Curtiss Wright Corp (CW) Q3 2026 Earnings Call Transcript

Welcome to the Curtis Wright Third Quarter 2026 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. In the interest of time, we ask that you limit yourself to one primary question and one follow-up. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.

Thank you, Madison, and good morning, everyone. Welcome to Curtis Wright's third quarter 2026 earnings conference call. Joining me on the call today are Lynn Bamford, Chair and Chief Executive Officer. Kevin Raymond, Executive Vice President and Chief Operating Officer, and Gary Ogilvie, Senior Vice President, Intern Chief Financial Officer, and Corporate Controller. A copy of today's financial presentation and the press release are available in the Investor Relations section of our website. A replay of this webcast will also be available on our website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guaranteed of future performance. We detail those risks and uncertainties associated with our court-looking statements 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 better transparency into Curtis White's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. And I'd like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. Today, I'm pleased to be joined by Kevin Raymond and Gary Ogilvie, both of whom are long-tenured executives at Curtis Wright, who have each played a critical role in driving our pivot to growth strategy and long-term financial performance. You will have an opportunity to hear from each of them shortly. Momentum continues to accelerate at Curtis Wright. A strong execution drove third-quarter results that exceeded our expectations. The team continues to excel in aligning with customers, winning new business, growing our backlogs to record levels, and expanding margins through operational excellence. Our business fundamentals are strong. Based on our solid third-quarter performance and our continued optimism heading into year-end, we confidently raised our full-year guidance across all major financial metrics, and we remain committed to delivering exceptional results for our shareholders. With that, and turning to the highlights of our third-quarter results, sales of $953 million increased 10% year-over-year, reflecting overall strong growth across our A&D and commercial markets. Operating income once again exceeded our sales growth and resulted in 30 basis points of operating margin expansion to 19.9%. Deluded earnings per share of $3.94 increased 16% and was slightly ahead of our expectations, primarily driven by our strong operational performance. We generated nearly $160 million of free cash flow, achieving a strong cash conversion rate of 108% while continuing to accelerate investment across our organization to support our long-term objectives. New orders increased 15%, resulting in a book-to-bill of 1.1 times, reflecting continued positive momentum across the portfolio, particularly in our A&D and general industrial markets. To give you more color, I'll start in Defense Electronics, which once again delivered a strong performance with orders up 27% year over year following our record second quarter bookings. We experienced higher orders supporting fighter jet and helicopter programs, various modernization programs, as well as several development contracts supporting next generation programs such as CCA. We also received solid Tactical communications equipment orders supporting U.S. Air Force programs, as well as rugged, small form-factor mission computers for the ISPC program. The substantial growth in our order book this year underscores Curtis Wright's broad product portfolio ranging from MOSA-aligned embedded computing modules to advanced software solutions supporting soldiers in the battle world, including tactical networks. We remain well aligned with the strategic growth priorities of the U.S. and its allies. Within the A&I segment, we experience strong demand for commercial aerospace products, supporting the long-term production ramps across the major OEM platforms. Building on that, we continue to experience solid demand in our general industrial order book, contributing to our more positive outlook in this market as we enter 2027. Lastly, within the naval and power segment, in naval defense, we saw higher orders for nuclear propulsion equipment on U.S. Navy aircraft carriers and solid demand for aircraft handling equipment, supporting various international programs. Within our commercial nuclear market, we experienced solid demand for aftermarket equipment, supporting plants globally, in addition to development and prototype contracts supporting leading SMRs. Overall, Curtis Wright's robust and strengthening pipeline of new orders adds to an already strong backlog, which is now up 12% year-to-date to a new record of approximately $4.6 billion. Our team continues to generate meaningful growth opportunities that position our businesses for success well into the next decade. Turning to our full-year guidance, we now project sales to increase 8% to 10%, driven by continued favorability and strong demand in our defense and industrial markets. We continue to expect year-over-year margin expansion across all three segments in pursuit of an overall record operating margin of 19.2% to 19.4%. Based on those increases, diluted DPS is now projected to grow 16% to 18%. We also raised our free cash flow guidance and continue to expect strong cash conversion in excess of 105%. Lastly, following our increased second-half share repurchase activity, we are on pace to complete a near-record $460 million in share buybacks under our disciplined and strategic capital allocation strategy. Now I would like to turn to the recent leadership transitions, and I want to begin by congratulating Kevin on being named Curtis Wright's next chief executive officer. As we announced last month, Kevin will become CEO effective January 1st, and I will move into the role of executive chair. Kevin's appointment is incredibly well-deserved. It reflects the culmination of our robust succession planning process that's taken place throughout the past year with our board to ensure a successful transition. Since joining Curtis Wright in 2004, Kevin has established himself as a respected leader with a long-standing track record of execution and success. In recent years, he has played a significant role in shaping Curtis Wright's pivot to growth strategy. He has been a driving force behind our accelerated organic growth, as well as our pursuit of commercial and operational excellence, resulting in continued operating margin expansion and substantial value to shareholders. We expect Kevin's transition to CEO to be seamless and provide stability for our employees, customers, investors, and all stakeholders as we maintain our operational momentum. Next, I would like to thank Chris Barkas, who stepped down from his role as CFO last month and will retire from the company at year end. During his tenure, Chris was a key contributor to our strong financial performance while also supporting our disciplined approach to capital allocation to help create value for our shareholders. I valued his partnership in executing the pivot to growth strategy and in our engagement with the investment community. We wish him well in his retirement. I would also like to thank Gary Ogilvy, a 17-year veteran of the company who is serving as interim chief financial officer. He previously served as VP of Finance in one of our divisions where he led numerous operating margin improvement initiatives before being named in his current role as corporate VP and controller. Gary has been an integral part of our finance organization and has been closely aligned with the management team in delivering on the pivot to growth strategy. He continues to be a key partner to Kevin and our leadership team in advancing the company's financial discipline and performance. We are grateful for his leadership and for the continuity that Gary brings to our finance team. Overall, these recent announcements highlight one of the company's greatest strengths.

Thank you, Lynn, and good morning, everyone. I'm privileged to be named Curtis Rice's next Chief Executive Officer. It is an exciting time to step into the CEO role based on the strength of our fundamentals, record backlog, and the momentum that we're experiencing across our end markets. Since we launched the Pivot to Grow strategy back in 2021, I've had the opportunity to work very closely with Lynn, our senior leadership team, and our board to help steer Curtis Wright's operational journey and deliver profitable growth in excess of our expectations. I would very much like to thank Lynn for her leadership, guidance, and partnership over the years, and I look forward to continue to work closely with her as she steps into a new role as Executive Chair. Earlier this week, we announced a new structure for our operational leadership team by naming three new presidents to manage our aerospace and industrial, defense electronics, and our naval and power segments. This seasoned leadership team brings deep-rooted knowledge of our customers, operations, and industry, and I have the utmost trust and confidence that these leaders will continue to advance our strategy, capture significant future growth opportunities, and deliver strong operational results. Together with the announcement, appointing Gary Ogilvy as our interim CFO, we have a reshaped corporate leadership team that's excited to build upon our established growth strategy and drive the next phase of Curtis Wright's journey. Since being named CEO, I've engaged with our leadership team to discuss my strategic vision for Curtis Wright's future and our long-range financial objectives. Several key priorities will help sustain our strong momentum, including... Continue to drive execution velocity by streamlining our processes and increasing our market responsiveness, and utilizing our strong free cash flow position to fuel the expansion of our operations globally across both existing and new facilities to enhance our alignment with customers. I'll share more specific details during our Q4 earnings call And provide a more comprehensive overview at our next Investor Day in May 2020. I look forward to building a credit right successful strategy, sustained profitable growth in 2027 and beyond, and continuing to deliver long-term value for our shareholders. Before I turn the call over, I want to thank Gary for stepping in as interim CFO. I've appreciated his support over the years and look forward to continuing to work closely with him. With that, I'll turn it over to Gary to provide more in-depth review of our financials.

Thank you, Kevin. Before we dive into the financials, I just wanted to take a moment to say how honored I am to be named Interim CFO for Curtis Redding. I appreciate the opportunity to lead our finance organization and to continue to work closely with our leadership team and the board to ensure a seamless transition of our strategy as we deliver strong, profitable growth. I'll begin on slide four by reviewing the key drivers of our third quarter 2026 performance by second. Starting in aerospace and industrial, sales increased 14%, which exceeded our expectations. Beginning with the aerospace defense market, we experienced higher-than-anticipated sales of actuation and sensors equipment supporting various U.S. fighter jet programs, which were partially offset by the timing of the EM actuation equipment sales supporting ground-based mobile launcher systems. Within the commercial aerospace market, We experienced solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms. And in the general industrial market, our results reflected the continued positive inflection in our order book, which contributed to strong double-digit growth in sales. Regarding the segment's operating performance, A combination of favorable absorption and mix of products from higher revenues, as well as restructuring savings, drove operating income and operating margin growth of 19% and 80 basis points, respectively. We continue to experience improved profitability in this segment while maintaining solid investments in development programs. Next, in the defense electronics segment, sales increased 2%, exceeding our expectations, due to the timing of tactical communications equipment revenues within ground defense. We're pleased to see stability and tactical communications equipment sales and anticipate sequential growth into the fourth quarter. Growth in the aerospace defense market was driven by higher sales of embedded computing equipment supporting various domestic helicopter programs and international fighter jet production. We also experienced higher revenue supporting next-generation development programs. Regarding the segment's operating performance, operating margin of 27% was lower year-over-year as expected, as favorable absorption on higher revenues was more than offset by unfavorable mix. Moving to the naval and power segment, sales growth of 12% was driven by strong growth in our naval defense market associated with the timing of production of submarine programs, along with steady growth in aftermarket revenue supporting the CBN-75 overhaul project. In power and process, we experience double-digit revenue growth, primarily driven by increased revenues in the commercial nuclear market, supporting advanced small modular reactors. Operating income grew 25%, generating 200 basis points in operating margin expansion, reflecting favorable absorption and mix of products on higher revenues. To sum up, Curtis writes third quarter results, double-digit growth in both revenue and operating income resulted in strong operating margin of 19.9%, driving 30 basis points in year-over-year operating margin expansion. Turning to our full-year 2026 guidance, I'll begin on slide five with our end-market sales Our continued improvement in expectations for both our overall defense and general industrial markets has enabled us to confidently raise the upper end of our guidance. As a result, we now anticipate total sales to grow 8 to 10 percent. Starting in aerospace defense, we raised our four-year outlook to a new range of 14 to 16 percent, reflecting improved expectations for sales of actuation and sensors equipment, supporting both domestic and international fighter jet programs. Our outlook is supported by our continued alignment to Department of War priorities, including next-generation platforms and aircraft modernization, which is a catalyst for fourth-quarter sequential growth in defense electronics. Within ground defense, strength in the pipeline and growth in the 2026 order book for our tactical communications equipment provided us with confidence to modestly increase our full-year outlook. In naval defense, we now project four-year sales growth of 9% to 11% due to expectations for higher production revenue on submarine programs and increased aftermarket revenues, while we continue to expect solid revenue growth on the CBN-81 carrier program. Based on these updates, we now expect total aerospace and defense sales to increase 8% to 10%. Moving to our commercial markets. In power and process, we maintained our full-year outlook for sales growth of 13% to 15%, primarily driven by strong growth in commercial nuclear. Lastly, in the general industrial, we now anticipate full-year sales growth of 3% to 5%, driven by the continued market improvements and steady growth in our industrial vehicles order book. Wrapping up our commercial markets, we continue to project that total sales in these markets will increase 8% to 10%. Thank you. Moving on to our updated full year 2026 financial outlook by segment on slide 6. I'll begin in aerospace and industrial where we increase our revenue guidance to a new range of 10% to 11%, driven by the improved outlook in this segment's aerospace defense market and continued optimism in the general industrial. Operating income is now projected to grow 17% to 19%, where we continue to expect operating margin expansion of 110% to 130 basis points. Ranging from 18.5% to 18.7%, based on more favorable absorption and mix on higher sales, balanced by increased R&D investments. Moving to Defense Electronics, where we continue to anticipate sales growth of 4% to 6%. We expect a strong finish to the year, driven by the strength of our order book, as well as the team's advanced planning and exceptional management of the supply chain to deliver continued operational efficiency. We continue to expect operating income growth of 5% to 7% and operating margin expansion of 20% to 40% basis points as we deliver industry-leading margins, reflecting a range of 27.5% to 27.7%. Lastly, in Naval Empower, we now expect sales to grow 11% to 12%, reflecting our increased naval defense market outlook and overall strong backlog, which provides long-term visibility and overall solid growth across this segment's commercial markets. We now expect operating income growth of 16% to 18% and operating margin expansion of 70% to 90% basis points, driven by the stronger revenue outlook and more favorable naval and aftermarket mix. So, to summarize our 2026 outlook, we now anticipate total purchase rate operating income to grow 12% to 14%, driving operating margin expansion of 60% to 80% basis points, to a record range of 19.2% to 19.4%. Continuing with our financial outlook on slide 7, we increased our full-year 2026 adjusted diluted EPS guidance to a new range of $15.40 to $15.60, up 16% to 18%, driven by the strong third quarter performance. Also note that the ramp-up in share repurchase activity resulted in a reduction in other income with a lower year-over-year interest income and a lower share count. Overall, we continue to compound earnings at a mid-teens pace over time. Lastly, turning to free cash flow, we raised our four-year outlook by $10 million to a new range of $595 to $615 million. As a reminder, our confidence in achieving record free cash flow incorporates increased capital expenditures to support ongoing growth investments, particularly within our Naval Empower segment. And as we maintain throughout the year, we expect to deliver a free cash flow conversion rate in excess of 105%. Now, I would like to turn the call back over to Lynn.

Thank you, Gary. And turning to slide eight. As we demonstrated today, Curtis Wright continues to build momentum across the portfolio, and we remain well-positioned for a strong finish in 2026, providing confidence to deliver record financial results across all major metrics. In addition, we remain on track to exceed the three-year objectives provided at our 2024 Investor Day, as shown at the bottom of the slide. As a reminder, since the launch of the Pivot to Growth Strategy in 2021, one of our primary commitments has been accelerating Curtis Wright's top-line growth organically, supplemented by strategic acquisitions. Our focus and execution on driving strategic investment, innovation, and collaboration have fueled our success by further elevating growth opportunities across our market. As we've grown, we have leveraged the company's increased scale in many ways, providing better value to our customers by enhancing our sales channels and technologies and driving internal investments to advance our talent, maximize shop floor efficiency, and expand our infrastructure. We have a strong track record of operational and commercial excellence and are on track to deliver nearly 200 basis points in overall margin expansion since 2023, while growing R&D at a faster pace than sales. Lastly, we are driving record levels of free cash flow and expect to generate 110% average free cash flow conversion over the three-year period. Our team continues to do an exceptional job in executing our pivot-to-growth strategy. Next, looking across the A&D and commercial markets, our teams remain relentlessly focused on strengthening the backlog and building durable revenue growth. We are accomplishing this through thoughtful and targeted investment in capital equipment and capacity expansion aligned with the strongest medium and long-term growth sectors globally. Organic growth continues to accelerate across our markets, and I'll highlight two key growth opportunities in greater detail, beginning with defense. Curtis Rice is well aligned with the Strategic Department of War's funding priorities highlighted within both FY26 and FY27-based budgets, where we typically generate the majority of our defense revenue. Some key examples include naval shipbuilding, legacy fleet modernization, enhancing capabilities at the tactical edge, and advancing next-generation platforms, all of which are expected to receive increased funding and support Curtis Wright's long-term growth. More broadly, in addition to the U.S., we expect the trend supporting increased spending by NATO allies to continue providing strong tailwinds for Curtis Wright in the broader industry. Within commercial nuclear markets, we maintain a comprehensive portfolio of technology supporting the entire lifecycle from the development and construction of new large reactors and SMRs to the aftermarket. The momentum and increased pace of global investment continue to accelerate, reinforcing our confidence in the future growth of our business. Last week, we announced a $30 million expansion of our Round Rock Texas facility, part of our instrumentation and controls business acquired in 2024. This expansion positions us to satisfy growing cuts of demand for our critical temperature and pressure sensors supporting existing and new-build commercial nuclear reactors. This announcement follows the $80 million expansion of our Cheswood, Pennsylvania facility announced in July, which further demonstrates our commitment to invest alongside industry to solidify our positions as a critical, long-term commercial nuclear supplier. Regarding the AP1000, Westinghouse continues to generate strong interest across the U.S., Poland, and other countries for new nuclear power plants. They are requesting supply chain readiness to support a potential global pipeline of 91 reactors, and our recent investments are part of Curtis Wright's response to that challenge. We remain aligned and confident that we will receive an order for a reactor coolant pump supporting AP1000 plants in 2026. Meanwhile, SMR developments continue to evolve globally as we work to enhance our relationships and solidify our content across the leading 300-megawatt-plus SMR designs. In recent news, we are excited to continue our partnership with Rolls-Royce SMR by announcing the award of a significant contract and signing of a design services framework agreement to design, qualify, and manufacture the specialized nuclear valve package for the global fleet of Rolls-Royce SMR plants. As a result, we now estimate our current content on the Rolls-Royce SMR plant to be in excess of $100 million of revenue. These active valves perform safety-critical functions within the power station and require proven nuclear capability and qualification. Curtis Wright will be providing these critical function valves and other equipment from our global operations within the U.K. and U.S. in support of this SMR technology. The expansion of this and other partnerships reinforces the strategic alignment of our technologies with the considerable opportunities ahead in this market. Overall, as we've shared throughout the year, we continue to see strong tailwinds across all our markets and have significant momentum as we head into 2027. As I wrap up my prepared remarks and reflect upon my career at Curtis Wright, I'm reminded of how fortunate I am. To have been part of such an iconic institution, only a few years away from its 100th anniversary, it has truly been a rewarding experience for me over the last 22 years to be part of Curtis Wright's transformation into a stronger high growth company. I'm particularly proud of the team's perseverance and success under the Pivot to Growth strategy to deliver consistent results and record financial performance. The relationships that I have built with the investment community during my tenure as CEO have been extremely rewarding to me personally. I would like to thank our analysts and shareholders for your confidence and trust in our leadership team and for your consideration of Curtis Wright as an investment. I look forward to serving as Curtis Wright's Executive Chair, and I am excited for the opportunities that are still ahead of this historic organization. On behalf of the board, I'm confident that we are in great hands with Kevin as our next CEO to guide the organization to new heights and continue to deliver on long-term value for Curtis Wright shareholders. At this time, we would like to open up today's conference call for questions.

The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. We ask that you pick up your handset when posing your questions to provide optimal sound quality. Again, we ask that you please limit yourself to one question and one follow-up, and then queue again with any additional. Thank you. Our first question is coming from Peter Arment with Baird. Please go ahead.

Hey, thanks. Good morning, everyone. Nice results, and congrats to everyone on the team and the new roles and to Chris on his retirement.

Thanks for all the help over the years.

Maybe just to start within defense electronics, you know, the growth was a little stronger than we had modeled for this quarter, and the fourth quarter kind of implies another big step up. Just confidence levels around that, what you're maybe seeing in any specific drivers that you would call out. Thanks.

So I'll just kick it off, Peter, and it's always been wonderful engaging with you and appreciated your support over the years, for starters. Defense Electronics is in a great position, and, you know, we do look, you know, we did pull some revenues out of Q4 into Q3, and so that was good. I want Gary to speak to, you know, the Q4 specifics, but, you know, overall, this business is in great shape. I mean, I think the order book reflects a lot of the strength of what we've brought to market over the past several years, the breadth of our product offering. You know, we monitor the pipeline of new opportunities and bookings in this business, and the future is just outstanding for this business. So with that, I'll turn it over to Gary. Maybe just put a little more color specifically on Q4.

Sure. Sure. Thanks, Lynn, and thanks for the question, Peter. I'll start with a reminder of our prior self-guide where we said that Q3 operating income and margin were expected to be down sequentially from Q2 as free of the H1 mix would normalize into year-end, and we expected a higher level of second-half R&D investments. That would be followed by a strong finish to the year here in Q4, which is what you're seeing. And so, by and large, the second half of 2026 is largely playing out how we expected it. On the top line, it's really supported by our order book. In Q2, we had record orders, Q3, near record orders. And with regards to Q4, when you step back and look at this, we've experienced this type of ramp before, particularly in 2022 and 2021. So, overall, we're really confident in our ability to execute and expect a strong sequential growth both in aerospace and ground defense into the fourth quarter. If you look at it from the supply chain side, we saw early warning signs of component charges last year and quickly took action to secure component parts. So, as we head into the fourth quarter, we feel that situation is well-enhanced for 2026, and these challenges are not expected to impact our Q4. On the margin side, as mentioned, H2 is largely playing out as we anticipated it. That's really due to that favorable mix in H1, which drove higher profitability in the first half of the year, and the investments in R&B were a little more weighted to H2. So both of those items are weighing on the second half margins, particularly. Back and look at the year, we're guiding 30 basis points of operating margin expansion at the midpoint, adding to our industry-leading margins and solid sales growth. I feel really good about the year and really proud of this team.

See you, Alex.

We're also very confident from that. The queue, you know, very strong as well, which is encouraging as we push towards the end of the year. Appreciate all the color and those details. And just as a follow-up, I'll ask a question you probably never got before. AP1000. You know, just we've seen, obviously, we're tracking the construction permits in Poland and IHI's kind of started on the long lead.

You know, how are you seeing kind of progressing, you know, kind of the timing? You're kind of near the end of your kind of three-year objective of expecting an order. What can you say on that, Lynn? Thanks.

So I'm trying to figure out how that's a follow-up to Defense Electronics, but setting that aside.

I said it was a question you never got before.

This is true. No, you know, we said the same thing consistently, and we do still expect an order in 2026, and we surely realize where we are in November and that that runway is getting shorter, but we are so deeply engaged with Westinghouse, who we take our guide from, And that is our expectations in the year. And you're right. I mean, you can see some of the press that's out there and, you know, a lot of questions with midterm elections and different things. But, you know, Poland has been marking at a very steady rate. And we do anticipate that will be the leader at this point. For a while, we thought it would be DOE. DOE does continue just to keep making progress, and we don't see any disruption to that in spite of everything going on in Washington. and feel that we will have an order this year.

Appreciate it. Thanks. I'll jump back in the queue.

Thank you. And we'll move next to Miles Walton with Wolf Research. Please go ahead.

Thanks. Good morning, and congratulations on a great time here, Lynn, and Chris, and welcome, Kevin and Gary. Let me focus maybe on the defense electronics for a moment. You're sounding really confident about where you're going to end up at a fourth quarter run rate. I think, Kevin, you alluded to orders remaining south here in the fourth quarter. Sometimes with continued resolutions, we encounter air pockets. I just want to clarify, it doesn't seem like you're signaling a prospect of an air pocket given you're in a CR, and I'm also curious what you expect for the resolution of the fiscal 27 budget.

Sure. Let me take that question. I think just to add to what Gary said in terms of our Q4, you know, our bookings have been strong, you know, Q2, Q3, we're running into sort of Q4. With the CRS on the 11th of December, you know, that sort of gets us into a good position in the sense of, you know, we're getting towards the end of the year and bookings are continuing to be strong. As I said, the beginning of Q4 has been good for us. So we're pretty confident of our position from a bookings perspective into this year. And the other thing I would sort of add is if you look back over last year in 25 where we had CR and a government shutdown and some changes in the administration, that caused us a bit of a sort of slowdown at the beginning of this year. And I think in this situation, we do CR at the 11th of December, and sort of where we've seen our bookings, it's setting us up nicely for 27.

Okay. And on that, you open the can of worms for 27. How well do you think it is setting up? Do you expect that you could have, you know, as good of an organic growth profile in 27 as you do in 26 with maybe defense electronics acceleration playing out?

So, you know, we're not going to give any specifics on 2027, but, you know, in my prepared remarks, you know, talked about the strong tailwinds across our businesses, and the prospects for 27 are very good, and, you know, I think these two gentlemen sitting next to me are going to have, you know, a great opportunity to share that guidance in February and then move towards, you know, Investor Day and share even the bigger picture, but things are very good.

Sounds good. I just want to give Kevin an early test, Len, that's all.

Yeah. Thank you.

Thanks. Thank you. And we will move next to Justin Lang with Morgan Stanley. Please go ahead.

Hi. Good morning. And, Len, just want to say it's been a pleasure interacting with you over the past few years. And, Kevin and Gary, congrats on your new appointments. I wanted to ask one, maybe broader, just on the political regulatory environment. Clearly, some shifts here in the landscape of the midterms, as Lenny alluded to, and you're obviously operating a number of highly regulated industries. Just curious if you're thinking any differently about the backdrop for defense and commercial nuclear end markets, given some of the more recent changes afoot. Thanks.

Sure. I think, you know, I think we all sort of feel to the point where it's a little bit difficult at this stage to determine what's going to come out. But I think earlier comments around sort of certainly our defense business from a CR perspective, as I mentioned earlier, I think, you know, we feel in a reasonable position as we go into the end of this year. I think the other piece, too, is if you think about a lot of our sort of main drivers across the organization, you know, there's a great level of support from a Navy shipbuilding perspective, as you can see, you know, into 27, you know, that sort of growth implies it to 66 billion. And, you know, with the mid-funding sort of increasing up to nearly $9 billion, you know, we've been very successful moving from $10 million up to nearly $100 million of mid-funding. So I think we feel like the underlying sort of main part of the businesses is very strong, and we're part of that main base budget, so I think that's encouraging. If I think about the nuclear side, you know, Zim and I were on the Hill this year spending quite a bit of time talking around sort of the nuclear side of the business, and it broadly has, you know, bipartisan support, both from a sort of an energy security point of view and obviously from an environmental perspective. So we're encouraged by that, and I think, you know, both parties are very supportive of the nuclear industry.

That's great. And then maybe a quick one for Gary. At Naval Empower, the margins this quarter were up over 100 BIP sequentially, but on a pretty comparable level of sales. So just curious if you could talk a little bit about the drivers of the margin performance, set the segment this quarter, and where you saw some of those mixed benefits. Thanks.

Yeah. On the mixed side, we did see some really nice mix in the Naval aftermarket, as well as on the valve side, particularly on the MRO side. And overall, we're really happy with those results. Great, thanks.

Thank you. And we will move next to Michael Cremoli with Guggenheim Securities. Please go ahead.

Hey, good morning, guys. Nice results, and congrats to all. Lynn, it's certainly been a long time, and Kevin, Gary, looking forward to it. Thanks, Mike. Just maybe to stay on defense and kind of the budget situation, I mean, how are you guys thinking? I know you talked about, you know, the base budget, but if we don't get any reconciliation funding, you know, as you guys look at the portfolio, maybe thoughts on how some of those tough decisions, which programs or platforms or branches might be bill payers and how that might impact you. I guess what I'm asking, can you accomplish your growth plans with just a base budget?

Yeah, I think that's a good question. Yeah, I think that, you know, as I said earlier, I do believe from an electronics perspective, you know, we're into a lot of the major, you know, existing sort of base programs, and I think, you know, we feel confident in that from a continuous resolution perspective. And then obviously from a reconciliation point of view, you know, there are pieces in that which are sort of associated with things like Golden Dome investments, but underlying it, I think, you know, we still continue to supply into many sort of ground programs like our IFPIC project, which you mentioned in our opening remarks. I think, again, we feel pretty confident. We got orders this year moving into next year. And, you know, we mustn't forget, too, is, you know, obviously we have a great sort of centralization around where we are in the U.S., but we have good foreign sales, direct foreign sales, roughly about 10% of our portfolio. So that's encouraging as well from a defense point of view.

Got it. Helpful. And then just maybe back to the AP1000. I mean, if you do get this order before year end, how should we be thinking about how long that translates into hitting the P&L from long lead materials? And then I guess one maybe outlier we get from investors. Is there a scenario where some of these international AP1000s, the reactor coolant pumps, can be purchased from China since they are manufacturing their own pumps?

Mike, I'll start with the first one. This is Gary here on as to the 2027 revenue profile. We've mentioned in the past that the revenue profile here follows a bell curve, and we would expect to see revenues here in 2027 on that order. Obviously, we won't, you know, I can't hear the specifics yet. A lot of that will kind of come down to the timing here. But we do expect, based on receiving the order in the fourth quarter here, that we will have revenues.

I think just following up on the China question, obviously, you knew we, you know, we supplied the pumps in with AP1000 into China. I think, you know, we feel, you know, very confident with the relationship we have with Westinghouse, you know, again, you know, sort of from a U.S. supply perspective, and we're scaling and sort of making sure we have the capacity to meet those respective sort of demands. Plus, obviously, the regulatory issues associated with that, as I'm sure you've heard from Westinghouse, they very much, you know, want to make sure that the design stays It is exactly as it is going forward, which I think is very good for us. Got it.

Perfect.

Thanks, guys.

Thank you, Mike. Thank you. And we'll move next to Pete Skibitzky with Olympic Global. Please go ahead.

Good morning, everyone. Nice quarter, and yeah, congrats to all. I'll echo that. Maybe this F-35 agreement, guys, that Lockheed announced, it obviously has to be finalized, but a 10-year agreement will provide a lot of visibility for your F-35 exposure. Can you maybe walk us through kind of, you know, revenue-wise, OE versus aftermarket on F-35 for you guys, and then kind of what this agreement might allow you to do? Would it be helpful to margins? Would you have to give up some price? Just your thoughts on that.

Sure. I mean, I think, you know, we end up going through sort of multi-lot. We're going to have a lot of agreements and negotiations as we go through that process, but the recent press that was out there for that 10-year profile, we very much agreed that it was in line with our plans of 156 aircraft a year, which incorporates both foreign sales as well as U.S. sales. We always go through a negotiation perspective as part of that exercise. But again, I'm not anticipating any significant sort of deviation from that. We do a lot directly with them on the F-35, and I feel good that we're in a good position.

Okay, sounds good. I just want to follow up. I'd just be interested to learn how much of CW can play into this Army NGC2 program. I know it's fairly new, but Andrew seems like it has a pretty big role on it. I don't know if you guys have already booked a position on that project, but I'd like to know specifically kind of how you guys think you could play a role there in terms of the tactical communications.

Yeah, that actually fits, you know, quite well with us. In fact, on the two programs that are in the sort of trial process, we actually have hardware that we've worked with on NGC2 out of our Pacstar business. So, you know, fits into both of those two respective programs. And, you know, we work closely with Andrew on that sort of deployment. So, I think we're in that program.

Okay, you're right. Thank you.

Thank you. And we'll move next to Scott Deutschel with Deutsche Bank. Please go ahead.

Hi, good morning. Leonard, Kevin, is Curtis Wright's content on the APR 1400 reactor the same as it is on the AP1000?

For the APR 1400, it's different. It's a different size as the APR 1400 versus the AP1000.

So is the content higher or is it less?

No, we're on the $81,000.

Yeah, I mean, we have content on the $84,400, but it's lower, you know, around $20 million per plant, so it's, you know, we'll have content, and, you know, we continue to engage on it, but, you know, it's not in the ballpark of the $81,000, which, you know, we always mention 110-plus for the RCPs, and, again, reiterate that on top of the RCPs, And we have We've been awarded other work and, you know, things that, you know, on top of the RCPs, we'll have 50, 60, 70 million dollars of incremental content, which is quite meaningful on top of the RCPs, so.

Okay. So, I mean, just given Nick Maria's funding, I guess, some of these reactors in the U.S., is that a bit of a threat to how much content you ultimately can get on the build-out, or do you think you guys, you know, still get a very strong share position here?

Yeah, I mean, as Kevin just said, Westinghouse has said, I mean, you can find it in very many places, that they are determined to, you know, build a stable react, you know, plant design and not change things to help assure that, you know, end-of-a-kind cost down that is what the nuclear industry seeks. And, you know, with that, our content on the AP1000, you know, we don't take it for granted. We have to earn it every day and be a great supplier to Westinghouse. But, you know, we have engaged, you know, I mentioned things like the $80 million investment in our Cheswick facility to make sure we're ready to ramp. Like, we're doing our part, you know, I've had comments on supply chain readiness in the prepared remarks, and we engage very, you know, every day with Westinghouse to be a great supplier. And so I think the AP1000 will be the winner in the U.S. and as a U.S. design, and I think we are well positioned to support Westinghouse on that. So if an AP1400 gets built, so be it. But, you know, it's AP1000, the Gen 3 plus, you know, safety profile that I think is what people are going to want.

Yeah. And the only other thing I would add is just to reiterate, you know, both Cameco and Brookfield are still signaling nearly 91. So that's a pretty significant piece of work.

Okay, great. That's really helpful. Thank you. And just, Kevin, can you provide an update on what you're seeing across your own supply chain, both in terms of availability of supply, any constraints you're still facing? And just broadly, like, what are you seeing in terms of supply chain inflation these days?

Yeah, very good. I can answer that. I think sort of the area on the sort of supply chain side, if I sort of just take our electronics piece, which is, you know, where we've seen sort of, you know, similar types of issues surrounding sort of electronic components, and that sort of dates back to like we did when we had sort of, we were coming out of COVID. So, when we went through that process last time, you know, we learned a lot from that sort of exercise. So, as we started to see, you know, some issues in our supply chain this year, certainly around memory and some sort of allocation for processes, we got ahead of the curve. We had a Tiger team put together. We've been advanced buying, obviously, those materials to overcome that. We've also been doing things like pushing forward with our D-Pass ratings, which actually get sort of guarantee of secure for us. And we've been looking at second sourcing and, again, you know, a number of initiatives to really make sure that we're getting ahead of the cycle. And some of that sort of flowed over a little bit into our industrial piece, which was, again, on the memory side. But in that sort of industry, it's a lot easier for us to sort of look at sort of dual sourcing. But, again, I feel like in a good position as we go to the fourth quarter that we've sort of built up around that sort of experience and knowledge to basically manage that and manage that process. Yes, we've seen some pressure from, obviously, as everybody knows, the memory prices have been going up, but we're managing that with our suppliers and managing that with our customers.

Thank you. And we'll move next to Louie De Palma with Bullion Player. Please go ahead.

Lynn, Kevin, Gary, and Jim, good afternoon. Lynn, it was a pleasure working with you, and congrats on your tremendous success. And Chris, I'm sure you're listening. It was great working with you as well. And Kevin, congrats on the big appointment. Thank you. My question for Defense Electronics, You guys discussed the negative mix in the quarter, but over the long term and putting aside the quarter-to-quarter lumpiness, should the margin consistently increase further on an annual basis, or should investors expect the margin to stabilize here in the high, like, 29 percent range?

Yeah, so I'll comment on that, William. We're obviously very happy with the margins. They're industry-leading margins. When we think about the margin profile and we look out to the next few years, we do balance that and the investments that we need to make to grow the business for the medium and the long term. So, that's something we have a lot of internal discussion about, reviewing the R&D pipeline and where we want to make those strategic investments to be successful five years out from now. So, it's top of mind for us, and overall, it's a really, really healthy margin profile.

For the mix, Hedwin, that you discussed in the quarter, are you able to share what – Many products within Defense Electronics have a lower margin than the overall portfolio, and should this be a long-term headwind, or is this something that was just temporary?

No, it's temporary. I would say when you span the year, it tends to wash out. It was a little bit more than it normally was in Q3, but two things. So one of the main things that we see in the defense electronics portfolio is something we've mentioned in the past, the margin profile on the cost versus the systems. That can impact the quarterly lumpiness. But also, it wasn't just the mix. It's also some of those investments we mentioned in C-RAD that really help us on the next generation aircraft modernization platforms that we're looking to continue to gain content and gain share over the long term. So, it's a combination of MIX as well as some of the C-RAP investments.

Great. And for those next-generation aircraft platforms, does that include the CCA as well as, like, the two next-gen fighters that were awarded to Boeing?

Yeah, I'll say that. Yes, I mean, we're working closely on F47 and FAXX. Obviously, we don't declare sort of where we are in our content, but that, again, is fueled by both our defense electronics businesses and also our aerospace group and sensors and actuation. So, you know, we're working on those specific platforms. Also, NV75, again, we actually have content on that platform, which is obviously our accident crash recorders with... With our sort of program there. And from a CTA perspective, yes, we're on both increment one with both the Andril and the General Atomics, both platforms. And again, we have content in our defense electronics piece in both of those particular pieces. We're working hard because, you know, increment two is coming. And there are a number of other sort of additional players in that. And we're working very closely with them to ensure that we get position in the U.S. and around the world. There are other CTA-type programs that are going into Europe, which we're, again, actively pursuing.

Thanks, everyone. And, yeah, we also cover some defense electronics companies that have margins as high as 45 percent, and so I just wanted to get clarity on the continued margin expansion, and it seems like you guys are heading in the right direction. So thanks, everyone. Look forward to talking on the next quarter on the Analyst Day. Thank you. Thank you. Thank you, Lily.

Thank you. And once again, if you do have a question, you may press star 1 on your telephone keypad at this time. And we will move next to John Godin with Citi. Please go ahead.

Hi, this is Bradley. Nice to hear from John Godin. Thanks for taking my question. So I just want to touch base on the SMR side of the equation for commercial nuclear. Just curious what your thoughts are on demand expectations. So it's like how you need power. You see businesses try to generate and capture power as quick as possible through like any means, necessarily the same. So I'm just curious if you can kind of like level set expectations, how you see this market evolving and the opportunity you see here for Chris Wright and maybe provide some color and thoughts on the speed of market for SMRs to meet these power needs. Thanks.

So, just maybe I'll talk a little bit, you know, on Big Pusher. I think one of the strengths, you know, which we say over and over is the strength of seeing Curtis Wright as an investment is we play across the nuclear power, you know, industry, whether it's keeping the current plants online, doing restarts, bringing back old plants that have been shuttered, to building AP1000, to building these SMRs, and as you know, but, you know, just to reiterate for anybody on the phone, We're not trying to pick winners and losers across the SMR landscape, but our goal has been mostly focused on the 300-plus megawatt reactors and targeting meaningful content. It was fun to be able to announce $100 million of content plus with Rolls-Royce so far with the awards we have, and we're not necessarily stopping there. You know where we are in AP1000s. We've said we're above the 120 million mark with X Energy and, you know, continuing to work across the landscape. And we do work below the 300 megawatts. You know, we're working with targeted, you know, micro-reactors, you know, that where our value proposition matches how the plants are going to be built. And so, you know, how, you know, the SMRs are going to be folded into the overall picture for providing the energy in the company, and that continues to evolve. But I think there really is broad understanding, not just here in the U.S., but, you know, overseas, that there are places for the large gigawatt reactors, and there's a place for the small modular reactors and more, you know, remote communities and such. And so, you know, I think just broadly speaking, this is such an exciting part of our portfolio that is going to provide growth through the next decade for Curtis Wright in really a meaningful way.

Yeah, that makes a lot of sense, appreciate the color. I also want to touch base on possibly the M&A side. You guys have pretty strong free cash flow generation. Just hope to get your latest thoughts on M&A. Is there any kind of opportunities you guys want to connect, expansion of capabilities, content on existing platforms, securing the supply chain? Just any color here that can provide would be appreciated. Thanks.

Sure, I can cover that, and if Gary wants to add anything else in addition, you can. I would say, again, the pipeline remains healthy. We're obviously always looking at multiple different books that are coming in across the organization, so it is certainly for me, again, and to reiterate, it has been for a while, it is our number one priority from a capital deployment perspective, and again, across our core markets, so we constantly look at that. I think you'll also see, you know, back from Curtis Wright's view is that we take a very disciplined approach in the way in which we've done that. You know, the entire team we're involved is right down to the business unit levels. You know, if we have a specific property, we do a lot of diligence, a lot of work on it, and, you know, we're also comfortable in that disciplined approach and saying no if it doesn't fit either strategically or financially, but we're still very much wanting to drive that forward. I'm going to talk a little bit more about Investors Day, some sort of evolution in some of our M&A piece to sort of assist us going forward, but I think that's a good position.

Sure. Thank you, Kevin. So I'll just kind of add in, as you mentioned, we do generate a lot of free cash flow, and we have a very healthy balance sheet. When we approach acquisitions from a financial lens, we are looking at those targets to see if they're going to be accretive to some of our core KPIs over time. So revenue, up margin, EPS, and RONC. And so we look at that, and we are evaluating that through that financial lens to see. Make sure they're going to be accretive to our key KPIs over time, and as Kevin mentioned, it is one of our top capital allocation.

I appreciate all the call here. Thanks, everybody.

Thank you. There are no further questions in queue at this time. I will now turn the meeting back to Lynn Bamford, Chair, and Chief Executive Officer for any additional or closing remarks.

I would say thank you to everybody for joining us today, and we look forward to speaking with some of you on the road in the coming weeks and the release of our fourth quarter results. Have a great day. Thank you.

Thank you. This concludes today's Curtis Wright earnings conference call. Please disconnect your line at this time and have a