX. Next in the Defense Electronics segment, sales growth of 16% reflected increases in embedded computing equipment sales supporting a variety of C5ISR programs as we continue to benefit from increases in global demand. Within the segment's aerospace defense market, we experienced higher revenues supporting various helicopter platforms, most notably on the Blackhawk in addition to higher sales on the Triton UAV program. While in Ground Defense, our results mainly reflected higher revenues supporting US Army vehicle modernization and replenishment. Regarding the segment's operating performance, we delivered a record first quarter operating margin of 27.5%, mainly reflecting favorable absorption on higher revenues, as well as a shift in mix towards higher-margin C5ISR programs. In addition, we continue to improve the efficiency of our operations to support this business' future growth and further bolster our position as a…

Thank you, Chris. And turning to Slide 8, as we have discussed today, our strategy continues to build momentum, while we remain cautious in light of the uncertain geopolitical and macro economic environment, Curtiss-Wright remains well positioned to deliver strong, profitable growth again in 2025. Our execution during the first quarter is a perfect illustration of how we are focused on managing Curtiss-Wright consolidated portfolio, which in turn supports our revised outlook targeting record financial performance across all major metrics this year. I'm particularly excited about the team's ability to target robust operating margin expansion of 80 to 100 basis points to nearly 18.5% and to generate at least $500 million in free cash flow this year. Overall, the team continues to deliver at a high level in support of our 3-year objectives provided at last May's Investor Day. Next, regarding our capital allocation. Curtiss-Wright maintains a very healthy balance sheet, supporting our disciplined and strategic approach to capital deployment. While we continue to foster significant financial flexibility to pursue acquisitions and continued share repurchase, we're also driving steady investments in our systems and infrastructure which supports the team's efforts to capture positions on both current and next-generation platforms across our A&D and commercial businesses. Finally, as I look across our operations, we remain very well positioned to capture the medium and long-term secular growth trends across our end markets. I'll highlight a few examples and starting with defense, we believe the fundamentals of our industry remain strong, and Curtiss-Wright is poised to grow in all facets of our defense end markets. The passage of the FY '25 budget, even with when considering the full year continuing resolution helps remove some uncertainty while still allowing for a critical new program starts. Further, we are encouraged by the release of the…

The floor is now open for questions. [Operator Instructions] Thank you. And our first question will come from Pete Skibitski with Alembic Global. Please go ahead. Pete, your line is open.

I’m sorry. Good morning, Lynn and Chris and Jim. Very nice quarter.

Good morning.

Thank you.

I wonder if we could start just a little more specificity on the tariff impact. It sounds like you can mitigate it pretty well. But could you give us some details just in terms of the products impacted and how China plays into it? And the cost side sounds pretty well mitigated. But just on the sourcing, any concerns about sourcing in this tariff environment?

Yes, it is. Thank you for that question, Pete. And it surely is a dynamic situation, but one -- we have really been very purposeful in how we're approaching as a company. Quite a few months ago, we put together a Tiger team, which was very cross-functional to really make sure we understood aspects of our contracts and honestly, optionality we had to try and mitigate the tariffs. And so, we're -- I'm really -- I'm pleased the numbers that Chris put forward of reducing mitigating over $20 million of the potential impact is pretty impressive and it's hats off to the team for being able to do that. There's a lot of hard work that has behind that. And that mitigation comes through a variety of avenues. It's a blend of operational outcomes and how we go about sourcing and supplying products to our customers. We learned a lot back in 2018 and put a lot of flexibility into our operational footprint at that time. So we be prepared. If there was a similar situation and so then we didn't have to start from ground zero. That was really important. And pricing is also part of it. And that is something that we're very purposeful in talking to our customers about and working with them and being fairly transparent and they're willing to work with us largely as we approach some targeted price increases for where we're seeing the tariffs. So, a lot of hard work by the team to be able to achieve what we spoke about during our prepared remarks. And maybe with that, I'll turn it over to Chris to put a little more color on some parts of your question.

Sure. So, you heard in the prepared remarks that roughly 20% of our product portfolio is subject to tariff risks. And we kind of break that down as you look across our defense markets, it represents 50% of our business today. Most of that is domestic sourcing. But where it's not, there are tariff exclusions for military products that allow us to affect tariffs are not applied to service revenue today. That's roughly 15% of our total business. And then when we look across our non-U.S. sites non-U.S. customers, today, that's roughly 10% to 15% of our business. So, within that 20%, the greatest pressure is certainly within the Aerospace and Industrial segment, mainly with industrial products like you saw back in the 2018, 2019 timeframe, but then also there's some process product exposure within enable and Power segment. Stepping back and looking at what we're being tariffed on, really not a big impact from Canada and Mexico. The majority of those products are covered by USMCA, nothing material from the retaliatory tariffs and then steel tariff imports are low volume and our largest consumers are really sourced domestic. So, we feel good about the position and our guide in the full year.

Okay. Very helpful. Thanks guys. And just one follow-up. You raised the Commercial Aerospace guide quite a bit for the year. And I'm just wondering was the Boeing kind of return to production and accelerated production post-strike. Was that a part of that? Or was it all kind of the FAA safety mandate in terms of the corner sales there? And I'm just wondering how long should we expect a safety mandate-related sales that kind of to drive revenue for you?

Well, maybe I'll start off with the guide and then just in terms of the longevity and I'll turn that back over to Lynn. But I want to be clear, the guidance increase that we made here on the call is entirely on what the new cockpit waste records. We do still have got some conservatism. There's obviously a lot happening in commercial aerospace right now relative to the supply chain. So, we're trying to approach that situation cautiously. But we feel good about being able to increase our guide in this environment, and it's mainly the CBR.

And you're picking up from what Chris just commented on, this is sustainable revenue source for Curtiss-Wright. The FAA mandate give airlines through the end of this decade to do the retrofit. And so we are really at the very beginning of that and its mandate is new production aircraft. And so this is an area that we are continuing to grow and we have a very solid position with Boeing on having received the various certifications for new and retrofit airlines back in the end of 2023, but it takes a while for these things to kick in. We're working very hard to receive certification across the Airbus A320 fleet, and there's a lot of work to going on to receive certification across a lot of the regional jets that are also subject to the mandate. So, this is a very exciting portion of our business that has been building really even in 2024, but it doesn't get talked about a lot, and that's why we really wanted to bring it to the forefront as it really begins to see some really dynamic growth and bring it a bit more to the forefront during the call.

Thank you. Our next question will come from Kristine Liwag with Morgan Stanley. Please go ahead.

Hi. Good morning, everyone.

Hi, Kristine. Nice to hear your voice.

Thanks. I'm back. Happy to sense the pictures which you guys want, seven months and just blowing Raspberries all day long. She's a raspberries factory.

All right.

So maybe starting on commercial nuclear with the Trump administration and their approach to energy, has their approach on nuclear been more supportive to the degree you were expecting? Or has there been a change? And so I just want to understand the outlook for US nuclear. And then also the second piece is once we get out to the international orders, Poland and Bulgaria. How has this geopolitical environment and uncertainty with tariffs affected their plans to go build new nuclear power plants?

So I would say we were cautiously positive before we moved to the new administration that there would be ongoing support. And that was largely based on the stance as we knew a lot of the cabinet members were very pro-nuclear. And so you could see that, that was in the underpinnings of the people he put around himself. But I think it has played out maybe even better than we would have anticipated. And I give two examples. Secretary Wright was center in both a recent announcement in Poland that was extending their engineering contract to the end of the year, which will really be the final stage before construction contracts are awarded and was front and center with -- in Bulgaria with then declaring the site of their first AP1000 plant and their goal of being the first AP1000 plant in Europe jumping ahead of Poland. So a little bit of a foot race is not a bad thing in our world. And I think every time you see the executive orders that come out in -- across the US about energy dominant, it always includes nuclear in a very positive way. So we feel very good about the support from this administration. And even some of the things about ties to deregulation and making the NRC more efficient will also fundamentally lend themselves to the build-out. So there's a lot of different angles to it, but it's positive from what we see today.

Thank you for that. And shifting gears to shipbuilding. There's a clear shipbuilding emphasis from this administration, but starting out new programs take time and building ships take time. How do you think this plays out? And how does that flow get to you? And when would you start expecting to see significant orders to come through? You are generally in the earlier side of those projects?

Yeah. It's a fair point. These industries don't turn on a dime. I do think it's interesting to see that, obviously, there's great support for shipbuilding and what we see in both the reconciliation bill and the skinny budgets, so to speak, a lot of money for the industrial banks. I think one point that's noteworthy is we commented in our Investor Day back in May of 2024 that we had received $15 million over the prior few years for industrial-based funding. That's up to $21 million as of to date, and we have a lot of money in pursuit. So that's maybe the more immediate here and now, but we also are seeing opportunities to take more share as there's a real push to get the existing fleet more operational opening up some new opportunities for ourselves as well as the ongoing work that we have across Virginia, Colombia, the aircraft carriers and one study that was in the reconciliation bill was putting second Virginia class back in 2027. So that's just a good thing. So it will build over time, but we're very conscious of things we can do in the near term to try and win businesses we build our long-term positions.

Thank you. Our next question will come from Myles Walton with Wolfe Research. Please go ahead.

Good morning. Wondering if you could comment on the Defense Electronics margin performance or maybe the absolute EBIT dollar performance. I think the rest of the year is implied to be below the run rate of the first quarter, which would be pretty unusual given your historical tenancy in that segment. Is there anything that was accelerated in the first quarter? Or is this more conservatism for the rest of the year?

So thank you for that question, Miles. I guess I'd like to honestly start and back up for a second and talk about the corporation in total because I think it's important to set the stage about how we're viewing our guidance and the raise that we did put forward is we started the year and I will definitely come to the details of what you asked. So if you give me two seconds, I'm not dodging the question. So we started out with a reasonable amount of conservatism in our initial guide this year. I mean there was talks of tariffs, what was going to happen with the continuing resolution, recession, fears, just a lot of different things going on and some things going on inside the business, specifically in defense electronics with our restructuring and steadying the stage for growth and ERP implementation. So with that, we took a pretty cautionary tone to our guide. And I will say we've raised our guidance by thinking that we can more clearly see line of sight on some of those things, but there's definitely still areas. And Chris mentioned one just a moment ago, where we are still -- we know we have conservatism in our guidance. And whether that commercial aerospace just mentioned a minute or two ago, what's going on in general industrial, with the risk with tariffs and how that's going to play out within defense electronics, we're doing across that group. And we have a lot of big projects going on in Enable and power. And really not been any alarms on any of these things, but we try and make sure we are putting forth numbers that we will be able to deliver on to -- the Street. That's important to us. It's how we operate as a management team. And so with that, there is conservatism across the Board in what we've put forward. But there's also a lot of things that all the ongoing programs around commercial excellence and operational excellence, they're bearing fruit and turning those to talk about defense electronics specifically, there's a blend of things. And maybe I'll ask Chris to speak about a few of the things that are driving the margin. And then I would like to come back and touch on pricing.

Yes. So absolutely, we're trying to approach this cautiously as we move through the rest of year. But Myles, specifically, as you look at the Q1 margin and we talked a little bit about the mix that's going on, we're certainly seeing some expansion from commercial and operational excellence. Also in Q1, we had some FX benefits. So we saw -- the US dollar strengthened against key currencies and using our bank -- our five bank forecast, we're looking out across the remainder of the year. We're expecting some of that FX benefit to go away as the dollar weakens against some of those currencies. We expect research and development to ramp as we progress through the rest of year. And then it's important to note, we've talked about this in past calls. The sequential ramp in defense electronics, this team has really been working hard to try to balance that out and do not have it be such a fourth quarter spike. So as you look at defense electronics over the remainder of the year, it will be very modest sequential growth for that segment. So it's really the combination of very modest sequential growth in those other things that I that I just talked about.

Yes. And the last element is meaningful, but want to be very purposeful in how I speak to it is our ability to drive pricing across the products that we provide to our customers in this segment. And we're very focused on delivering a fantastic value to our customers and being a rock-solid supplier that is there for them in all aspects of how they take advantage of our products and work them into their systems and overall solutions. And with that, we launched the operational growth platform back at the beginning of my tenure, commercial excellence was a big part of that, and that's really understanding the value you're bringing to customers and pricing appropriately and keeping in mind competition and a win-win with your customer and all those things. So it's not just all about margin, but it's about charging for the value you bring in. I think the team has done a great job to evolve over the past few years and to be able to understand the value they're bringing and price appropriately. And that's also part of the margins that we're receiving in that team.

All right. Thanks for the color. And then one follow-up, if I could. The book-to-bill for the company was 1.26. Was there much to be differentiated by segment or if you can just provide both bill by segment?

Sure. Yes. Within the Aerospace and Industrial segment, miles, it was a 1.1 times, approximately 1.1 times book-to-bill in the quarter. We had great commercial aerospace orders for the quarter. Within Defense Electronics, it was about a onetime book-to-bill on 16% sales growth, not anything really unusual here. We obviously started off the first quarter with a CR that kind of creates some slowness in terms of the order patterns. But then if you look back at Q1 of 2024. There are some pretty big lumpy orders that had come on and at that point in time for multiyear orders that had come in at that time for potential electronics. So pipeline still looks great as we look ahead. The enabling power 1.6 times book-to-bill very strong naval order quarter. You know that, that can be somewhat lumpy. But I think when you start to take it into context of what we did last year with naval orders, what we're seeing this year, it's really helping to drive our expectations for these very strong first half revenues. A lot of material timing in there, but very strong first half revenues for naval and power this year.

Thank you. Our next question will come from Jason Gursky with Citi. Please go ahead.

Good morning everybody.

Hi Jason.

Hey. Good morning. I've been asking everybody this quarter a similar question around the change that's put in Washington, particularly around acquisition reform and the proposal to rewrite bar and DFAs. I'm just kind of curious, if you can maybe step-in and provide some context from your perspective on what you think is in front of us on that front and the implications both for the industry and for Curtis right, in particular, is just going to end up being a positive, a negative, or kind of neutral. I'm just kind of curious, how you're thinking about the prospects of what seems to be pretty significant efforts to reform the way that the government is going to buy goods and services going forward? Thanks.

Thank you for that question. It's definitely something there's been a lot of activity in and so, a lot of executive orders, and many of them very good and aligned, broadly speaking, before we talk specifically about acquisition -- around shipbuilding and energy production in all areas that should be really strong forces for Curtiss-Wright's growth going forward. I think it's interesting. I -- as we are digging into this, I very much feel it's going to be a strong positive for Curtiss-Wright. And there's a couple of avenues of that. A lot of where the focus has been is the large cost-plus type contracts that keep growing in size. Curtiss-Wright is almost exclusively a firm-fixed price contracting across our defense work. And that's very much where there's pushes to move to, one of the things that's buried down in those executive orders, we're comfortable taking business in that approach, and we deliver great value. And I always want to make that point that I really do know that we provide a great value to our government for the contracts that they afford to get to Curtiss-Wright. And so that's the most fundamental basis of saying why I think we will win. But that's one of the pushes, and that's how we like to do business. Another big focus out of some of the EOLs is a push towards more commercial practices and more commercial buying practices. And really, our Defense Electronics segment -- that is, they go to market commercially. So we very much have, -- know how to go about working commercially with the government and know how to do that. And I think it's great to see that there'll be more buying practices pushed in that direction. And we'll look to see where else in our portfolio, we can leverage commercial pricing and drive more business that way. And I think it will be great for the customer, great for our Defense Department and great for Curtiss-Wright. And so those are two things. The other thing that's in there is something that's called the OTA or the Other Transaction Authority. And that's an area where Curtiss-Wright -- we don't have an extensive experience in it, but we absolutely have worked or setup through the partnership to be able to take OTA money. And we absolutely are seeing that part of the executive orders, and building out to make sure we're ready as money flows through those OTAs that we have the fundamental relationships that we're able to take those types of partnerships. So I do -- I feel that -- I feel proud of the value we bring to the Department of Defense for what we do. And I think as they look to drive efficiencies and value fundamentally in how they spend their money. I think Curtiss-Wright, we'll be at the forefront of winding for that.

That’s helpful. Appreciate it. Thanks. I’ll leave it there

Thank you.

Thank you, Jason

Our next question will come from Louie DiPalma with William Blair. Please go ahead.

I was wondering you discuss your exposure to different drone platforms with the [indiscernible]

Yes, sorry, we're not able to hear you. Would you mind repeating that?

You're just kind of coming through mumbled. I am not sure what's going on with the line. So sorry about that, Louie.

Okay. We'll move on next to Nathan Jones with Stifel. Please go ahead.

Good morning, everyone.

Hey, Nathan.

Hey, good morning. Just a couple of follow-up questions. You said the commercial aerospace guidance was raised solely on that voice recorder incremental business that you're winning. I think it works out to be about $12 million or something for 2025. But you also talked about this being the very beginning and extending out to at least the end of this decade. Can you give us a bit more color on what you think that the market potential there could be over the next few years? Obviously, it's -- I would imagine it's growing fairly quickly given that you're right at the start of that.

Yes. I mean we are definitely on -- clearly as part of our forecast in the beginning of the year. And as Chris said, it was the entirety of why we raised our commercial aerospace as we're getting more clarity with our partnership with Honeywell and how the ramp is beginning to become visible. And it's a little -- there's still some undetermined. It's going to continue to grow for many years to come. And we're in the work of -- we're in the process of getting certification across the Airbus platforms that will happen probably in 2026. So that's still a future dynamic that's coming and across some of the regional jets. So it's a little hard at this point until we've really sized the opportunity and figure out who all -- where we're going to win and have content to put a dollar figure to it. But I think we're -- I will agree with you, we are at the very beginning of what's going to be a long, steady ramp for that product family.

Fair enough. I'll ask you again in a couple of quarters' time. Defense Electronics margins, I know you got asked about the progression through the year. It's obviously significantly higher than where you started. And then based on all of the things you talked about, it doesn't sound like any of those are onetime in nature for 2025, your commercial excellence restructuring higher levels of volume that don't like the going away either. There's no reason why we think there's any step down next year or something like that in the Defense Electronics margin. This is kind of a new higher baseline that we're starting from now? And then maybe you could just comment on what kind of incremental margins we should expect in that business? Thanks.

So I can -- I'll ask Chris to add little more color on the Defense Electronics margins. But we're really not putting forward a prediction for 2026 at this time. And I can appreciate the question and wanting to know. But we're going to take it a year at a time, and we have our current guide. We've updated that, and we feel good about it. But I would agree, there is not a onetime thing in that across our product portfolio, but we really do like to afford ourselves the flexibility to invest as we see a strong return for the company going forward. And so that's really the caution around trying to lock in or foreshadow margins coming in and out here.

Yes. And I would just say in terms of incremental margins for that segment, R&D investments or other things that we're doing. You're going to see that in that 30% to 35% range. I mean that is the growth grow your top line and free up that funding for investment beneath, right? So team is doing a great job. And all those things you talked about are absolutely things that we're excited about and see as we look out into the future.

Thanks very much for taking my questions.

Thank you, Nathan.

Thank you. [Operator Instructions] and we'll move next back to Louis DiPalma with William Blair. Q – Louis DiPalma: Lynn, Chris, and Jim, good morning. I hope you can hear me more clearly this time, but I was just wondering how are the SMR content partnerships progressing?

So thank you. And yes, you're coming through loud and clear. So glad we could get your question. So it's -- they're definitely progressing. And I think you made reference ramping development dollars across TerraPower and X- energy for some of the projects we're working on there. And that's just indicative of we're ever becoming more clear where we're going to bring products to market with them or work with Rolls-Royce from the Ultra Energy acquisition. We talked about that being critical to helping us even extend our partnership with them, that is going very well. So it's all steady as she goes, and we're beginning to be able to more clearly see the design to take form and line of sight that we will be moving to prototyping here in the next 12, 24 months and working with them to get their first plants online. So it's exciting. Q – Louis DiPalma: Thanks a lot. That’s it for me. Thanks, Lynn.

Thank you, Louis. A – Chris Farkas: Thank you.

Thank you. Our next question will come from Myles Walton with Wolfe Research. Please go ahead. Q – Myles Walton: Thanks for the follow-up. Lynn, you mentioned Westinghouse's press releases in the last week or two regarding Poland and Bulgaria. And one of the debates that Westinghouse referred to was the engineering procurement and construction agreement by the end of 2025. If that time line stuck, would you expect to have a construction contract of your own by the end of 2025 or early 2026?

Yes. I mean we're -- I think I'm really pleased to be able to tell you, we -- three years ago, started to see in three to five years and have whittled that down. And we're very much saying we expect in order in 2026 at some point in time. And by the end of the year, but it could come midyear. So I feel like we're -- we believe we're triangulating in on that time frame, but I wouldn't say by the end of this year. Q – Myles Walton: That’s was it. Thanks so much.

Thank you.

Thank you. And at there are no further questions. I'd like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer for additional or closing remarks.

Thank you, everyone, for joining us today. We look forward to speaking with you again on the road or at our next quarter results call. Thank you. Have a great 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.