Curtiss-Wright Corporation Price & Performance (CW)

Thank you, Shaina, and good morning, everyone. Welcome to Curtiss Wright's fourth quarter and full year twenty twenty four earnings conference call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford and Vice President and Chief Financial Officer, Chris Sparks. Her call today is being webcast in the press release as well as copy of today's financial presentation is available for download through the Investor Relations section of our company website at Curtiss-Wright Also, a replay of this webcast will be available on the website. Please note, today's discussion will include certain projections and statements that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future We detail those risks and uncertainties associated with our forward looking statements in our public filings with the SEC. As a reminder, the company's results include an adjusted non GAAP view that excludes certain costs in order to provide greater transparency into Curtiss Wright's ongoing operating and financial performance. Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions, divestitures and restructuring unless otherwise noted.

GAAP to non GAAP reconciliations for current and prior year periods are available in the earnings release and on our website. Now I'd like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. 2024 was an exciting year for Curtiss-Wright, and I want to begin by thanking our nearly 9,000 employees for their contributions to our success.

And continued to invest in some of our most critical areas, including talent, systems and research and development while we achieved record financial results for our shareholders. We are clearly building momentum and I'm pleased with the team's execution and the steady progress we made this past year in pursuit of our three year Investor Day objectives unveiled this past May. With that, I'll turn to today's presentation. I'll begin by covering the highlights of our fourth quarter and full year 2024 performance. Then I'll provide a brief update on our capital allocation and a preview of our 2025 financial outlook. Before turning the call over to Chris to provide a more in-depth review of our financials. Finally, I'll wrap up with some closing remarks about our long term prospects before we move to Q and A. Starting with our fourth quarter twenty twenty four highlights, sales increased 5% year over year due to a better than expected performance in both our Defense Electronics and Naval and Power segments. Operating income was essentially flat, while As a reminder, our various restructuring actions, some of which were undertaken to reshape our global footprint generated a few million dollars of initial savings in 2024 and provided a modest benefit to our results.

Diluted earnings per share increased 3% year over year which also exceeded our expectations and was primarily driven by higher A and D sales. Free cash flow was strong at $278,000,000 reflecting a 223% conversion rate. Due to improved operational performance and lower working capital. Growth in our order book book was exceptionally strong in the fourth quarter, up 37% year over year, reflecting a 1.1x book to bill. These results were driven by growth in all of our A and D markets and continued solid demand within commercial nuclear.

Next, I'll highlight our full year 2024 results which included a number of financial records. We generated double digit growth in sales and operating income in 2024 reflecting the underlying demand within our core portfolio and We delivered modest margin expansion, while maintaining our firm commitment Diluted earnings per share of $10.9 increased 6% year over year. Adjusted free cash flow reached a record $483,000,000 and reflected strong conversion of 116%. Of note, our results included $16,000,000 of incremental capital expenditures supporting growth investments across all three segments. Turning to our order book, demand was exceptional, reflecting the 20% year over year increase reaching a new record of $3,700,000,000 and a 1.2 times book to bill overall. Leading the way was our Naval and Power segment, which benefited from strong demand for naval nuclear propulsion equipment supporting the U. S. Navy's most critical platforms. At the same time, higher demand for embedded computing and tactical communications equipment in the ground and aerospace defense markets drove great results in our defense electronics segments, where orders crossed $1,000,000,000 for the first time.

Total Curtiss Wright's backlog was up 20% in 2024, reaching a record providing additional confidence in our long term growth outlook. Turning to Slide four, we begin with some comments about our acquisitions and share We added two new businesses in 2024 to further expand our commercial nuclear portfolio.

In June, we added WSE, a leading supplier of power plant control room simulation technology And then on December 31, we closed on the acquisition of Altra Energy, is a leading provider of reactor protection systems, radiation and flux monitoring systems and specialized temperature and pressure sensors. As a reminder, Altra provides safety critical products and services to commercial nuclear and power generation plants globally and also supports defense markets including The UK nuclear [indiscernible] as well as various aerospace applications This acquisition not only enables us to it also expands our presence with leading global SMR designers. I'm pleased to welcome all of our new colleagues to Curtiss-Wright. As we integrate these new acquisitions, our teams are already as we further expand the scope of Curtiss Wright's capabilities, In 2024, we also utilized our strong balance sheet and financial position to accelerate our share repurchase activity, In the month of December alone, we bought back $100,000,000 in stock through an accelerated repurchase plan boosting our full year repurchase activity to $250,000,000 This past year, we also increased our dividend for the eighth consecutive year. Now I would like to introduce our full year 2025 guidance. Overall, we are projecting mid single digit organic sales growth driven by increases in nearly all of our end markets and total growth of 7% to 8% including acquisitions.

Operating income growth is once again reflecting 40 to 60 basis points in operating margin expansion this year to 18% at the midpoint of the range. At the heart of our drive for operational excellence is the operational growth platform, which fuels our pivot to growth strategy by driving continued opportunities for margin expansion and savings across the portfolio. Addition, we'll continue to deploy new tools and systems to optimize our manufacturing operations and drive connectivity throughout the organization. This in turn will allow us to maintain incremental investments in research and development to drive organic growth we've successfully delivered over the past few years and anticipate ramping up yet again in 2025. It also provides an opportunity to overcome dilution from acquisitions such as Ultra Energy as we integrate this business into our broader operations and seek margin accretion. These efforts backed by our strong top line growth provide us with confidence to once again generate double digit growth in diluted EPS along with strong free cash flow. In summary, Curtiss Wright remains well positioned to deliver an I would like to turn the call over to Chris to continue with our prepared remarks.

Thank you, Lynn. On Slide five, I'll review the key drivers of our fourth quarter twenty twenty four performance by segment. [indiscernible] begin in 5% and was in line with our expectations. [indiscernible] Within the segment's defense markets, we experienced solid increases in actuation equipment sales, most notably within our aerospace defense market supporting the F-thirty five program.

Within the segment's commercial aerospace market, our results reflected solid OEM sales growth supporting increased production on both narrow body and wide body our results reflected lower global off highway and specialty industrial vehicle sales as certain customers continue to reduce their inventory levels through year end. Partially offsetting those declines was a modest increase in domestic demand for our on highway vehicle equipment and surface treatment services, Of note and despite reduced sales in this market, we have continued to see improved improving year over year industrial vehicle order trends since the second quarter of twenty twenty four. And turning to the segment fourth quarter profitability, we delivered a record quarterly out was driven by favorable absorption on higher sales along with the benefits of our restructuring Next in the Defense Electronics segment, if you recall, we implemented several restructuring initiatives beginning in the second half of twenty twenty four to support this business's future growth. Given the expected ramp up in these efforts, and to ensure on time delivery to our customer schedules, we As the fourth quarter unfolded, those restructuring efforts progressed ahead of schedule and we were able to effectively take on more volume. And as a result, while we recognized year over year and sequential declines in quarterly revenue, performance was slightly ahead of our expectations.

Regarding the segment's fourth quarter operating performance, we delivered a solid 24.3% operating margin our profitability was impacted by under absorption and timing on lower revenues, partly due to the realignments of our manufacturing footprint as well as unfavorable mix. Turning to the Naval and Power segment, sales growth of 12% was ahead of our expectations, principally driven by higher revenue across several key platforms enabled defense, Within this market, we experienced stronger than anticipated as well as the CVN-eighty one aircraft carrier program doing part to the timing and material receipts. [indiscernible] We also experienced higher development revenues on the next generation SSNX submarine program and increased demand for aircraft handling systems to international customers. Within the segment's aerospace defense market, our results reflected lower international aircraft arresting systems and strong performance from the prior year period [indiscernible] and process market, our results reflected continued strong demand in commercial nuclear supporting the ongoing maintenance of U. S. Operating reactors. Partially offsetting this strong demand was lower sales in the process market based on the timing of domestic MRO valve sales following strong growth in the prior year period.

Turning to the segment's fourth quarter operating performance, the despite favorable absorption on higher revenues, profitability was mainly impacted by unfavorable mix across our defense and process markets, To sum up Curtiss Wright's fourth quarter overall results, we generated a strong operating margin of nearly 20% while maintaining our commitment to R and D investment across Turning to our full year guidance, 2025 guidance, I'll begin on Slide six with our end market sales outlook where we anticipate total sales to grow 7% to 8% reflecting mid single digit organic growth plus the contribution from Ultra Energy. Please note that while the majority of Ultra Energy sales are tied the business also sells equipment to customers within our A and D markets, Starting in aerospace defense, our outlook for growth of 6% to 8% mainly reflects higher embedded computing revenues in defense electronics serving both domestic and international customers. We also expect increased sales of aircraft arresting systems equipment principally supporting international customers. Putting ground defense, our outlook for 3% to 5% growth reflects continued strong demand for our our tactical communications equipment, which as a reminder follows strong 15% sales growth in 2024. [indiscernible] defense, growth of 3% to 5% reflects higher revenue on aircraft carriers including increased production on the CVN-eighty one well as support for the CVN 75 refueling and complex overhaul program, is a multiyear effort that will begin to ramp up this year.

We expect those increases to be partially offset by timing on submarine programs that accelerated into 2024. Elsewhere within our defense select and international programs. Looking more broadly across all three defense markets, In 2025, we expect continued low double digit growth in FMS to be driven by the alignment of our technologies to support increased global defense spending priorities. Turning to Commercial Aerospace, our outlook for 10% to 12% sales growth reflects our strong order book driving higher OEM production sales on narrow body and wide body aircraft including modest growth expectations on the seven thirty seven MAX in the back half of the year We expect those increases to be driven by higher sales within our aerospace and industrial segment for Sensors and Surface Treatment Services, as well as our Defense Electronics segment for avionics and instrumentation equipment Wrapping up our aerospace markets, we expect total sales in these markets to increase 57% in 2025. Moving to our commercial markets. In power and process, our outlook for 16% to 18% growth reflects a combination of mid to high single digit organic revenue growth well as the contribution from Ultra Energy, Starting in commercial nuclear, growth in aftermarket revenues is expected to be driven by continued strong U. S. Demand despite lower year over year domestic outages, as well as increased sales supporting The U. K. Aftermarket from newly acquired Ultra Energy.

Our commercial nuclear outlook also includes a ramp up in development revenues across several SMR designs, including the X Energy and TerraPower advanced reactors, And as a result, we anticipate high single digit organic growth in this market and greater than 20% growth overall this year when including acquisitions. Next in the process market, our outlook for low to mid single digit organic growth reflects increased development on subsea pumps, most notably supporting Petrobras' deep sea operations, as well as a contribution from Ultra Energy with sales to the oil and gas and non nuclear power generation markets, Lastly, in the general industrial market, we anticipate sales to be flat in 2025. [indiscernible] outlook reflects modest sales growth in Industrial Automation and service treatment services, which typically aligns with global GDP growth rates. However, that growth will be offset by reduced sales on our improving order book throughout 2024. Wrapping up our total commercial markets, we're targeting full year sales growth of 9% to 11% Moving on to our full year 2025 outlook by segment on Slide seven. A begin in Aerospace and Industrial where we expect sales to grow 3% to 5% overall reflecting strong growth in commercial aerospace and flat sales in general industrial Regarding the segment's profitability, we project operating income growth of 5% to 8% and operating margin to increase 40% to 60 basis points and range from 17.4% to 17.6% This outlook reflects our expectation for higher sales as well as the savings generated by our restructuring actions.

Next, in Defense Electronics, we expect sales to grow 7% to 9%, principally driven by the strength of this business's record 2024 order book, which is driving solid growth across all A and D markets Regarding the segment's profitability, we expect operating income growth of 8% to 10% and operating margin expansion of 10 to 30 basis points to a new all time high range of 25% to 25.2% includes a $5,000,000 or 50 basis point headwind from increased internally funded R and D investments. [indiscernible] we expect overall sales growth of 10% to 11% or 3% to 5% organically, reflecting solid growth across this segment's [indiscernible] [indiscernible] operating margin expansion of 50 to 70 basis points to a range of 16.3% to 16.5%, reflecting both favorable absorption on higher organic sales as well as the contribution from Ultra Energy, which will initially be diluted to operating margin.

We'll also move past the $10,000,000 impact from last year's first quarter Enable contract adjustment In addition, our guidance reflects approximately $4,000,000 in incremental R and D investments to support internally funded development programs Regarding Ultra Energy, we expect this business to generate high single digit revenue growth and produce a low double digit operating margin in 2025, have note this outlook includes increased year over year investments in Advanced React focuses on expanding its presence across major SMR designers. So to summarize our 2025 outlook, overall, we expect total Curtiss Wright operating income to grow 10% to 12% We expect operating margin to range from 17.9% to 18.1%, up 40 to 60 basis points. Next, in your quarterly modeling of sales and operating margin, we expect first quarter twenty twenty five sales to grow by high single digits relative to first quarter of twenty twenty four, including Ultra Energy.

Within the ANI segment, based on the seasonality within these businesses, we expect to sales and operating margin will be in line with our first quarter twenty twenty four results. In Defense Electronics, we expect to demonstrate strong growth in sales and profitability and exceed last year's first quarter results. Lastly, in the Naval and Power segment, while we expect solid growth in sales, our first quarter twenty twenty five profitability will reflect initial mark [indiscernible] summary, at the overall Curtiss Wright level, we're expecting mid teens first quarter operating margin on strong sales growth. Continuing with our financial outlook on Slide eight, I wanted to provide some color on a few non operational items. Start with other income. Which we expect to decrease by approximately $4,000,000 to $5,000,000 this year. This is principally due to lower interest income as we entered the year with slightly lower cash balance given our fourth quarter twenty twenty four cash payment for Ultra Energy and increased share repurchase activity Later this month, we'll pay down the $90,000,000 in senior notes coming due, which will have a positive offset and lower interest expense. And note this current guidance assumes that we will have no borrowings against the revolver again in 2025.

In addition, our outlook reflects further building on last year's tax optimization and efficiency efforts.

Turning to our EPS guidance. We expect full year 2025 diluted EPS EPS to range from $12.1 to $12.4 up 11% to 14% reflecting the strong profitable growth within our operations. Paid in your quarterly EPS modeling, we expect first quarter EPS to reflect approximately 20% growth relative to the first quarter of twenty twenty four and similar to last year, we expect sequential quarterly improvement with the fourth quarter being our strongest [indiscernible] Please note that our EPS outlook also includes a reduction in our share count following the completion of $50,000,000 in share repurchases in 2024. And for 2025, here we anticipate $60,000,000 in standard share repurchases reflecting a $10,000,000 year over year program increase as we continue to offset dilution.

And lastly, projecting a full year free cash flow of $485,000,000 to $5.00 $5,000,000 in 2025, essentially Growth in cash flow from operations is expected to benefit from higher cash earnings a small contribution from Ultra Energy and our continued focus on working capital management And as a reminder, last year's free cash flow benefited from an all time record level of advances a portion which we would expect to be consumed as work progresses in 2025. In addition, we expect capital expenditure the mid of our guide as we continue to invest in support of our future growth. Overall, our outlook reflects a healthy free cash flow conversion rate in excess of 105% at again this year which remains in line with our long term targets, Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide nine.

As we have discussed today, our record order book and growing backlog is well as our positioning within our end markets provides us with confidence to deliver profitable growth again in 2025. While we remain cautious in light of the ongoing political and macroeconomic [indiscernible] This output outlook reflects both increases in both our A and D and commercial markets and the strength of our combined portfolio. Beyond the top line, one of the most significant milestones that we're forecast in 2025 is to reach 18% operating margin at the midpoint Our drive to generate operating income growth in excess revenue growth continues to be a fundamental premise under the Pivot to Growth strategy and we expect this to result in an accelerated pace to margin expansion in 2025 Further, our steadfast focus on operational excellence allows us to continue to make incremental R and D investments while still targeting double digit EPS growth. And as we've noted, based on our strong outlook for free cash flow generation this year, we are able to fuel investments in our systems and and increase efficiencies to better serve our customers. These investments will will better enable us to capture positions on next generation defense platforms or benefit from the continued development of SMR technology in commercial nuclear.

Next, regarding our capital allocation. And as we look beyond the recently completed Ultra Energy acquisition, we continuously look to to put the strength of our balance sheet to work through a disciplined and strategic approach to capital deployment. And we are focused on investing our capital for the best possible returns to drive long term shareholder value. Our pursuit of high quality acquisitions has been and will continue to remain our highest priority for capital allocation. Beyond that, we'll supplement those pursuits by driving consistent returns to our shareholders as I highlighted earlier in our remarks, Finally, having demonstrated strong financial results this past year, and considerable progress towards our long term growth objectives, we remain confident and committed to achieving all of the three year targets established at our twenty twenty four Investor Day. Beyond these targets and as we look out across the next decade, to the art of the possible that we propose at last May's Investor Day, we remain confident in our focused strategy and the alignment of our technologies to key secular growth trends. The external market forces and related push for carbon free energy and energy G independence is a global movement and one that is needed to address growing energy demands, that remain at an all time high.

This in turn will drive the continued expansion of projects to satisfy both traditional energy demand, including the electricity and process and heat applications as well as the potential for incremental demand to support AI and data centers. We recognize that the impacts of legislative and technological disruption on these large and complex projects is likely to continue to create uncertainty along the way. But the core fundamentals remain unchanged and our view on Curtiss Wright's ability to generate strong growth in this market and provide continued value to our shareholders over the near medium and long term remains firmly within our sights. We are aligned with Westinghouse in their pursuit to construct new AP1000 power plants across Europe and North America, and we continue to expect We also continue to grow our presence with the leading designers of small modular reactors both organically and through acquisition, with construction of advanced reactor technology expected to accelerate later this decade. The numerous projects that Curtiss Wright is supporting are all still moving forward and continue to build upon our very strong position supporting existing reactors across the globe. At this point, nothing has changed that would impact our Investor Day outlook which many of you know was a conservative and prudent assessment of the overall growth opportunity for Curtiss Wright Finally, we remain encouraged by the new administration's pro nuclear stance and the recent appointments of Chris Wright, as the new U. S. Energy Secretary and Doug Bergam as the Secretary As a reminder, The U. S. Initiative to regain our commercial nuclear advantage started in 2017 and this industry continues to garner strong bipartisan support Collectively, these positive market forces support our commercial nuclear business to an annual run rate of $1,500,000,000 providing tremendous long term value to Curtiss Wright and our shareholders.

In closing, I'm excited about Curtiss Wright's future and the many great pursuits across our operations beyond that nuclear optionality.

Such as our world class defense electronics portfolio and are positioned as a mission critical partner to the U. S. Navy.

We expect to sustain our growth by winning in strong and expanding markets with exciting and new technologies and solutions, while continuing to build momentum in our pivot to growth strategy Thank you. And at this time, I would like to open up today's conference call for questions. Certainly. The floor is now open for questions. [indiscernible] Thank you. Our first question is coming from Nathan Jones with Stifel.

Good morning, everyone.

I guess I'll start on the Ultra Energy acquisition. I know it's is one you guys have been excited about. And you touched on some of these things in your prepared remarks. From having you add a bit more color how it improves your position on some of the European SMR manufacturers? How you can leverage that business with your current businesses to maybe grow content on some of these platforms?

Just a little bit more color on kind of the strategic value you say just outside of the financial [indiscernible] clean break point, you could say, from that position. But we're definitely out of the gates strong with these guys. We've had two main locations, one in The UK, one down in Texas. We've had kickoff meetings with both of them and both teams were chomping at the bit to get started on figuring out how we would collaborate together because the closing of the acquisition took longer than anticipated. So there's a lot of enthusiasm and activity going on. So with that said, to talk more about the strategic fit, there's a couple aspects to it. One is As a European supplier with a European footprint, it gives us the opportunity to possibly transition some products be able to be supported through that facility and provide more localized content, which is important as you think of the major React providers that are European based and most notably Rolls Royce. That they have a great relationship with and already initial meetings on how we can better advance our partnership [indiscernible] we were engaged with them beforehand, but really opening the doors there.

So that's one example of leveraging that footprint, but it won't be just what with that one customer. I don't want to imply that, but that's kind of the biggest and one that's most before us right now. They also do work, as we mentioned, with The U. K. Submarine fleet Dollar wise, it's not an overly significant part of their revenue stream. But it's critical technologies and critical relationships that we'll see where potentially that can take us as a partnership. They're very high temperature pressure and sensor pressure and temperature sensors We're produced and designed mainly for the nuclear market, but as the world tries to get more energy efficient, there's a much broader applicability of these products more globally and something that with our strong market breadth across commercial aerospace, is one example.

I think we'll have a much greater reach in how we can take these products to market than was really a focus for that team. And so we're early days of working with them on that area. So just to touch on a couple, but their heritage one thing I think is exciting from our Investor Day. We talked about how we're proud that we have heritage in many of our businesses from the inception of the industry. And these this team brings that same heritage and with it just deep industry knowledge, some different customer connect so it's more than just the tangible things. They're a well established player and this was really unique and great technology that just broadens what we can take to our customer base.

Awesome. Thanks for the color. I guess my second question I'm going to go on foreign military sales. There's obviously a big push from the U. S. Administration to get Europe to increase their defense spending. I think air defense and ground defense would likely be areas of focus. Should foreign military or European governments look to increase military spending, which should fit very well with what kind of improvement you would expect in foreign military sales if, I don't know, Europe increased defense spending by 1% or just any kind of color you can give us on how you would benefit? Well, I'll let Chris speak to the numbers. But before that, you're very much right. Ground defense is a great area over there. We have a very sophisticated capability in stabilization equipment that is used on a variety of type of vehicle platforms and very strong partnership with Ryan Mattel.

We which is really the leading manufacturer of vehicles over in Europe, not the only and that's not the only place we partner, but very preeminent one. And so that and we have systems capability to deliver other types of products into both ground and aerial vehicles that are there. But and we ship a lot of stuff just out of The U. S. And sell directly into those customers. So Our product applicability is pretty great.

With that, maybe I'll turn it over to Tom let Chris walk through some of the numbers Yes, sure. This has been a great growth factor for us, Nathan, as you know.

Will say that it's very difficult for us to predict what a 1% increase in GDP across NATO is going to [indiscernible] in NEO spending over the past few years in 2024.

We now have 70% of the country spending at more than 2% of their GDP. And if that continues to accelerate, then we would expect that that will only continue to help accelerate our portfolio. But back in 'twenty three, FMS growth or direct FMS growth, I should say, grew more than 20% for Curtis Wright. In 2024, our FMS sales grew 10%. And that was really despite some timing issues that we had in the prior year with our TES business, which can kind of be a little bit lumpy. But we saw really strong demand across our defense broad portfolio supporting aero and ground markets and as well as some benefit to our aircraft handling business within naval and power. And as we enter into this next year, we're expecting that we're going to continue to grow at a low double digit plus pace and that will be mainly driven, again by C5ISR, naval aircraft handling and then also some of the ground based arresting systems that we have within naval and power. So we see it as an opportunity for Curtiss Wright going forward for sure. Excellent. Thanks very much for taking my questions.

Thank you. Thank you. Our next question comes from Mark Charmoli with Truist Securities.

Hey, good morning guys. Two nice results. Thanks for taking the question. Chris, looking at great order flow, record backlog, you've got the organic growth outlook in 2025 decelerating a bit. Defense has obviously been extremely strong. But any other kind of puts and takes And I know the mid single digits in line with with kind of what you laid out at Investor Day. It seems like I would have thought maybe the aero piece would have been a little bit better. But any other puts and takes on just kind of that revenue dynamic No, I think as we enter into the year, we feel really well positioned with where we are from the backlog perspective.

Perspective, particularly across our A and D markets.

A lot of that order activity that we experienced here in 2024, when you look at like a second quarter book to bill of 1.7x in Naval and Power, That's multiyear work that's coming to Curtis right. So as we look across naval defense, we certainly see a solid opportunity for growth ahead for that business. [indiscernible] strong driver there, not only what's happening within C5ISR, but also what's happening over in the actuation business relative to get some additional work that they have with the F-thirty five program and other fighter jets. And then with Enable and Power, you're looking at some uplift relative to the ground based arresting systems on an international level. As we approach ground defense, we had 15% growth in that business this last year and it was even stronger the year before. The order book is great, but as we enter into the year some of that footprint capacity management that we're doing within that business continues. So we'll expect a little bit of more chatter here maybe in the first quarter until we get some of those efforts completed. And then just overall, I think as you look at defense electronics, we've got some really exciting things that we're doing.

You saw it in the CapEx and some of that is systems enhancements and improvements in the organization. Other investments are really just to expand footprint and capacity. And we just have to balance some of those major projects that are going on across the organization to support future growth with the expectations for what we can achieve in 2025. So I think like I feel like we've taken an appropriate position entering into the year given Given all that, Got it. That's helpful. And then I guess just a question on the topic that's coming across almost every cloud tariffs. And I guess we're going to get more news here at 01:00 today presumably. But going back and kind of looking at at your exposure, I guess back in 2018, maybe you had a couple of million dollars here or there. How are you thinking about potential tariff headwinds to revenues or operating income kind of contemplated in the outlook?

It's definitely a topic of conversation and a a fluid situation to say the least. But I appreciate you bringing up the past situation. And I guess the thing I would communicate first is Curtiss Wright's over the recent past has dealt with a variety of disruptive situations, whether it was the tariff, back in the late teens, which you're right, we're about $9,000,000 of which about half we were able to mitigate with our customers and half we absorbed. But not material to the business.

But we absorbed the pandemic came along and we lost $300,000,000 of sales. We had the supply chain to trust in defense electronics ongoing inflation. And I think it's important to note Curtiss Wright has delivered steady growth and steady margin expansion through all these situations. So So we have our commitments to manage this current situation as we have a very agile and or action oriented team. And so we're already doing the things that we can do with the information we have. We've started some cross functional Tiger teams that are really making sure that we have our handle around everything related to to operations, contracts, financial, legal, etcetera. We're definitely reviewing things such as flow of products, contracts terms and watching the formal government communications to consider all the options that we can lever now and continuously thinking through areas we can improve to minimize the impact and our focused on mitigating actions, whether that's price recovery or a different approach to delivering the product to a customer that isn't overly disruptive and communicating those things. So we feel at this point in time that we will manage this as we have managed situations in the past.

But we're also contemplating with if the tariffs stay more permanent, more broad, more and appear to be more durable, how we might make some other even more significant changes to protect the business. And so, obviously, you need more details than we have right now [indiscernible] do those things, but we feel really good about our guidance entering the year and this is obviously an ongoing situation and we know of it, but we we feel as if we will be able to manage our way through it.

Got it. Helpful. And then just last one, Lynn, I think I heard you correct.

You're expecting maybe a reactor coolant pump order in the next one to two years. Is that Just maybe color on that timeline. Is that sort of in line? Is it sliding to the right? Anything changing out there? I guess the latest news maybe Ukraine is looking at buying some Russian reactors from Bulgaria, but any kind of general update on market opportunities with for the AP1000.

Yes. So been I'd say honestly, amazingly steady over the past three years from coming out with our 02/24/2022 guidance, when this whole situation over in Ukraine began that morning, that the timeline for our first RCP order has gone from three to five, two to four. One to two with a steady progression year over year. And so it has remained very, very stable. We work very closely with Westinghouse on monitoring the pipeline And when we say one to two years, we're really saying we expect an initial order by the end of twenty twenty six. So just to be a little bit more specific, somewhere between now and then, I wouldn't say now, I would say more in the one to two year timeframe, but really the end of twenty twenty six. And one piece of news that's out there for those who follow all the news feeds is Poland has moved their operational date from 02/1931 to 02/1933, but that absolutely does not impact our timeline of expecting the first order. Westinghouse has known that for some time is to was not made public. So as we've worked with Westinghouse, and anticipate that order. Don't let that think that that's a delay to that first order, which still anticipated to be Poland.

So that's just one thing. Two other points of note is there's talk of [indiscernible] Back online and that has the potential of being a very good tail opportunity for Curtis Wright. If that were to happen, I mean, there's not much it has been put forward and kind of the late breaking news this week, that again needs to be flushed out is that India is considering changing their approach to indemnification on nuclear power plants which could break down what has always been the barrier for plants being sold into India. So are kind of two new things. I don't think there either of those are going to play out in a manner that's going to jump ahead of a Poland or [indiscernible] but there are things that are new and good.

Got it. Got it. That's helpful. Thanks guys. I'll turn back in the queue. Okay. Thanks Mike.

Our next question is coming from Miles Walton with Wolfe Research.

Thanks.

Could you comment on what the order was that triggered the large deferred revenue to come through on the cash flow And then also as I look at at your naval defense business that went from an expectation in 2024 of started the year at 3% to 5% growth and end up at 14%. Give some color as to seems like every quarter that was getting revised higher What exactly was going on there? And new starting point for 2025 is 3% to 5%. So is there a similar upside opportunity? Yes. I mean, first to discuss the upside opportunity, I think we feel pretty well positioned with where we're coming into the year. Miles. And I would say that to answer maybe the first question that you asked, I mean, the volume of naval orders that we had received across this business this last year was very, very strong. When you look at that business and then our ability to convert that, whether it be through material receipts or the significant ramp up in staff staffing that we were able to achieve for this business this last year. I think we certainly surpassed our own expectations And as that work gets completed, or as those orders come on in, that provides an opportunity for us to kind of bill in bill in advance of certain milestones being achieved.

So if you step back and take a look at the balance sheet for Curtiss-Wright, mean, we were up $140,000,000 in deferred revenue.

This last year. So a record level of advances, not only across the full year, but in the fourth quarter as well. So most of that relates to what you saw in submarines and the acceleration of work that happened here into the fourth quarter. But I also want to say, across our defense electronics business, they did a really solid job of getting in advances ahead of their work. So, there was a lot that kind of went into that. I wouldn't say it's a single contract, but So that was all good effort. And we go into this year, will there be upside in naval defense? I think a lot of that is just is going to continue to depend upon the ability to put the right CapEx and people in place and ex [indiscernible] again, we do feel good about the guide entering into the year.

Okay. And what was the book to bill by segment?

For 2024, if you have that?

Yes. So if you look at aerospace and industrial, it was 1.05 Defense Electronics was 1.16 and Naval and Power was 1.3. Then maybe Lynn on the subsea pump business, given we now have the Gulf Of America and we're going to drill a lot.

What's the outlook for the subsea pumps? And if that's a material opportunity over the next three to five years upside versus what you previously been thinking? I'd say across our entire process, end market, it's surely drill baby drill is probably a good thing. So but joking aside, The early executive orders, the first executive order of Chris Wright Not only was very pro nuclear, it was very pro LNG and all things fossil fuels. And that is going to be good for Curtiss-Wright. And so we sized the opportunity for the subsea pumps that $250,000,000 of potential by the end of this decade. That has not changed as of yet. We sort of going through the last stages of getting the Shell pump deployed and really development with PetroBast, but I feel like it will surely only be a tailwind for not just that subsea, but many things around our valve footprint and some other equipment that we sell process industry Okay.

We will take our next question from Jason Gerstle with with Citigroup.

Hey, good morning, everybody. [indiscernible] picture questions. With you, if that's okay. Just starting with transition with the administration, And maybe just kind of reflect if you wouldn't [indiscernible] for a minute on how this transition has been different than what you all have seen in the past?

And what if anything you all are doing differently as a result of any differences that you've seen in this transition?

So it's been a fast paced transition that I think everybody realizes that turns on the news. And so I think that's universally true, not necessarily tied to Curtis, right, in any particular way. Think the clarity of position on things such as nuclear coming out with an executive order in the first like two weeks. On how the administrator sees energy dominance and the very clear support for nuclear and really all things fossil fuel production, I think those are the levels of clarity and speed of clarity that is not typical. Now what's not clear is the tariffs, right? So I mean that's kind of on the other side of the paper is that which is not clear. But I think hopefully that will sort itself out here in the next couple of weeks as to what the position is going to be.

And just have to live with the ambiguity and do what we can in the meantime. But I also see things, doge is obviously all over the news and okay, set aside what anybody thinks about it, broadly speaking, if we have a more efficient government that wants to spend dollars wisely and if you take that as what the big picture intent of it is, think that's going to be a great thing for Curtiss Wright. One of the beliefs out of it is that a lot less friendly attitude to all these cost plus contracts and wanting to drive more fixed price contracts, which is the vast, vast majority of where Curtiss Wright plays is a good thing. And I believe that if a more efficient government and the value prop that we take either directly from the government or through a prime to deliver equipment I think we produce a great value. I feel very confident that the money spent at Curtiss Wright delivers value to our military. And with that, I feel like it could only be good in sense. And then if you take that efficiency and apply it to the process of building now commercial nuclear, which is clearly called out in the energy dominances to five finally deliver on a commercial nuclear footprint in a meaningful way across The U. S, making that less bureaucratic only speeds up the timeline that some of these projects can be implemented.

So I think all those things, we see it as way more a positive than a negative. [indiscernible] we'll see what happens with the tax code. I mean that's we'll see where that goes.

But we don't produce everything in The U. S, but we produce a lot of things in The U. S. And if there's a favorability towards companies that hire in The U. S. And produce products in The U. S, that will be good for Curtiss Wright if that's how that turns out. And you even take the executive order on Iron Dome, I mean, we have a lot of content, whether it's through our enduring chilled win back in 2022 and many other things across defense electronics that that would drive great content to us. So There's a lot of areas, again, taxes, tariffs, you name it, but we like to hire and build things here in America and that's clearly a focus of this administration.

So We're trying to stay nimble. I will say that and take the news in daily as it comes. And consider how we can best take those moves the federal government to our advantage.

And you touched on what was you briefly touched on what was going to be my follow-up question, which was on on Doge. It sounds like those guys are going to make their way across the Key Bridge and over to the Pentagon at some point here in the near term.

And you touched on maybe more firm fixed price type contracts.

But many if you could step back and give some recommendations or prescriptions, that you'd like to see dose take at the Pentagon. I think that might be interesting to hear your thoughts on what other than firm fixed price contracts looking to get done Well, I would say broadly, the whole acquisition process is fairly [indiscernible] is a slow process. And I think attacking that broadly and you've heard some of the CEOs of even larger defense companies [indiscernible] talk about that. In the end, our industry will produce more value for the government not less, if the acquisition process is streamlined. I'd say that's one that comes to top of mind. But just to add, go back to your first question about things we're doing different. One of the things we are doing differently as a company in 2025 is much coincidental as response to this because we were decided to make this a big initiative later last year. Is really increasing our visibility and our touch points at the Pentagon and on Capitol Hill to really emphasize [indiscernible] The government. And I think connecting the drive for efficiency I will stand up and proudly present what we do for the dollars we get.

And know that we are a great supplier to the U. S. Government and so I think that will align nicely us trying us bringing that message out to the forefront as this is all going on.

Okay. I appreciate the thoughts.

Our next question comes from Peter Arment with beard.

Yes. Thanks. Good morning or good afternoon. I guess, Lynn, Chris, Jim.

Lyn, could you comment a little bit about the outlook on commercial nuclear? Are you called out for a high single organic growth, high single digit organic growth this year, but you grew low double digits last year in your guidance for 26 assumes low double digits. Are we is there is this just timing related or is there a deceleration something get pushed out that is a change from 24 versus 25?

No, I think Peter, we did have a very strong year this last year and as we committed to Investor Day, we would grow and we still see the trajectory being a low double digit CAGR over the three year period.

This year, I'll say that while we are seeing and benefiting from some of the license renewals in Flex work that's starting to kind of happen more around the industry. One of the headwinds that we are facing is that there are lower year over year outages and that's just something that's going to happen once every three years or so. There's going to be a little bit of a dip there. But overall, higher maintenance activity across the operating fleet to support that. We are going to see a steady ramp up in the design effort. Talked a little bit about that in the prepared remarks, but it's not just TerraPower and X Energy. We're excited about what Old Energy can do and they're investing in research and development to secure some new and exciting wins themselves. So overall, I think we feel really good about the low double digit guide that we gave over three year period. And as we enter into 2026, we only expect that to continue to ramp up as this SMR work gets closer to prototyping.

Got it. Okay. That's helpful color. And then just Lynn, you made the comment about the nuclear business being 5x. As you get out into the next decade. Is that all organic or do you contemplate more M and A in this space?

Thanks.

We really did that buildup from an organic standpoint of where we are driving content that we know of today and what we anticipate from the AP1000 build outs, the aftermarket and plant life expansions and the beginning of the build outs [indiscernible] at a rhythm drumbeat that is anticipated. So that is business that is within our wheelhouse to drive for Curtiss Wright. Very helpful. Thanks so much. Nice results. Thank you, Peter.

Our next question comes from Pete Skibitski with Olympic global Hey, good morning guys. Nice quarter.

Couple of follow ups on Naval and Power. First, just a clarification. So the material receipts that you brought in and booked revenue on in the fourth quarter, that is what led to the strong revenue, but I assume those low margin revenue on the material and that's why I guess the 4Q margin at Naval came in a little below your expectations. Is that kind of the way it worked there?

Yes, partly. I mean, so I'll definitely say that a good portion of the beat in naval was associated with material, but other other portions of it were just better progress and staffing and ramping up to support the strong order book. Another little nuance here for those that have actually been out to the Cheswick facility where we do lot of naval work and AP1000 work and the subsea work. We did see some resources shift from subsea pump development to another little nuance here.

But as you look at the overall while we still had a very strong 19.1% margin year in the fourth quarter. By and large, the biggest reason for the miss versus expectations is just higher defense. Business. And it's a great business. There's very solid margins. There obviously a strong cash producer. But as you look across the Naval and Power portfolio, when you think about nuclear products and process products and narrow defense products and international sales, it can be dilutive. So it was really a combination of the strong naval defense sales, lower process valve sales during the fourth quarter, lower restings aero resting systems and we had a really great quarter prior year and international arresting systems and those carry very high margins. So mostly mix as you look across the explain Got it. That's helpful. I appreciate it. And then looking ahead to 2025 in the segment, what's the right way to think about the restructuring that you guys are doing there? Are you closing sites, other investments, can you help us understand what's going on? And it looks like that restructuring is going to impact margin positively by the end of the year just kind of or maybe the mix shifts back we'll just wonder if you could add some color there?

Yes. So just to be clear, the vast majority of the restructuring that we spent this year, we spent $15,000,000 to get $10,000,000 of annualized savings three of which fell into 2024, seven is going to fall into 2025 to get you to that $10,000,000 spend. But the $3,000,000 the majority of that fell through the A and I segment and we increased our margin, I think maybe in the second or third quarter call 30 basis points to account for that. The other biggest piece of that entering into 2025 is going to continue to benefit the Air aerospace and industrial group. A lot of efficiency behind some of those actions that we took within that restructuring.

But then as you step back and you look at defense electronics, which is probably the second biggest contributor towards that spend and what we're doing, it's really just we're moving footprint, we're expanding capacity. There's still going to be some disruption obviously here in the fourth quarter even though we had very strong results But that will continue a little bit into Q1. And the order book looks incredibly strong. We're excited about the outlook for that business going forward. So I hope that we're in a position as we get deeper into the year where maybe we have to do some more of this. But then then I'll also say that and that we are investing back not only in restructuring CapEx, systems across the organization. We're doing some exciting things from a systems perspective. And that's made that a lot of work is going on in defense electronics at at this point to support that. And but the trajectory going forward and where we're spending most of that time and effort is really in aerospace and industrial and defense electronics.

Okay. Thanks for the color. Appreciate it. We will take our next question from Bryce Sandberg with William Byrd. Lynn, Chris and Jim, good morning and thanks for the question. Good morning. Good morning.

Just want to ask on the naval business, seen pretty significant supply chain and labor disruption that one of the shipyards that's impacting production but obviously you've had strong momentum in your naval business. So just kind of want to understand better how that disruption may or may not flow through your business and Does that represent an opportunity for you to take on more work within the supply chain?

So the question we get asked fairly frequently. And we're to some degree, we're reasonably decoupled from the exact flow in the shipyards as our material is such long lead and if you're curious, Chris can walk through kind of the flow of material. But equipment is usually ordered years in advance, a couple of years in advance of the shipyards. And so there really isn't a one to one coupling. Now from an opportunity standpoint, we are always out presenting ourselves as a hungry, ambitious naval equipment supplier and open to taking on new work as the Navy needs to second source things or move points of supply and those don't happen frequently, but they do happen and we've won some content through taking that kind of attitude, but it's not really a one to one coupling with the shipyards.

I will just add that one of the exciting things about our business and we talked about this at Investor Day, so really gratifying to see some of this play out and we talked a little bit about it in the script. It's just the aftermarket work that's becoming available to Curtiss-Wright. Got two service centers on the East Coast and one in the West Coast.

And not only is it our COH work, but there's also just a lot of aftermarket coming, Virginia class submarines with initial spares provisioning that's helped incur footprint in naval resting systems that also is is growing internationally. So there's other ways for us to grow that are that and what we are experiencing now that's not tied directly to to what's happening in the shipyards. That's helpful. Thanks, Glenn and Chris. Thank you. Thank you. There are no further questions awaiting from the call from the line. I will now turn the call over to Lynn Bamford, Chair and Chief Executive Officer for additional or closing remarks. Thank you, everybody, for joining us today, and we look forward to reconvening when we have our Q1 results.

Have a good rest of your day. Thank you. This does concludes today's Curtiss Wright Earnings conference call. Please disconnect your line at this time and have a wonderful day.