Thank you for standing by. Welcome to the Woodward, Inc. Third Quarter Fiscal Year 2023 Earnings Call. At this time, I would like to inform you that the call is being recorded for rebroadcast and that all participants are in listen-only mode. Following the presentation, you are invited to participate in the question-and-answer session. Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik. Please go ahead.

Thank you, operator. We’d like to welcome all of you to Woodward’s third quarter fiscal year 2023 earnings call. In today’s call, Chip will comment on our strategies and related markets. Bill will then 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 August 14, 2023. 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 including our guidance and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-US GAAP financial measures. We direct your attention to the reconciliations of non-US GAAP financial 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. Now I will turn the call over to Chip to comment further on our results, strategies and markets.

Thank you, Dan, and good afternoon, everyone. We delivered strong sales growth in the third quarter, driven by robust demand and our improved ability to deliver products to our customers. We expanded margins through productivity improvements and price realization, partially offset by increased material and labor costs. We continue to make progress on our strategic initiatives focused on enhancing the customer experience, simplifying operations and increasing profitability through improved execution. Output is increasing, pricing actions are yielding results, and we are seeing efficiency gains as our new members come up the learning curve and become more proficient in their job. We've seen improvement in our supply base performance, however, the environment remains challenging and we continue to actively manage and problem solve with our suppliers. Our team has done a great job responding to the fluctuating delivery risk landscape. We remain focused on this work stream with significant resource allocation and the goal of identifying risks further upstream and launching countermeasures earlier in the process. Moving to our markets. In Aerospace, commercial airline utilization rates continue to rise with US, Europe and China domestic passenger traffic now surpassing 2019 levels. In addition, international travel continues to improve, nearing 2019 levels. In Defense, due to geopolitical developments and government spending proposals, we expect R&D and procurement to increase, which bodes well for Woodward's future opportunities. In Industrial, demand for power generation remained strong, driven by growth in Asia, increases in aftermarket activity and continued demand for backup power. In Transportation, the global marine market remains healthy with increased ship build rates and higher utilization driving current and future aftermarket activity. Marine customers continue to launch more projects that incorporate alternative fuel capability in their specifications. This should drive expanded OEM and aftermarket opportunities as multi-fuel engines contain greater Woodward content. In addition, Chinese heavy-duty truck output increased significantly in February, as did the portion that is natural gas powered. The natural gas-powered production rate has been relatively stable since February but future demand remains uncertain. In Oil and Gas, global investment in LNG infrastructure development continues. Rig counts increased globally, though US activity declined year-over-year. In summary, the market signals we are receiving indicate continued strong demand. We remain focused on operational excellence, developing talent and innovating for the future, which we believe will drive long-term sustainable growth and deliver enhanced value for shareholders. Before we move on to our financial results, I'd like to introduce Bill Lacey, who took the helm as CFO in May. Bill has a distinguished track record in financial operations and business leadership. With three months in role, Bill has well integrated into Woodward, and he is already contributing to the team. Bill, welcome to your first Woodward earnings call. I'll now turn it over to you to share our financial results.

Thank you, Chip. It's great to be here. Net sales for the third quarter of fiscal 2023 were $801 million, an increase of 30%. Aerospace segment sales for the third quarter of fiscal 2023 were $481 million compared to $402 million, an increase of 20%. Commercial OEM and aftermarket sales were up 41% and 28% respectively, driven by higher OEM production rates, continued recovery in both domestic and international passenger traffic, increasing aircraft utilization and price realization. Defense OEM sales were down 12% in the quarter, primarily due to lower sales of guided weapons. Defense aftermarket sales were up 17%. Aerospace segment earnings for the third quarter of 2023 were $83 million or 17.3% of segment sales compared to $57 million or 14.1% of segment sales. The increase in segment earnings was primarily a result of price realization and higher commercial OEM and aftermarket volume, partially offset by higher annual incentive compensation. Turning to Industrial. Industrial segment sales for the third quarter of fiscal 2023 were $320 million compared to $213 million, an increase of 51%. The increase was driven by higher volumes across all markets as well as price realization. Industrial segment earnings for the third quarter of 2023 were $58 million or 18.2% of segment sales, compared to $21 million or 9.9% of segment sales. Industrial segment earnings increased due to higher sales volume, price realization and favorable product mix, partially offset by higher annual incentive compensation. Industrial sales and earnings benefited from significantly increased on-highway natural gas truck production in China, although future demand beyond the fourth quarter remains uncertain. Non-segment expenses were $24 million for the third quarter of 2023 compared to $19 million. At the Woodward level, R&D for the third quarter of 2023 was $35 million or 4.4% of sales compared to $32 million…

The question-and-answer session will begin at this time. [Operator Instructions] Our first question comes from the line of Robert Springarn of Melius Research. Please go ahead. Q – Robert Springarn: Hey, everybody. Welcome, Bill. A – William Lacey: Thank you, Robert. A – Chip Blankenship: Good afternoon, Rob.. Q – Robert Springarn: Chip, these -- first of all, very good numbers, clearly. I wanted to focus in on the Industrial side, where some of these numbers are really higher than what we've seen before on a quarterly basis. And just to understand, is this a new normal? Was there some pent-up inventory that got sent out? Just -- if you could run us through maybe through the major business lines within Industrial and talk a little bit about where you are in terms of a new normal, or maybe it's benchmarked against the recovery versus '19? I'm not sure what the right way to do it is. But especially because a quarter like this, almost implies the fourth quarter in Industrial would -- or for the company would be even flat to down. I just want to understand if you're being conservative, really how to framework this entire thing. A – Chip Blankenship: Sure, Rob. So the -- I mean, we don't really give out detailed numbers at the subunit product line levels, but I would like to say that the Industrial performance has a very high mix of China on-highway, shipments in it. And as far as the new normal, we do not forecast this as a new normal, but we are enjoying quite a high demand from our customers in China for products that we had a significant amount of inventory for and we're able to respond quickly last quarter. And our supply chain and plants there in…

Okay. And then if I could just follow-up on that, two quick things. One, is there a way to think about $320 million in Industrials and to allocate that across the businesses or to rank order, what's the biggest, what's the smallest? And then Bill, for you, just curious, it sounds like there's some moving pieces and maybe a little bit of conservatism, but why no increase in the cash flow guide?

Yeah. So first, on the -- on giving a little more detail, as Chip said, we typically do not give sublevel sales below the segment. On cash, we continue to see good improvement there overall and we are holding our guide. We will see good delivery from earnings, and we are -- we will see our inventory continue to improve from an efficiency standpoint. And so we believe that the investment that's required for us to deal with the higher volumes are also baked in there, but we think we will deliver a good strong cash number.

Okay. Thank you, both.

You're welcome.

Thank you. Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Please state your question.

Thank you, and welcome, Bill, and hi, Chip, great quarter. On this industrial business, just -- obviously, we're not Industrial analysts. So what's your visibility? It looks like your backlog typically is a third of your revenues. Kind of what level of visibility do you have at the moment? How big is the China business? I think it used to be $100 million run rate. Are you guys on an annualized basis higher than that?

So, like Bill, and I said, Sheila, we're really not breaking out the business to those level of details underneath the Industrial segment. But I think it's fair to say that we enjoyed a strong quarter, and we don't have much visibility to China OH volumes post fourth quarter of this fiscal year. We sit back and we look at some pretty lagging indicators to tell us how that overall market is behaving, and we saw an uptick in February both in terms of the number of heavy-duty trucks being manufactured in China as well as the fraction of them that are natural gas powered versus diesel, and we can surmise a number of factors that might go into why that's happening post COVID and with natural gas availability. But really, we're just speculating a little bit on that. And we had that backward-looking explanation, but we don't have much forward visibility for China OH.

Okay. And then maybe if I could ask one on price, I think you raised your price assumption for company from 5% prior to 7%. What drove that across the segments? And where are you sort of in the cycle of pricing increases flowing through?

So on the price realization, we did raise the forecast for the total year. We had good performance of the escalation indices that drive most of our OEM contracts, and we work through the spare parts pricing catalogs and our general catalogs for those not on long-term contracts. And we've been able to achieve those pricing targets that we laid down in the marketplace, and that result of that price realization is delivering the 7% versus the 5%.

So mostly Aerospace then?

I think they're both kind of in line with that top level number.

Okay. Thank you.

Your next question comes from the line of Christopher Glynn of Oppenheimer. Please state your question.

Thanks. Good afternoon.

Hey, Chris.

Hey, Chip. I think maybe another crack at Industrial. I think the press release kind of isolated the upside to the NG business. So I was wondering, versus your internal plan, did the natural gas China account for really all of the preponderance of the upside?

While it was a large portion of the upside, like I was saying earlier with Sheila that, all of our other product lines, be it the liquid fuel diesel products from Woodward L’Orange in Europe to the natural gas and actuation types of business units here in Fort Collins, all of our plants had increased output and we've improved efficiencies based on our supply chain performing better and having parts to the line on time, as well as our people just getting more proficient at their roles. We're also practicing continuous improvement processes that are delivering additional benefits in terms of both capacity and efficiency, so it's really across the board. It's not the case of one segment performing really well and masking malaise or poor performance in others. It's just that it's a little bit of an outsized performance from the China OH. But all product lines improved this quarter.

Okay. And last quarter, you commented that the Industrial sort of turnaround, so to speak, you weren't out of the woods. And it's impressive kind of top to bottom, look at all the operations and processes in Industrial, so I appreciate that. What's the status up to-date in terms of in the woods, out of the woods?

So I like the fact and I congratulate the team that we've turned the ship in the right direction in all of the product lines and we've made progress on the product rationalization that I talked about earlier. We continue to make progress on that. I'd say that our next areas for improvement are really driving the inventory down to serve the demand and then -- and as well as meet the customer demand. Right now, we are improving our capacity and we're planning to our capacity, but the customer demand is even higher. So in order to say, we're really out of the woods on the turnaround, I would have to see us meet the customer demand, which the team is working really hard on, as well as get our inventory levels down even further. And then I'd say, I think we're out of the woods and in great shape.

Great. I appreciate that update. And last One for me. You talked about -- you had a comment about Defense, expecting R&D and procurement to increase in the macro sense boding well for Woodward. I'm curious if you could elaborate on that? What kind of ramp curve do you envision? What sort of contours are you seeing reasonably take shape?

Well, as you know, in most cases, in Defense-related processes, the ramp is relatively modest. And what we've been spending our time doing is investigating and responding to opportunities, which both -- there are more opportunities lately, and the urgency with which these opportunities are being handled is greater. So, that's why the words -- one of the reasons that I think there's some confidence that opportunities will continue to evolve, but these are not near-term opportunities that will make an impact to the sales anytime soon.

Okay. Thanks for that. Appreciate it.

You bet.

Your next question comes from the line of Matt Akers of Wells Fargo. Please state your question.

Hey good afternoon guys. Thanks for the question. I wanted to kind of take a step back kind of on just earnings visibility broadly, right? I mean, so this quarter, relative to consensus, to a big positive surprise. I think last quarter, it was also a big positive surprise. Q1 was kind of a negative surprise. I guess you guys have been managing through supply chain uncertainty and uncertainty around China. So, I guess as we go forward, is there a point as we get into maybe it's next fiscal year that sort of settles down and we get a little bit more visibility or just sort of how you think about the outlook there?

So, I think the outlook, I would say on that, is we're just getting much better about our visibility upstream to supply chain kinds of issues, and we're able to take these issues on with more mitigation to avoid having a line down stoppage or impacting our customer shipments. So, I think our ability to forecast around our delivery models is improving and will continue to improve as the supply base continues to perform better and our factories also continue to perform better. But as far as on the customer side for something like China OH where we have very limited visibility, I wouldn't predict that to get better. We just -- we don't have the tools or visibility in our toolbox to help with that. But as far as the supply chain avenue, our visibility has improved quite a bit there.

Yes. Okay. Thanks. And I guess just latest thoughts on the share repurchase? I think the plan at one point was to complete that authorization by January, is that still how you're thinking about it?

We still have an open plan and we are evaluating opportunities for capital deployment with our Board, and we'll continue to go forward and do what's prudent.

Thank you.

You bet.

Your next question comes from the line of Pete Skibitski of Alembic Global. Please state your question.

That’s a pretty impressive quarter, at least.

Thanks Pete.

I was wondering if you could kind of update us, a little bit of a follow-up to Chris' questions, I think, but maybe you could update us on where you're at with your various initiatives? I'm thinking of in-sourcing -- is the in-sourcing push over now? Training the new employees, has that been completed? And you mentioned customer experience in your opening remarks, I think. I'm not sure what's going on with that. And then this whole -- you had some thoughts about a few rationalization as well. Just wondering what the sass in that was? Thanks.

Great. So, you have to remind me about one or two of them there that you rattled off, but I'll hit what I can. As far as in-sourcing, we're continuing to do quite a few transfers between suppliers as well as in-sourcing to make sure we've got enough flexibility to -- and sourcing options to serve the customers. So, right now, we have -- like we did last quarter, they're not the same parts. Some of them are different parts. We have over 1,000 parts in part transition either between suppliers or in-sourcing. We've made 16,000 parts through the rapid response machining centers that we have set up. We've got all the equipment on the floor right now at those locations. So, that's very active, and that will continue probably for multiple years as we try to simplify our supply chain and also make it resilient by having multiple sources where required, but having fewer sources in total. Keeping with that thought process on SKU rationalization, we've continued to make progress getting -- rightsizing our product offering to what customers are really demanding as well as allowing us to serve them efficiently. So, we have taken thousands of more offerings off the books this quarter. We intend to reduce the neighborhood of 10,000 to 15,000 SKUs this fiscal year, and we'll continue to evaluate that and become more efficient next year as well. That initiative will continue. Labor productivity, we continue to get better at this. Our drive to hire new employees and direct employees for manufacturing has reduced. But we still have levels of attrition of some locations that require onboarding, training, and a little bit of support from experienced machinists and assembly of technicians that, I would say, we're not completely out of the woods to that. And maybe the new normal is that we have a little bit higher attrition than we're used to in the past, so we need to stay capable on that front. And I -- but I see continued labor productivity going forward. The last one was customer experience. So, part of the Industrial reorganization and the Aerospace reorganization was focused on serving these two segments with like one Aerospace approach and one Industrial approach, mostly centered around how we serve customers. We had multiple teams calling on some of the same OEMs and service providers, and we've worked hard to streamline that customer experience. But maybe mostly from a customer experience standpoint is delivering the right amount of orders on time with the right quality at the right price, so that's something we're focused on as well.

That's great. Very helpful. And then just -- I had to ask on the macro. I know sometimes visibility is tough there, but you're in a lot of different industrial niches. Any sign that any of those niches are peaking or customer pull is kind of slowing down a little bit? Cycle is changing?

So the one that I mentioned a little bit was that the global oil rig count is up, but U.S. activity, including fracking, is not keeping pace and declining. And so we're watching that, but it hasn't resulted in any order intake for us slowing down yet. But we've got a kind of looking around the corner watch on that, and that's the only one that really comes to mind that's a little bit -- has some soft indications in the macro that we haven't seen in terms of what orders we're getting. Everything else is up and to the right. I mean, as far as revenue passenger miles, build rates at OEM, airframers, shop visit rates for engines coming in for overhaul, everything that we see on that is up and to the right in the current forecast.

Okay. Appreciate the color.

Yep.

Thank you. Your next question comes from the line of Gautam Khanna of TD Cowen. Please state your question.

Yes. Thanks. Good afternoon guys.

Good afternoon.

Good afternoon.

I have a couple of questions. First, on the Industrial side. I remember last quarter, the backlog did not go down, right? There was not a supply chain catch up that drove a big recovery in shipments. Did that occur in this quarter just reported? The June quarter?

Just to be clear, when you say backlog, it was our past dues didn't go down.

Past dues.

Yes. But again, that was the same thing this quarter. We are not capacitized at a level right this minute to both satisfy current customer demand and burn down past due, so Industrial past dues stayed largely the same.

Okay. And to an earlier question on the mix impact from the natural gas business in China, it sounded like it was broad based strength within Industrial. Is there any way for us to isolate what piece of that might be nonrecurring if it is CNG and if it is only here for a quarter or two? Is there any color you can give us on that to where margins would have been, but for CNG?

Yes, not much more than what we already have provided.

Okay. Have you guys provided anything on that, or did I miss it? It wasn't clear to me.

No, we just don't break out our product lines at levels below the segment, Gautam.

Okay. But is CNG particularly rich mix?

It's a healthy business for us. It's just -- it's healthy when it's high volume and it's not healthy when it's low volume, and that's -- that's why we should keep using the word volatility, because it has some really good marginal delivery on high volumes. At low volumes, it doesn't look quite as good.

Okay. And then in terms of the SKU rationalization, how far along are you in that journey? And how much -- how much of that was influential in the actual June quarter numbers?

I don't think -- we haven't really seen the SKU rationalization hit the bottom line yet in terms of just like moving the needle. What we think we'll see first is improvements and efficiencies in both the supply base as well as our plant operations, and that's mostly in Fort Collins. So it will show up alongside just general productivity. That's where it's going to help us in terms of realizing flow through the factory and more standardization. We did some of the easy part really this -- so far, this first 10,000 to 15,000 is a little bit easier than the next ones where we have to work a lot more closely with customers.

Up minimally. I didn't know was there any -- and is that right? I think that's about right. But is that right? And any reason for the pause? Because we're seeing pretty strong sequential aftermarket prints from some of the other companies in the space any way you can discern what trends is going on there?

Yeah. We're not showing up sequential, but we are showing healthy double digits year-over-year.

Thank you. Your next question comes from the line of Michael Ciarmoli of Truist Securities. Please state your question.

Hey, good evening, guys. Real nice results. Thanks for taking the questions. Maybe Chip, I know we've a lot of guys are crying here, but I guess if the visibility isn't great in the China on highway, I mean, how are you guys actually planning for this? I mean, what -- do you have typical lead times. What are your turnaround times? I mean, I'm just trying to get a better understanding of how you're actually trying to run your facilities given kind of the lack of total visibility here?

Yeah. Right now, I mean, our strategy is to, like I said earlier, have enough inventory to be responsive to the customer. If we have short lead time orders which we have had but also not carry too much inventory so that it's, you know, a big rock around our cash flow. So we're trying to get that optimized. We're doing things like looking at what the rates have been over a longer period of time and try to plan for a low level that we can respond to if it goes up. So it's more of like the protect the ability to get upside if we get orders is kind of how we're thinking about it right now. I mean, Bill and I are both relatively new to this market and we're relatively new to this this business line. So we're trying to make sure we don't miss the opportunity right now and get good cash flow and earnings for shareholders and figure out if there's a better way to understand and plan for it.

Got it. I mean, you're not you're not going to give us 2024 guidance here. But I mean, trying to model this segment now and looking at the volatility just on the margins last quarter, 13 to 4 over 18, I guess the fourth quarter is back down to 13 or so. How should we think about this? I mean, I think the Street has you for 11% in 2024. Is this more of a 13 to 14 business right now? And then the on-highway, depending on volumes would drive those upside pops that we're seeing like in this quarter?

Yeah. I'm sorry. We're just not ready to talk about 2024. I know why you want to know the answers to all those questions, and we're working through all of our plans right now of trying to make sure we close out 2023 strong, and we have a really solid 2024 plan that will be compelling for investors and that we are sure we can achieve.

Got it. And just last one, aero OEM looked like it was up 17% sequentially. Any material change or orders or just specific platforms rates that you've broken higher to? Any color on that?

Well, we just -- no real change to rates and nothing really out of the ordinary except for specific customers wanting more parts to support both OEM, as well as the inventory positions that they want to b e in based on what they see in the future.

Okay, great. Thanks guys.

You bet.

Thank you. [Operator Instructions] Your next question comes from the line of Louis Raffetto of Wolfe Research. Please state your question.

Hi, thank you. I just want to go back to the cash flow, because I think you've kind of talked about wanting to bring inventories down, but it looks like this is your best inventory turn quarter in years. Inventory is now well-below where it was in 2019. So just -- are we going to go lower, or it's going to go up in the fourth quarter? And how is that translating to the impact on cash flow? Because you've raised net income 20% plus the last couple of quarters and still no increase?

Yeah. So we still feel like we're carrying a substantial amount of inventory to support the sales level and that world-class performance would have us at higher turns overall. And so that's what our lean folks, our operational leaders, our planners, everyone striving to figure out how to do better than we are right now. So it is our desire to improve that.

Okay. And then maybe trying to tackle this another different way. I think fourth quarter industrial margin guidance is somewhere between 13%, 13.5% to like 16%, which I assume that's bounding some variability around China natural gas. Is that right?

That's a good way to think about it. I mean that's -- we're -- we don't give quarterly guidance, but we're in this tide, and we changed guidance this quarter, so the math is self-evident.

Okay. And so I guess, is the – at the low end of that is kind of -- is that where the normalized margin rate is, if we sort of excluding natural gas at 13%, 13.5% margins is kind of run rate-ish?

I think it's still early for us to give guidance on what our Industrial go-forward margin rate is going to be. We're very happy with the improvement that we've had in the base business, and we're going to continue to work on that. And I think when we're ready to give FY 2024 guidance that we'll be able to put a nice bracket around that as well as give even more forward look to the -- at the Investor Day in December.

Yeah. So maybe just one more thing to ask. Last quarter, the back half guidance for Industrial was 9% to 10%, and that -- like I guess what changed to give you a 400 -- 300 to 400 basis points more in 4Q than what the implied guidance was before?

Two things changed. One was we are turning the corner in the performance of our factories, our people, our material flow, our suppliers, our operational improvement in the base business is improving. We were -- our plan was to improve it, and now that we've started to deliver on those plans and show progress and milestones and achieving the targets. So that was one thing that changed, and the other thing was the sheer volume of the China on-highway natural gas business and visibility for orders through the end of fourth quarter. .

That’s great. Thank you, Chip

You bet.

Thank you. Your next question comes from the line of Noah Poponak of Goldman Sachs. Please state your question.

Hi, everyone.

Good afternoon, Noah.

Can you quantify how much China On-Highway revenue you have in the quarter?

No. Sorry, Noah.

Okay. Did you have significantly more in this quarter than last quarter?

Quarter-on-quarter, sequentially, we did see an uptick and in our China On-Highway business.

Okay. And fundamentally, what is it that makes that volatile? What is it that makes it not have visibility? Just in terms of what the customer is doing and thinking fundamentally when they're buying that product from you.

Well, I think I -- I tried to stay out of trouble on this one. But I think in one of our conference calls, I did say that it doesn't behave like other markets I'm used to and some of our business team is used to working through and garnering forecast around. Appears to be government policy at play and other factors that we don't have a full handle on, so that makes it really difficult to forecast from where we sit. But we do -- as soon as we get orders, we kind of have a good level of confidence that that's how much the customer wants for that month, so that's been our mode for a while.

Okay. And when you have revenue that comes out of existing inventory into China OH, is the margin nearly entirely -- is it near a 100% incremental margin drop-through? like it becomes a multiple of the segment, or is the segment margin, or is it something where it's more like several hundred basis points better than the first one?

Well, I guess the way I'll answer that, Noah, is that we carry full cost of our inventory and it's largely -- our business is largely in China for China. So that hardware and those systems that are -- we ship to our customer are largely coming from China and staying in China. And we carry that at cost and when we get our order, if we get pretty high volume, then the margin rates can be fairly high. If we have low volume, then we've got a lot -- we've got fixed cost to spread across that operation just like normal. Reason I'm saying all of that is I'm just trying to tell you it's a normally functioning business where there's quite a lot of productivity for volume.

That makes sense. Lastly for me, on the Aerospace side, are you able to tell now where your aftermarket unit stands versus pre-pandemic? And what kind of pricing are you seeing in Aerospace aftermarket relative to that enterprise-wide number that we gave us?

I got the first part of the question, but I didn't get the last part. But as far as Woodward units cycling through repair, we're closing in on 2019 volumes from both a shop visit and a Woodward LRU standpoint, we're not quite there yet.

And the second part of that was pricing. How does the Aerospace aftermarket annualized pricing you're seeing now compare to the enterprise-wide level?

Yes. We do not go down pricing at that segment level -- at that level below the segment. And we talked about both segments are contributing to that 7% guide that we gave to total year price realization.

Okay. Thanks for taking my question.

Welcome.

Your next question comes from the line of David Strauss of Barclays. Please state your question.

Great. Thanks for taking my question. Aerospace, it looks like from a revenue standpoint that you should be back to kind of 2019 pre-pandemic levels next year or even higher. And back when you were at those revenue levels, Aerospace did close to 21% margins. I know you don't want to give 2024 guidance, but how should we think about the puts and takes on Aero margin next year relative to where you were at a similar revenue level a couple of years ago?

Well, like you said, we're not prepared to give 2024 guidance at this time, but it is our intent to continuously improve our performance from an efficiency standpoint and ability to serve customers. So we intend to improve from where we are today, and the fact that we were able to achieve better numbers before with good volume bodes well for us able to do it in the future.

Is the -- I would think the revenue mix, Dan, is more favorable than what you saw in 2019? It looks like you're going to have more aftermarket revenue, maybe a little less Aerospace OE and maybe less Defense. I would assume that revenue mix is positive.

I'm not sure I'd make that assumption just yet. We're still working through our plans and looking. This is why we're not talking about FY 2024. But right now in the early planning stages, we're looking at what rates the airframers are trying to achieve and what sort of inventory levels they'd want before they do rate breaks, and that propagates to engine manufacturers and then to us. So there may be quite a good amount of OE demand in 2024, which is not necessarily a bad thing at all because that's creating the installed base for the future. So it's good news. Good news, I think, but it's too soon for us to say what we think the mix will be.

Okay. And Chip, where is your aerospace headcount today relative to what it was prior -- back in 2019?

That's a question that I don't have the answer to in front of me.

Okay.

It's -- yeah, we -- I don't have it in front of me.

Okay. I can follow-up with Dan on that. Thanks.

Great. Yeah. You bet.

Your next question comes from the line of Robert Spingarn of Melius Research. Please state your question.

Thanks. Chip, I just want to come back on Aerospace and just ask you briefly. With regard to the LEAP and the GTF and some of the durability and time-on-wing issues, to what extent is that factoring or impacting your aftermarket? Are you shipping more because of these cycles being shorter? And then as a follow-up to that, how might we think about this latest issue at RTX with the GTF and how that might impact with all the inspections? Maybe taking shop time and so forth how might that impact Woodward, as that plays out over the next year or so?

Yeah, I think it's early to say on how that inspection and potential replacement program for the GTF would affect us. There's a number of -- like you were referring to earlier shop visits, hospital shop visits quick-turn kind of activities to support infant issues with the fleet. Most of these have little effect on Woodward because our LRUs can stay on the engine typically. And we might get some check and repair kinds of work out of those, but for us, it doesn't have that big of an effect. The one thing that it might -- the effect that it might have is the spare engine count that's required to support the overall fleet, but just -- it would show up in our regular OE versus service numbers, and that will normalize itself over time. I think as far as we're concerned, it's minimal impact for us.

Okay.

From a control standpoint, we do have some other hardware that there are some design changes on that we are supporting our customers on those parts.

Okay. Thank you.

Yeah.

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

All right. Well, thank you very much, operator. And thanks for all the folks online and all your questions today.

Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it would be available today at 7:30 p.m. Eastern Time by dialing 1-800-770-2030 for our U.S. call or 1-647-362-9199 for a non-U.S. call, and by entering the access code 4278216. A rebroadcast will also be available at the company's website, www.woodward.com, for 14 days. We thank you for your participation in today's conference call. And we ask that you please disconnect your line.