Thank you for standing by. Welcome to the Woodward Inc., First Quarter Fiscal Year 2022 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you will be invited to participate in a question-and-answer session. Joining us today from the Company are Mr. Tom Gendron, Chairman and Chief Executive Officer; Mr. Mark Hartman, Chief Financial Officer; and Mr. Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Mr. Provaznik.

Thank you, operator. We'd like to welcome all of you to Woodward's first quarter fiscal year 2022 earnings call. In today's call, Tom will comment on our markets and related strategies, and Mark will discuss our financial results as outlined in our earnings release. At the end of the presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through February 14, 2022. The phone number for the audio replay is on the press release announcing this call as well as on our website and will be repeated by the operator at the end of the call. I would like to refer to and highlight our cautionary statement as shown on Slide 3. As always, elements of this presentation are forward-looking or based on our current outlook and assumptions for the global economy and our businesses more specifically, including the expected and potential effects of the ongoing COVID-19 pandemic. Those elements can and frequently change -- do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of the non-U.S. financial GAAP measures, which are included in today's slide presentation and our earnings release and related schedules. We believe this additional financial information will help in understanding our results. Turning to our results for the first quarter. Net sales for the first quarter of fiscal 2022 were $542 million compared to $538 million for the prior year quarter, an increase of 1%. Net earnings were $30 million or $0.47 per share compared to $42 million or $0.64 per share. Adjusted net earnings for the first quarter of fiscal 2022 were $36 million or $0.56 per share. Adjustments to earnings for the quarter included costs related to business development activities, and a charge related to a nonrecurring matter unrelated to the ongoing operations of the business. There were no adjustments to earnings in the prior fiscal year first quarter. Net cash provided by operating activities for the first quarter of fiscal 2022 was $39 million compared to $147 million for the prior year. Free cash flow for the first quarter of fiscal 2022 was $26 million compared to $139 million for the prior year. Adjusted free cash flow was $27 million. Now, I'll turn the call over to Tom to comment further on our results, strategies and markets.

Thank you, Dan. Good afternoon, everyone. We continue to see positive signs of recovery across the business despite market volatility. Ongoing COVID-19-related disruptions, including global supply chain challenges, labor shortages and customer-initiated shipment delays permeated in the industry and impacted our revenue in the quarter. Although, we expect an uneven market recovery throughout 2022, orders proven resiliency underscores our confidence in our continuing recovery and ability to deliver a solid year. Moving to our markets. The commercial aerospace market continues to improve. We are pleased to see the 737 MAX recertification in China and expect overall build rates continue to ramp slowly throughout the year. Commercial aftermarket recovery is being fueled by rising passenger traffic and utilization of commercial aircraft fleets that include significantly higher Woodward content. U.S. domestic passenger traffic is nearly at pre-COVID levels while international travel continues to improve, primarily as a result of the easing of travel restrictions between the U.S. and Europe in November. Overall, defense markets remained stable, but as expected, demand for guided weapons is down and is anticipated to remain at lower levels for the foreseeable future. Turning to our industrial market. In power generation, demand for gas turbines remains strong, driven primarily by growth in Asia and the replacement of coal-powered plants. Aftermarket activity has been increasing, and we continue to see strong demand for backup power for data centers. In transportation, the global marine market continues to see increasing orders for new ships and higher utilization, driven primarily by a robust freight market, which will drive future aftermarket activity. Demand for China natural gas trucks remains challenging, even though global natural gas prices have trended downward after peaking late last calendar year. The oil and gas market has improved with pricing above pre-2020 levels, driving increased levels of capital spending. In summary, while we see a significant amount of uncertainty in our markets, we anticipate improvements as we progress through the fiscal year and we remain confident in our ability to deliver on our previously stated 2022 outlook. As a reminder, for the full fiscal year '22, we expect further recovery and improved profitability in our Aerospace business as OEM build rates increase in passenger traffic recovers despite the headwinds from softened guided weapon sales. In our Industrial business, we anticipate increased demand for industrial gas turbines and related services, continued improvement in marine markets and stabilization of oil and gas prices, all of which should drive customer investment in this segment. We will continue to navigate the challenges of this market recovery with a focus on operational excellence, delivering value to our shareholders and customers and positioning Woodward to capitalize on future market opportunities. Now, I'll turn the call over to Mark to discuss the financials in detail.

Thanks, Tom. Net sales for the first quarter of fiscal 2022 were $542 million, an increase of 1% as compared to the prior year period. Sales for the quarter were negatively impacted by $70 million due to ongoing industry-wide COVID-19-related disruptions, including supply chain constraints, labor shortages and some customer-initiated shipment delays. Aerospace segment sales for the first quarter of fiscal 2022 were $336 million, an increase of 5% from the prior year quarter. Segment sales were negatively impacted by approximately $42 million of industry-wide COVID-19-related disruptions, which resulted in shipment delays for some orders. Commercial OEM and aftermarket sales were up 38% and 31%, respectively, driven by continued recovery in both domestic and international passenger traffic and increasing aircraft utilization. Defense OEM sales were down 20% in the quarter primarily due to lower sales of guided weapons. Defense aftermarket sales were down 18% compared to the prior year quarter, primarily due to supply chain disruptions. Aerospace segment earnings for the first quarter of 2022 were $51 million or 15.2% of segment sales compared to $46 million or 14.4% of segment sales for the first quarter of 2021. The increase in segment earnings was primarily a result of significantly higher commercial OEM and aftermarket sales volume. Turning to Industrial. Industrial segment sales for the first quarter of fiscal 2020 were $205 million compared to $216 million in the prior year period, a decrease of 5%. Segment sales were negatively impacted by approximately $28 million of industry-wide COVID-19-related disruptions as well as weakness in China national gas engines, partially offset by higher marine sales. Industrial segment earnings for the first quarter of 2022 were $24 million or 11.5% of segment sales compared to $33 million or 15.2% of segment sales in the prior year. Industrial segment earnings decreased primarily as a…

Thank you. The question-and-answer session will begin at this time. [Operator Instructions] Our first question is from Sheila Kahyaoglu with Jefferies. Please state your question.

Hi, good afternoon guys and thank you for the time. Maybe we'll blame this quarter on Don. In terms of Aerospace margins, can we maybe talk about some of the moving pieces as we progress through the year and the improvement? Mark, you mentioned a few things like incentive comp and military was down quite a bit, double digits, if you could talk about the moving pieces there?

Yes. Sheila, as you heard us in our prepared remarks, we did talk about strength in both commercial OEM and aftermarket. We're anticipating that sales volume strength to continue. You also heard us mention the COVID-related disruptions that impacted Aerospace, $42 million in the quarter as those abate, and we're able to pick up on that sales volume, that will flow through, which will then, as you mentioned, will be offset partially by the annual incentive compensation coming back into the business.

Okay. And then, I just wanted to maybe ask Tom a bigger picture question on the Industrial segment. I've seen it ebb and flow over the years. So kind of what are your thoughts there on bigger picture?

Well, right now, I think we're in the beginning of an up cycle, as we were highlighting. We definitely see power generation demand increasing. We see the industrial turbo machinery market recovering. Orders are picking up. Upgrades are happening. So, both on the new and service side, we see that increasing. As we highlighted the marine market is coming back, and we're starting to see good aftermarket activity there. The oil and gas market is -- with the prices, we start seeing prices at these levels. There will be more capital investment. I know the oil majors are being cautious, but we are seeing some increases in the aftermarket there. So that bodes well for us. The -- if you want to say the wildcard for us right now is in China and in particular, in the kind of truck market for natural gas engines. And we anticipate a recovery more in the second half of the year in that market. The dynamics of the market are all pointing towards recovery. So we're seeing that as we move through the fiscal year, the industrial market looks to be picking back up. And that's kind of part of our guidance. So with the volume increases we see, we should be able to lever that increase through into the bottom line.

Our next question is from Robert Spingarn with Melius Research.

Hi, everybody. Tom, I guess, unless your initial guide was really conservative. I'm just struggling to see how you guide with the soft quarter given that nothing good has really happened since the prior quarter. We've had -- supply chain got worse, Omicron came in, all the things you've talked about, are there sources of upside that you can highlight here that provide true offset? Or are you just thinking the timing of the recovery is going to be there?

Yes. Well, as you know, you can see that there's no doubt that COVID impacted Woodward definitely in our markets. But we are seeing the demand increase. You go in particular, when we talk in the Aerospace segment, we are seeing the aftermarket increasing with China recertifying the MAX. We're seeing IP orders, initial provision orders come in. I don't see that falling off. I think there's a huge demand for travel coming and our anticipation is we were impacted by COVID and had disruptions as we highlighted. But we're on -- we're seeing some of that turn, we've got a lot of work to do. So there's no doubt about that to recover as we highlighted, but we're starting to see some improvement opportunities. We're seeing production rates increasing, but the demand is there. So, we're confident that the order book and the demand is out there. We do have to work and it's our responsibility to deliver on that, and there's going to be a challenge there, but we're working all the disruptions. We think that within our company, we passed the worst of the COVID impact. And what I mean by that is, the absenteeism that was related to illnesses, we could see and track that, that's of months that, that will drop off and that we'll be -- have better utilization of our factories with full staffing. In addition to that, with our outlook and the demand, we do have a need to hire a lot of direct members, and we've put in enhanced hiring personnel to support that as well as training, and we're anticipating the need to add about 100 direct numbers a month through the fiscal year. So, we're working hard on that, and that's a reflection of the demand is there, and we've got to perform and work hard to deliver on that demand.

Can you -- okay, can you put some color around this charge with the nonrecurring matter that was unrelated to the operations of the business?

Yes. It's just -- it's a nonoperational one that we're calling out, but we really can't go into the details of it at this time.

Okay. And then the only other thing, the shipment delays you talked about in the opening remarks, that were customer initiated, anything else there?

Yes. A lot of you that have been following us for a while, you know that we have the lean production systems at our customers and which equates to pull systems that as they have been disrupted, they haven't pulled material. Same reason that we've had some disruptions, other suppliers, labor shortages. So, it's a combination that we saw where if you want to say, labor disruptions, meaning other people don't have the workforce or COVID-related absenteeism and the like, has disrupted our suppliers, has disrupted our customers, has disruptive order operation. So, that's where those numbers come from. We're anticipating that everybody will start to recover on that and that will make up those shipments and that revenue as we move through the fiscal year.

Our next question is from Christopher Glynn with Oppenheimer.

Hey, thanks. Good afternoon. So, I wanted to ask about the marine market a little bit there. You -- the way you talked about it, it sounds like it's in the process of starting to ramp up taking shape. I'm just curious, how do you see that curve playing out and the process of tilting towards a full swing aftermarket strength for that?

Yes, utilization rates are up. We're seeing the biggest part that's increasing is our aftermarket in the marine market. And that's highly type of utilization, also what I would say, bringing back during the worst part of the pandemic, bring the freighters back online, making up for previous maintenance that was pushed out. So that's happening, and we have a robust forecast going in the fiscal year. And then behind that, we see new ship builds increasing. We also see quite a bit on LNG carriers come in. We see the increase in what we call dual fuel ships, which that's a real positive for the Company because that means we have multiple fuel systems per engine and higher content. So, all of those are positive signs. Again, with the lead times in the industry, that's really looking out. The aftermarket will build out this year and provide good growth. As we move into the next several years, the new builds and the like will also add to growth. So I think it's on a good up cycle, and we see that carrying forward here.

Great. And just a little bookkeeping on that, I believe, you said the aftermarket piece is a little bit bigger within L'Orange and you see the OE timing starting to kick in, in fiscal '23?

Yes, it really will start with new builds coming in and what's on the order book. The order book is strong and that with the long lead time is going to be kicking in fiscal '23, '24 time frames.

Great. And then your -- a lot of positive commentary on your IGT markets. I know there's a lot of pockets in there, whether aeroderivative or utility scale in various other markets. It sounds like it's all taking shape pretty uniformly. Just want to make sure I wasn't missing any layering of your commentary for the IGT markets.

No, we're seeing IGT. So I'll segments that are increasing. And I would like to still refer to turbo machinery in total, so that add gas turbines, steam turbines, compressors, and we're seeing all those picking up as we move through '22 and into '23. There's also good aftermarket activity tied to those service activity where we're seeing upgrades, movement to cleaner fuels. So we're seeing activity for some people upgrading their turbines, especially in the Middle East, from running on burning oil to going to natural gas. We're also seeing customers wanting to prepare for hydrogen and Woodward one of the few out there that have hydrogen-ready fuel system. So, we're helping our customers with that. So we're seeing activity around those types of initiatives, and we think that will carry-through for the next several years. Again, a long lead time, a long type of business credit moving in a real positive direction.

Great. I think -- yes, last one for me, if I could. The customer initiated shipment delays. Was that sort of the part that broaden the most in the quarter? Or was it just kind of across the explanation?

No, I would say the largest still was what we would call supplier disruptions. And then supplier disruptions, you can look at it in two ways. One would be capacity constraints. The other would be labor disruption. And give you an example, capacity is really around our electronics and integrated circuits. And I think everybody is a little aware of the capacity and the difficulty we have in that area is, we use several of the chips that -- critical chips that are used by the automotive industry and by the cellphone industry. And as you know, there's pent-up demand there. So that adds capacity. And then the labor disruptions, I think, is a combination of people coming out of the pandemic, adding enough resources and then also this high absenteeism that we've seen the supply base. And also, we've seen at Woodward. And as I mentioned previously here, we see that starting to drop for a period there, we were seeing some really high absenteeism numbers, and that's beginning to come down.

Our next question is from Michael Ciarmoli with Truist Securities.

Hey, good evening guys. Thanks for taking the questions. Maybe, Tom, just to go back to Rob's question on the guidance, I mean, this $70 million. How should we be thinking slowing back into results? I mean, we're obviously still dealing with a kind of currently challenged quarter, your second quarter. So, I imagine sequential ramp up in the March quarter is probably going to be fairly tepid. I mean, do you guys have good line of sight on how you recoup this $70 million in revenue?

Yes. No, I'm glad you asked the question. It is a good question. It's going to be more in the second half of our fiscal year, third and fourth quarter. We're working hard to try to recover in the second. We still -- our absenteeism and labor disruptions and some of the supply constraints are still there. We're working them hard and we're seeing progress. But it won't be -- that $70 million won't be recovered in the second quarter. So, it's going to take some in the second, but it will be back, back-end loaded. We're confident we can pick that up, but there is a risk to that and there is some uncertainty, and that's why we highlighted that in the prepared remarks.

Got it. And then just on that -- on the component that was aerospace, the $42 million. Was that more on the commercial side, more on defense? Was it equally split? Any color there?

Yes. It's generally equally split. It's across the whole Aerospace industry.

Okay. Got it. And then just, for me here. What are you guys seeing on the -- obviously, you mentioned some of the inflation related headwinds, but what about on the pricing side for you guys? And the ability to pass through, I think we just were talking about L'Orange, and they've got more of an aftermarket. So the ability to price in both industrial and aerospace and confidence level there?

Yes. No, that -- it's always a good question. In parts of our business and aftermarket being one, we have better control of pricing. So, we are able to move pricing there on our OEM side, the majority of our OEM sales are on long-term agreements. Those agreements generally all have escalation clauses in them, and that's kind of -- and that usually comes to an annual escalation. So we will see some recovery there. It's a timing issue on that on the OE side. The aftermarket side, we have a little more flexibility. So, we will see some price realization, but we won't get all of that inflation recovery that we're seeing in the year because of the timing of the agreements.

Our next question is from Matt Akers with Los Fargo.

Hi, good afternoon guys. Thanks for the question. Could you touch on international military demand? Is it something that you guys had mentioned a little bit last quarter? You're starting to see a little bit of activity. Has that translated into orders at all yet?

Yes. We do see some of that coming through again in our foreign military sales. Some of that's in military aftermarket where we see some upgrades in the activity. There have been some recent orders for guided weapons coming from for military. So we've seen a little bit there. We anticipate more of that coming, but it's hard to forecast exact timing on that. So there is some. It's not huge numbers, but we are seeing some positive orders coming from the port militaries.

Okay. Got it. And then I guess if you could just touch quickly on provisioning and sort of what impact you're seeing there and maybe with some of the rate increases essentially from Boeing this year, is there room for that to move higher?

Yes, so we've called out before with the provisioning. The first and the biggest opportunity is the recertification of the MAX in China and those airlines starting to take those planes and that provisioning is starting to see, Tom mentioned earlier that we do -- we are starting to see some orders there. As the narrow-body get delivered, as we always talk about with provisioning, really, it's a matter of which airlines are taking the deliveries and then which routes they're actually flying. So if an airline is flying the same route, you may not see initial provisioning sale for that. But it's an airline that already has a MAX as, for example, but they're starting to fly new routes. That's when initial provisioning opportunity will come up also. And so we are starting to see initial provisioning and pick up overall. And we talked before that 2018, 2019 was a very large initial provisioning years for us. We're not anticipating we're going to return to those levels this year, but we are going to be -- have a nice increase from last year.

Our next question is from Pete Skibitski with Alembic Global.

Good afternoon, guys. I just want to dig back into the supply chain issue. I know you're expecting it to impact the first quarter. Is it fair to say it came in a good deal more negative than you thought? And I think you were kind of the last of it and maybe de minimis, but are we talking maybe continued kind of chunky negative impacts in 2Q and maybe it trails off in the third quarter?

Yes. I guess we first reflect on the first quarter, the COVID impacts and the disruptions were larger than we anticipated. And I would say most of that was labor disruptions in terms at Woodward our suppliers, I'm going to say shortages, but also absenteeism. And that kind of weighed through. We have seen some of that still here in January. So, we anticipate it will start tapering off as we move into February, it's kind of -- so Omicron has moved through a lot of our sites and states that we operate in. And so we see that going down. And so, then as we move, we are seeing, as I mentioned earlier, some improvements in some of the supply disruptions we had, but it will take into the third and fourth quarter to fully recover.

Okay. I guess -- and no, are you feeling any impact on the defense side from the -- I don't know if you can tease this out or not, but the ongoing continuing resolution for defense, maybe it's hard to kind of differentiate that with the COVID and supply chain issues going on. But do you think you've had any discernible negative impact from the ongoing CR?

We're not really seeing what we said stable to flat. But there are opportunities in the defense budget. And we're definitely going to highlight more of this at our Investor Day, upcoming Investor Day, but we are securing programs in hypersonics and some of the other areas where we're seeing increasing activity. So depends what programs you're on and what activity you're in. But overall, we see picking up some new business throughout there. And we'll go over that more in March with the Investor Day.

Okay. And then just the $800 million share repurchase authority. Is that -- do you guys intend to use all of that over the next two years? Or are you just saying you're going to be opportunistic?

Well, we'll be opportunistic in the market, but we put a two-year horizon on that as that's our intention.

Next question is from David Strauss with Barclays.

Thanks. Good afternoon. So just to follow up on that. So I guess at this point, you're pivoting away from kind of 50% cash flow -- free cash flow return to shareholders to something 100%, 100% plus based on the share repurchase authorization?

That's correct.

Okay. And on defense, you guys called out double digit. It looks like it was down close to 20% in the quarter. I don't know the split OE versus aftermarket yet. But does that decline improve as we go throughout the year? Or is that kind of the right level for the full year, something down close to 20% for your total defense business?

Yes. That's not our anticipation for year. As we've talked about with the COVID disruptions that did hit the defense side of our business hard. Our outlook for the defense side is still the same as it was previously. We've talked about softness in the guided weapons side of the business, which will be a headwind, but the rest of the defense business, we're anticipating to be pretty stable.

And could you size the total cost savings level you think you've been able to pull out of the business during the pandemic here? And what proportion of that do you see coming back over time?

Yes. So we've mentioned the early stages of the pandemic that we did take out over $100 million of cost. Now some of that was related to the variable compensation cost incentive plans that we've had -- that we haven't had in 2020 or 2021 and that we're talking about coming -- some of that coming back in 2022. But generally, what we've said is about half of over $100 million wouldn't return after we got out of the pandemic based on a lot of the cost savings initiatives that we've put into place related to site facility rationalization initiatives that we have. So that's what we're still anticipating as we move forward.

Our next question is from Gautam Khanna with Cowen.

Just to follow up on the $70 million of sales that was short. All in, can you -- do you have a quantified EBIT impact from the $70 million end of indirect, the COVID disruptions you talked about as well because just sort of what's the EBIT decrement on the $70 million of loss now?

Yes. We haven't quantified it specifically. We've talked over the years that our flow-through is around 30%. So I think you could do the math from there. If you think of generally, all right, if we were to have that $70 million and getting 30% flow through, we've been approximately $20 million, but we didn't really quantify it or calculate it specifically. It's obviously across all of our businesses with the impact that Tom has spoken about, both from supplier disruption and then labor shortages, both for us and our suppliers. So that would be the ballpark that I would be thinking.

Okay. And just as you catch that up later in the year, do you capture all of that 30% increment back? Or some of the costs just fixed and if you will, not recoverable even through volume. I'm just wondering if we can have an outsized impact in that drag in Q1 that doesn't get made up through the year?

A lot of that received flow through where we could potentially have some impacts to the normal flow-through would be expediting over time freight costs, expedited freight costs, we still think flow through of the level that Mark highlighted is pretty normal for we're coming back to our sales on the capacity for our facility. So, we anticipate most of that will still flow-through.

Our next question is from Chris Howe with Barrington research.

Good afternoon. And thanks for quizzing me and quite the afternoon here for me. I would like to ask another question on the guidance. You've reaffirmed the revenue range. There’s been a lot of questions surrounding the $70 million, in fact, which is expected to recover in the second half some level of cadence. As we think about this environment from a conservative outlook or view, can you talk about the conservative scenario more specifically, what level of ongoing disruptions can you continue to absorb and still feel relatively confident in your guidance range? And at this juncture, it seems too early to tell with one quarter in the books, but perhaps the back half of the year points to that commercial aftermarket acceleration and the acceleration of some of the aftermarket business, offsetting some of the impacts we're seeing here.

Sure. Without a doubt, there could be risk. If there's a new variant that nobody anticipates as more severe and really starts impacting air travel and -- that's not in our forecast. We are not anticipating that. We're anticipating a recovery, anticipating a reduction in absenteeism and we're anticipating we're seeing signs of that, that we're going to improve on our supplier disruptions. So that's in our outlook. And if that is not the case, then we're -- you would say our guidance is too optimistic. We think we're being prudent with the outlook, and we are anticipating recovering the delayed shipments. We do see and we are anticipating and you can see from our customers, if we go to commercial aerospace, as an example, we are seeing the line rates increase. Our customers are putting that into their demand, and we're seeing that demand flowing through. We're seeing utilization as you track the legacy aircraft as well as the new narrow-bodies, utilization is up. We're seeing shop visits go up. So we see the aftermarket, not just through 2022, but accelerating into '23. And if you guys recall, we highlighted that we would expect to get back to 2019 levels in 2023, and we see that happening. And then we expect to move forward from there. The trends in the -- as I highlighted earlier, in our industrial market are pointing in the right direction. All these are long-cycle businesses. So, we're seeing demand forecast coming from our customers. So, we -- we're encouraged by that outlook, but there is the uncertainty if we get a really new severe variants in COVID that locks everything up. I can't -- we're not -- we don't know what to do about that. We're not anticipating that it's not in our outlook.

Okay. That's helpful. And we've been waiting on and now it's here the recertification of the 737 MAX in China, and it looks like we're also envisioning route developments as we move through this calendar year. Can you comment on the 737 MAX, kind of what your expectations are for the near-term outlook and when it could become back to what it was type of levels?

Yes. What we're seeing is Boeing came out with their line rate numbers, and we are seeing that transition to Woodward through lead times, which we've highlighted before that, we usually four to six months ahead of their production so that they can ramp up. So we're seeing those line rates increase, we're also seeing the Airbus line rates increase. All of that, along with the recertification in China are positive, obviously, for new OE sales, but they will drive increased initial provisioning sales. And our outlook this year is up over last year, and we anticipate as we go into 2023 and 2024, initial provisioning sales as well as higher aftermarket activity will be happening. So all those are in the works, and we're confident that our customers here are going to hit those new rates.

Okay. And then one last one, if I may squeeze it in, I think you mentioned 100 direct members a month as part of your hiring goals to satisfy the influx in demand. Can you comment on the labor environment on its direct impact with Woodward and your level of confidence in ramping up your hiring as we move through different phases of this recovery?

Yes. No, it's a good question. Definitely, labor markets are tight. We are seeing wage inflation and we need to stay competitive. And as Mark has highlighted in questions as well as in the prepared remarks, we needed to get our variable incentive plan back into existence to be competitive in the labor market. So we are, right now, being able to execute on our hiring plan. It's not without challenge, but it's got full effort. And a lot of what we're doing is other companies are, is we're training people, so we're hiring for aptitude and attitude and we're training. And we've really upped our training capabilities and resources and it's a tight labor market. But in the locations we have facilities, we are an employer of choice, and we're ensuring that we stay that way through competitive wages, competitive benefits and a great place to work with exciting work. So, it's a challenge to bring on that many people, but we've put in all the resources and the processes to do it. So, we've got high confidence we can deliver on the hiring which is essential to making sure that we can deliver on the sales.

Our next question is from Michael Ciarmoli with Truist Securities.

Tom, I wanted to ask specifically about that 100 a month that was just brought up. But one area on that, I mean are these -- are you tracking sort of a pool of employees that you had previously laid off? Or are you actually having to go out there and find entirely new talent? I mean, based on your comments on training, it sounds like you're looking for people who previously have not been with Woodward. So does that make it more challenging? Or is it a little more balanced? I mean, it seems like that could be a pretty big choke point to be achieving the full year goal.

Yes. So, we have hired back a lot of folks that we had to let go during the pandemic, but we are also having to fill in for attrition, they came through the pandemic. And we're just like a lot of other companies, we -- when we've looked at attrition, we've had in the last two years, substantial retirement. And just like the rest of the nation, a lot of it, I guess, Baby Boomers decided this is a good time to retire. And so we've seen some of that. So in addition to bringing back some of the other numbers that you referenced, we have been doing that. And now we are, as we look to continue to expand in some of our facilities, especially the ones with the higher growth rates, we are having to train people. So that's why I said, we're putting dedicated resources. We put in dedicated training facilities, and we're working really aggressively being able to bring people online. So it's a big challenge, but I think we've got everything in place to do it.

Our next question is from Noah Poponak with Goldman Sachs.

Good evening. What are you expecting the second quarter total company organic revenue growth rate and segment margin to look like compared to the first quarter?

Yes, we usually don't give detailed guidance that we expect it to be up over the first quarter and then look accelerating into the fourth quarter.

Okay. Yes, there's a -- I guess maybe I'm overthinking this, but there's a dynamic where the second quarter last year was actually like a pretty strong quarter in the Aerospace business. It was up 10% to 12%, I think sequentially, that has a bit of a tough compare. And just back to this whole concept of holding this guidance, it's just sort of looks like you'll need to exit the year. The back half growing 20% on the top line and the Aerospace margins well into the 20s and the industrial margins well into the mid-teens. Are those directionally accurate for where you're expecting 3Q and 4Q to be to get to this full year guide? Or am I understating the second quarter in that math?

Yes. So the first comment I'd make is the order book supports our growth. We have to get the shipments out. So, we're confident and particularly answering your question on Aero. And on the industrial side, we're seeing good recovery in the order book as well. So it's both sides. And you can tell it by the growth rate that we highlighted. There's no doubt that top line and bottom line accelerate as we hit third and fourth quarter with the numbers getting substantially higher. And without commenting too much, but you're directionally in the right ZIP code for sure is what we have to deliver on. And just as a reminder, and I know everybody on the call knows this, but I'm going to say it anyway, is we have the capacity. So once you get the volume through that capacity, you can get really good leverage on it. And we're still coming out of below fiscal year '19 sales. We are capacitized for higher than this. So as those sales come through, and we can deliver on them and overcome these COVID disruptions, we're going to get high leverage. And so, the numbers will improve someone like you're saying no.

Okay. With the supply chain driven or just general disruption, I guess, driven revenue slippage. Is there a net number at this point? Because I think you've had that for a few quarters. I remember the quantification being closer to $30 million in the fourth and third quarter last year. I think it went back further than that. And I think that third quarter is going to kind of started. So are you delivering on some of that revenue and then having other revenue disrupted? Or do you now have a pretty sizable balance of revenue to flow out? And related to that, I'm surprised there isn't more working capital disruption or sizable working capital related to all of that.

Yes. So maybe to give a little more color on the disruption. What we highlighted this quarter, which occurred more was the addition of customer delayed COVID shipments as well as Woodward labor disruption. So if you look and we said supplier disruption from the sequential quarters, as I think its $35 million in this quarter was approximately $42 million. So we did see an increase. So -- and then the rest of that was customer Woodward labor disruptions.

But have you delivered on the disrupted revenue from three too…

Yes, some of that we have. There's been some -- you have some that has not gotten out. I would use -- on our industrial side, we had some electronics shortages, and we're still working to recover those. So, some of that move from quarter-to-quarter. So, yes, some of it moving out. We've had some new supplier disruptions in. But we're managing the delinquent suppliers. We've got folks on their site. There's -- we previously talked on the order of a handful and now we're in the 20-something-plus suppliers that are disrupting us. And we've got action plans with all of them, and we're seeing some improvements happening. But that's there of magnitude of the ones that are really hurting us.

Okay. The guided weapons decline that you cited in the quarter, any ability to quantify how much of that rate of decline was just kind of what's happening in the core run rate in that business at this point versus how much of it was these disruptions?

Yes, definitely we got hit by disruptions in the guided weapons. But just to clarify, one of our bigger programs in the guided weapons is the JDAM and the current lot buy from the government is down. And so that -- we've been kind of communicating to all of you and that has occurred. And then we -- on top of that, we have seen some supply disruptions

Is that the 18 that we cited, is it sort of 50-50 budget versus disruption? Or is it very different than that?

So the question I think it's early on. If I got right, how much was supplier disruption? How much was just the lower lot?

Exactly. Yes.

I would say primarily, it's going to be the lower lab disruptions would be something but it's primarily going to be the lower lots.

Yes, this is not the number provide. Sorry.

No that’s directionally helpful.

[Operator Instructions] Our next question is from Robert Spingarn with Melius Research.

Tom, one thing I wanted to ask you about is the 787 and how you're thinking about that given that the rates -- well, first of all, there's been no activity. So I want to get a sense of what your activity has been. And then what the mechanics are, when we think about the joint venture with the GE? What inventories look like? And now this latest news that this thing is going to be at low rates for a couple of years. Now, I understand it's maybe not as profitable as aftermarket, but how should we think about that?

Yes, I mean you've got it. That's in our outlook that we've brought it down, there still producing a little bit here and there. But what I would say is, yes, that OE side is going to be low for the whole fiscal year. Positive 787 utilization in the field is up, and we are seeing aftermarket from that, but now that that's a really unfortunate situation, but it is part of our outlook.

Okay. And then how about inventories on that or anywhere else that we should be thinking about? Are you pretty comfortable that inventories are not built up somewhere? With the engine OEMs, you never know.

Yes. We've got a pretty good handle. I don't think there's a lot of built-up inventory that is in the system that isn't already in built aircraft. I mean as you know, there's a lot of aircraft that build. So, I think once you get the line rates up, we'll be flowing pretty quickly with those. That's the best for our knowledge. We're not seeing like huge piles of inventory out there. And we track what we build and reference that to the, what's OE rates are, what's part we can see that. So we're pretty in line with all of that. I don't believe there is a whole lot access in the supply chain.

Okay. And I have a question more on the optimistic side longer term. I wanted to bring a positive question here. And look, you guys with this authorization, the dividend, you obviously have a lot of confidence in the business. You have very good positions and we're going to get this flow of shop visits on the newest narrow bodies, which you've touched on a little bit here. You're going to be buying back stock over the next couple of years. Is two years from now when the rubber hits the road on just the big flow of Neo and LEAP shop visits coming through? What's the year that you're dreaming about? When is the big bow wave of aftermarket? As soon as the recovery goes, where you think it's going to go?

Sure. Yes. This is a great question. First I want to highlight is we've got a lot of pent-up demand for the current generation, particularly for the current A320ceo, 777, 787, the units that are in the field. Those are going to generate some really nice aftermarket. And if you look at a lot of the engines, whether it's a CFM56 or -5 or the B2500, a lot of having and had their first shop visit, and they're all coming due. So that's going to propel us in the next few years. And then as we move, we'll talk about our long-range plan at the Investor Day. That's where we're going aftermarket really starting to pick up to that five-year period and then really use or explode in the 5- to 10-year period. And that's all concept we have, that's all coming. And so that it's really interesting, but...

The hockey stick that we used to talk about?

Yes. A lot of things -- the way I look at our business is we've got -- if you took our trajectory, put it -- carve out this two-year pandemic pause, we're going to see something on the order of that coming back, and that's what we've communicated, but that's one way to look at it.

Yes. No, I don't -- I think we shouldn't lose sight of that, and that's why I wanted to bring it up. I appreciate it. Thank you.

Mr. Gendron, there are no further questions at this time. I will now turn the conference back to you.

Okay. I really appreciate everybody joining us today. Thanks for the questions, and very informed questions. We always appreciate that. But I would like to invite all of you to join us at our Investor Day. It's going to be in New York City. We're planning to do it in person. We also have a virtual element to it. But it's going to be Wednesday, March 9, and I look forward to seeing you there and talking to all of you in person. So thanks for joining us today. Goodbye.

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