Q4 2021 Woodward Inc Earnings Call

[music].

Okay.

Thank you for standing by and welcome to the Woodward incorporated fourth quarter fiscal year 2021 earnings call. At this time I would like to inform does that this call is being recorded for rebroadcast and that as well and that all participants are in a listen only mode.

Following the presentation, you will be invited to participate in a question and answer session.

Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer.

Marc Hoffman, Chief Financial Officer, Mr. Don <unk>, Vice President of Investor Relations, and Treasurer and Mr. Deng from <unk> director of Investor Relations.

I'd now like to turn the call over to Mr. Dessert, though.

Yes.

Thank you operator, we would like to welcome all of you to Woodward's fourth quarter fiscal year 2021 earnings call.

In todays call, Tom will comment on our markets and related strategies and Mark will discuss our financial results as outlined in our earnings release.

At the end of our presentation, we will take questions.

For those who have not seen today's earnings release, you can find it on our website at Woodward dotcom.

We have again included some presentation materials to go along with todays call that are also accessible on our website.

An audio replay of this call will be available by phone or on our website through December 2nd 2021, 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 three.

As always elements of this presentation are forward looking or based on our current outlook and assumptions for the global economy, and our businesses more specifically, including the expected and potential effects of the ongoing COVID-19 pandemic those elements can and do frequently change please.

Please consider our comments in light of the risks and uncertainties surrounding those elements, including the risks we identify in our filings.

In addition, Woodward is providing certain non us GAAP financial measures measures, we direct your attention to the reconciliations of non U S. GAAP financial measures, which are included in todays slide presentation, and our earnings release and related schedules.

We believe this additional information financial information will help in understanding our results.

Now turning to our results for the fourth quarter.

Net sales for the fourth quarter of fiscal 2021 were at $570 million compared to $531 million for the prior year quarter.

Net earnings for the fourth quarter of 2021 were $50 million or <unk> 76 per share compared to $57 million or <unk> 89 per share for the prior year quarter <unk>.

Adjusted net earnings for the fourth quarter of 2021 were $54 million or <unk> 82 per share compared to $48 million or <unk> 75 per share for the prior year quarter.

And for the full year net sales were $2 25 billion compared to $2 5 billion for the prior year.

Net earnings were $209 million or $3 18 per share for fiscal 2021, compared to $240 million or $3 70 per share for the prior year.

Adjusted net earnings were $212 million or $3 24 per share compared to $254 million or $3 96 per share for the prior year.

Net cash generated from operating activities for 2021 was $465 million compared to $349 million for the prior year.

Free cash flow and adjusted free cash flow for 2021 were both $427 million.

For 2020 free cash flow was $302 million and adjusted free cash flow was $315 million.

Now I will turn the call over to Tom to comment further on our results strategies and markets. Thank you Don and good afternoon, everyone.

And sometimes you know Don has decided to retire at the end of the year. After a 31 year career at Woodward.

John has been an important champion of Woodward's growth in transformer transformation story over the past three decades.

It has been a trusted advisor to management.

On behalf of the company I want to express our sincere gratitude for his dedication delivered outstanding leadership and counsel.

Wish you all the best in retirement.

Going forward, Dan <unk>, a 15 year Woodward vet veteran will lead our investor relations function.

We delivered solid results for fiscal 'twenty, one against the headwinds of Covid and global supply chain disruptions.

We do expect continued recovery throughout 'twenty, two although uncertainty and volatility around the pace of recovery is anticipated to remain.

We believe our proven resiliency and strong financial position will allow us to capitalize on future market opportunities.

Moving to our markets in more detail.

Commercial aerospace continues to recover and build rates are expected to improve further in 'twenty two based on announced increases and the anticipated certification of the 737 Max in China.

Commercial aftermarket is being driven by increased passenger traffic and the utilization of our commercial fleet that includes significantly higher Woodward content.

Domestic travel is nearing pre COVID-19 levels by international travel, although steadily improving.

Still significantly lagging.

Defense markets remained stable with the exception of guided weapons, which we anticipate will continue to soften in fiscal 'twenty two.

Turning to our industrial markets and power generation demand for gas turbines continues to increase driven primarily by growth in Asia and the continued replacement of coal powered plants.

Additionally, we see strong demand for backup power for data centers.

Aftermarket activity has been stable, but is expected to increase of 22.

In transportation the global Marine market has seen an improvement in orders for new ships as well as increased utilization, which will drive aftermarket activity.

Demand for China natural gas trucks continued to be soft as expected due to the absorption of China five diesel pre buy activity related to the implementation of new China six diesel emissions regulations, which took effect July one.

In addition, global natural gas prices have spiked due to increased demand for power generation and limited supply and weather related usage.

This increase in price is expected to dampen demand for natural gas trucks in the near term.

Despite this volatility China's commitment to reducing emissions it is.

<unk> to drive long term demand for natural gas trucks.

And oil and gas prices have returned to pre 2020 levels from pandemic lows due in part to energy demand increases.

Capital expenditures have increased steadily since early 'twenty one at this level of investment is expected to continue.

In summary, we delivered solid performance in a challenging macroeconomic environment.

We are seeing improvements in most of our markets.

However, COVID-19 related impacts, including ongoing labor and supply chain challenges and regional market fluctuations continue to pressure global economic recovery.

Looking ahead to 2022, we expect ongoing recovery and improved profitability in our aerospace business as OEM production rates and passenger traffic continues to grow.

Industrial we expect a modest improvement in profitability as our markets continue to recover.

Green cargo rates and volumes are improving demand for industrial gas turbines is increasing and rising oil and gas prices are driving investment.

We are optimistic about the continued recovery across our markets and look forward to continued progress in 2022.

And I'll turn call over to Marc Hoffman.

Thank you Tom net.

Net sales for the fourth quarter of fiscal 2021 were $570 million.

Increase of 7%.

Sales for the quarter and the full year were negatively impacted by approximately $32 million due to global supply chain disruptions, which delayed orders scheduled for shipment.

Aerospace segment sales for the fourth quarter of fiscal 2021 or $371 million, an increase of 12% from the prior year quarter.

Commercial OEM and aftermarket sales were up compared to the prior year quarter by 67% and 23%, respectively, driven by elevated build rates and continued recovery in domestic passenger traffic.

Defense OEM sales were down 6% and defense aftermarket sales were down 20% in the fourth quarter of 2021 compared to a strong prior year quarter.

Aerospace segment earnings for the fourth quarter of 2021 were $66 million or 17, 4% of segment sales compared to $58 million or 17, 4% of segment sales for the fourth quarter of 2020 segment earnings were positively impacted by higher commercial sales volume.

For fiscal year 2021, Aerospace segment sales were $140 billion.

Compared to 1.5 dollars $9 billion for the prior year, a 12% decrease.

Aerospace segment earnings for fiscal year, 2021 for $234 million or 16, 7% of segment sales compared to $310 million or 19, 5% of segment sales for the prior year.

Turning to industrial.

Industrial segment sales for the fourth quarter of fiscal 2021 were $193 million compared to $195 million in the prior year period, a decrease of 1%.

The decrease in industrial sales was primarily due to lower industrial gas turbine sales as well as weakness in natural gas engines in China, partially offset by improvements in marine.

Industrial segment earnings for the fourth quarter of 2021 or $21 million or 10, 7% of segment sales compared to $19 million or nine 6% of segment sales for the same period of the prior year.

The increase was primarily due to favorable impact of foreign currency exchange rates.

For fiscal 2021, industrial segment sales were $842 million compared to $905 million for the prior year, a 7% decrease.

Excluding the renewable power systems and related businesses, which I will refer to as Rps and were divested in the third quarter of 2020 industrial segment sales for fiscal 2020 were $837 million.

Foreign currency exchange rates had a favorable impact on industrial segment sales for 2021 of approximately $33 million.

Industrial segment earnings for fiscal 2021 were $109 million or 12, 9% of segment sales.

Industrial segment earnings for 2020, or $100 million or 11, 1% of segment sales, excluding Rps industrial segment earnings for fiscal 2020 were $97 million or 11, 6% of segment sales.

Non segment expenses were $17 million for the fourth quarter of fiscal 2020 compared to non segment expenses of $2 million for the same period in the prior year.

Adjusted non segment expenses for the fourth quarter of fiscal 2021, and fiscal 2020 were both $12 million.

Adjusted non segment expenses for the fourth quarter of 2021 excludes the restructuring charges.

Adjusted non segment expenses for the fourth quarter of 2020, primarily excludes the gain on sale of properties.

Non segment expenses for fiscal 2021 were $64 million compared to $95 million for fiscal 2020.

Adjusted non segment expenses totaled $59 million for fiscal 2021 compared to $67 million for fiscal 2020.

At the Woodward level.

R&D for the fourth quarter of 2021 was $28 million or four 9% of sales compared to $27 million or five 1% of sales for the prior year quarter.

For fiscal 2021, R&D expenses were $117 million or 52% I'm, sorry, it's five 2% of sales compared to $133 million or five 3% of sales in fiscal 2020.

SG&A in adjusted SG&A for the fourth quarter of 2021 for both $38 million compared to SG&A of $41 million and adjusted SG&A of $43 million for the fourth quarter of 2020.

For fiscal 2021, SG&A and adjusted SG&A expenses were both the $187 million compared to SG&A expenses of $218 million and adjusted SG&A expenses of $196 million for fiscal 2020, which primarily excludes merger and divestiture.

Transaction costs.

For the fourth quarter of 2021, the effective tax rate was 18, 2% and the adjusted effective tax rate was 18, 8% for the fourth quarter of 2020, the effective tax rate was 16.0% in the adjusted effective tax rate was 13, 8%.

The full year effective tax rate was 15, 1% for fiscal 2021 compared to 14, 7% for fiscal 2020.

The adjusted effective tax rate was 15, 3% for fiscal 2021 compared to 17, 8% for fiscal 2020.

Looking at cash flows.

Cash provided by operating activities for fiscal 2021 was $465 million compared to $349 million for the prior year period.

Capital expenditures were $38 million for 2021 compared to $47 million for the prior year period.

Free cash flow and adjusted free cash flow for 2021 were both $427 million for fiscal 2020 free cash flow was $302 million and adjusted free cash flow was $315 million.

The increase in free cash flow and adjusted free cash flow was primarily related to effective working capital management, partially offset by lower net earnings.

Leverage was one seven times EBITDA at the end of the fourth quarter.

We also have significant liquidity available through approximately one $4 billion of combined cash on hand and revolver capacity.

During fiscal year 2021, $82 million was returned to stockholders in the form of $36 million in dividends and $46 million of repurchase shares under the previously authorized $500 million share repurchase program of which $441 million remained available.

At the end of fiscal 2021.

Lastly, turning to our fiscal 2022 outlook.

End markets and supply chain disruptions are anticipated to improve in fiscal year 2022, although the uncertainty and volatility around the pace of the recovery is expected to persist.

Growth and profitability in both segments could be negatively affected if COVID-19 and supply chain disruptions do not improve or at the pace of inflation puts additional pressure on labor and material costs.

Total Woodward net sales are expected to be in the range of 245 billion and $2 $65 billion.

Aerospace and industrial sales growth percentages are each expected to be in the low double digits to mid teens.

Our aerospace outlook assumes further improvement in build rates in alignment with the announced increases and the anticipated 73 <unk>.

Seven Max certification in China.

In addition continued recovery in flight traffic is assumed to drive growth in commercial aftermarket.

Guided weapons sales are anticipated to decline while the remainder of the defense is expected to be generally consistent with 2021.

Industrial growth is expected to be driven by higher demand for power generation equipment, rising oil and gas investments and increased ship utilization.

China natural gas truck sales are expected to be flat year over year with quarterly volatility continuing due to uncertainty around natural gas prices.

Aerospace segment earnings as a percent of segment sales are expected to increase by approximately 200 to 300 basis points, primarily due to the increased sales volume in both commercial OEM and aftermarket.

Partially offset by lower guided weapons sales the return of annual variable incentive compensation costs and inflationary cost pressures.

Industrial segment earnings as a percent of segment sales are expected to be approximately flat to up 150 basis points, primarily due to increased sales volume, partially offset by the return of annual variable incentive compensation costs and inflationary cost pressures.

The effective tax rate for the year is expected to be approximately 21%.

Earnings per share is expected to be between $3 55.

And $3 95.

Based on approximately $66 million of fully diluted weighted average shares outstanding.

The favorable impact of sales growth and productivity improvements in both segments are being partially offset by the expected return of annual variable compensation cost inflationary pressures and a higher tax rate.

Free cash flow is expected to be approximately $315 million generating a free cash flow conversion rate of greater than 100%.

As sales growth returns, we anticipate higher working capital requirements, primarily driven by accounts receivable.

Also capital expenditures are expected to increase by approximately $30 million.

This concludes our comments on the business and the results for the fiscal year and fourth quarter of 2021, operator, we are now ready to open the call to questions.

Thank you the question and answer session will begin at this time, if you are using a speaker phone. Please speak up the handset before pressing any numbers should you have any question. Please press star on a push button and following should you wish to withdraw your question Chris to.

Questions will be taken immediately.

It is received.

Please standby for your refreshed first question Sir.

Your first question is from Sheila <unk> with.

Jeffrey Your line is open.

Thank you guys for the time and Don Congratulations on an amazing 31 years.

Thank you.

Maybe if we could start off with guidance implications.

I'm going to actually focus on industrial because I think low double digits is pretty robust just considering what the segment has done over the last decade. So what gives you the confidence has the backlogs looking can you maybe talk about some segment moving pieces there.

Sure Sheila.

One of the reasons you see that type of growth rate is we are definitely coming off of bottom as you know.

All of our markets.

Where power power generation was down oil and gas was down.

China natural gas was down so as you look at it we see good growth in our turbo machinery business so covering.

Gas turbines for power compressors steam turbines is process plants.

We're also seeing good recovery in the marine market and we're starting to see.

Aftermarket pick up.

The marine market, but also across the board.

Some of the auxiliary engine applications, such as backup power is increasing.

Equipment sales are increasing so we.

We're starting to see the economic recovery flowed through to demand.

You know a lot of that has shorter.

It was a shorter order cycle. So we are seeing orders come in but a lot of it in discussions with our customers are looking at volume increases.

Building plans around that.

Okay. Thank you and then maybe on just aerospace OE in particular.

How do we think about.

77.

Our plan is it fair to say you're kind of assuming.

25, a month on the Max and that.

Two or three a month on the 770.

Hey.

Yeah.

On that Sheila for the Max and the Neo the 87, you know obviously the Max eight seven I've had those disruption everybody's aware of were really track.

Tracking.

Two the Boeing and Airbus production rates.

I think as <unk>.

Most of you know, especially the ones that have toured our facilities.

Capacity wise for much higher rates than they are announcing right now so we're in good shape to handle the rates we're planning.

To meet the rates that they're looking at.

There definitely is the uncertainties will those rates materialize are heavily dependent on the <unk>.

Releasing the production quality issues on the 87 and also for China to certify the Max.

But.

The rates that have been quoted by our customers.

Both plan and those are happening.

As we move forward in the following quarter. So that's what that's what our plans are built around that those are going to recover those rates are going to be met.

Okay. Thank you guys.

You bet.

Your next question is from Peter Kubicki of Alembic Global Your line is open.

Hey, good afternoon, guys and best wishes.

Thanks, Bill I guess.

Yes, so I guess, Tom so coming off of two quarters of the supply chain issues and it kind of feels like you guys maybe feel like the worst of that is behind you because you've given fiscal 'twenty two guidance. So can you kind of walk us through why you feel like the worst of the supply chain issues are in the past, maybe and maybe you could even ballpark.

Your expectation for the first quarter revenue to in case, there's any residual impact.

Yes.

First I laugh.

Last question Pete.

I think it will take.

Into the second half of the fiscal year to recover a lot of the past due that was driven by supply chain disruptions.

The reason we have some confidence here so.

There are <unk>.

Mechanical type components and then we've got electronics I think everybody is really familiar with the electronic.

Shortages and disruptions.

Seeing some improvement in that.

Happening and so we anticipate us.

The year moves on it we're seeing electronics starting to recover.

The mechanical side, you have to say look at that.

A lot of that disruption was.

Tied to it.

Our supply base.

Reacting to the pandemic cutting back closing.

Validating factories laying off workers, and then demand returning and disruptions.

Disruptions there beyond what.

What we could overcome I think I've shared in the past, we put together at Woodward and invested in what we call. A rapid response team that we knew they were going to be supplier supplier disruptions and we mitigated quite a few but there are more than we had anticipated. So we'd have a full team working with those suppliers. We got recovery plans, we have some confidence.

And those recovery plants or like I said, they are taking a little bit of time, but were overcome those and then we're kind of dependent on the global electronics.

Electronics.

Supply chain, but we see.

Promising improvements there. So that's why you have some some phase that we're going to see as we move into second half of the year that we have recovery.

Okay, Okay and anything on the first quarter in terms of level setting us.

Yes.

On the revenue side, well, we don't we don't give.

<unk> talked to really quarter to quarter. So I think it will follow on our normal pattern. Pete you know, we always have the holidays shorter amount of work days in the first quarter as you know and so that that pattern will continue.

Okay and last one for me.

There's chatter that for the defense Department, we could have essentially a full year continuing resolution and it sounds like youre wrong Youre expectations are fairly modest for defense versus maybe kind of flattish to down it sounds like overall.

Yeah.

Would you guess if there is any risk to that from a full year CR we have won.

Yeah, no not overall and Pete you're you're definitely in the ballpark with what we're anticipating on overall defense that there will be some softness as we as we've pointed out on the guided weapons.

So down slightly is what we're anticipating.

Okay. Thanks, guys.

Thanks, Steve.

Your next question is from Matt Akers of Wells Fargo. Your line is open.

Hi, its actually.

Kian on for Matt.

Thanks for the question just on the guidance.

You mentioned, yes, it will be declining in 2022.

So just thinking where we are in the G band slowdown.

Or any other mechanical buttons.

And so we're at a normal run rate or further into fall.

Oh, yes.

So what you have with our guided weapon portfolio the <unk>.

And the current.

Lot by by the government is down.

Our other.

Controls for guided weapons are actually going to go up so net net it's still down because Jay that's the largest program.

I think we're starting to approach.

Maybe the steady state going forward on <unk>. The one thing that could change a little bit on that as we are seeing some activity around foreign military sales.

That could add some volume, but that has not come through yet, but we do anticipate.

We move forward.

Two and 'twenty three we might see some foreign military sales start to fill in.

But those are still unknown at the moment, but we do think that that could happen.

Okay got it.

If I could do one more.

Just regarding the magnesium shortage people recently, you talked about and do you see metal.

Apply as a potential risk for you guys going into 2022.

Not not really a risk in terms of the metals, we use in our ability to.

Procure them.

We are seeing inflationary pressures around materials as well as labor.

So that's one headwind, but we right now are not anticipating that we're have shortages of required materials.

Okay. Thanks.

Okay.

Your next question is from Christopher Glynn of Oppenheimer. Your line is now open.

Thanks, Good afternoon.

Good afternoon.

Hey, curious I apologize Doug in the background nothing they can do but.

Price cost I'm curious about price cost timing I think give a fair amount of OEM relationships and customers in industrial and.

Typically there is.

Lag price realization run off some old contracts I'm wondering if there is a dynamic where.

That kind of rolls into new pricing.

Maybe into the new year your fiscal second or.

However, you want to comment on that sure logistics costs have risen.

Pointing out.

Most most of our OE.

Sales are tied to long term agreements.

So the.

The ability to move price is limited however.

Our long term agreements have escalation clauses in them. So once a year, we do reset based on.

Indices.

Inflation.

So we will see some recovery.

Other parts of our business.

Where we have.

Shorter cycle not LTE as our aftermarket we do have the ability to.

Have some price realization in those.

Those areas.

It's a mix but.

The benefit of long term agreements, we have like I said is.

They are there we know we have the programs, but we.

We do have to wait once a year for prices to be adjusted for the escalation indices.

Okay.

Net equation, what I'm understanding.

Within the lag effect to it.

Little Kendzior presently then it's likely to be yes.

A quarter or two out maybe yeah.

Yes.

One of our.

Outlet charts that you see there is we do have without a doubt we're experienced inflation.

You look at materials wages logistics across all these categories, but we're also offsetting along with productivity and we're driving through and you still have that pressure.

So that combined with the.

Contracts coming through we're really netting an offsetting.

Mostly all of that.

Okay. That's helpful. Thank you.

The 32 million.

Kind of hold back from supply chain issues.

Presuming, that's mostly in the industrial segment, but I didn't really catch it if that was clarified at all.

<unk> generally evenly across both industrial and aerospace.

Great. Thanks for the color.

Youre welcome.

Your next question is from Gautam Khanna of Cowen Your line is open.

Hey, I Echo my thanks, and congratulations to Don.

Pleasure working with you.

You'll be missed.

Tom I was just going to follow up on the aftermarket. So are you seeing.

What are you seeing month to month, what are you seeing kind of an improvement.

Throughout the quarter are you seeing fits and starts still.

How would you characterize kind of the.

The trend line.

Bruce bodies, yet okay sorry.

Good good good question.

We're seeing accelerating aftermarket activity.

You are asking.

Specifically on commercial aerospace commercial.

Commercial aerospace we're seeing.

Accelerating activity.

We're also seeing initial provisioning pick up so.

All good signs.

Obviously.

Fleet utilization is a big driver of that.

We feel very positive that the fleet Klein has very good Woodward content. So that's that.

A positive tailwind.

Initial provisioning like I said has come back.

And we anticipate good.

Good increase in 'twenty two.

But that also still is dependent on the.

Production rates being met in China certification coming through but we.

We believe those will happen so yeah.

The aftermarket is looking good.

We still we still anticipate.

Tail into 'twenty three.

Where you see closer to 2019 levels, but.

Okay.

On a good path.

Okay.

On the commercial Aero OE side in the past you guys have any.

Indicated those shipments are profitable and I'm just on a follow up to one of the earlier questions on inflation and your escalators.

Or are you seeing compression in.

OE profitability next year.

Or should I say did.

Did you see it throughout this year and therefore, there was a positive year to year dynamics next year as price resets.

Actually right.

We will we will have.

Price changes due to the escalation clauses taken effect in 'twenty two.

I would highlight in.

We talked on previous calls.

That during the downturn, we invested more in our true north continuous improvement activity.

We actually did quite good on OE margins.

We really anticipate driving those up.

Through productivity improvements that we have to offset inflationary pressure, but I think overall.

Still in good shape, there, we're still working hard to drive that through obviously.

As volume increases through our our factories, that's a big plus as well to get that volume leverage.

Yes.

And last one for me.

You guys are capacity wise for much higher <unk>.

With demand so capex through the cycle from here, presumably will be sub.

Subdued relative to.

The last cycle.

What is the plan with capital allocation kind of like what do you. What are you hoping to do is there is M&A the priority from here or is it share repurchases like what are you.

Besides organic growth yes.

Yes, the core business stuff.

Yes, no good question Mark might jump in here with me, but.

Just to highlight Youre correct on Capex.

Mark of approximately looking at.

$50 million plus or minus.

No.

Just timing on Capex right. So we've guided in the past, we anticipate to be around $50 million, because you're you're accurate. We're fully capacities. So we're in a maintenance mode for Capex, there's timing differences, that's why we're lower than $50 million in fiscal 'twenty, one higher than $50 million in fiscal 'twenty, two but you are right on that and so on.

Capital deployment, we are.

Last quarter, we talked about we're returning to.

Our.

Capital deployment strategy.

Returning 50% of net income to shareholders through.

Dividends and buybacks and you saw that we were buying back in the quarter.

In addition, we do have very strong balance sheet.

And with that we will continue to look for growth. So both in good investments in organic growth and if we can find.

Attractive M&A that bill.

Builds on our strategy fits it fits.

Our business we.

We will look at that.

The combo of that.

And as everybody knows M&A.

It's not something you can predict.

Timing of so if we have excess cash we'll return it to shareholders.

Thank you.

Youre Welcome. Your next question is from David Strauss of Barclays. Your line is open.

Good afternoon, guys. This is Brad Barton on for David Thanks for taking the question.

I'm wondering if you could talk to working capital.

And how much of a headwind do you expect to see from here.

Yes.

As sales returns obviously, we're anticipating.

Good growth in 2022, we do anticipate having that working capital need.

Need investment, but it's mainly going to be in receivables one thing that you've probably seen.

About the last couple of years, we've done a very good job of managing our inventory balances.

Anticipating to continue to do that as we move forward. So really it's just really going to be related to the sales overall and as we're growing here quarter to quarter, we will have to invest into accounts receivable overall and that would be the main working capital component that we would be speaking too going forward.

Got it thanks, and then just quickly looking at head count and Aero and industrial.

How much have you increased from bottom.

Yes, so we've been hiring overall, obviously as growth has.

Has come I don't have the number off the top of my head, but it's been significant especially as we've anticipated the growth as we're moving forward here, it's mainly been on the direct labor side and you know some of that's been bringing back members that were laid off and then others are bringing in new members and getting them up and trained on.

On the line overall, but it's several hundred across the company over the over the last year timeframe as our growth has been.

Occurring.

And we do anticipate.

The need to hire a significant number of members in the coming year, we put together.

<unk> strategies and plans.

To get ahead of the curve so would that growth.

We've got the capital we've got the facilities.

We'll have to add head count to support the growth.

Alright, great. Thanks for taking question guys.

Okay.

Your next question is from Michael ceremony for Securities. Your line is open.

Hey, good evening guys. Thanks for taking the call Congrats Dan it's been a pleasure working with you over the years good luck.

Yes.

I guess.

Just on I guess back to what got them was asking around kind of your facilities, what you're sized for Ya mentioned.

Kind of that debt and 23.

How should we think about.

Aerospace margins I mean, do you need aerospace revenues to get back to the prior peak.

Or do you think you can get back to that level of profitability given some of the actions with true north.

<unk>.

Inflationary environment labor costs that that might be.

Open ended kind of challenge right now, but what are the thoughts there yes right now.

Our outlook is that as we hit the end of 'twenty three will be at that 20% plus runway run run rate arrow.

Got it so let me assure you that the run rate at the end of 'twenty three so when we said yes.

Yes.

Got it got it Okay, and then I guess just staying within Aero.

It sounds like Youre pretty cautious in general.

You know aside from the guided weapons anything incremental I mean, obviously, you've got some good content on the joint strike fighter those rates coming down some of the other legacy platforms that you've got big exposure to V 22, Black Hawk Apache's I mean.

Defense seemingly all manageable.

Again, it seems to be a cautious view, but have you contemplated all of that into the into the forecast we have.

We are well represented in some of the new programs Youre all familiar with but.

Yes.

Been a new buy for.

<unk>, including the GE <unk> engine does have good content for us F. Eighteens good content. So some of those legacy are still moving along and provide a good base for us.

We're we're kind of in that flattish.

Area with guided weapons taken us down.

Single digit low to low.

Low mid single digit as we move forward.

I don't think the world is getting any safer so.

We may just right now say, hey, it's more towards the flat plus.

Plus or minus single digit low single digits up or down around that thats kind of what we're planning the other opportunity on the defense side of the business of course is on the aftermarket.

Great programs and the like so.

That's that's always been a.

Good positive for us.

Another area that it's not really defense.

Categories categorizing it under defense, but we've been making a bigger push into the space market.

On the defense side that a lot of that is commercial and.

We're starting to win programs, there and moving quickly on <unk>.

Some of that activity so exit over the next few years will fill out some growth as well.

Got it got it and last one I had just back to the pricing obviously.

The OE pricing, but what are you seeing in the aftermarket.

Presumably is some of this used in serviceable material Green time, maybe runs its course or are you able to get.

Kind of real time price increases or are you seeing a better pricing environment in the commercial aftermarket.

We're still able to get.

Reasonable price in the aftermarket and so we are seeing price increases you got to look at some of the it goes program by program.

What's being retired or what's being parted out.

Maybe you've seen some of the data on this a lot of the aircraft that were on that some people thought we're going to be retired or not and they are in service. They are being brought back in service. So right now we're not seeing that pressure.

Okay.

We still have.

Good pricing position.

Got it perfect. Thanks, a lot guys I'll jump back in queue.

Thank you.

As a reminder, should you have a question. Please press star one on your push button falling should you wish to withdraw your question press the <unk>.

Your next question is from Noah <unk> of Goldman Sachs. Your line is open.

Hi, good evening, everybody and congrats on all the best to you Don with retirement.

Thanks Noah.

So the revenue guidance for 'twenty two.

Up low double digits to mid teens.

Yeah that would be an acceleration in.

In the quarterly revenue growth rate pace compared to what it's been.

Over the last several quarters, despite the compare is getting tougher.

Hum.

I'm wondering are there are some outsized.

Big contributors to 'twenty two that you didn't have in 'twenty, one that I'm missing whether that's the initial spares provisioning on the aftermarket that can be pretty sizeable or just what's happening in the in the energy world in your oil and gas business.

Or is there the capture of the slipped revenue from supply chain and logistics is that land in the second half of next year and create a big growth rate in the back half.

I'm, just struggling a little bit on how the pace would.

We'll accelerate on tougher compares.

No actually you're hitting on a lot of them. So I'll just.

Knock them all off as you went and maybe start with the latter and yes you are.

<unk> on the supply chain disruption in the hold back there as that abates in the second half of fiscal 'twenty, two so that would be a tailwind there but.

I stepped back just generally to our markets.

<unk> is.

There's going to be growing with the build rates you know Tom mentioned previously we are anticipating.

OEM, both Boeing and Airbus reached the build rates that they are.

Have signaled out there overall, so that would be significant growth for us on a year over year basis.

And you have to be thinking about his early FY 'twenty. One it was we were down at the bottom right and so we've been growing off of that but it was a significant reduction from prior periods. We've talked some already about on the commercial aftermarket side.

With the utilization the use of the green time on engine.

The.

Fleet, that's actually flying has more woodward content on it overall, so we would anticipate.

Significant aftermarket.

Growth in 2022 and ramping as the year progresses.

As we've been talking.

Summer season was.

Our busy season overall anybody that was at an airport traveling all I think saw that and so that green time continues to get used in.

Overall that we will have to come in for repair and upgrades as we move forward move.

Moving over to the industrial side of the business.

You hit on some of it if I start first start on the power generation side of the business power generation needs.

Asia in developing countries is growing.

You can kind of see that across the <unk>.

Lot of a lot of the companies in that space overall are anticipating growth there.

As they either have the generation needs are in the more developed world trying to replace coal powered plants with new natural gas and.

Turbines overall would be positive for us.

The other I'll say major driver for US is the return of the marine market.

The utilization for Marine Transportation is high so two fold one is the ship order activity has increased and that's a that's a lagging market for us overall that it typically takes a couple of years that as those ships.

Ships get ordered that we would see the rec.

Recognize the revenue and the units shipments there, but overall, we did see that increase but the other opportunity for us of course is with the strong utilization in the freight world today.

Those are going to have to come in.

We mentioned it early I will say in the pandemic that you know.

A lot of the.

The aftermarket cupboards were run bear.

Destock everything they used everything they could and they didnt ramp back up. So you know we're anticipating that to be an opportunity also the other on the industrial side, Tom mentioned, a little bit earlier on the oil and gas, obviously with prices where they're at today on the oil side.

We're anticipating that there'll be growth there from production needs and people actually are looking to drill more and so that will be positive for us and so that's how we get to even on tougher comps as you move forward since we've been ramping but with all of those opportunities and then there was a favorable market dynamics.

MX and the Woodward position in those markets, that's how we get to that growth that we're talking about.

Okay I appreciate all that detail.

B you know the first half will have the easier compares but still have the lingering supply chain issues.

Second half, maybe youre, making that up but you have the tougher compares I guess the growth rate total organic revenue growth rate for the year should the quarterly progression be somewhere near that growth rate every quarter or is the growth back end loaded.

Yes, I mean, Tom Tom mentioned that some earlier too right. So year over year of course, we're going to have the Q1.

It's both both Q1s have the less number of working days with all the holidays and all of that but we do see the markets ramping as the year progresses, but supply chain disruption is going to be abating in the back half so I wouldn't anticipate it to be.

No.

Significantly different but there will be.

<unk> trend as the year progresses from a sequential basis.

Okay, and then just lastly, going back to the aerospace segment margin.

It looks like the implied incremental in the guidance is kind of 35, maybe maybe even a little higher you've.

You've done that before but sometimes it's not quite that robust so and Tom I think you made a comment about getting to the 20 plus.

On a run rate basis exiting 'twenty, three but it would seem like.

To get to the guidance you'd have to kind of be there exiting 'twenty two so.

Maybe if you could just speak a little bit more to the margin progression this year and how much of it is mix versus cost out versus something else.

And well.

We definitely have a number of factors coming into the mix plays in the aftermarket is picking up so so that's a positive.

<unk>.

We're going to get leverage on the volume that's coming through.

So youre going to see that.

As you can see mark highlighted that.

We do have a nice increase.

In.

Margins anticipated in 'twenty, two and we anticipate to continue that improvement as we move forward into 'twenty three so.

I think we're we're tracking pretty well I think that'll be pretty accurate.

I did put a 20 plus on that.

When do you think you achieved the 20 plus.

That's what we said on.

On a run rate basis.

Exiting 'twenty three.

And we'll be making.

We will be making steady progress through 'twenty two into 'twenty, three and all of that.

Okay.

Thanks, so much.

Welcome.

Your next.

Question is from Christopher Glynn of Oppenheimer. Your line is open.

Thanks curious set of OE question.

Louis market.

You'll get the narrow bodies, the Max and the Neo obviously, you've got really nice content step ups from prior cycle I'm wondering with.

The supply chain stress has gone way down and then way up if youre seeing any.

Potential reallocation of awards that might accrue tier narrow body ship sets even more.

We are.

Talking to a variety of our customers where they are having problems.

With other suppliers.

Can we.

Yeah.

Help him out of those problems that we're looking at those and were working some it does take a little time for those type of <unk>.

Transitions to occur, but yes, there is the possibility to add to our content.

Okay. Thanks, Good luck and just a housekeeping question what are we thinking for corporate spend levels kind of unallocated expense for fiscal 'twenty two.

Yes.

And in our normal range to five 3% of sales somewhere in there.

Okay. Thanks Neil.

All of them.

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

Well I appreciate everybody joining us today.

We always appreciate the questions.

Just as a reminder were still planning March to have an investor day in person we would get.

More details out to everybody.

Many of you could join us for that.

Thanks, and hope you all have a great holiday coming up.

Good night.

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