CW - NYSE

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

Thank you, Todd, and good morning, everyone. Welcome to Curtiss-Wright's third quarter 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 and 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 curtisswright.com. A replay of this webcast also can be found 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 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. Also note that our updated full year guidance does not include the acquisition Ultra Energy, which we anticipate closing in the fourth quarter. 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. As you saw in our results released last night, we delivered a strong third quarter performance and continued to build momentum across our businesses. We continue to invest in the future of Curtiss-Wright, including our technology, systems and infrastructure and, of course, our talent. As a result of these investments, Curtiss-Wright remains deeply aligned with the major growth vectors within our end markets and well-positioned to generate meaningful and long-term returns for our shareholders. In addition, there have been a number of exciting industry developments and announcements over the past few months. particularly in commercial nuclear, which have the potential to create tremendous value for Curtiss-Wright over the course of this decade and beyond. I'll speak to some of those opportunities in more detail later in our remarks. Overall, we remain confident in our ability to accelerate the pace of long-term profitable growth and have demonstrated considerable progress towards our 2026 Investor Day objectives. With that, I'll turn to today's presentation. I'll begin by covering the highlights of our third quarter performance, and we'll provide a few comments regarding our updated 2024 financial outlook. Then I'll turn the call over to Chris to provide a more in-depth review of our financials. Finally, I'll wrap up with some closing remarks before we move to Q&A. Starting with the highlights of our third quarter 2024 performance. Sales increased 10% year-over-year to nearly $800 million, driven by a better-than-expected performance in both our Defense Electronics and Naval & Power segments. Underscoring these results, we achieved a strong 15% growth in our Aerospace & Defense markets as well as low double-digit growth in our commercial nuclear market. Operating income increased 11% year-over-year, once again exceeding our sales growth and resulted in the 20 basis points of overall operating margin expansion to 18.7%. This performance reflected the strong growth in sales, our team's commitment to operational excellence and the initial benefits of our corporate-wide restructuring actions. Diluted earnings per share increased 17% year-over-year, which also exceeded our expectations and was primarily driven by our higher A&D sales. Free cash flow was $163 million, up 19% year-over-year, reflecting more than 140% conversion due to the improved operational performance and lower working capital. Turning to our order book and starting in our A&D markets. We continue to experience strong demand for our Defense Electronics product within our ground and aero defense market with the third quarter results reflecting higher orders for tactical communications and flight test equipment. As a result, our Defense Electronics segment achieved its highest booking quarter on record. Elsewhere, orders within our naval defense and commercial aerospace markets were relatively flat compared with the prior year, but both have demonstrated very strong growth through the first nine months of 2024. Within our commercial markets, we benefited from improved demand in our commercial nuclear aftermarket businesses, primarily driven by the fall outage season which, as expected, was more pronounced than 2023. Elsewhere, we continue to see stabilization in order trends for our industrial businesses, most notably in industrial vehicles, despite some of the challenging dynamics impacting the global off-highway market. Overall, total new orders increased 2% year-over-year in the third quarter, reflecting a solid 1.1 times book-to-bill. Furthermore, new orders for the year continue to outpace our very strong overall sales growth. As a result, our year-to-date backlog is up 16% and reached a new record of $3.3 billion. This strong demand provides us with continued confidence to support Curtiss-Wright's long-term growth outlook. Turning to the topic of capital allocation. I would like to highlight the ramp-up in our share repurchase activity during the third quarter. Curtiss-Wright typically plans for at least $50 million of annual repurchases to cover share dilution. In May, the Board approved an increase in the total available authorization to $400 million, reflecting their confidence in the company's ability to deliver profitable growth and in our strong free cash flow position. Subsequently, in September, the Board approved a request for a $100 million expansion of our 2024 share buyback program. I'm pleased to report that we immediately began to repurchase our stock and completed the $100 million program on September 30. We are now on track to complete at least $150 million of share repurchases in 2024, and we remain well-positioned to deliver a constant return to capital in our shareholders going forward. Next, I'll provide some highlights of our updated full year 2024 outlook, as shown on the right-hand side of the slide. Our growing backlog and strong operational performance have provided confidence to once again raise our overall guidance for the majority of our key metrics. We now expect sales to increase 7% to 9%, principally reflecting the improved outlook in our A&D and commercial nuclear markets, driving a 7% to 10% increase in operating income. We continue to target our operating margin expansion, while making significant investments across the business to improve our competitive positioning and strengthen Curtiss-Wright for the future. Diluted EPS is now expected to grow 12% to 15%. In addition, for the second consecutive quarter, we raised our free cash flow guide to reflect the strong year-to-date performance and higher confidence in the full year outlook. In summary, Curtiss-Wright demonstrated strong operational performance in the third quarter, and the business remains primed to deliver exceptional results for the full year. Now I would like to turn the call over to Chris to continue with our prepared remarks.

Thank you, Lynn. On slide four, I'll review the key drivers of our third quarter 2024 performance by segment. I'll begin in Aerospace & Industrial, where overall sales increased 4%. Within the segment's commercial aerospace market, our results reflected strong OEM sales growth supporting increased production on the A320 and various wide-body platforms. Within the segment's defense markets, solid increases in actuation equipment sales in both aerospace and naval defense markets reflected the timing of production on various programs. Partially offsetting those increases was lower sales in the general industrial market, principally due to the timing of off-highway industrial vehicle sales despite the modest growth in orders that Lynn mentioned earlier. And turning to the segment's profitability. Our results reflect -- mainly reflected favorable absorption on higher sales and a small restructuring benefit, which were largely offset by unfavorable mix, including a lower volume of higher margin industrial vehicle products. Next, in the Defense Electronics segment. Sales growth of 12% exceeded our expectations based upon the strong demand that continues to fuel these businesses and partly due to the timing of production revenues. Within the segment's ground defense markets, we continue to benefit from an increase in demand for our tactical communications equipment from both domestic and direct foreign military customers. Within aerospace defense, we once again experienced strong growth in embedded computing sales across a number of C5ISR programs. In addition, across potential electronics, timing was once again a factor as we accelerated some revenues and deliveries into the third quarter. This is largely due to the planned restructuring activities announced last quarter that are now underway to support our future growth. And as a result, as we look ahead to the fourth quarter, we now expect a sequential decline in revenues within the Defense Electronics segment. Regarding the segment's third quarter operating performance, we delivered a strong 26.5% operating margin, up 50 basis points year-over-year to a five-year high as this business continues to benefit from the conversion of its backlog and favorable absorption on higher revenues. Turning to the Naval & Power segment. Sales growth of 14% was ahead of our expectations and partly due to the timing of increased development revenues, which consequently weighed on our profitability during the quarter. Starting in naval defense, revenues increased more than 20%, driven by higher production revenue across several key platforms, including the Columbia-class and Virginia-class submarines and CVN-81 aircraft carrier programs, due in part to the timing of material receipts. Our results also reflected increased development revenues on the next-generation SSN(X) submarine program in addition to increased demand for our aftermarket fleet services and aircraft handling systems to international customers. In the power and process market, our results reflected continued strong demand in commercial nuclear supporting the ongoing maintenance of operating reactors in North America, while sales in the process market were essentially flat year-over-year. Turning to the segment's operating performance. Favorable absorption on higher revenues was partially offset by unfavorable mix from an increased concentration of customer funded development programs to support our future growth. To sum up Curtiss-Wright's third quarter, overall, we generated solid absorption on stronger-than-expected top line performance resulting in 20 basis points in year-over-year operating margin expansion. Next, turning to our full year 2024 guidance. I'll begin on slide five with our end market sales outlook, where we now expect total sales to grow 7% to 9% driven by upward revisions across several of our end markets. Starting in Aerospace & Defense, we raised our outlook to now reflect full year sales growth of 9% to 11%, driven by increased customer funded development on various C5ISR programs. Within ground defense, despite some timing between the third and fourth quarters, our outlook for 10% to 12% sales growth remains unchanged and continues to reflect overall strong demand for our tactical communications equipment. In naval defense, we now expect sales to grow 9% to 11%, driven by the strong growth of order volume thus far in 2024. Of note, we now expect a sequential decline in naval defense revenues in the fourth quarter based upon an acceleration of submarine development revenues into the third quarter as well as the timing of material receipts across several platforms. Turning to Commercial Aerospace. We raised our full year outlook to a new range of 16% to 18% growth based upon our solid order book and the strength of our year-to-date performance, particularly for surface treatment services. Overall, we expect to benefit from higher OEM production sales on the A320 and more broadly, wide-body aircraft this year despite the impact of the Boeing strike. Wrapping up our Aerospace & Defense markets, we now expect total sales in these markets increased 10% to 12% in 2024. Moving to our commercial markets. In the power and process market, we raised our outlook to reflect full year sales growth of 5% to 7%. We now anticipate a low double-digit full year growth rate in the commercial nuclear market, principally driven by higher U.S. aftermarket revenues, and we anticipate a strong finish to 2024. In the process market, we reduced our outlook slightly due to the timing of development on subsea pumps, and we now anticipate full year sales to be flat in this market, including our previously communicated expectations for lower capital project revenues. However, it's worth noting that we remain on track to our customers' expectations for subsea pumps development, and this reduction in the full year growth represents a temporary shift in resources towards naval programs. Lastly, in the general industrial market, based on the year-to-date performance, we have reduced our full year outlook due to lower global off-highway vehicle sales and now anticipated decline of 2% to 4%. However, we expect fourth quarter sales to improve sequentially based on the stability in the order trends and to be relatively in line with the prior year quarter. Wrapping up our total commercial markets, we continue to target full year sales growth of 1% to 3%. Moving on to our full year outlook by segment on slide six. I'll begin in Aerospace & Industrial where despite the challenges within our general industrial market, we continue to expect sales to grow 4% to 6% based upon the strength of our A&D markets. Regarding the segment's profitability, we continue to project operating income growth of 8% to 11% and operating margin to increase 50 to 70 basis points in the range from 16.9% to 17.1%. Next in Defense Electronics, we are increasing our revenue guidance to 9% to 11%. This year-over-year growth is principally driven by the continued strength of our order book, as well as improved expectations within the aerospace defense market where the team has been successful in securing contract funding for several R&D programs. Regarding the segment's profitability, we now expect operating income growth of 13% to 15% and operating margin expansion of 70 to 90 basis points to a new range of 24.2% to 24.4%, which is 20 basis points above our prior expectations. And in Naval & Power, based upon the strong year-to-date performance within both our naval defense and our commercial nuclear markets, we've raised our expectations for revenue growth to a new range of 8% to 9%. Regarding the segment's profitability, we raised our operating income guidance to a new range of flat to up 2% based on the higher revenue growth, However, we maintained our prior margin outlook as we continue to expect unfavorable mix, including margin pressures associated with the accelerated ramp up in development programs, particularly for next-generation naval defense platforms. So, to summarize our outlook, overall, we now expect total Curtiss-Wright operating income to grow 7% to 10%. We continue to expect operating margin to range from 17.4% to 17.6%, which includes a year-over-year increase of more than $20 million in total engineering spending. Continuing with our financial outlook on slide seven, I'll begin with our updated EPS guidance, where we now expect full year 2024 diluted EPS to range from $10.55 to $10.75, up 12% to 15%, reflecting the increased confidence in our outlook and a slight reduction in our share count following the completion of the $100 million share repurchase program in September. And lastly, turning to free cash flow. Based on our strong year-to-date performance and our updated projections for improved earnings, we've raised our outlook again to a new range of $430 million to $450 million. This outlook reflects solid growth of 4% to 9% and a free cash flow conversion rate in excess of 105%, which remains in line with our long-term targets. Now, I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to slide eight. We've positioned Curtiss-Wright for a strong finish to 2024 and remain confident in our ability to generate the 7% to 9% total sales growth supported by strength in the majority of our end markets. While we've had to navigate some challenging market conditions this year, it's the strength of Curtiss-Wright's consolidated portfolio, our ability to bring critical technologies to new markets and our well-established leadership position that enable us to continue to capture new opportunities for growth. This top line momentum, along with our continued focus on both commercial and operational excellence while making targeted investments across the business, are all contributing to the strong increases in EPS and free cash flow again this year. We also intend to put the strength of our balance sheet to work through disciplined capital deployment, whether that's acquisitions or returns to shareholders. Under our Pivot to Growth strategy, we remain focused on supplementing our organic growth with high quality strategic acquisitions that meet our stringent financial criteria and long-term profitable growth. Earlier this year, we announced the acquisition of Ultra Energy, which we anticipate closing in the fourth quarter. As a reminder, Ultra provides safety critical products and services to commercial nuclear and power generation plants globally and also to the naval defense market, including the U.K. nuclear submarine fleet. We look forward to this business strengthening our core positions within our naval defense and power generation markets and opening up new doors to a wider, more global customer base. Aside from acquisitions, we anticipate completing the $150 million in total share repurchases in 2024, and we remain committed to driving consistent returns to our shareholders. Looking beyond 2024 and as communicated at our recent May Investor Day, we are dedicated to being a leader in the markets we serve and capturing new opportunities for growth across the portfolio. We continue to execute our strategy to align Curtiss-Wright to a range of key secular trends in our end markets, from the growing demand for power to support AI and data centers to the rise in global defense spending. This focus, along with ongoing industry accelerators, further support our Investor Day outlook to grow organic revenue at a greater than 5% CAGR through 2026. One of those key accelerators is the exciting momentum in commercial nuclear, highlighted by the recent news that Microsoft, Google and Amazon are investing in commercial nuclear to power their data centers with carbon-free energy. As an example, last month, Constellation Energy announced a 20-year power purchase agreement with Microsoft to restart Unit 1 reactor at the Three Mile Island nuclear power plant to provide electricity to power Microsoft data centers. The reopening of this plant should provide an opportunity for Curtiss-Wright to once again supply our critical plant equipment and services to support the long-term operation of this reactor. We were also excited to see X-energy's recent announcement of partnership with Amazon to accelerate the development of the XE100's advanced SMR. With Amazon's goal to bring more than 5 gigawatts worth of power online in the United States by 2039, this represents the largest commercial deployment target of SMRs to date. As a reminder, we are a strategic supplier to X-energy and are actively engaged in design and development of this reactor. We remained aligned with X-energy and all major SMR designers and are working to secure content that has the potential to range for $20 million to more than $120 million of revenue per site. In addition, we recently issued a press release to highlight the finding of a memorandum of understanding with Westinghouse to support future new build plants in Canada, including both the AP1000 large light module reactors and AP300 small modular reactors. Overall, we're excited to see the continued support from industry, the administration and the influx of funding for major technology companies. These recent advancements provide us with increased optimism and further proof points to support the long-term goals communicated at our Investor Day of doubling this portion of our business by 2028 and for our commercial nuclear market to reach $1.5 billion in annual revenues by the middle of next decade. In closing, we're pleased with our third quarter results and remain on track to achieve a number of financial and strategic milestones in 2024, including new records for total sales, free cash flow and backlog as we execute our Pivot to Growth strategy. We look forward to delivering continued success and long-term profitable growth for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.

The floor is now open for questions. [Operator Instructions] Thank you. Our first question will come from Peter Arment with Baird. Please go ahead.

Yeah. Good morning, Lynn, Chris, Jim. Nice results. Hey, Lynn, within Defense Electronics, obviously the demand signals for embedded computing, and technical communications have been really strong along with FMS activity. How are you guys kind of measuring our share gain activity? Because it seems like that also is maybe a factor here.

So, thank you. I mean, I guess, I would open with saying we're really pleased with what's going on in that business, their execution, their drive for customer satisfaction and just broadly the overall execution of the team. Having a record order book in Q3 is something that is really to be celebrated. And it isn't just one quarter. Over the past two years, with the outstanding growth we've seen, we're over one times book-to-bill consistently over the past two years. So, it isn't just a pop or a spike in one quarter. So, we definitely feel the future is very bright for this group going forward. And I really do have to say, obviously there are opportunities for market share gain that we are working hard on, and I won't be bashful about saying that. But they're really not part of what we're seeing in the success of this team to date. That is really still future opportunities for us as we work through the process of winning some business that maybe one of our competitors had in the past. And that's actually across multiple competitors where there's some struggles out there. And so, this is really the organic result of what the team has built by. We talked about -- for years, you've heard me talk about this. Our investment in the motion, the product offerings, to really have the leading product offering in the industry. And it's just winning us new business. And the team really worked hard. It doesn't mean we don't ever do something not perfect for our customers. But the team really worked hard to drive customer satisfaction, communicate well, prioritize what our customers need to prioritize and deliver for them. And so that's really what's driving the results that we're very proud of.

I appreciate all that color. And then, just quickly on commercial nuclear. With all the plant life extensions that are being planned, does the low double-digit, does it ever like accelerate? Or how does it work from just a road map perspective? Just because it seems like more than half, or I think you mentioned three quarters of the existing 94 reactors have applied for plant life extensions. It just seems like there's just a bow wave of work that's coming your way.

So, yeah, I think it's 80% now. And that's either not necessarily have applied, but have indicated they're going to apply, just to be technically correct. So, I'm not leaving any misinformation out there. So -- but no, it is great. We're pleased with the low double-digit growth. I mean, you know for a lot of years, we struggled to achieve low single digit growth. So, it's really great to turn that to low double-digit growth. And yes, I mean, I think the future is just bright. And will it get higher than that? We'll have to wait and see. But I think things like the restarting of Unit 1 at Three Mile Island, that's another plant and another plant that fairly far behind in the maintenance they did before they shut down in 2019. And so, a lot of catch up, and I know our team is engaged there. And something we talked about, Canada and South Korea are going to go through plant life extensions also. We have great footprint up in Canada are working back. And again, this is a little bit more long-term, but we're really working to see how we can support some of the Eastern European reactors as they move away from Russian supply chain. So, a lot of great things going on across the group, but I feel like we really have the right products for what people are doing in these plant life extensions.

Got it. And just lastly on nuclear, on your SMR kind of commentary, you gave a lot of details. You've got obviously a relationship with X-energy. But can you talk about just broadly how you're positioned with some of the other players?

Thank you for that. So, I think, it is really important. And the message we want to communicate to the investment community is we are working hard and dedicated, and everyone who we work with knows this, is to have content across all the major SMR providers. And so, I mean, obviously, our position with Westinghouse with the RCPs and their desire to have the AP1000 -- make the design of the AP1000 as much as possible -- the AP300 -- the design of AP1000, sorry for that, puts us in a strong position. And we're pursuing other things with them. I mean, the RCPs kind of dwarfs the revenue, but we don't just rest on that and work hard. But I think NuScale was the first company that we announced our content with several years ago. And still it's at $40 million per reactor, and we're definitely engaged with them in pursuing more work. Have some announcements with TerraPower, that we expect the 2ARDP customers, X-energy which you mentioned and then TerraPower being the other, we're definitely advancing our position with them. And we really only have one public thing announced to date, but hopefully, we'll be able to put some other announcements out there. And Rolls-Royce is another one that I would say we have very great engagement with and are talking to them about a lot of content on their reactor and know that -- when we can close on this acquisition of Ultra and have that U.K. footprint, it's really going to even open up some more doors to us. And so, we're very pleased with that. It's earlier -- I'd say we're a little bit less advanced than what we're discussing with GE Hitachi at this point, but absolutely good engagements there. And I had a chance to meet with their leadership just a couple of weeks ago to talk about how we can advance our supply with them. So, our goal is really to be universal. Because I really do believe there will be great market opportunity for all these guys. And one of the other reactors that's kind of been in the news a bit is Kairos with their announcement with Google. And to date, we don't have any established content with them. They know who we are. They know our capabilities. They -- and I'm not speaking for them, but appear to us to have a strategy of wanting to be pretty vertically integrated. And we just stand there making clear of what we can do. So, when they pick items they can't vertically integrate, that hopefully, we will be their table to win content with them. And then get a much more minor dollar, some of the small micro reactors and such, we are engaged in a lot of those. It's less needle-moving dollars, but we're there to win content where we can. So, the team -- the sales team is doing a great job. The engineering teams are doing a great job of really proving our capabilities to establish our position in this market.

Appreciate all the details. I'll jump back in queue. Thanks, Lynn.

Thank you, Peter.

Thank you. Our next question will come from Pete Skibitski with Alembic Global. Please go ahead.

Hey, good morning, everyone.

Good morning.

Lynn, I was wondering on the aerospace defense on the guidance increase, what's the biggest driver there in terms of dynamics? Is it new builds, new build platforms that drives the growth or aftermarket growth driven by usage? Or is it mostly upgrades? I just want to get a better sense.

I say, first, welcome to the call, and thanks for picking up the coverage. So, it's a pleasure to have you here today.

Thank you.

And I think I might actually turn that question over to Chris to give a substantial answer to your question.

Yeah. So, Pete, just to be very clear, a strong overall increase year-over-year across Defense Electronics. And not only this year, but this past year, as Lynn started off mentioning, we've had very strong orders for the technologies that we produce in the C5ISR space, the commercial costs, tactical communications equipment and flight test equipment, supporting some pretty exciting projects that are kind of going on in the defense industry and some transitions that are taking in terms of the military's approach towards Defense Electronics. So very broadly, that's what's driving this. As Lynn has mentioned, record orders again in the third quarter. The Defense Electronics segment is nearly at $1 billion in orders over the past 12 months. And as we look at the backlog for that business, despite this high growth, 13% up year-over-year. So, the future is bright. As it specifically relates to the increase that you saw here in aero defense in the third quarter guidance, most of that is relative to an increase in secured funding that the team has had regarding IR&D programs. We're working on some pretty sophisticated technologies in the aerospace defense arena. I can't really go into any more detail than that. But that shift of research and development from IR&D, which is where they started and targeted the year planning for an internal spend, going into a customer fund that will drive the bulk of the most recent change.

Okay. That's great. I appreciate the color. And just one last one for me. I guess, I think, some of what you guys do is shorter cycle business. So, I'm just wondering, are you just not seeing any negative impact really from this ongoing CR? Could you talk through that with us? Thanks.

Yeah. So, important question, and hopefully, we'll have a budget here in the next handful of months. But we're -- to date, we're not really feeling the impact of the CR. We're in such a good backlog position. We've always said we can weather your average 50, 60 days CR, which is kind of the norm and not feel it. Now, I will say a couple of years ago, when we had the 180-day CR, we did see it because there's no new program starts so there's no IR&D new starts out of our customer base. And that does drive tens of millions of dollars of revenue across the business. So that can start to weigh on this when it goes into that four, five, six-month timeframe. Hopefully, that won't be the case here. But for now, we're not feeling the impact of that and hence, our confidence in our guidance.

Great. Thanks, guys.

Thank you.

Thank you. Our next question will come from Myles Walton with Wolfe Research. Please go ahead.

Thanks. Good morning. I was wondering if we could chat a bit about margins, particularly in A&I. And when I asked, I think, at the Investor Day about the opportunity of margin expansion across the segment, I was surprised when you answered that A&I would have potentially the largest, which I guess, is what's going to play out here if you hit your implied 20%-plus margins in the fourth quarter for A&I. So, what's going on there that's allowing that kind of margin uplift? And how sustainable is that going forward?

Yeah. So, I think one of the biggest drivers to that is -- as you look across the full year is really the restructuring, Myles. And what we've invested in there this year, we're going to spend $15 million to get $10 million of annualized savings. And some of that's going to affect the A&I segment. I think the biggest impact will affect the fourth quarter. And that will probably be somewhere in the range to that segment in the full year of about $3 million. But we will definitely have a sequential improvement in those savings in Q3 to Q4. Outside of that, I think as you look at the full year, you're looking at a fairly standard volume absorption, maybe somewhere in the range of about 25%. The business will be investing IR&D this year, and we're expecting just a small headwind there of about $1 million year-over-year. So that's how you would get to the midpoint of the range.

Okay. And then conversely, I don't think in the history your Defense Electronics has ever had a down fourth quarter sequentially. But obviously, that's what you're implying both on top line and margins. And I hear you on the pull forward. I guess, the same thing happened in the second quarter has happened here in the third quarter. But is that the case that mix is what's driving the margins back towards where you were in the first quarter? And then, I guess, from a follow-on question, the seasonality you've taken out of this year, should we expect that to continue in '25?

Yeah. So, we've talked a little bit earlier this year about the efforts that the organization had been going through to try to level load the work across the business and try to get out of a little bit of this fourth quarter hockey stick that we've existed in for a very long period of time, which was more exaggerated over the past two to three years. And I think the team has made some good successes. And certainly, solid improvements in the supply chain from the problems that we were experiencing two years ago has helped with the level loading of that work. So, I think the team has done a great job in that regard. As you approach the fourth quarter, I mean, this really is across Defense Electronics unusual for us. As you pointed out, we don't normally have a decline in revenues. But between the pull forwards from Q4 to Q3 to stay ahead of customer expectations while we engage in this restructuring, which is really footprint oriented, to execute on that very strong order book and backlog that we've already talked about, that's why you're going to see the reduction. It's certainly not a sign in any way, shape or form that the demand of that business is declining. Things are very strong. But we do have to take some steps to make sure that the footprint will support that future growth. And as you look at it across Defense Electronics, you're really going to see it in two areas. You're going to see it not only within the ground defense market, right, in tactical communications, and we've had some movements there that we've already talked about earlier this year. But you'll also see it within our aerospace defense markets, and it's just largely impacting some very profitable portions of our business and some higher margin products within the Defense Electronics portfolio. So, we are expecting to see profit margins sequentially decline from Q3 to Q4 based upon that pull forward of work into Q3.

Okay. Yeah. No, that's crystal clear. Thanks so much.

Thank you. Our next question will come from Nathan Jones with Stifel. Please go ahead.

Good morning, everyone.

Good morning.

I'm going to follow up on the Defense Electronics questions there. Maybe if you could just provide a little more color on what you're doing in restructuring the footprint, how that impacts capacity for growth as you go forward into '25 and '26, where capacity utilization is and kind of what savings you're looking to get out of this?

Yeah. So, without being overly specific, because it's just not something that's [indiscernible] be talking about. But with regards two of our significant sites, we are preparing for future growth and shaping our footprint globally. In one case, we're changing it on site. And in another case, we're actually preparing for a move to a larger site within Curtiss-Wright where we can leverage space that we have and give them just a better operating footprint to be able to really deliver on the growth that we see coming. So, it's -- I've done a lot of restructuring over the years, and usually, you're just cutting costs. So, it's kind of fun to be doing this kind of stuff to prepare for future growth. And this -- we're doing it now in Defense Electronics. You're definitely looking across our nuclear -- enable a nuclear group of stuff that will come probably later in the decade, where we will also be -- being required to prepare for some stuff. But answering your question about going forward and kind of going back to the other thing Myles asked, our goal is to continue the level loading that we have achieved this year and to manage the business that way going forward. It's just good all around. You have less overtime. It's good for the employees that it's not crazy around the holidays. I mean, it's just practically a good way to run the business. So that's our goal. Now, is it going to be perfect every single year? We'll see. We did it this year. We're going to work on doing it next year. But I can't say that we're never going to have a hockey stick in Q4 again. But hopefully, it would be very minor if it was given what was done. Because really -- Chris mentioned it with the supply chain, that we really have -- I'd say we're in a better place than we were in 2019 with our supply chain and really been able to -- some of the things we scrambled and did during the pandemic as the world was crumbling underneath us, it felt like, have really left us in a stronger place with better, deeper relationships with our supply chains and different contracting approaches, different agreements with who will hold stock for us. Just a whole variety of new tools and systems that we've implemented. And so -- and that's a big part of being able to control your load in the business. But also, your order patterns will obviously affect it. So, we see it as a really strong thing for the business.

And then, I guess, my follow-up is going to be around commercial nuclear and the SMRs and specifically on this Amazon announcement. Can you talk about -- I know that X-energy is at the higher end of revenue of the 20 to 120 plus for you guys. If that all happens on schedule, can you just talk about kind of -- what kind of revenue that could generate for you? I mean, I know it's -- we're talking to stuff that happens in the 2030. So, it's not going to impact anything near term. And then just any kind of indications inside market intelligence that you guys have on what the magnitude of this could be in the 2030s and going forward after that? I mean, I would assume that if all of this works out, this Amazon announcement could just be the tip of the iceberg rather than the end of the road. So, just any comments you can give us on what you know about that market?

Yeah. So, I mean, it's -- you've heard us talk, and you've heard us talk over the past six, 12 months that we felt there was going to be a change in market dynamics with these data center providers stepping in to accelerate the deployment of nuclear energy. It's just not near to the utility companies to move at the pace that these guys need the power. And so just -- I'm sure everybody can do the math. But Amazon's announcement which had two parts that was both -- they were the anchor investor in a $500 million capital raise, which is fantastic for them to be able to really just put their nose to the grindstone and drive to the end of this design project. But they -- Amazon announced an intent to bring 5 gigawatts of power on the grid, which would be 15 four packs. And you can do the math of 15 -- and I always want to be sure we have the potential, and we're targeting $120 million. This is an ongoing effort with X-energy. We have a great partnership with them, a great working relationship. But as we've said in the years past, with Westinghouse, we put our nose to the grindstone, deliver to our customers and work to earn our right to be their supplier every day. And we don't get ahead of that, and that's the same attitude we we're taking here. But yes, I do think -- another thing that didn't get as much talked about, but also in the Amazon announcement was they signed an MOU with Dominion to help advance and bring in SMR online in Virginia. And so, they haven't declared which one that is, but it's just another indication that this is continuing to grow. And hear buzz of other announcements that could be coming -- we haven't heard from all the big AI consumers yet. So, whether there'll be announcements yet this year from some of those, I mean, we'll see. But I mean, when I think of what we tried to do in our Investor Day that Chris did at the end of his section, we put up the art the possible where we see these -- our revenues in nuclear growing doubling the '28 and $1.5 billion annualized revenue by the middle of next decade, I don't think any of it -- we're not going to change any of these. But they sure have to provide proof points that things are going on in the industry that make those very highly probable targets that we're going to be able to achieve those types of numbers out of our commercial nuclear business. So, we're working hard with the customers that we have and working to win more business and looking at our capacity plans and preparing for -- to be a great supplier to these SMR providers.

Thanks very much for taking my questions.

Thank you.

Thank you. Our next question will come from Mike Ciarmoli with Truist. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Nice results.

Hi.

Hey. Maybe just to stay on that topic, Lynn. I mean, you threw out, obviously, nothing changing with the targets. Can you maybe -- if we start to really see an acceleration in these plant life extensions and maybe we even see more of these restarts of older plants, can you guys help us and quantify what types of revenues you might see? I mean, are there material differences from a restart, if -- I don't think you have a lot of exposure on like fuel loading and reloading. But anything you can help us with? It seems to be a common question we're getting from investors.

Yeah. So, I know we talked as a group and -- I mean, I don't -- our personal guess is there's not going to be like 10s and 10s more restarts because a lot of the plants are just too far into the shutdown that it's not going to be practical, but there could be others. And I know -- I've even seen an estimates of what people think specifically the Unit 1 at Three Mile Island will mean for Curtiss-Wright. And it's definitely meaningful business. But I'd say when we think of -- again, from our Investor Day, we talked about a $7 billion market through now to 2050. I think these things all support that estimate of the market, I don't think we would consider and it needs to be additive to that target. That's a pretty big number of potential market that we have the ability to go target and sell into. So -- and again, we really have not given like a dollar figure for a plant life extension or a restart. I think you can say a restart would be greater than your typical plant life extension. Because as we know, they didn't do a lot of maintenance at the end and then things age when they're sitting there. So that is better even than a plant life extension for us. But what we get out of a plant life extension per plant can really vary quite widely from $10 million plus some to significantly more than that if they choose to do major upgrades like go from analog to digital and do different things like that. So, we've shied away from giving like an expectation of what each plant will drive in revenues to Curtiss-Wright as they do these plant life extensions.

Got it. And then, just on the -- maybe any sort of movement or update on the AP1000. And I know Westinghouse, you guys talked about that MOU. And I guess, does that change -- materially change the opportunity for you at all? I mean, I guess, Canada has been -- CANDU reactors forever, and I think they passed on AP1000 in 2011 or so. Is anything -- is there any real movement there for Canada to deviate from the CANDU?

I'd say it's too early for us to say that. We don't really have anything specific from Westinghouse. We always have -- and we continue to have ongoing marketing meetings with Westinghouse and look at opportunities. And they consider it a real opportunity. But I think their bigger focus still is the 20 to 25 potential plants in Eastern Europe. And there hasn't been a lot of new news around Westinghouse. In October, in Bulgaria, they extended their FEED study, so continuing work through that. And in September, the Polish government committed to a significant investment of $15.7 billion into the first nuclear play. So, those are all just positive things reinforcing the places where Westinghouse believes they're going to win, and we believe they're going to win based on what we can see. And I think we really just have to wait and see in Canada. And kind of if you think back to that chart we put in our Investor Day that showed kind of the flow of what the activity is that leads to when we get orders, I would say there is the first gate, which is political strategy and engagement. And so, it's early days with Canada.

The only other thing I'll say about that, Mike, that I think is a little bit interesting, right, as you look at the agreement that was structured, is it just -- it's Westinghouse working to kind of shore up the Canadian footprint and work that would actually end up being performed within Canada. And that's valuable at this point in time of this engagement. And then the other thing that I would add is that Westinghouse is now owned by Cameco, which is a Canadian company. So, I think the dynamics are shifting there a little bit, but it's still really in the early days.

Got it. Perfect. Thanks, guys.

Thanks, Mike.

Thank you. Our next question will come from Kristine Liwag with Morgan Stanley. Please go ahead.

Hi. This is Justin on for Kristine this morning. Thanks for taking the questions.

Hey, Justin,

Maybe just one on the upcoming elections here. Lynn, if we can get your thoughts on just how you're thinking about any potential risk, I guess, both to the defense business and to the commercial nuclear outlook.

So, those are the two places that people probe at. And I think the good thing is I think the support for the defense spending and us regaining commercial nuclear leadership has really had a very strong bipartisan nature to it over the past many years, not just through this administration, but the prior administration. And kind of harken back and remind people the ARDP program actually started back under the Trump presidency with the stated goal of regaining nuclear leadership globally as an important thing for the United States. And so, I think we will see broad stability regardless of who sits at the top of the ticket. And then maybe even more importantly, throughout Congress, the -- when you look at -- how things like the ADVANCE Act even passed, that it was extremely bipartisan. And so, I think it's been demonstrated that this momentum is happening. And clearly, the world feels ever -- every day, almost like a less safe place, so I don't see anybody really going in and trying to disrupt the defense spending. And there isn't big increases planned, quite frankly, over the next couple of years. I mean, we're talking to some modest increases. So off of a great base, and we had some really big increases over recent years. So, it's not like it's intended to go up another 5% or 10% as we saw over the past couple of years. So, I feel good about that. There are obviously some other things out there. There's various things with potential tariffs and potential changes to the tax code. But there's a lot of road between here and there to see if any of that comes to fruition. So, I wouldn't even begin to speculate on any of that. But between support here in the U.S. for defense spending and the ongoing increase of the NATO countries, two-thirds of them now spending their 2% or above, maybe even a little higher than that. And ongoing commitments there and our footprint there, I think, makes the outlook for our ability to grow our business very strong. And we don't really feel it will be impacted. Of course, we've got to stay tuned with it and react as things play out. But it's not a big concern, to be frank.

Okay. Great. That's helpful. And then maybe if I could sneak one more in, just on M&A. You're talking capital deployment at the top of the call. Maybe just if you could provide an update on how the pipeline is shaping up. We've heard from a number of A&D peers that activity has picked up in the last few months. So, just curious if that tracks with what you're seeing out there.

Yeah. I would say it does. There's been a pretty good flow of businesses. Obviously, our main focus right now is getting Ultra closed. We don't see any concern about that happening. It's just sort of, I think, caught up in the change of administration over in the U.K., and things didn't go as quickly as one might have anticipated or we anticipated. But hopefully, we'll have that deal closed here in the fourth quarter. And we're really excited about what it's going to bring to Curtiss-Wright talk -- say about that in the prepared remarks. But the pipeline is good. We did some share repurchase, but we have capital. And maybe I'll let Chris comment a bit more on what -- how we might think about that going forward.

Yeah. Thanks, Lynn. Yeah, I love talking about the balance sheet and where we are, for sure. It's -- at the end of the third quarter, we had $440 million of cash on hand, and that was after the closure of the $100 million share buyback. Now we're going to close on Ultra Energy here in the fourth quarter, and that will be $200 million against that balance. But we're also planning to generate another $200 million. So, I think at the end of the year, we're likely going to finish with $400 million of cash on hand. Roughly half of that will be tied up in foreign. We'll have a clear revolver. We're really well-positioned as we enter into this next year and look at some of these other properties that are on the horizon to seize them when the opportunity is right. So, we're in a good spot on the balance sheet.

Great. Thank you both.

Thank you. [Operator Instructions] Our next question will come from Bryce Sandberg with William Blair. Please go ahead.

Lynn, Chirs and Jim, good morning and nice quarter.

Thank you.

Good morning.

Another one on the SMR opportunity. You have partnerships with NuScale, X-energy and TerraPower. As you look at the pipeline for new partnerships, won't you expect more partnerships to potentially be announced? And when would you expect the design for those SMRs to be finalized?

So, I mean, there's some -- I think we'll have new partnerships, like formal partnerships announced in the next three to six months. But these are complicated situations, so I might be not fulfilling that commitment. But knowing where we are engaged with some of the other major suppliers, I would think that, that could be a reasonable time line. But we'll see. We have to let these things play out as the companies work through what works for both companies. So, I think, it seems like everybody is targeting, trying to get their initial SMR producing power by 2030, 2031, 2032. And with that, really across these opportunities, all are still in the design phase. And I think in the next one, two, three years, those design phases will move to prototyping, which should mean the designs are largely finished, but that's why you prototype, but sometimes you change things after your prototype. But I think it will be in this decade, and I realize that might seem like a long time. But I think they'll be substantially done after we turn into the back half of this decade. So, the company is going to move on to prototyping, then their ultimate first deployments.

Great. Thanks, Lynn. That's all for me.

Thank you.

Thank you. We'll take our next question from Tony Bancroft with Gabelli Funds. Please go ahead.

Good morning. Lynn and Chris and Jim, great job. You've obviously done an excellent job here, Lynn, with your leadership, balance sheet is strong, strong growth outlook looking ahead. You just mentioned that the pipeline is looking strong as well. Has your view changed at all on potentially doing something more transformational? You obviously just have a great backdrop here. And there's obviously a lot of acquisition potential out there maybe in the public space or something that's maybe outside your wheelhouse. Does it make sense? Maybe just to talk through your logic there. Thank you. Great job.

Thank you for that and thank you for the comments. We've said consistently for four years that we are open to doing acquisitions that are more significant than anything we have executed on so far. And for those maybe just not familiar, our largest acquisition was PacStar back in the end of 2020, which is -- you hear us talk about our tactical communications often is a tailwind for us. And that's mostly their equipment. So that's been great. And we look at larger acquisitions. I mean, I will say -- I never like to say our risk tolerance changes, because the bar is just high. We have to have clean line of sight for how we will integrate them, how they will be able to take advantage of who Curtiss-Wright is. But I also look at the team's bandwidth and the growth that is coming from the opportunities we have for us. And I don't want to become spreadsheets thin from a management standpoint. And so, at some point, that does play into how you think about what you might consider. But we're going to continue looking at them and consider -- and then put that in balance of the growth that we're experiencing in the commercial nuclear market, low double-digits this year, the growth we're experiencing Defense Electronics in places where we'd like to acquire to make sure if we do, do something, we have the bandwidth to absorb, but while other great things are going on. So, I would say that maybe is -- put a shade of change in how I think about things, but I would still say it's on the table. We're doing something larger than we've done to date.

Thanks so much. Great job.

Thank you.

Thank you.

Thank you. At this time, I show no further questions in queue. I will turn the floor back to Lynn Bamford for any additional or closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking to you in February with our full year results.