Peter Arment: Great. I will leave it there. Thanks again. Nice results.
Lynn Bamford: Thank you, Peter.
Operator: We will turn next to Michael Ciarmoli with Truist.
Michael Ciarmoli: Hi. Good morning guys. Nice results.
Chris Farkas: Good morning.
Michael Ciarmoli: Thanks for taking the questions. Chris, maybe just a housekeeping modeling, first. I think I heard you correct. First quarter ‘24 earnings are going to be up low teens. I guess you gave the margins for each segment, but I guess it implies Defense Electronics would be somewhere maybe 18% or so? Do we have that right? Did I hear that correct?
Chris Farkas: Well, I didn’t provide an exact number, but we definitely said that Defense Electronics margins were going to be very strong here in the first quarter. So, I think you are thinking in the right direction for sure.
Michael Ciarmoli: Okay. Got it. I just want to make sure I heard EPS low-teens. And then maybe just on to the last question, defense kind of disruption in that Defense Electronics marketplace, some of your competitors. Are you guys looking to move anything to any different market segments like higher-end radar processing or some of that subsystem or are you kind of sticking to your knitting and maybe taken some of the opportunities in your sweet spot?
Lynn Bamford: So, I think we are going to protect the core always as a priority. But we kind of talk – adding at a high level without tipping our hands of some strategic investments we are making as part of always pushing the window of what types of products we can bring to bear in the market. And we have talked about an area for focus for investments is around the topics of encryption and cyber security and the anti-tamper, and so that is an area that I will say, hopefully, that we are continuing to focus on and is a critical capability that we could bring there in the markets that will allow us to grow our market share. And I will leave it at that.
Michael Ciarmoli: Okay. And then, yes, Lynn, not to kind of make you spill the beans here on the upcoming Investor Day, but you guys have done a tremendous job with margin expansion. But if I – I guess I am just trying to figure out, you have got the R&D investment. You have got, I guess some of the initial dilutive development work for SMRs. I mean should we think about the sort of operating model being mature here for the next kind of couple of years? And maybe even just color on when some of these SMR development programs might flip to margin accretion? And I guess this is also thinking absent any big high-margin AP1000 orders that would come in, that would clearly – you guys haven’t modeled for that, but just thinking about kind of steady state business. Should we think about some – just some normal margin pressure with some of these bigger development programs?
Lynn Bamford: Yes. So, I mean obviously, we are projecting modest margin expansion next year. I don’t want to at all project that, that is the new normal, and there isn’t more opportunity long-term outside of that. I mean these – all this has – we are doing a significant amount of work in developing these SMRs. And even the subsea pump that – the Petrobras press release last week. When you are getting paid development work from your customers, you are not making margins that are going to be accretive to the corporation. And we are the development work is significant. Shell and TITAN continue to go on. And so we have all that going on. Those projects will turn to production revenue, all of them, late in this decade and later this decade and really have the ability to provide meaningful margin expansion as the low-margin work goes away and is replaced with a very solid margin production work.
And so – and then I think we can drive the type of growth, we think there are the possible in our Defense Electronics team, which delivers very accretive margin to Curtiss-Wright. That continues to provide uplift across the organization. And I will comment that a couple of the acquisitions we are looking at, the devil is in the detail and you have to do due diligence, but some of those have very healthy looking margin profile. So, right now, the guide for ‘24 is doing the right things in this year to really secure a fantastic future for Curtiss-Wright. Again, we will continue to look at top quartile and challenge ourselves to be in the top quartile. We do talk about that openly inside of the company with everyone that we have a goal quite a few years ago, getting to 17%, but that was then.
And top quartile margins continue to go up amongst our peer group. And so we need to continue to challenge ourselves to do that. So, I know that you weren’t expecting me to say, yes, here is our new 3-year margin target, but hopefully, that puts some color on the thinking.
Michael Ciarmoli: Last one and I will get out of the way. Bookings looked like the weakest level since first quarter ‘22. I know you called out off-highway, just in general being weaker. Anything to read into that timing, or even if you could parse through the bookings a little bit more strength, weaknesses in there?
Chris Farkas: Sure. Let me take that one, Mike. So, in the fourth quarter, we continue to see like positive order trends across Commercial Aerospace and Commercial Nuclear, both fairly strong quarters for us. But we definitely faced some softness in aero and ground defense. We saw pressure in A&D from – turn back to the fourth quarter of this last year, we had a few large multiyear orders. And the main decline year-over-year was actually within Defense Electronics for us. We were down about $45 million. So, that was really the timing of some of those large multiyear orders, but also the continuing resolution. Within Defense Electronics, I mean we had these F-30 FTI orders that we – on the F-35, we talked a little bit about that earlier this year in the press release.
But we also had large multiyear orders outside of Defense Electronics and the arresting systems business and then also a large multiyear laser peening contract on the F-35 within the A&I segment. As we look at ground defense, ground defense, in fact, the full communications, we saw this is last year, with that direct connectivity that they have to the government customer, they feel the CRs a little bit harder than most. So, sometimes you get a rush to get ahead of those orders into Q3 before things said and – but I would say year-over-year, Q4-to-Q4 within that business, very similar levels. So, nothing there that would kind of concern us. And then I think on a positive note, I mean as you look forward into 2024, we had a very strong January.
Our order book was up $70 million over the prior year January, and $40 million of that within Defense Electronics. So, I know the NDA got signed here in December. People are feeling a little bit more confident in their spending. Obviously, we have got the CR, that’s still kind of an overhang. But I think in 2024, we feel good about the guidance that we are providing in sales. And if there is any watch areas for us here from a market perspective, it’s really just in the general industrial space and maybe a little bit in processing doubts, but those are more economically sensitive and prudent to be cautious as you approach those.
Michael Ciarmoli: Got it. Thanks guys.
Chris Farkas: Thanks Mike.
Operator: We will go now to Louie DiPalma with William Blair.
Louie DiPalma: Lynn, Chris and Jim, good morning.
Chris Farkas: Good morning.
Louie DiPalma: There has been higher volumes for many of the end market ground defense and aero defense platforms that you are providing content to associate it with the elevated geopolitical tensions and higher commercial aero demand. Beyond the higher volumes, were you able to increase scope of content that you are providing to the different platforms in 2023? And are there expectations for like market share increases and scope increases for the next several years based on your research and development investments?
Lynn Bamford: Thank you for that. So, I would say, broadly, the content stays relatively stable on the platform. So, that’s a starting point. Now, we are always looking to change that. And there are tech refreshes. There has been a lot of tech revisions in ground vehicles over the past years. And they will – we are consistently chasing those, which are opportunities for new content on those platforms. And there is a lot of special operations provisions and new capabilities added to older fighter jets. So, as much as the F-35 is relatively stable to funding [ph] in TR-3, that’s a growth area for us as we have all our support we provide for the testing of those aircraft. It’s – we look to grow our content on those – across those production platforms as they have new and incremental capabilities that they are looking for. But the default is they are stable. So, I don’t know if that’s the answer to your question, but…
Louie DiPalma: Yes. No, I was thinking also along the lines of the Columbia-class and Virginia-class submarines in which the supply chain has repeatedly been described as fragile. And you seem to be executing very well on those platforms. So, I was thinking, perhaps, there is the potential for you to add content from other suppliers that may be struggling to handle the demand?
Lynn Bamford: Those are not decisions that the Navy would make on a very rapid fire basis. I mean they – these are very stable platforms that they want stable suppliers. But we are a solid supplier across the submarine platforms and stay in close contact with our customers that if there is opportunities to take over supply and capability, that we are there to explore new opportunities. They don’t come very often, but our reputation across Virginia and the Columbia-class program would afford us to be that person or that company, I think if a relevant opportunity became available. But I would be cautious to speak to anything specifically as that’s not really how the Navy runs itself on a normal basis.
Louie DiPalma: Great. And one final one, you spoke very enthusiastically about the Enduring Shield program. I believe you are partnering with Dynetics/Leidos for that. Is there significant growth for that program in 2024?
Lynn Bamford: Go ahead, Chris. I will let you…
Chris Farkas: Yes, sure. So, we are, as I mentioned, transitioning out of a development contract and into production this year. And it’s a significant program for us. I mean it showcases our EM maturation technology and ground defense applications. And leading-edge ground defense applications. So, we are very proud of what’s happening there. Overall, I think as you look at the increase year-over-year, the contribution to the A&I segment, I would put that somewhere in the range of about $5 million. But despite the size, it’s enough to kind of move the ground defense market. And there are some other things that are happening there clearly to offset what we are seeing. But it’s an exciting program and we are excited about its future.
Lynn Bamford: Yes. I think Louie, when you put it in perspective, quite frankly, some of the things going on around the world and the ever visible critical role that these types of systems play for countries where there is active conflicts, I think our enthusiasm isn’t tied only to 2024. It’s more what we know is going on and the long-term potential for where this capability will be deployed around the globe to provide protection. That is some of the excitement.
Louie DiPalma: Great. Thanks everyone.
Chris Farkas: Thank you.
Operator: [Operator Instructions] We will turn next to Kristine Liwag with Morgan Stanley.
Unidentified Analyst: Hi. This is Justin on for Kristine. Thanks for taking the questions. Just a quick one on AP1000, there was some reporting earlier this week. It looks like the Polish Government might be reevaluating the feasibility of the 2033 target. I know you have laid out a framework for when to expect an order to materialize, but just any updates on this at this point? Is there sort of around timing expectations?
