Curtiss-Wright Corporation (NYSE:CW) Q4 2024 Earnings Call Transcript

Curtiss-Wright Corporation (NYSE:CW) Q4 2024 Earnings Call Transcript February 13, 2025

Operator: Welcome to the Curtiss-Wright Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open to your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Mr. Jim Ryan, Vice President of Investor Relations.

Jim Ryan: Thank you, Shanna, and good morning, everyone. Welcome to Curtiss-Wright’s fourth quarter and full year 2024 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 Farkas. Our call today is being webcast in the press release, as well as a copy of today’s financial presentation is available for download through the Investor Relations section of our company website at curtiswright.com. 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 guaranteed to future performance. 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 and 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.

Lynn Bamford: 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. We executed on our growth strategy 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&A. Starting with our fourth quarter 2024 highlights, sales increased 5% year-over-year due to a better-than-expected performance in both our Defense Electronics and Naval & Power segments. Operating income was essentially flat, while operating margin was strong at 19.8%. 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&D sales. Free cash flow was strong at $278 million, reflecting a 223% conversion rate, due to improved operational performance and lower working capital. Growth in our order book was exceptionally strong in the fourth quarter, up 37% year-over-year, reflecting a 1.1 times book-to-bill. These results were driven by growth in all of our A&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 another record year of orders.

We delivered modest margin expansion while maintaining our firm commitment to grow R&D faster than sales. Diluted earnings per share of $10.90 increased 16% year-over-year. Adjusted free cash flow reached a record $483 million and reflected strong conversion of 116%. Of note, our results included $16 million of incremental capital expenditures supporting growth investments across all three segments. Turning to our order book, demand was exceptional, reflecting a 20% year-over-year increase, reaching a new record of $3.7 billion and a 1.2 times book-to-bill overall. Leading the way was our Naval & 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 Electronic segments, where orders crossed $1 billion for the first time.

Total Curtiss-Wright backlog was up 20% in 2024, reaching a record of more than $3.4 billion, providing additional confidence in our long-term growth outlook. Turning to Slide 4, we begin with some comments about our acquisitions and share repurchase activity. We added two new businesses in 2024 to further expand our commercial nuclear portfolio. In June, we added WSC, a leading supplier of power plant control room simulation technology. And in — on December 31st, we closed on the acquisition of Ultra Energy, which is a leading provider of reactor protection systems, radiation and flux monitoring systems, and specialized temperature and pressure sensors. As a reminder, Ultra provides safety-critical products and services to commercial nuclear and power generation plants globally and also supports defense markets, including the U.K. nuclear submarine fleet, as well as various Aerospace applications.

This acquisition not only enables us to leverage our U.K.-based nuclear manufacturing footprint, but 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 collaborating with customers to increase our opportunities for growth 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 million in stock through an accelerated repurchase plan, boosting our full year repurchase activity to $250 million. 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 anticipated to exceed our sales growth, reflecting 40 basis points 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. In 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 investment in research and development to drive organic growth, which 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 for acquisitions, such as Ultra Energy, as we integrate this business into our broader operations and seek opportunities to drive future margin accretion. These efforts, backed by our strong topline growth, provide us with confidence to once again generate double-digit growth and diluted EPS along with strong free cash flow. In summary, Curtiss-Wright remains well-positioned to deliver an outstanding performance in 2025. Now, I would like to turn the call over to Chris to continue with our prepared remarks.

Chris Farkas: Thank you, Lynn. On Slide 5, I’ll review the key drivers of our fourth quarter 2024 performance by segment. I’ll begin in Aerospace & Industrial, where overall sales increased 5% and was in line with our expectations. Within the segment’s Defense markets, we experienced solid increases in actuation equipment sales, most notably within our Aerospace Defense market, supporting the F-35 program. Within the segment’s Commercial Aerospace market, our results reflected solid OEM sales growth, supporting increased production on both narrowbody and widebody platforms. In the General Industrial market, our results reflected lower global off-highway and specialty industrial vehicle sales as certain customers continued 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 improving year-over-year industrial vehicle order trends since the second quarter of 2024. In turning to the segment’s fourth quarter profitability, we delivered a record quarterly operating margin of 21.3%. This was driven by favorable absorption on higher sales along with the benefits of our restructuring initiatives while we continued to invest in R&D to support our future growth. Next, in the Defense Electronics segment, if you recall, we implemented several restructuring initiatives beginning in the second half of 2024 to support this business’s future growth.

Given the expected ramp-up in these efforts and to ensure on-time delivery to our customers’ schedules, we accelerated some revenues and deliveries into the third quarter. 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, the performance was slightly ahead of our expectations. Regarding the segment’s fourth quarter operating performance, though 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 & Power segment, sales growth of 12% was ahead of our expectations, principally driven by higher revenue across several key platforms in Naval Defense. Within this market, we experienced stronger than anticipated growth in production on Columbia class and Virginia class submarines, as well as the CVN-81 aircraft carrier program, due in part to the timing of material receipts. We also experienced higher development revenues on the next-generation SSN(X) 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 revenues based on timing and strong performance from the prior year period.

In the Power 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, 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&D investment across the portfolio. Turning to our full year guidance, 2025 guidance, I’ll begin on Slide 6 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’s sales are tied to our Power and Process market, the business also sells equipment to customers within our R&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. Within Ground Defense, our outlook for 3% to 5% growth reflects continued strong demand for our tactical communications equipment, which as a reminder, follows strong 15% sales growth in 2024. In Naval Defense, growth of 3% to 5% reflects higher revenue on aircraft carriers, including increased production on the CVN-81, as well as support for the CVN-75 refueling and complex overhaul program, which 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 Electronics business, we anticipate higher embedded computing revenues supporting various domestic and international programs. Looking more broadly across all three Defense markets, I’d like to highlight the expected contribution of direct foreign military sales. 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 early in production sales on narrowbody and widebody aircraft, including modest growth expectations on the 737 MAX in the back half of the year.

We expect those increases to be driven by higher sales within our Aerospace & Industrial segment for sensors and surface treatment services, as well as our Defense Electronics segment for avionics and instrumentation equipment. Wrapping up our Aerospace and Defense markets, we expect total sales in these markets to increase 5% to 7% in 2025. Moving to our Commercial Markets and Power and Process, our outlook for 16% to 18% growth reflects a combination of mid-to-high single-digit organic revenue growth, as 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. And lastly, in the General Industrial market, we anticipate sales to be flat in 2025. Our outlook reflects modest sales growth in industrial automation and surface treatment services, which typically aligns with global GDP growth rates.

However, that growth will be offset by reduced sales of industrial vehicles amid ongoing market challenges, but we remain cautiously optimistic based upon 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 7, I’ll begin in Aerospace & 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% in operating margin to increase 40 basis points 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’ record 2024 order book, which is driving solid growth across all A&D markets. Regarding the segment’s profitability, we expect operating income growth of 8% to 10% in operating margin expansion of 10 basis points to 30 basis points to a new all-time high range of 25% to 25.2%, which includes a $5 million or 50-basis-point headwind from increased internally funded R&D investments. And in Naval & Power, we expect overall sales growth of 10% to 11% or 3% to 5% organically, reflecting solid growth across this segment’s Defense and Commercial Markets. Regarding the segment’s profitability, we expect operating income growth of 13% to 16% in operating margin expansion of 50 basis points 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 million impact from last year’s first quarter Naval contract adjustment. In addition, our guidance reflects approximately $4 million in incremental R&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. And of note, this outlook includes increased year-over-year investments in advanced reactor technology, as this business similarly focuses on expanding its presence across major SMR designers. So to summarize our 2025 outlook, overall, we expect total Curtis-Wright operating income to grow 10% to 12%. We expect operating margin to range from 17.9% to 18.1%, up 40 basis points to 60 basis points.

Next, to aid in your quarterly modeling of sales and operating margin, we expect first quarter 2025 sales to grow by high single digits relative to the first quarter of 2024, including Ultra Energy. Within the A&I segment, based on the seasonality within these businesses, we expect that sales and operating margin will be in line with our first quarter 2024 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 & Power segment, while we expect solid growth in sales, our first quarter 2025 profitability will reflect initial margin solution from the Ultra Energy acquisition. In summary, at the overall Curtis-Wright level, we’re expecting mid-teens first quarter operating margin on strong sales growth.

Continuing with our financial outlook on Slide 8, I wanted to provide some color on a few non-operational items. I’ll start with other income, which we expect to decrease by approximately $4 million to $5 million this year. This is principally due to lower interest income as we entered the year with a slightly lower cash balance given our fourth quarter 2024 cash payment for Ultra Energy and increased share repurchase activity. Later this month, we’ll pay down the $90 million in senior notes coming due, which will have a positive offset in lower interest expense. A note, this current guidance assumes that we’ll have no borrowings against the revolver again in 2025. In addition, our outlook reflects a reduction in our 2025 tax rate to 22%, further building on last year’s tax optimization and efficiency efforts.

Turning to our EPS guidance, we expect full year 2025 diluted EPS to range from $12.10 to $12.40, up 11% to 14%, reflecting the strong profitable growth within our operations. To aid in your quarterly EPS modeling, we expect first quarter EPS to reflect approximately 20% growth relative to the first quarter of 2024. And similar to last year, we expect sequential quarterly improvement with the fourth quarter being our strongest. Please note that our EPS outlook also includes a reduction in our share count following the completion of $250 million in share repurchases in 2024. And for 2025, here we anticipate $60 million in standard share repurchases, reflecting a $10 million year-over-year program increase as we continue to offset dilution. And lastly, we’re projecting a full year free cash flow of $485 million to $505 million in 2025, essentially in line to slightly above last year’s record performance.

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 expenditures to increase nearly $20 million year-over-year relative to the mission 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% again this year, which remains in line with our long-term targets. Now I’d like to turn the call back over to Lynn.

Lynn Bamford: Thank you, Chris. And turning to Slide 9, as we have discussed today, our record order book and growing backlog, as 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 environment, we expect to generate high single-digit total sales growth this year. This outlook reflects both increases in both our A&D and Commercial Markets and the strength of our combined portfolio. Beyond the topline, one of the most significant milestones that we’re forecasting in 2025 is to reach 18% operating margin at the midpoint of our guide. Our drive to generate operating income growth in excess of revenue growth continues to be a fundamental premise under the Pivot to Growth strategy and we expect this to result in an accelerated pace of margin expansion in 2025.

Further, our steadfast focus on operational excellence allows us to continue to make incremental R&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 infrastructure as we continue to grow our operations and increase efficiency to better serve our customers. These investments 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 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 2024 Investor Day. Beyond these targets, and as we look out across the next decade to the art of the possible that we proposed 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 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 an order for our reactor coolant pumps in the next one year to two years. 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 Burgum as the Secretary of the Interior. As a reminder, the U.S.’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 confidence in projecting our commercial nuclear business to grow fivefold by the middle of the next decade to an annual run rate of $1.5 billion, 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 our position 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.

Operator: Certainly. [Operator Instructions] Thank you. Our first question is coming from Nathan Jones with Stifel.

Nathan Jones: Good morning, everyone.

Q&A Session

Lynn Bamford: Good morning, Nathan.

Chris Farkas: Good morning.

Nathan Jones: I guess I’ll start on the Ultra Energy acquisition. I know this is one you guys have been excited about and you touched on some of these things in your prepared remarks. I’m hoping to get a bit more color on. 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 see just outside of the financials.

Lynn Bamford: Sure. And thank you for that question. We were — it took longer than we anticipated to get it to close, but December 31st, we got it done in the year. So it’s a nice, clean break point, you could say, from that position. But we’re definitely out of the gate strong with these guys. We’ve had two main locations, one in the U.K., 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 to be able to be supported through that facility and provide more localized content, which is important as you think of the major reactor 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 with them, with Ultra being — 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 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. Their very high temperature pressure and sensor — pressure and temperature sensors, were 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 that’s just to touch on a couple, but their heritage is one of the things 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 this team brings that same heritage and with it just deep industry knowledge, some different customer connections than we have. And so it’s more than just the tangible things and they’re a well-established, strong player in this with really unique and great technology that just broadens what we can take to our customer base.

Nathan Jones: 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 Curtiss-Wright’s portfolio. So maybe you could just give us some color on 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.

Lynn Bamford: 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 a very strong partnership with Rheinmetall, which is really the leading manufacturer of vehicles over in Europe, not the only, and that’s not the only place we partner, but a very preeminent one. And so that and we have a systems capability to deliver other types of products into both ground and aerial vehicles that are there. 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. But with that, maybe I’ll turn it over to talk, let Chris walk through some of the numbers.

Chris Farkas: Yeah. Sure. This has been a great growth factor for us, Nathan, as you know. I will say that it’s very difficult for us to predict what a 1% increase in GDP across NATO is going to necessarily translate to for Curtiss-Wright. But we have seen some really great increases in NATO spending over the past few years in 2024 and we now have 70% of the country spending in 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 2023, FMS growth or direct FMS growth, I should say, grew more than 20% for Curtiss-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 TDS business, which can kind of be a little bit lumpy.

But we saw really strong demand across our Defense Electronics business, given their very broad portfolio supporting aero and ground markets, as well as some benefit to our aircraft handling business within Naval & 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’ll be mainly driven, again, by C5ISR, Naval aircraft handling and then also some of the ground-based arresting systems that we have within Naval & Power. So we see it as an opportunity for Curtiss-Wright going forward, for sure.

Nathan Jones: Excellent. Thanks very much for taking my questions.

Lynn Bamford: Thank you.

Operator: Thank you. Our next question comes from Mike Ciarmoli with Truist Securities.

Mike Ciarmoli: Hey. Good morning, guys. Nice results. Thanks for taking the question. Hey, Chris, I guess, just 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 hooks and takes? And I know the mid-single digits in line with kind of what you laid out in 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?

Chris Farkas: I think, as we enter into the year, we feel really well positioned with where we are from a backlog perspective, particularly across our A&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 1.7 times in Naval & Power, that’s multiyear work that’s coming to Curtiss-Wright. So as we look across Naval Defense, we certainly see a solid opportunity for growth ahead for that business. Within Aerospace Defense, that there’s a strong driver there, not only what’s happening within C5ISR, but also what’s happening over in the actuation business relative to some additional work that they have with the F-35 program and other fighter jets.

And then within Naval & 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 all that.

Mike Ciarmoli: Got it. That’s helpful. And then I guess just a question on the topic that’s coming up across almost every call, tariffs. And I guess we’re going to get more news here at 1 o’clock today, presumably. But going back and kind of looking at your exposure, I guess, back in 2018, maybe you had a couple million dollars here or there. How are you thinking about potential tariff headwinds, either the revenues or operating income kind of contemplated in the outlook?

Lynn Bamford: It’s definitely a topic of conversation and 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 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, were about $9 million, 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 million of sales. We had the supply chain disruption and 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, 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 operations, contracts, financial, legal, et cetera. 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 are focused on mitigating actions, whether that’s price recovery or a different approach to delivering a product to a customer that isn’t overly disruptive in communicating those things.

So we feel at this point in time that, we will manage this as we have managed in situations in the past, but we’re also contemplating, 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 to 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 feel as if we will be able to manage our way through it.

Mike Ciarmoli: Got it. Helpful. And just last one, Lynn, I think I heard you correct. You’re expecting maybe a reactor coolant pump order in the next one year 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 RCPs for the AP1000?

Lynn Bamford: Yeah. So it’s been — I’d say, honestly, amazingly steady over the past three years from coming out with our February 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 the — 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 2026. 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-year to two-year timeframe, but really by the end of 2026.

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 2031 to 2033. But that absolutely does not impact our timeline of expecting a first order. Westinghouse has known that for some time. It just 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 is still anticipated to be Poland. So that’s just one thing. Two other points of note is, there’s talk of trying to get the V.C. Summer plant back online. And that has the potential of being a very good tail, opportunity for Curtiss-Wright if that were to happen. I mean, there’s not much specificity around that.

But 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 those are kind of two new things. I don’t think either of those are going to play out in a manner that’s going to jump ahead of a Poland or potentially Bulgaria order. But there are things that are new and good.

Mike Ciarmoli: Got it. Got it. That’s helpful. Thanks, guys. I’ll jump back into the queue.

Lynn Bamford: Okay. Thanks, Mike.

Chris Farkas: Thanks.

Operator: Our next question is coming from Myles Walton with Wolfe Research.

Myles Walton: 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 your Naval Defense business, that went from an expectation in 2024 of started the year at 3% to 5% growth and ended up at 14%. You have some color as to it seems like every quarter that was getting revised higher. What exactly was going on there and the new starting point for 2025 is 3% to 5%. So is there a similar upside opportunity?

Chris Farkas: Yeah. I mean, first to discuss the upside opportunity, I think, we feel pretty well positioned with where we’re coming into the year, Myles. 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 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, you know, that provides an opportunity for us to kind of build and build in advance of certain milestones being achieved.

So if you step back and take a look at the balance sheet for Curtiss-Wright, I mean, we were up $140 million 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, yeah, that — so that was all good effort. And as we go into this year, will there be upside in Naval Defense? I think a lot of that is just going to continue to depend upon the ability to put the right CapEx and people in place and execute on that backlog and get through that sooner.

But I’ll say that, again, we do feel good about the guide entering into the year.

Myles Walton: Okay. And what was the book-to-bill by segment for 2024, if you have that?

Chris Farkas: Yeah. So if you look at Aerospace & Industrial, it was 1.05. Defense Electronics was 1.16. And Naval & Power was 1.3.

Myles Walton: Yeah. Okay. And 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 years to five years, upside versus what you’re previously been thinking?

Lynn Bamford: Well, I’d say across our entire process and market, surely drill baby drill is probably a good thing. So — but joking aside, the early executive order, the first executive order of Curtiss-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 at $250 million of potential by the end of this decade. That has not changed as of yet. We still are going through the last stages of getting the shell pump deployed and really developing it with Petrobras. 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 across the process industry.

Myles Walton: Okay. All right. Thanks so much.

Chris Farkas: Thanks, Myles.

Operator: We will take our next question from Jason Gursky with Citigroup.

Jason Gursky: Hey. Good morning, everybody. Lynn, I’d like to just do a couple of big picture questions with you if that’s okay. Just starting with the transition with the administration and maybe just kind of reflect, if you wouldn’t mind, 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?

Lynn Bamford: 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 Curtiss-Wright in any particular way. I 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 administration sees energy dominance and the very clear support for nuclear and really all things, fossil fuel production. I think those are 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 a, 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 weeks as to what the position is going to be and we’ll just have to live with the ambiguity and do what we can in the meantime.

But I also see things, DOJ 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, I 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 proposition Curtiss-Wright gives for the dollars 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 that sense. And then if you take that efficiency and apply it to the process of building out commercial nuclear, which is clearly called out in the energy dominance, is to 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. 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 even take the executive order on Iron Dome. I mean, we have a lot of content, whether it’s through our enduring shield win back in 2022 and many other things across Defense Electronics 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 by the federal government to our advantage.

Jason Gursky: That’s great. And you touched on what was — briefly touched on what was going to be my follow-up question, which was on DOJ. 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 maybe if you could step back and give some recommendations or prescriptions, actions that you’d like to see DOJ take at the Pentagon, I think that might be interesting to hear your thoughts on what other than firm fixed-price contracts maybe should they be looking to get done?

Lynn Bamford: Well, I would say broadly, the whole acquisition process is fairly — is a slow process. And I think attacking that broadly and you’ve heard some of the CEOs of even larger defense companies than us talk about that, that, in the end, our industry will produce more value for the government, not less if the acquisition process is streamlined. So 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, and it’s as 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 what Curtiss-Wright does and what value we bring to the government.

And I think connecting the drive for efficiency, and 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 bringing that message out to the forefront as this is all going on.

Jason Gursky: Okay. I appreciate the thoughts.

Operator: Our next question comes from Peter Arment with Baird.

Peter Arment: Yeah. Thanks. Good morning or good afternoon now, I guess. Lynn, Chris, Jim. Hey, Lynn, could you comment a little bit about the outlook on commercial nuclear? You called out for a high single organic growth. I think there’s organic growth this year, but you grew low double digits last year and your guidance for 2026 assumes low double digits. Are we — is there — is this just timing related or is there a deceleration, something you pushed out that, is a change from 2024 versus 2025?

Chris Farkas: 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 and PLEX 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 and we talked a little bit about that in the prepared remarks, but it’s not just TerraPower and X-energy.

We’re excited about what Ultra Energy can do, and they’re investing in research and development to secure some new and exciting ones themselves. So, overall, I think, we feel really good about the low double-digit guide that we gave over the 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.

Peter Arment: Got it. Okay. That’s a 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&A in this space? Thanks.

Lynn Bamford: We really did that build up from an organic standpoint of where we are driving content that we know of today and what we anticipate from the AP1000 build out, the aftermarket and plant life extensions, and the beginning of the build out of SMRs that is at a rhythm drumbeat that is anticipated. So that is business that is within our wheelhouse to drive for Curtiss-Wright.

Peter Arment: Very helpful. Thanks so much. Nice results.

Lynn Bamford: Thank you, Peter.

Operator: Our next question comes from Pete Skibitski with Alembic Global.

Pete Skibitski: Hey. Good morning, guys. Nice quarter.

Chris Farkas: Hi, Pete.

Pete Skibitski: A couple of follow-ups on Naval & 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 the 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?

Chris Farkas: Yeah. Partly. So I’ll definitely say that a good portion of the beat in Naval was associated with material, but other portions of it were just better progress in 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 a lot of Naval work and AP1000 work and the subsea work, we did see some resources shift from subsea pump development to support some of those Naval milestones in the fourth quarter, so that’s another little nuance here. But as you look at the overall, while we still had a very strong 19.1% margin here in the fourth quarter, by and large, the biggest reason for the missed versus expectations is just higher defense business.

And it’s a great business. There’s very solid margins. They’re obviously a strong cast producer. But as you look across the Naval & Power portfolio and you think about nuclear products and process products and air defense products and international sales, it can be diluted. So it was really a combination of the strong Naval defense sales, lower process valve sales during the fourth quarter, lower air arresting systems and we had a really great quarter the prior year, and international arresting systems and those carry very high margins. So mostly mixed as you look across the explained.

Pete Skibitski: That’s helpful. I appreciate it. And then looking ahead to 2025 in this segment, what’s the right way to think about the restructuring that you guys are doing there? Are you closing sites, doing 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 or maybe the mix shifts back, but we’ll just want to pick it at some color there/

Chris Farkas: Yeah. So just to be clear, the vast majority of the restructuring that we spent this year, we spent $15 million to get $10 million of annualized savings, three of which fell into 2024. Seven is going to fall into 2025 to get you to that $10 million spend. But the $3 million, the majority of that fell through the A&I segment, and we increased our margin, I think, maybe in the second quarter 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 Aerospace & 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 is 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 I’ll also say 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 — a lot of work is going on in Defense Electronics 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 & Industrial and Defense Electronics.

Pete Skibitski: Okay. Thanks for the color. I appreciate it.

Chris Farkas: Yeah.

Operator: [Operator Instructions] We will take our next question from Bryce Sandberg with William Blair.

Bryce Sandberg: Lynn, Chris, and Jim, good morning, and thanks for the question.

Lynn Bamford: Good morning.

Chris Farkas: Good morning.

Bryce Sandberg: I just want to ask, on the Naval business, we’ve seen pretty significant supply chain and labor disruption at 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?

Lynn Bamford: So it’s a question we get asked fairly frequently and we are — 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 our equipment is usually ordered years in advance, a couple 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.

Chris Farkas: I will just add that, one of the exciting things about our business and we talked about this at Investor Day, so it’s 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. We’ve got two service centers on the East Coast and one on the West Coast. And not only is it RCOH work, but there’s also just a lot of aftermarket coming, Virginia-class submarines of initial spares provisioning that’s helping Curtiss-Wright to grow. We’ve got a great footprint in Naval arresting systems that also 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 what’s happening in the shipyards.

Bryce Sandberg: That’s helpful. Thanks, Lynn and Chris.

Lynn Bamford: Thank you.

Operator: Thank you. If there are no further questions coming from the phone lines, I will now turn the call over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Lynn Bamford: 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.

Operator: Thank you. This does conclude today’s Curtiss-Wright earnings conference call. Please disconnect your line at this time and have a wonderful day.