Q3 2024 Curtiss-Wright Corp Earnings Call
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Welcome to the Curtis Wright 3rd quarter 2024 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.
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Speaker Change: I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.
Thank you, Todd and good morning, everyone. Welcome to Curtis Wright's third quarter, 2024 earnings conference call.
Joining me on the call today are Chair and Chief Executive Officer Lynn Bamford, the Vice President and Chief Financial Officer Chris Parks
Our call today is being webcast and the press release is all the copy of today's financial presentations. It's available for download through the Investor Relations section of our company website at curvisverite.com. We're replay of this webcast also can be found on the web site.
Please note today's discussion will include certain projections and statements that are forward-looking as defined in the private security litigation and reform act of 1995. The statements are based on management's current expectations and are not guaranteed the situation before.
Dixiello's recent uncertainty is associated with her forward-looking statements in our public planning for the FCC.
As a reminder, the company's results included in the adjusted non-gapsed use that exclude certain costs, nor provide greater transparency and decurs for its ongoing operating and finished performance.
Also note that our updated earlier guidance does not include the acquisition of all for energy, which we anticipate closing in the fourth quarter.
Speaker Change: Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions, to vet the surface and restructuring unless otherwise noted. Gap the non-gap for reconciliation for current and prior year periods are available in the earnings release and on our website.
Speaker Change: Now I like to turn the ball over to Lynn to get things started.
Thank you Jim and good morning everyone.
As you saw in our results released last night, we delivered a strong third quarter performance and continued to build momentum across our businesses. We continue to invest in the future of Curtis Wright, including our technology, systems and infrastructure, and of course our talent.
As a result of these investments Curtis Wright remains deeply aligned with the major growth factors within our end markets and well-position to generate meaningful and long-term returns for our shareholders.
In addition, there have been the number of exciting industry developments and announcements over the past few months. Particularly in commercial nuclear, which have the potential to create tremendous value for Curtis Wright over the course of this decade and beyond. I'll speak to some of those opportunities and more detail later in our remarks.
Overall, we remain confident in our ability to accelerate the pace of a long-term profitable growth and have demonstrated considerable progress towards our 20, 26 investor-day objectives.
With that, I'll turn to today's presentation. I'll begin by covering the highlights of our third quarter performance and we'll provide a few comments regarding our updated 2020-4 financial outlook. Then I'll turn to call over to Chris to provide a more in-depth review of our financials.
Finally, I'll wrap up with some closing remarks before we move to Q&A.
Speaker Change: Starting with the highlights of a third quarter 2020 Ford Performance sales increased 10% year over year to nearly $800 million. Driven by a better than expected performance in both are the Vensal at Tronix and Naval Empower Sussman.
Speaker Change: Under scoring these results, we achieved a strong 15% growth in our aerospace and defense markets as well as low double digit growth in our commercial nuclear market.
Speaker Change: operating income increased 11% year over year, once again exceeding our sales growth, and resulted in the 20 basis points of overall operating margin expansion to 18.7%.
This performance reflected the strong growth in sales, our team's commitment to operational excellence and the initial benefits of our corporate wide restructuring actions.
diluted earnings per share increased 17% year over year which also exceeded our expectations. It was primarily driven by our higher A&D sales.
Speaker Change: Break cash flow was $163 million up 19% year over year, reflecting more than 140% conversion due to the improved operational performance and lower working capital.
Turning to our order book and starting in our AMD markets, we continue to experience strong demand for our defense electronics products within our ground and arrow defense markets with the third quarter results reflecting higher orders for tactical communications and flight test equipment.
Speaker Change: As a result, our defense electronic segment achieved this highest booking order on record.
Speaker Change: Elfware, orders within our Naval Defense and Commercial Aerospace Markets were relatively flat compared with the prior year, so both of them ensreated very strong growth through the first nine months of 2024.
Within our commercial markets, we've benefited from improved demand in our commercial nuclear aftermarket businesses, primarily driven by the fall-outage season, which as expected was more pronounced than 2023.
Speaker Change: Elsewhere we continue to see stabilization and order friends for our industrial businesses, most notably in industrial vehicles, despite some of the challenging dynamics impacting the global pop highway market.
Overall, total new orders increased 2% year over year in the third quarter reflecting a solid 1.1 times booked a bill. Furthermore, new orders for the year continued to outpace are very strong overall sales growth.
As a result, our year-to-day backlog is up 16% and reach a new record of $3.3 billion. This strong demand provides us with continued confidence to support Curtis Wright's long-term growth outlook.
Turning to the topic of capital allocation, I would like to highlight the ramp up in our share repurchase activity during the third quarter. Curtis Wright typically plans for at least $50 million of annual repurchases to cover share delusion.
Speaker Change: In May, the Board approved an increase in the total available authorization to $400 million, reflecting their confidence in the company's ability to deliver profitable growth and in our strong free cash flow position.
Subsequently, in September, the board approved our request for a $100 million expansion of our 2024 share-by-back program. I'm pleased to report that we immediately began to repurchase our stock and completed the $100 million program on September 30.
Speaker Change: We are now on track to complete at least $150 million of shared repurchases in 2024 and we remain well positioned to deliver a constant.
Return to Capitol and our shareholders going forward.
Next up provides some highlights of our updated 4-year 2024 outlook, as shown on the right-hand side of the slide.
Our growing backlog and strong operational performance have provided confidence to once again raise our overall guidance for the majority of our key metrics.
We now expect sales to increase 7 to 9 percent, principally reflecting the improved outlook in our A&D and commercial nuclear markets driving a 7 to 10 percent increase in operating income.
Speaker Change: We continue to target our operating margin expansion while making significant investments across the business to improve our competitive positioning and strength and flourish right for the future.
Blue did EPS is now expected to grow 12 to 15%. In addition, for the second consecutive quarter we raise our free cash flow guide to reflect the strong year-to-day performance and higher confidence in the full year outlook.
In summary, Curtis Wright demonstrated strong operational performance in the third quarter and the business remains primed to deliver exceptional results for the full year. Now I would like to turn the call over to Chris to continue with our prepare for marks. Thank you, Ann.
Chris Parks: On 5-4, our VVK drivers are our third quarter, 20-24 performance by segment.
Chris Parks: I'll begin in our space in industrial where overall sales increased 4%.
with In the Seconds Commercial Airspace Market, our results reflected strong OEM sale growth supporting increased production on the A320 and various wide body platforms.
Within the segments defense markets, solid increases in actuation equipment sales, and both aerospace and naval defense markets reflected the timing of production on various programs.
Chris Parks: partially upsetting those increases was lower sales in the general industrial market, principally due to the timing of off-highway industrial vehicle sales despite the modest growth in orders that Lynn mentioned earlier.
and turning to this segment's profitability, our results reflect mainly reflected favorable absorption on higher sales and a small restructuring benefit, which were largely offset by unfavorable mix, including a lower volume, the higher margin industrial vehicle products.
Next in the Defense Electronics segment sales growth of 12% exceeded our expectations based upon the strong demand that continues to fuel these businesses and partly due to the timing of production revenues.
Chris Parks: Within the segments ground defense markets, we continue to benefit from an increase in demand for tactical communications equipment from both domestic and direct foreign military customers.
With an aerospace defense, we once again experienced strong growth in embedded computing sales across a number of C5ISR programs.
In addition, across the dental electronics, timing was once again a factor as we accelerated some revenues and deliveries into the third quarter. This is largely due to the planned restructuring activities in now-flask quarter that are now underway to support our future growth.
and as a result, as we look ahead to the fourth quarter, we now expect a sequential decline in revenues within the Defense Electronic segment.
Chris Parks: Regarding the second-stirt quarter operating performance, we delivered a strong 26.5% operating margin of 50 basis points every year to a five-year high as this business continues to benefit from the conversion of its backlog in favorable absorption on higher revenues.
Chris Parks: Turning to the Naval Empower segment sales growth of 14% was ahead of our expectations and partly due to the timing of increased development revenues with consequently weighed on our profitability during the quarter.
Chris Parks: Starting a Naval Defense, revenues increased more than 20% driven by higher production revenue across several key platforms, including the Columbia Class and Virginia Class submarines and CVN-81 aircraft carrier programs, to impart to the timing and material receipts.
A results also reflected increased development revenues on the next generation SSNX submarine program in addition to increased demand for aftermarket fleet services and air-craft handling systems international customers.
Chris Parks: In the power and process market, our results reflected continued, strong demand in commercial nuclear, supporting the ongoing maintenance of operating reactors in North America, while sales in the process market were essentially flat year over year.
Turning to the second operating performance, favorable absorption on higher revenues was partially offset by unfavorable next from an increased concentration of customer funding development programs to support our future growth.
Chris Parks: To sum up Curtis Wright's third quarter overall, we generated solid absorption on stronger than expected top line performance resulting in 20 basis points in year every year operating margin expansion.
Next, Turning to our full year, 2024 guidance.
But again on slide five with our end market sales outlook where we now expect total sales to grow 7 to 9% driven by upward revisions across several of our end markets.
Chris Parks: Starting in aerospace defense, we raised our outlook to now reflect full-year sales growth of 9 to 11 percent, driven by increased customer-funded development on very C5ISR programs.
With a ground offense, the spikes in timing between the third and fourth quarters are outlook for 10 to 12% sales growth remains unchanged and continues to reflect overall strong demand for tactical communications equipment.
Chris Parks: Enable defense, we now expect sales to grow 9 to 11% driven by the strong growth of water volume thus far in 2024.
Chris Parks: Of note, we now expect this sequential decline enabled defense revenues in the fourth quarter, based upon an acceleration of sub-brain development revenues into the third quarter, as well as the timing and materials heaps across several platforms.
Chris Parks: Turning to commercial aerospace, we raised our full year outlook to the new range of 16 to 18 percent growth based upon our solid word book and the strength of our year-to-date performance, particularly for service treatment services.
Chris Parks: Overall we expect to benefit from higher OEM production sales on the A320 and more broadly wide body aircraft this year despite the impact of the Boeing strike.
Rapping of our Space and Defense Markets, we now expect total sales in these markets to increase 10 to 12% in 2024.
Moving to our commercial markets in the power and process market, we raised our outlook to reflect full-year sales growth of 5 to 7%.
We now anticipate a low double digit boy or growth rate in the commercial nuclear market, principally driven by higher US after market revenues, and we anticipate a strong finish to 2024.
Chris Parks: and the process market we reduced our outlook slightly due to the timing of development on subsea pumps and we now anticipate bull-year sales to be flat in this market including our previously communicated expectations for lower capital project revenues.
However, it's worth noting that we remain on track to our customer's expectations for Subsea Pump development and this reduction in the full-year growth represents a battery-shift and resources towards naval programs.
Lastly, in the general industrial market based on the year-to-date performance, we've reduced our fully-araut-looked-to-lower, global off-highway vehicle sales and now anticipated decline of 2 to 4%.
Chris Parks: However, we expect fourth quarter sales to improve sequentially based on the stability in the order trends and to be relatively in line with the prior year quarter.
Rapping up our total commercial markets, we continue to target full-year sales growth of 1 to 3%.
Moving on to our foliar out look by segment on 5-6. I'll begin in our space and industrial with spite to challenges within our general industrial market. We continue to expect sales to grow 4-6% based upon the strength of our A&D markets.
Regarding the segments profitability, we continue to project operating in the growth of 8 to 11 percent, and operating margin to increase 50 to 70 base response and range from 16.9 to 17.1 percent.
Next instance like in Venice, we are increasing our revenue guidance to 9 to 11%. This year over your growth is principally driven by the continued strength of our order book, as well as improved expectations within the aerospace defense market where the team is then successful in securing contract funding for several R&D programs.
Regarding the second's profitability, we now expect operating income growth of 13 to 15% and operating margin expansion is 70 to 90 basis points to a new range of 24.2 to 24.4% which is 20 basis points above our prior expectations.
and enable and power based upon the strong year-to-date performance within both our naval defense and our commercial nuclear markets. We've raised our expectations for revenue growth to a new range of 8 to 9 percent.
Regarding this segment's profitability, we raised our operating income guidance to a new range of flat to 2% based on the higher revenue growth.
However, we maintained our prior margin outlook as we continue to expect unfavorable Mexican, including margin pressures associated with the accelerated ramp up and failed in programs, particularly for next generation naval defense platforms.
So to summarize our outlook, overall, we now expect total Curtis Wright operating in the gross 7 to 10 percent. We continue to expect operating margin to range from 17.4 to 17.6 percent, which includes a year of rearing increase of more than $20 million in total engineering spending.
Chris Parks: Continuing with our financial outlook on slide 7, I'll begin with our updated EPS guidance where we now expect full year 2024 diluted EPS to range from $10.55 to $10.75 up 12 to 15%.
Reflecting Gamecreas confidence in our outlook and a slight reduction in our share count following the completion of the $100 million share reports program in September.
And lastly, turning the free cash flow based on our strong year-to-date performance and our updated projections for improved earnings we've raised our outlook again to a new range of $430 to $450 million.
It's out with reflects solid growth of 4 to 9% and a free cash flow conversion rate in excess of 105% which remains in line with our long-term targets.
Speaker Change: Now I'd like to turn the call back over to Lynn.
Lynn Bamford: Thank you Chris and turning to slide eight. We've positioned Curtis Wright for a strong finish of 2024 and remain confident in our ability to generate the 7-9% total sales growth supported by strength in the more majority of our end markets.
Well, we've had to navigate some challenging market conditions this year. It's the strength of Curtis Wright's consolidated portfolio, our ability to bring critical technologies to new markets, and our well-established leadership positions that enable us to continue to capture new opportunities for growth.
This top line momentum along with our continued focus on both commercial and operational excellence while making targeted investments across the business are all contributing to the strong increases in EPS and free cash flow again this year.
We also intend to put the strength of our balance sheet to work through disciplined capital deployment, whether that's acquisitions or returns to shareholders.
Under our pivot to growth strategy, we remain focused on supplementing our organic growth with high-quality strategic acquisitions that meet our strict, tense, stringent, financial criteria and long-term profitable growth.
Chris Parks: Earlier this year we announced the acquisition of Ultra Energy which we anticipate closing in the board's quarter.
As a reminder, Ultra Provides Safety Critical Products and Services to Commercial Nuclear and Power Generation plants globally and also to the naval defense market including the UK nuclear submarine fleet.
We look forward to this business strengthening our core positions within our Naval Defense Empower Generation Market and opening up new doors to a wider, more global customer base.
As I from acquisitions we anticipate completing the $150 million in total share purchases in 2024 and we remain committed to driving consistent returns to our shareholder.
Looking beyond 2024, and as communicated at a recent May, investor day, we are dedicated to being a leader in the market's we serve and capturing new opportunities for growth across the portfolio.
We continue to execute our strategy to align Curtis Ryan to a range of key secular trends in our end markets.
Chris Parks: from the growing demand for power to support AI and data centers to the rise in global defense spending. This focus along with ongoing industry accelerators further supports our investor-day outlook to grow organic revenue at a greater than 5% K-GAR through 2026.
One of those key accelerators is the exciting momentum and commercial nuclear highlighted by the recent news that Microsoft, Google and Amazon are investing in commercial nuclear to power their data centers with carbon-free energy.
Chris Parks: As an example last month's constellation energy announced a 20-year power purchase agreement with Microsoft to restart unit one reactor at the three-mile island nuclear power plant to provide electricity to power Microsoft data centers.
The reopening of this plant should provide an opportunity for Kurdish rights once again supply our critical plant equipment and services to support the long-term operation of this reactor.
We were also excited to see ex-energies recent announcement of partnership with Amazon to accelerate the development of the XC100's Advanced SMR.
with Amazon's goal to bring more than five gigawatts worth of power online in the United States. By 2039 this represents the largest commercial deployment target of SMRs today.
Chris Parks: As a reminder, we are strategic supplier to XenerG and are actively engaged in design and development of this reactor.
We remained aligned with XenerG and all major SMR-designers and are working to secure a content that has the potential to range from $20 million to more than $120 million of revenue per site.
In addition, we recently issued a press release to highlight the signing of a memorandum of understanding with Westinhouse to support future new bill plants in Canada, including both the AP1000 Large Lightwater Reactor and AP300 Small Modular Reactor.
Overall, we're excited to see the continued support from industry, the administration, and the influx of funding from major technology companies.
These recent advancements provide us with increased optimism and further proof points to support the long-term goals communicated at our investor day. We're going to be able to do a double-ing disproportionate of our business by 2028 and for our commercial nuclear market to reach 1.5 billion.
Dollars in annual revenues by the middle of next decade.
Chris Parks: In closing, or pleased with our third quarter results, it will remain on track to achieve a number of financial and strategic milestones in 2024, including new records for total sales, free cash flow and backlog as we execute our pivot to growth strategy.
Chris Parks: We look forward to delivering continued success and long-term profitable growth bar shareholder. Thank you and at this time I 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.
Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you.
Our first question will come from Peter Armant with Bayard, please go ahead.
Good morning, Lynn. Chris Jim, nice results.
with Intentile electronics, obviously the demand signals for embedded computing and tactical communications have been really strong along with FMS activity. How are you, how have you guys kind of measuring or share gain that activity? Because it seems like that also is maybe a factor here.
So thank you. I mean, I guess I would open the saying, hey, we're really pleased with what's going on in that business. They're execution and they're drive for customers satisfaction and just broadly the overall execution of the team.
You know, having a record order, both in Q3 is something that is, you know, really could be.
Celebrated and it isn't just one quarter, you know, over the past two years without standing growth we've seen worse were over one time's book to build, you know, consistently over the past two years. So it isn't just, you know, a popper, a spike in one quarter. So, you know, we definitely feel the future is very bright for this group going forward. And I really do have to say, obviously there are opportunities for market share gain that we are working hard on and I won't be bashful about saying that. But they're really not part of what we're seeing in the success of this team to date. That is really still, you know.
Future, you know, opportunities for us is we work through the process of
You know, winning some businesses that maybe one of our competitors had in the past and you know, that's actually cross multiple competitors where there's some struggles out there. And so this is really the organic, you know, results of what the team has built by you know, we've talked about.
Chris Parks: You know for years you've heard me talk about this you know our investment in the motion the So product offerings to really have the leading product offering in industry and it's just winning us new business and the team really works hard it doesn't mean we don't ever do something you know
You know, not perfect for our customers, but the team really works hard to drive customer satisfaction, communicate well, prioritize what our customers need, prioritize, and deliver for them. And so that's really what's driving the results that we're very proud of.
I appreciate all that color and then just quickly on commercial nuclear with all the plant life extensions that are being planned you know did
The low double digit that it ever is like accelerator. How does it work from a road map perspective just because it seems like?
Speaker Change: You know more than half or I think you've mentioned three quarters of the existing 94 reactors at the platform. Plant like extensions and just seems like there's just a bow wave of work that's coming your way.
So yeah, and Lynn, you know, I think it's 80% now and that's either not necessarily have applied but it indicated they're gonna apply just to be technically correct or not. We'd be in any misinformation out there, so but no, it is great and you know, you know, you know.
Chris Parks: You know what please with the low double digit growth? I mean you know for a lot of years You know we struggled to achieve low single digit growth so it's really
Chris Parks: Great to turn that to low double digit growth and yes, I mean, I think, you know, the future is just bright and you will get higher than that. You know, we'll have to wait and see, but you know, I think things like, you know, the, you know, restarting the unit one that's in my island. You know, that's another plant and another plant that's...
You know, fairly far behind in the maintenance they did before they shut down in 2019 and so a lot of catch up and I know our team is engaged there and you know, something that we talked about, you know, Canada and how Korea are going to go through plant life extensions also we have, you know, great footprint of in Canada are working back.
and again this is a little bit more long term but we're really working to see how we can support some of the Eastern European reactors as they move away from Russian supply chains. So a lot of great things going on across the group that I feel like we really have the right products for what people are doing in this plant life extensions.
Speaker Change: and just lastly, Newtaker, on your SMR, Conoconmentary, you get a lot of details you've got as obviously a really ship with that energy but talk, can you talk about just broadly how you're positioned with some of the other players?
Thank you for that. So I think it is really important in the message we want to communicate to the investment community is
We are working hard and dedicated and everyone who we work with knows this is to have content across all the major SMR providers. And so, obviously our position was Westin House with the RCPs.
and their desire to have the AP1000, you know, mimic the design of the AP1000 as much as possible. The AP300 meant mimic the design of the AP1000. So that puts us in a strong position and we're pursuing other things with them. I mean, there are some piece kind of...
Dwarf the revenue but you know we don't.
Speaker Change: Just rest on that and you know work hard, but you know it's we I think new scale was the first company that we announced are
Chris Parks: Content with a several years ago and still it's at $40 million.
Chris Parks: Per Reactor and we're definitely engaged with them in pursuing more work.
Um, you know, have some announcements with Tara Power that, you know, we expect the 2-A-R-D-P customers, that's energy, which you mentioned, and then Tara Power being the other.
We're definitely advancing our position with them and it really only have one public thing announced today, but hopefully we'll be able to put some other announcements.
Out there.
And Rolls Royce is another one that I would say we have very great engagement with and are talking to them about a lot of content on their reactor and know that our, when we can close on this acquisition of Ultra and have that UK put print, it's really going to even open up some more doors to us until we're very pleased with that.
You know, it's earlier I think we're a little bit less advanced than what we're discussing with GE at Taachi at this point but absolutely, you know, good engagement fair and I had to chance to meet with their leadership just a couple of weeks ago to talk about how we can, you know, advance our supply with them. So our goal is really to be universal because I really do believe, you know, there will be great market opportunity for all these guys. And you know, one of the other reactors that's kind of been in the news of that is Kyros with their announcement with Google. And you know, today we don't have any established content with them. They know who we are. They know our capabilities.
and I'm not speaking for them but the peer to us to have a strategy of wanting to be pretty vertically integrated and we just stand there making clear of what we can do so when they...
Chris Parks: [inaudible]
You know, less needle moving dollars but you know, we're there to win content where we can. So the team, the sales team is doing a great job, the engineering teams are doing a great job of, you know, really, you know, proving our capabilities to establish our position in this market.
Appreciate how the details. I'll jump back and cue. Thanks, Lynn.
Lynn Bamford: Thank you Peter.
Thank you, our next question will come from Pete Skibitsky with a limbic global. Please go ahead.
and good morning everyone.
What's the biggest driver there in terms of dynamics? Is it new builds? New build platforms that drives the growth or aftermarket growth driven by usage or is it mostly upgrades? Just want to get a better sense.
Speaker Change: Hello, this is me first welcome to the call and thanks for picking up coverage so the pleasure to have you here today. Thank you. I think I might actually turn that question over to Chris to give a substantial answer to your question.
Yeah, so Pete, just to be very clear, you know, strong, overall increase here, or across the fence, like, electronics.
You know, not only this year, but this past year's Lynn had started off mentioning, we've had very strong orders for the technologies that we produce in the C5ISR space, the commercial costs, tactical communications equipment, and flight test equipment.
Speaker Change: Supporting some pretty exciting projects that are going on in the defense industry and some transitions that are taking in terms of the military's approach.
and the third quarter. The defense electronic segment is nearly at a billion dollars and orders over the past 12 months.
Speaker Change: and as we look at the backlog for that business despite this high growth 13% up year over year. So the future's bright as it specifically relates to the increase that you saw here in the third quarter of guidance.
Most of that is relative to an increase in secure funding that the team has had regarding IRD programs. They're working on some pre-sophisticated
Speaker Change: Technology in the aerospace defense arena I can't really go into any more detail than that, but that shift of research and development from IR and D, which is where they started in targeted the year planning for an internal spend, going into a customer fund that is what will drive the bulk of the most recent change.
Okay, that's great appreciate the color and just one last one for me I guess I think of some of what you guys do is shorter cycle business So I'm just wondering, are you just not seeing any negative impact really from this ongoing CR? Could you talk through that with us?
Speaker Change: Yeah, so um...
Speaker Change: and the important question and hopefully we'll have a budget here in the next handful of months. But today we're not really feeling the impact of the CR. We're in such a good backlogs position. We've always said we can...
You know, whether you're average, you know, 50, 60 day CR which is kind of the norm. And not feel it now. I will say, you know, a couple years ago when we had the 180 day CR, you know, we did, we did see it because there's no new program starts. So there's no IR and D, you know, new starts out of our customer base and that does drive.
You know, tens of millions of dollars of revenue across the business so that can start to weigh on this when it you know goes into that you know 45 six months time frame. Hopefully that won't be the case here, but for now We're not feeling the impact of that and hence our confidence in our guidance
right, thanks guys.
Speaker Change: Good.
Thank you, our next question will come from Miles Walton with Wolf Research. Please go ahead.
Miles Walton: Thanks, good morning. I was wondering if we could chat a bit about margins, particularly in K&NI. And when I had an idea, I think at the investor day about...
Miles Walton: Now, opportunity of margin expansion across the segments, I was surprised when you answered that A and I would have potentially the largest, which I guess is what's going to play out here if you hit beer and apply 20% plus margins in the fourth quarter for A and I.
So, what's going on there that's allowing that kind of margin uplift and how sustainable is that going forward?
Yeah, so I think you're one of the biggest drivers to that is, you know, as you look across the full year is really the restructuring miles and what we've, you know, what we've invested in there this year we're going to spend 15 million dollars to get 10 million dollars of annualized savings.
Miles Walton: and some of that's gonna affect.
Speaker Change: The AI Cypher, I think the biggest impact will affect in its effect of fourth quarter.
Speaker Change: and that will probably be somewhere in the range, you know, to that segment in the full year of about $3 million, but we will definitely have a sequential improvement in those savings in Q3 to Q4.
Outside of that I think as you look at the full year you know you're looking at a stick fairly standard
Volume Absorption, you know, maybe someone range of about 25 percent, you know, the business will be investing in, and it is investing in IR and D. This year and we're expecting just a small head when there are about a million dollars year over year.
That's how you would get the midpoint of the range. Okay, and then conversely, I don't think in the history your defense electronics that were had at down fourth quarter sequentially, but obviously that's what you're implying both top line and margins.
I hear you on the pull forward, I guess the same thing happened in the second quarter is happened here in the third quarter.
But is that the case that mixes what's striving to margins back towards where you learn the first quarter? And then I guess from a follow-in question, the seasonality you've taken out of this year should we expect that to continue in 25th.
Speaker Change: Yeah, so we've talked a little bit and you know, earlier this year, about the efforts that the organization had been going through to try to level load the work across the business and try to get out of a little bit of this fourth quarter hockey stick that we've existed in for a very long period of time.
which was more exaggerated over the past two to three years. And I think the team has made some good successes. And certainly solid improvements in the supply chain from the problems that we were experiencing two years ago have helped with the level loading of that work. So I think the team has done a great job in that regard.
As you approach the fourth quarter, I mean this really is across the central electronics unusual for us. We know as you pointed out we don't normally have.
at the Klein and Revenue's butt between the pull-thwards.
from Q4 to Q3 to stay ahead of customer expectations while we engage in this restructuring which is really footprint oriented to execute on that very strong water book and backlog that we've already talked about.
Speaker Change: That's why you're going to see the reduction in certainly not a sign in any way shape or form that the demand of that business is declining things are very strong.
Speaker Change: But we do have to take some steps to make sure that the footprint will support that future growth. And as you look at it, across the dental electronics, you're really going to see it in two areas. You're going to see it not only within the ground defense market, right, in tactical communications and weeks.
Speaker Change: you know how to...
Mootman's there that we've already talked about earlier this year, but you'll also see it within our aerospace defense markets. And it's just largely impacting some very profitable portions of our business and some higher margin products within the defense electronics portfolio. So, we are expecting to see profit margins sequentially decline from Q3 to Q4 based upon that pull forward. And then...
of Work and to Q3.
Okay, yep, now that's Christopher Clear. Thanks so much.
Thank you our next question. We'll come from Nathan Jones with Steve, please go ahead.
Speaker Change: Good morning everyone.
Nathan Jones: I'm going to follow up on the Defense Electronics questions there. Maybe if you could just provide a little more color on what you're doing in restructuring the footprint.
How that impacts capacity for growth as you go forward into 20, 5 and 26, where capacity utilization is. It's kind of what savings you're looking to get out of this.
Speaker Change: Yeah, so without being overly specific because you know it's just not something that's actually going to be talking about that. You know, two of our significant sites we are.
Speaker Change: you know preparing for future growth and you know shaping our footprint globally. In one case, you know we're changing it on site and in another case we're actually preparing for a move to a larger site.
with Incardis right where we can leverage space that we have and give them just a better operating footprint to be able to deliver on the growth.
that we see coming so it's...
You know, I've done a lot of restructuring over the years and usually you're just cutting cost so it's kind of fun to be doing this kind of stuff to prepare for future growth. And you know, we're doing it now in defense electronics. You'll definitely looking across our nuclear naval and nuclear group of, you know, stuff that will come probably later in the decade where we will also be being, you know, required to prepare for some stuff.
You know, answering your question about going forward and kind of going back to the other thing miles asked is, you know, our goal is to continue.
You know, the level loading that, you know, we have achieved this year and to manage the business that way going forward. It's just good all around. You know, you have less overtime, you know, it's good for the employees, that it's not, you know, crazy around the holidays. I mean, they're just, you know, it's just practically a good way to run the business. So that's our goal. Now, is it going to be perfect every single year? We'll see, you know, we did it this year. We're going to work on doing it next year, but you know, I can't say that we're never going to have a hockey sitting too far again.
But hopefully, you know, it would be very minor if it was, you know, given we've done because you really, you know, Chris mentioned it with the supply chain that, you know, we really have...
Speaker Change: Younger
I think we're in a better place than we were in 2019 with our supply chain and really been able to, you know, some of the things we scrambled and did during the pandemic as, you know, the world was crumbling underneath us, it felt like.
Speaker Change: have really left us in a stronger place with better, you know, deeper relationships with our supply chains, different contracting approaches, different agreements with who will hold stock for us.
You know, just a whole variety of tools and systems that we've implemented and so, and that's a big part of being able to control, you know, you're loaded in the business, but, um, it is a really strong thing for the business.
and then I guess my follow-up's going to be around commercial nuclear and the SMRs and specifically on the San Mazon announcement.
Can you talk about, you know, I know the X energy is at the higher end of Revenue of the 2020 plus for you guys.
Speaker Change: and then just any kind of...
Indications in-site market intelligence, you guys have on what the magnitude of this could be in the 2030s and going forward after that. I mean, I already assume that all of this works out, this Amazon announcement could just be the tip of the iceberg rather than.
Speaker Change: The end of the road so just any comments you can give us on what you know about that market.
Yes, so I mean I mean it's you know
You've heard us talk, and you've heard us talk over the past, you know, six, twelve months that you know, we felt, you know, there was going to be changing market dynamics with, you know, these data center providers stepping into, accelerate the deployment of nuclear energy just.
You know, it's just not geared as the utility companies to move at the pace that these guys need the power. And so, you know, just to ensure everybody can do the math, but you know, Amazon's announcement.
You know, which had two parts that was both, you know, they were the anchor, you know, investor in a 500 million dollar capitalways raised, which is fantastic for them to be able to really just, you know, put their nose to the grindstone and drive to the, you know, to the end of this design project. But you know, they Amazon announced an intent.
Um, to bring five gigawatts of power on the grid, which would be 15, 4 packs and you can do the math of 15 tours, you know, and I always want to be sure we have the potential and we're targeting $120 million. Like we have, you know, this is an ongoing, you know, effort with tech energy, great partnership with them, you know, great working relationships.
You know, as we've said in the years past, you know, with Westin House, you know, we'll put our notes to the garage, then deliver to our customers and work to earn.
Speaker Change: You know, are right to be their supplier every day and we don't get ahead of that and that's the same attitude we're taking here. But, yes, I do think, you know, another thing to think it is much talked about, but also in the Amazon announcement was...
and Emma, this time the memo you with Dominion to help advance and bring an SMR online in Virginia. And so, seven declared which one that is, but it's just another indication that, you know, this is continuing to grow.
Hereby's other announcements that could be coming. We have a heard from all the big AI consumers yet. Whether they'll be announced in the chat this year from some of those.
I mean we'll see but I mean
You know what we try to do in our investor day, they created the end of his section, we would put up the art of the possible where we see these.
You know, our revenues in nuclear growing, you know, doubling in 28 and 1.5 billion annualized revenue by the middle of next decade. I don't think any of the, we're not, you know, going to change any of these, but they sure have to provide proof point that things are going on in the industry that make those very,
Highly probable targets that we're going to be able to achieve those types of numbers out of our commercial and clear business. So, you know, we're working hard.
with the customers that we have in working to win more business and looking at our capacity plans and preparing for, you know, to be a great supplier to the SMR providers.
Thanks very much for taking my questions.
Thank you.
Thank you our next question. We'll come from Mike Tremoli with the truest. Please go ahead.
Hey, good morning guys. Thanks for taking the question by the results. Maybe it's just to stay on that topic plan.
Speaker Change: with the throughout obviously nothing change in with the targets. Can you maybe if we start to really see an acceleration?
Speaker Change: and these plant life extensions and maybe we even see more of these restart of older plants. Can you guys help us and quantify what types of revenues you might see? I mean, are there material differences from a restart? If, you know, I don't think you have a lot of exposure on like fuel loading and reloading, but anything you can help us with.
Speaker Change: It seems to be a common question we're getting from investors.
Speaker Change: Yeah, so you know
I know we talked as a group and I don't...
Speaker Change: Our personal guess.
is there's not going to be like 10s and 10s more restart that a lot of the plants are just too far into the shutdown that it's not going to be practical, but there could be others.
Speaker Change: and I know
I've even seen the estimates of what people think specifically the unit 1 and 3 mile island will mean for Curtis Wright. And, you know, if it definitely means full business, but I say when we think again from our investor day we talked about a $7 billion market through now to 2050 I think these things all support that estimate of the...
Speaker Change: The market I don't think we would consider an endise to be additive to that.
Target, that's a pretty big number of potential markets that we have the ability to go target and sell inches. Again, we really have not given like a dollar figure.
for a plant life extension or restart. I think you can say a restart would be greater than your typical plant life extension because it has.
We know they didn't do a lot of maintenance at the end and then things age when they're sitting there. So that is better even than a plant life extension for us. But you know what we get out of a plant life extension per plant can really very, you know, quite widely, you know, from, you know.
10 million dollars plus you know some to significantly more than that if they choose to do you know major operates like go from analog to digital and do different things like that. So we've shy away from given like an expectation of what each plant.
Well, drive and revenue to Curtis Wright was as they do these plant life extensions.
Got it. And then just on the maybe any sort of movement for update on the AP1000 and I know you know, Westinghouse, you know, you got to talk about that MOU and I guess those that.
Speaker Change: Change, you know, materially changed the opportunity for you at all. I mean, I guess Canada's been, you know, can't do reactors forever and I could take past on the AP1000.
in 2011 or so. Is anything, there are any real movement there for Canada DBA from the Can Do.
I'd say it.
Speaker Change: Ed.
Speaker Change: to early for us to say that.
Speaker Change: You know what we don't.
Speaker Change: really have anything specific from Westean House. We can always have, we can do have ongoing marketing meetings with Westean House and look at opportunities and they consider it a real opportunity. But I think their bigger focus still is the 20 to 25 potential plants in Eastern Europe. And there's a lot of news around Westean House in October.
in Bulgaria, they extended their feet study, so continuing to work through that and in September of the Polish government committed to significant investment of $15.7 billion into the first nuclear plant. So those are all just positive things, re-enforcing.
The places we're resting house police are going to win and we believe they're going to win based on what we can see. I think we really just have to wait and...
See in Canada and kind of you know if you think back to that chart we put in our in best or day that showed
Speaker Change: and the flow of what the activity is, the leads to when we get orders. I would say there is the first gate which is political strategy and engagement. So it's early days with Canada.
The only other thing I'll say about that Mike, that I think is a little bit interesting, right? As you look at the agreement that the structure is it just...
Speaker Change: It's a question house working to kind of show up the Canadian footprint and work that would actually end up being performed within Canada. And that's valuable, you know, at this point in time of this engagement. And then the other.
I think that I would add is that you know, Westing House is now owned by Camico, which is a Canadian company. So, you know, I think the dynamics are shifting there a little bit, but still really in the early days.
Speaker Change: God, it's perfect. Thanks, yes.
Speaker Change: and Mike.
Thank you our next question. We'll come from Christine Lyleg with Morgan Stanley. Please go ahead.
Speaker Change: Hi, this is Jeff Dunhamford Christine this morning. Thanks for taking the questions.
See you next time
Jeff Dunhamford: Maybe just one on the upcoming elections here. Lynn, maybe you can get your thoughts on just how you're thinking about any potential risk. I guess both to the defense business and to the commercial nuclear outlook.
Speaker Change: So those are the two places that people provide and I think the good thing is, I think the support for the...
Defense spending and us regaining commercial nuclear leadership has really had a very strong bipartisan nature to it over the past, you know, many years, you know, not just through this administration but the prior administration and you know, kind of hard compact or mind people they are DPP program actually started.
Speaker Change: Back under the Trump presidency with the, you know, with the stated goal of regaining nuclear leadership globally as an important, you know, thing for the United States. And so, um...
I think we will see broad stability, you know, regardless of, you know, who sits at the top of the ticket and then, you know, maybe even more importantly is, you know, throughout.
Speaker Change: Congress, you know, the, when you look at how, like things like the advanced act even past that it was extremely bipartisan. And so I think it's been demonstrated that, you know, this momentum is happening.
Speaker Change: Clearly the world feels ever every day almost like a less safe place so I don't see anybody really going in and trying to disrupt.
The defense spending in there isn't big increases planned quite frankly, over the next couple years. I mean we're talking to some of this increases, up of a great base. We had some really big increases over recent years.
Speaker Change: So um
Speaker Change: You know, it's not like it's intended to go up, you know, another 5 or 10% is we saw, you know, over the past couple years so, um...
I feel good about that, you know, it's obviously some other, you know, things out there, there's very things with, you know, potential tariffs and potential changes to the tax codes, but, you know, there's a lot of road between here and there to see if it can get that.
Speaker Change: It comes to fruition so I wouldn't even begin to speculate on any of that, but between you know...
Speaker Change: Support here in the US for defense spending and the ongoing increase of the NATO countries, you know, two-thirds of them now, you know, spending their two percent or above, maybe even a little higher than that.
and ongoing commitments there and our footprints there. I think makes the outlook for our ability to grow our business very strong and we don't really feel it will be impacted. Of course we gotta stay in tune with it and react.
You know, as things play out, but it's not a big concern to be frank.
Okay, great, that's helpful. Maybe because you want more than just on M&A, you're talking capital of toilet and at the top of a call.
and we've heard from a number of A&D peers that activities picked up in the last few months. So just curious if that tracks with what you're seeing out there.
Yeah, I would say it does, but it's been a pretty good flow of this. This is obviously our main focus right now, it's getting ultra close, we don't see any.
Confirn about that happening. It's just sort of I think caught up in the change of administration over in the UK and
Things didn't always quickly, you know, one might have been anticipated or we anticipated.
Speaker Change: But hopefully we'll have that deal closed here in the fourth quarter. We're really excited about what it's going to bring to Curtis Wright talk to us. That's in our prepared remarks. But the pipeline is good. You know, we did some share repurchase, but you know,
We have capital and maybe a little bit more on how we might think about that going forward. Yeah, thanks. I love talking about the balance sheet and where we are for sure. It's the end of the third quarter.
Speaker Change: We had $440 million of cash on hand and that was after the closure of the $100 million share by back now we're going to close on all the energy here in the fourth quarter and that'll be $200 million against that balance but we're also planning to generate another $200 million so I think at the end of year we're likely going to finish with $400 million of cash on hand, roughly half of that will be tied up and foreign, we'll have a clear revolver, we're really well positioned as we enter into this next year and look at some of these other properties that are on the horizon to seize them and when the opportunities are right.
We're in a good spot on the balance sheet.
Great, thank you both.
Thank you, as a reminder, if you would like to ask a question at this time, please press star 1. Our next question will come from Bryce Sandberg with William Blair. Please go ahead.
Bryce Sandberg: Lynn Chris and Jim Good Morning and next quarter.
Thank you for watching.
Another one on the SMR opportunity, you have partnerships with New Scale, X-energy and Terra power. If you look at the pipeline for new partnerships, I want to expect more partnerships to potentially be announced and when would you expect a design for those SMRs to be finalized?
So, I mean, there's, you know, there's some, I think we'll have new partnerships, like formal partnerships announced in the next.
3 to 6 months but these are complicated situations so I might be you know.
Not fulfilling that.
Speaker Change: Smith, but knowing where we are engaged with some of the other major suppliers, I would think that that could be a reasonable timeline, but we'll see you know you have to
But these things play out as the companies work through what works for both companies. You know, I think, you know, it seems like everybody is targeting trying to get their initial SMRs, producing power.
Speaker Change: I, you know, 20, 30, 20, 31, 20, 32 and you know, with that.
You know, really across these opportunities, you know, all are still in the design phase and I think
You know, in the next one to three years those divine, the nine phases will move to prototype being which, you know, it should mean the designs are largely finished, but that's why you prototype this sometimes you change things after you prototype. But I think, you know, it'll be in this decade and I realize that might seem like a long time, but
Speaker Change: You know, I think there'll be substantially done after we turn into the back half of this decade. So the companies can move on to prototyping and then they're ultimate first witness.
Great, thank you, Lynn, that's all for me
Speaker Change: Thank you.
Thank you, we'll take our next question from Tony Bancroff with Gabelli Funds. Please go ahead.
Good morning, Lynn and Chris and Jim, a great job. You've obviously done an excellent job here at Lynn.
Speaker Change: with your leadership balance, he's challenging his strong.
Speaker Change: Strong Growth, I'll look at looking ahead. You just mentioned that the pipeline is looking.
Speaker Change: and looking strong as well. As your view changed at all, potentially doing something more transformational.
Speaker Change: You know, you obviously just have a great back from up here and there's obviously a lot of acquisition potential out there, maybe in the public space or something else, maybe outside your wheelhouse. There's a make sense, maybe you could talk through your the logic there. Thank you. Great job.
Thank you for that and thank you for the comments.
You know we've said consistently for four years that we are open to doing acquisitions that are you know more significant than anything we have executed on so far and for those maybe just not familiar our largest acquisition was.
Speaker Change: You know, pack star back in the end of 2020, which is, you know, you hear us talk about our tactical communications, you know, often is a tailwind for us and that's, you know, mostly their equipment. So that's been great. And we look at our direct position. I mean, you know, I will say,
You know, I never like to say our risk tolerance changes because the bar is just high. We have to have plain line of sight or how we will integrate them, how they will be able to take advantage of who Curtis Wright is.
But I also look at the team's bandwidth and the growth that is coming from the opportunities we have for us. And I don't want to become spreadsheets in from a management standpoint. And so at some point that does play into...
You know how you think about you know what you might consider but we're going to continue looking at them and you know consider and then put that in balance of
Speaker Change: You know the growth that we're experiencing in the commercial nuclear market, you know low double digits this year, the growth we're experiencing depends on electronics and places where we like.
to acquire to make sure if we do do something, you know, we have the bandlets who absorb all other great things are going on. So I would say that maybe is, you know, put a shade of change in how I think about things, but I would still say it's on the table for doing something larger and we've done today.
Speaker Change: Thanks so much for your help.
Thank you.
Thank you at this time, I'm showing no further questions in Q. I will turn the floor back to Lynn Bamford for any additional closing remarks.
Lynn Bamford: Thank you everyone for joining us today and we look forward to speaking to you in February with our full year results.
Speaker Change: Thank you. This concludes today's Curtis Ryan earnings conference call. Please disconnect your line at this time and have a wonderful day.
Speaker Change: Music
I'm a little bit tired. I'm a little bit tired.
Speaker Change: Music
Speaker Change: The