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Ladies and gentlemen, thank you for joining us, and welcome to the Moog Inc. Fiscal 2025 Fourth Quarter and Full Year Earnings Call. [Operator Instructions] I will now hand the conference over to Aaron Astrachan, Head of Investor Relations. Aaron, please go ahead.

Good morning, and thank you for joining Moog's Fourth Quarter 2025 Earnings Release Conference Call. I am Aaron Astrachan, Director of Investor Relations. With me today is Pat Roche, our Chief Executive Officer; and Jennifer Walter, our Chief Financial Officer. Earlier this morning, we released our results and our supplemental slides, both of which are available on our website. Our earnings press release, our supplemental slides and remarks made during our call today contain adjusted non-GAAP results. Reconciliations for these adjusted results to GAAP results are contained within the provided materials. Lastly, our comments today may include statements related to the expected future results and other forward-looking statements, which are not guarantees. Our actual results may differ materially from those described in our forward-looking statements and are subject to a variety of risks and uncertainties that are described in our earnings press release and in our other SEC filings. Now I'm happy to turn the call over to Pat.

Good morning, and welcome to our earnings call. We closed out fiscal 2025 with an exceptional fourth quarter performance. We achieved record results. This performance capped an outstanding full year in which we achieved strong growth, continued margin expansion and improved free cash flow, continuing our improvement journey launched at our 2023 Investor Day. Our fourth quarter set a new high watermark for performance. Record-breaking results included delivering over $1 billion in quarterly sales, hitting an all-time high 12-month backlog of $3 billion, thus achieving our highest quarterly adjusted operating margin and adjusted EPS and free cash flow. Our successful execution of strategy has resulted in a financially stronger business with outstanding fiscal 2025 results. Our focus on customer drove records for orders, backlog and sales, which are respectively up 36%, 20% and 7% relative to prior year. Our success at growing the business and our focus on operational execution enabled us to drive record adjusted margin and EPS whilst overcoming tariff headwinds. Finally, we improved free cash flow relative to prior year with an outstanding performance in the last 2 quarters. Our results demonstrate our dedication to driving improved operational and financial performance. Our focus is on delivering for our customers and driving ongoing continuous improvement. Our success is driven by our employees' commitment to making this both a great place to work and a strong company. And for that, I want to thank all of those dedicated staff who contributed to our performance over the last 12 months. Now let's turn attention to our end markets and the macro environment, starting with Defense. The Defense market continues to be strong. We're experiencing a secular increase in Defense spending within the U.S., NATO Nations and Indo-Pacific allies, which will continue for the foreseeable future. In addition, there is a growing sense of urgency to increase industrial capacity in these regions. We are well positioned to respond to these demands across a broad-based opportunity set with both primes and new entrants. We're winning in the U.S., we're expanding in Europe, and we're gaining a foothold in Australia. Moving to Commercial Aerospace. Our customers have strong backlogs and our intent to drive increased production rates. Boeing broke ground on a second final assembly building in Charleston, South Carolina as part of its $1 billion commitment to the 787. In addition, 737 MAX rates are set to increase. We continue to see stability and have confidence in the demand outlook. We maintain a stable production plan that supports our customers' needs. On the aftermarket side, we continue to benefit from increased airline activity and aging fleet, increased wide-body fleet utilization and our ability to maintain a strong aftermarket position. Finally, within Industrial markets, we continue to have relative stability. We see steady growth in the medical end market and outsized growth in data center cooling. This is reflected in progressive growth in our 12-month industrial backlog over the last 2 quarters. Overall, end market conditions are very favorable for our business. Now turning attention to our leadership priorities, starting with customer focus. We are incredibly pleased to have our operational performance, officially recognized by our customers. We received the Crystal Excellence Award from CAE for outstanding operational performance and deep commitment to sustainability. We also received a supplier award from Lockheed Martin for a 100% on-time delivery over the last 12 months on the PAC-3 missile program. Our focus on operational excellence ensures that we deliver for our customers and expand our business. Our strong customer value proposition was further reflected in several notable contract awards. We secured an order under the SGT Stout program for our reconfigurable integrated weapons platform. This will equip the fifth of the Army's 8 battalion and extends our production horizon through to 2027. We leveraged our established presence in Australia to win an important position on future guided multiple launch rocket system production in Australia with Lockheed Martin. This represents the first geographic expansion of our missiles business. Finally, we're making substantial progress extending our presence on collaborative combat aircraft. We provide Kratos with flight control and actuation products on the XQ-58 also known as Valkyrie, and the BQM-177, and are in continuing discussions for additional products on their future CCA platforms. This is a great illustration that we deliver fit-for-purpose solutions, not just for advanced military aircraft, but also for the emerging collaborative combat aircraft market. Finally, I saw firsthand how our operations are responding to changing customer needs. Our electric motor and pump operation in Murphy, North Carolina, is a key production site for data center cooling pumps. Our team has done a remarkable job meeting the increased volume requirements from our hyperscaler customers. We've doubled volume over the last 9 months, and I expect this pace of growth to continue in fiscal '26. Our ball and roller screw operation in Bergamo, Italy, is working with an industry disruptor to apply roller screws in a new and extremely demanding application environment. Our team has demonstrated significant agility and accelerated the pace of development, producing 8 prototypes within a year. This underpins my firm belief that we can respond to the expectations of fast-moving new entrants in any market. Now turning to our employees and communities. We're committed to the development of our people and in support of our host communities. We invested in a dedicated hands-on training center for our East Aurora campus. This unit trains machinists and assembly and test operators. It supports onboarding, upskilling and recertification of employees across our Western New York campuses. It is driving a significant improvement to quality, consistency and efficiency of skills training. Our investment was complemented by financial support from the U.S. Navy Maritime Industrial base. We collected over 43,000 pounds, which is close to 19.5 metric ton of waste with a collective effort of almost 1,000 volunteer staff across 19 sites in 15 countries during the week of action in September. This is a notable example of our staff supporting their local communities. Now shifting to financial strength. We're seeing our financial performance improved through solid growth and consistent focus on pricing and simplification. We have embedded 80/20 into approximately 80% of our businesses by revenue. Our focus is further strengthening maturity with 80/20 champions working with business leaders to solve the most relevant challenges. 80/20 insights are leading to data-driven business decisions that are improving profitability. Voice of the customer. We've prioritized key customers covering over 1/4 of our business by revenue, including hundreds of interviews. We're getting actionable insights that will support business growth. We are clear within the organization on how best to serve our most important customers. Simplification. Customer and product profitability analysis is allowing us to focus resources and reduce complexity. Segmented income statements now widely used across the organization are driving better profitability. Simplification has also been achieved through the sale of noncore businesses and product line asset disposals through focused factory approach, which aligns clearly with end market requirements and through consolidation of facilities. These are all ongoing activities within our business. Our simplification initiatives delivered similar margin benefits to that of pricing and volume growth together in the fiscal year. The solid improvement was partially eroded by margins. I look at multiyear trends helps illustrate the profound impact that simplification is having on our business. From fiscal '22 to fiscal '25, while controlling headcount increases to just 4% and reducing our factory space by 8%, we've driven a 27% increase in sales. These achievements reflect strong operational performance and increase our financial strength. Now let's reflect on the improved financial performance over that same period relative to our Investor Day goals. Sales growth was ahead of expectations at 8% CAGR, adjusted margin enhancement exclusive of tariffs averaged 110 basis points or 330 basis points cumulatively and ahead of our 100 basis point average goal. Adjusted EPS growth of 16% CAGR met our goal. Finally, while free cash flow has improved over the last couple of years to 46%, it is short of our target range. We were ambitious for our business at Investor Day in 2023, and I'm proud of the progress that we've made and -- that we've achieved over subsequent quarters and years. Now moving to FY '26. Our FY '26 guidance will further cement this solid multiyear performance improvement. Sales will be up 9% year-over-year, and adjusted operating margin, exclusive of tariffs in both years will be up 70 basis points. FY '26 adjusted EPS will be up 15% and free cash flow will strengthen to 60%. In addition to our ongoing margin enhancement actions, we've launched initiatives that specifically focus on structural change that we believe are necessary to enhance free cash flow. These initiatives will deliver impact over the next few years and make a contribution in fiscal '26. Our Commercial Aircraft business is the most significant contributor to our total trade net working capital requirements. This is because our own manufacturing and supply chain network is complex and dispersed across multiple global locations. In addition, we shielded our supply chain from variations in our customers' demand and challenging terms and conditions. We have multiple actions underway that will help address this situation. Over a few years, these actions will significantly reduce trade net working capital as a percent of sales. We're committed to execute these initiatives with the same focus that we've applied to our margin enhancement journey. I look forward to describing these initiatives over the coming quarters. And with that, let me hand over to Jennifer for a detailed breakdown on the quarter and our fiscal 2026 guidance.

Thanks, Pat. Before I get into our financial performance, I'll note an update to our previously reported results. I'll then provide a summary for FY '25, followed by a more detailed review of our fourth quarter financial performance. I'll wrap up with our initial guidance for FY '26. We're revising previously reported results to reflect the correction of an accounting error that we identified this past quarter. The error relates to the accounting for a certain group of Commercial Aircraft aftermarket contracts. We have also reflected other previously recognized immaterial out-of-period items in the correct periods. The net impact of these changes increases our net earnings per share by $0.13 in fiscal year '23, $0.05 in fiscal year '24 and $0.06 in the first 9 months of fiscal year '25. Additional detail can be found in supplemental schedules in our press release and in our upcoming 10-K filing. I'll now move to our financial results, starting with the year. Fiscal year '25 was marked with record sales, expanding operating margins and improved cash flow generation. Sales for FY '25 were $3.9 billion. This represents a 7% increase over FY '24. Our Aerospace and Defense segments drove this growth. Commercial Aircraft sales increased 15% due to strong aftermarket sales and the ramp-up on wide-body programs. Sales in Space and Defense increased 9% due to strong broad-based Defense demand. Military Aircraft sales also increased 9% as activity increased on the MV-75 and new production programs. Industrial sales decreased 4% as a result of divesting two businesses at the beginning of FY '25. Our adjusted operating margin of 13.0% increased 30 basis points over FY '24. Excluding this year's pressure from tariffs and last year's employee retention credit benefit, operating margin increased 120 basis points. Operating margins expanded in each of our segments except for Commercial Aircraft. In Industrial, our operating margin expanded 80 basis points to 13.5% as we continued our simplification initiatives. Military Aircraft operating margin increased 40 basis points to 12.3% as a result of stronger business performance and pricing. Our operating margin in Space and Defense increased 20 basis points to 13.5% due to profitable sales growth, offset by last year's employee retention credit benefit and this year's increased investments in product development, business capture and operational readiness. In Commercial Aircraft, our operating margin decreased 30 basis points to 12.4% as pressure from tariffs was partially offset by the sale of a noncore product line. Adjusted earnings per share in FY '25 were $8.69, up 11%. The increase relates to the higher level of sales and to some extent, the increase in operating margin. For the year, we generated free cash flow near the high end of the range that we shared a quarter ago. We invested in our business in FY '25 to support our strong growth both through capital expenditures and within working capital. Let's shift over to our fourth quarter results. We had a great quarter. Sales were over $1 billion for the first time. Adjusted operating margin was above plan, and adjusted earnings per share significantly exceeded the high end of our guidance range. In addition, we generated about $200 million of free cash flow, which is around 2.5x the level of our adjusted net earnings. We took $18 million of charges in the fourth quarter that we've adjusted out of the operating profit numbers we'll describe. Charges included $10 million associated with the settlement of a legal dispute, $5 million associated with simplification efforts and $3 million associated with acquisition fees. In addition, we took a $4 million tax charge associated with simplifying our legal entity structure. I'll now talk through our fourth quarter results, excluding these charges. Sales in the fourth quarter of $1 billion were 14% higher than last year's fourth quarter. Commercial Aircraft, Space and Defense and Military Aircraft were each up double-digit percentages and Industrial was also up nicely. The largest increase in segment sales was in Commercial Aircraft. Commercial Aircraft sales of $252 million increased 27% over the same quarter a year ago. The increase was driven by volume on major production programs as well as aftermarket associated with strong fleet utilization on the 787 and A350 programs. Space and Defense sales were $307 million, up 17% over the fourth quarter last year. Our sales this quarter were at a record level, reflecting broad-based Defense demand. We're seeing demand particularly strong from missile control and satellite components. In Military Aircraft, sales of $236 million were up 10% over the fourth quarter of last year. Activity on the MV-75 program continued to increase. We also benefited from new pricing primarily within aftermarket. Industrial sales were $253 million in the quarter, up 5% over the same quarter a year ago, or 7% when adjusting for divestitures we completed at the beginning of FY '25 and foreign currency effects. We had higher sales for IV pumps and administration sets as we fulfill backlog that's built up from previous part shortages. Sales of enteral feeding administration sets were also strong, reflecting current demand. Sales also grew within the expanding data center cooling market. We'll now shift to operating margins. Adjusted operating margin in the fourth quarter was 13.7%, up 20 basis points from the fourth quarter a year ago, reflecting operating strength offset by tariff pressures. Our Defense businesses are up significantly, while Industrial is up nicely and Commercial Aircraft is down considerably. Military Aircraft operating margin of 14.1% in the fourth quarter, up 210 basis points from the fourth quarter last year. We benefited from pricing activities, both for the OE and aftermarket as well as a favorable mix. Space and Defense operating margin was 15.1% in the fourth quarter, up 190 basis points. The increase was driven by profitable sales growth offset partially by increased business capture, product development and operational readiness investment. Industrial operating margin was 13.9%, 70 basis points above that of the same period a year ago. We benefited from a favorable sales mix and simplification initiatives, including divestitures. These benefits were partially offset by the impact of tariffs. Commercial Aircraft operating margin was 11.4%, down 440 basis points from the fourth quarter last year. The decrease was driven by tariff pressure and to a lesser extent, an unfavorable sales mix. Our adjusted effective tax rate in the fourth quarter was 24.1%, up from 19.0% in the fourth quarter last year. In last year's fourth quarter, we benefited from an incentive associated with capital investment in one of our U.K. sites. Putting it all together, adjusted earnings per share came in at $2.56, up 19% compared to last year's fourth quarter. The increase reflects the higher sales level. Let's shift over to cash flow, which was at a record level this quarter. In the fourth quarter, we generated about $200 million of free cash flow. This represents free cash flow conversion at around 2.5x the level of adjusted net earnings. The key driver to the strong cash generation this quarter was working capital, in particular, customer advances. Capital expenditures were relatively high compared with spend levels in recent quarters. This past quarter was elevated as certain Commercial Aircraft production was moved into one of our focused factories to optimize our manufacturing space. Our leverage ratio was 2.0x as of the end of the fourth quarter, putting us at the low end of our target leverage of 2 to 3x. Our capital deployment priorities center around organic growth, and we'll pursue strategic acquisitions that will fit in nicely within our business. We strive to have a balanced capital deployment strategy over the long term. Now let's shift over to our initial guidance for the year. Fiscal year '26 will be another great year in which we continue to build our financial strength. We'll achieve a record level of sales, further expand our operating margin and make meaningful progress towards generating strong free cash flow. We're projecting sales of $4.2 billion in FY '26, a 9% increase compared to FY '25. We're projecting the largest sales growth in our Aerospace and Defense segment with a modest increase in Industrial. The largest increase in sales will be in Commercial Aircraft. Sales are projected to grow 15% to $1.0 billion, driven by increased production rates for narrow-body and wide-body programs. Sales will also increase from pricing initiatives, both for the OE and in the aftermarket. Space and Defense sales are projected to increase 11% to $1.2 billion. We're seeing strong Defense demand across our entire book of business, in particular, for controls for missiles and in the European ground vehicles market. In addition, the acquisition of COTSWORKS is contributing 3 percentage points to our sales growth. Military Aircraft sales are projected to increase 7% to $1.0 billion. The increase will be driven by pricing changes that have already been secured and to a lesser extent, growth in new production aircraft. These increases will be offset somewhat by declines in certain legacy programs that are nearing end of life production. Industrial sales are projected to increase 3% to $1.0 billion, driven by increased demand for data center cooling pumps. Let's shift over to adjusted operating margin. We're projecting our operating margin in FY '26 to be 13.4%, a 40 basis point increase over FY '25. Excluding the impact of tariff pressure in FY '26, our operating margin would be 14.2%, in line with the long-term target we shared in our 2023 Investor Day presentation. Military Aircraft operating margin will increase 200 basis points to 14.3%, driven by increased pricing in both OE and in the aftermarket. Industrial's operating margin is also projected to be 14.3%, 80 basis points over FY '25. The increase reflects the benefits of further portfolio-shaping activities. Our operating margin at Space and Defense will remain flat at 13.5%. We'll continue to benefit from profitable sales growth. Net benefit will be offset by continued investments in product development. In Commercial Aircraft, our operating margin will decrease 90 basis points to 11.5%. Tariffs are pressuring this business. Excluding the incremental impact of tariffs, operating margin in FY '26 would expand 60 basis points over FY '25 as the benefit associated with secured price increases will more than offset an unfavorable sales mix. Our effective tax rate will increase to 25.0% in FY '26. Recently enacted legislation helps us from a cash flow perspective through accelerated deductions that causes us to lose some of the related permanent benefits that affect our tax rate. For FY '26, earnings per share are projected to be $10 plus or minus $0.20. That's up 15% over FY '25 adjusted earnings per share. The increase reflects a higher sales level and to a lesser extent, a higher operating margin. For the first quarter, we're forecasting earnings per share to be $2.20, plus or minus $0.10. Finally, turning to cash. We're projecting free cash flow conversion to be about 60%, an improvement over FY '25. Our strong sales growth requires increased working capital, so we're mitigating that through various initiatives. Within Commercial Aircraft, we've already had success in pushing out material receipts, and we will also be destocking later in the year. We anticipate a use of cash in the first quarter to be in excess of $100 million, reflecting normal timing of compensation payments and the timing of incoming receipts and customer advances. Overall, FY '25 was a year marked by record sales and strong operational performance, and we're looking forward to another great year in FY '26. And now I'll turn it back to Pat.

Now before I move on to closing out, let me just correctly state the impact of simplification from earlier. Simplification initiatives delivered similar margin benefits to pricing and volume growth together in fiscal '25. This solid improvement was partially eroded by tariffs. Now with that, I think we've completed a fourth quarter with exceptional financial results, an outstanding full year, and we're guiding that the business will continue to perform well based on our view of the markets and our success in driving business improvement. And with that, let me open the floor up for questions.

[Operator Instructions] Your first question comes from the line of Jon Tanwanteng with CJS.

Really nice quarter and outlook there. I was wondering if you could focus a little bit more on the cash flow, if possible. Just how do you expect that to phase through the following 3 quarters after Q1? And then maybe talk about some of the underlying items that you addressed in your prepared remarks. You talked about factor improvement, supply chain improvements as well as the terms from your customers. Maybe talk about how those layer in over the next 1 or 2 years and when you expect to hit the target range of 75% to 100% conversion?

Sure. I'll start with our forecast for the year. So again, it's at 60% free cash flow conversion. As we've got a nicely growing business, you can see all the organic growth that we've had this past year, we're continuing to see even accelerated growth into next year, that requires working capital. It also requires capital expenditures. We've been investing and we continue to invest in our facilities, and that uses some cash. We are having some initiatives that are mitigating the impact, particularly in Commercial Aircraft. And Commercial Aircraft is growing, and that does have the longest cash conversion cycle within our business. . One of the things that we're doing, and we're already seeing results just a few weeks into the beginning of our year is on material receipts. We are pushing out some of the material receipts that were scheduled to come into the year such that they will be pushed outside of fiscal year '26. So we have a plan for the year, and we've already made nice progress in our FY '26 goal with activity that we've had already. Later in the year, we're going to work on some destocking by bringing in less than we're shipping. We're obviously making sure that we're shipping according to what we need to do for our customers' requirements, but trying to make sure that we can bring in only what's needed, balancing what's already on hand so that we can bring our physical inventory balance down. So those are some of the activities that we've got going on in FY '26. We also have stronger sales or stronger earnings. So that's contributing to some of the growth that we're seeing in fiscal year '26. One area -- other area of pressure that we're seeing is in our receivables, and that's just the timing of when we're going to have our earnings, our sales and then the ultimate collection of it. So in a growing business, where we've got more sales and earnings towards the back end of the year, which is what we're projecting. We're going to have the higher receivables there, and so that will pressure us for the full year. So when we look out beyond fiscal year '26, so we like that we're seeing an improvement from what we had in fiscal year '25. Our target still remains long term for the 75% to 100% free cash flow conversion level. And as Pat mentioned in his prepared remarks, there's a number of activities that we've got going on. I shared a couple of the ones that are going to impact us from fiscal year '26. But there's other things that are already underway that are going to help us in the future so that we can get into that range.

Yes. So thanks, Jennifer. So I think Jennifer covered some of the here and now things we're doing with material receipts on the cash flow side. But if I look at the structure of that business, we receive supply variations or demand variations coming in from our customers, and we're not in a great position at the moment to reflect those through to our suppliers. We have too many of the suppliers on fixed POs, which means they have certain delivery dates defined up to 1 year or 1.5 years in advance, and we need to change the structure of that over the coming couple of years. We're making good progress towards that end, but we'll report more on that in future quarters. So that's a sort of a structural change, which helps us deal with demand variation on the customer side. I think on the term side that I mentioned, that's -- we have pretty long payment terms with our customers. We need to consider how we're dealing with our supply side in that whole conversation about POs, flexibility, working to forecast rather than working to fixed orders. That's part of the change that's going on there.

Great. And second, if you could, just on the negative, I guess, incremental margin Commercial Aircraft for '26, I know you mentioned that it was mostly a tariff impact on pricing, but I was wondering if there's any mix in there as well. I know you had a very strong aftermarket year this year and production from -- on the [ OE ] side is supposed to ramp up pretty strongly. Is that a component there? Or is there anything else going on just on the margin for Commercial in '26?

Yes, there is some negative mix. We have our commercial aftermarket, which is more profitable than our OE portion of the business, becoming a smaller percentage of the entire segment sales. So there is a negative mix impact there. I would say the tariffs is a very significant impact on this business, though.

Jon, the last thing I was going to add in, when we transitioned back to that subsequent question was to do with our own configuration of manufacturing plants and the movement of product between them. So every transition from one plant to another adds time to the overall cash conversion cycle that Jennifer was talking about, but it also adds buffer stocks and other increases in work in progress. And so we're trying to work that down as well. And so line-replaceable unit by line-replaceable unit, we're working to consolidate the manufacturing footprint and the supplier footprint such that overall conversion time from starting a product production through to delivery to the customer, that overall lead time through the entire network is reduced. That's what takes time to do with projects underway at the moment that are actually working that, and that's what I hope to give updates on in future quarters.

Your next question comes from the line of Mike Ciarmoli with Truist.

Maybe Jennifer, just to stay on the -- and Pat as well to stay on the cash flow, you mentioned trying to make some of these structural changes. And Jennifer, you called out working capital, and I think you called it out specifically in that Commercial Aircraft. Can you give us a sense of where you're trying to get that working capital as a percent of revenue to where it is now? And then even just more on maybe some of the bridging items to cash next year. I'm assuming CapEx stays elevated at that 4% to 5%. You did get, I guess, a good tailwind on customer advances this quarter, maybe $74 million or so. But how does that look in '26 on the advanced side?

Sure. Let me start off with our working capital targets. Right now, we're just putting something out for '26. But based on the comments that you heard Pat describe longer term, we're certainly wanting to make a much more meaningful impact beyond '26 in that. We're not ready to share that yet at this point, but we'll continue to give updates as we move further. But I would reiterate that we still believe that our business when we get through these initiatives, we'll be in the 75% to 100% free cash flow conversion rate. When I look at some of the individual pieces for fiscal year '26, we're anticipating, obviously, we've got a higher level of earnings and then I'll start with some of our working capital items. We'll probably use a little more working capital than we did this year. I would note that physical inventories will plan on keeping around the same level of growth in physical inventories that we had this year. So with the growing business, we certainly need more, but we're able to even a growing business, keep it to the same level of growth that we have this year. We will see some pressure from billed receivables and advances. Our advances were very strong. And I called it out in their fourth quarter comments because it was even -- we expected fourth quarter to be strong. It was well stronger than what we had projected. And so that actually pulled a little bit in from '26 into '25 for us. But when we look at customer advances, it's still going to be positive for next year, just not as strong as it was in fiscal year '25. So those are some of the things that we've got. I would say, capital expenditures are going to stay around the same level as a percentage of sales that we had this year. Again, we are investing in our business for that long-term growth that we've got. This year, we ended at around $145 million. We're projecting to go to $160 million, it's around the same percentage of sales that we have though before. So those are some of the bigger pieces within our cash flow as we're looking out for next year.

Got it. Got it. And then specifically on the CapEx, I mean we've certainly seen and heard about a number of the projects you're doing. But how are you guys thinking about the return profile on some of those projects and when we should really start to see the benefits and maybe even see some of that CapEx start to trend lower as you complete some of these projects?

I would say there's different nature of different projects. So some of the projects are things that we get benefit as we get captured in rates as we do project production over the next couple of 2, 3 years type of thing. So we see the benefit or the recovery really in the next couple of years from that standpoint. Some of it is for anticipated growth and it's the growth that we are seeing. Another aspect of some of the things that we're doing, especially in the automation space, is actually being able to take on these contracts. Otherwise, we would not have had the space, the efficiency and the throughput to get through the increasing volumes that we've had. So it's already -- so those are already improving for our -- coming through from our sales and efficiencies.

[Operator Instructions] Your next question comes from the line of Tony Bancroft with GAMCO Investors, Inc.

Yes. Congratulations, Patrick and Jennifer. Very well done. Just on your growth sort of growth platforms, the MV-75, CCA, F-47, maybe potentially F/A-XX in the space satellites and missiles. Can you just sort of talk about what's in that space where possibly you could do? Is there any M&A in that space that you could do or sort of maybe some more color on what that looks like, where you could maybe grow that?

Yes. Thanks, Tony, for the question. Thanks for the compliment as well. We are active and have continued to be active in maintaining a funnel of potential acquisition targets. We are interested in growing the business and the Defense side is where we're getting great returns. So it is an attractive area. We have to see what comes up. We're interested in building out the business both here and overseas. I mean, I called out an example where organically, we're using our footprint in Australia to build out our missiles business. We're looking at opportunities to do that in Europe as well. And so if there's acquisitions that fit that agenda, we're interested.

[Operator Instructions] We have a follow-up question from Mike Ciarmoli of Truist.

Pat, you guys seem to be getting hit a little bit harder on tariffs, maybe in Aerospace. I mean I would have thought you would have seen it a little bit more in Industrial. Is it really just a function of the contracting environment that you can pass these tariffs through? Or there certain materials that you're having to procure? Or what's kind of behind the pressures more concentrated in aircraft?

So first point is that it's a highly global manufacturing and supply chain structure around that Commercial Aircraft business, unlike the Military Aircraft business, which is mostly U.S.-based or North American-based at least. So that's one difference between them structurally. The Section 232 tariffs, which impact steel and aluminum, obviously, have an impact on materials moving in and out as part of that business. And then as you know, we have a major manufacturing location in Baguio in the Philippines. Now fortunately, many of our customer contracts are ex-factory, ex-works, in nature. So in some of those cases, we're shielded from the impact of the tariff ourselves, but the combination of all of those tariffs that I mentioned and some customer contracts that aren't set up that way means that it does have an impact most heavily felt in commercial relative to other segments. Does that help?

Okay. Okay. Yes, that's helpful. And then just Commercial Aircraft, you're guiding for 15% growth. It sounded like you're going to be dealing with a little bit of destocking. I'm assuming that's on the 87 and the A350, but you're still getting pretty good growth. Can you maybe parse out, I mean, between aftermarket and OE growth next year in aircraft?

Yes. I'll start with the general comment as we -- and then we'll do the aftermarket part of it. Yes, the destocking. So of course, we're going to meet our customers' requirements and what they're doing from that side of it. So it's really us managing it on the supply chain side of things when we're talking about the destocking. We'll continue to ship as we have already previously continued to, but we have some opportunities in the supply chain to delay such that it doesn't impact what we're getting out the door. So that's really helpful.

I think if I look into '26, a lot of the growth is coming on the OE side. Some of that also is narrow-body actually, and we don't talk about that a lot in the calls because of the lower content value on the narrow-body aircraft, but the volumes there are beginning to pick up as well, and that seems to be coming through.

Okay. Got it. And then maybe just a final one on cash, Pat and Jennifer. I mean the 60% conversion. Last year proved to be a bit of a challenge with a couple of downward revisions. I mean, as you guys contemplated and set the 60% conversion, I mean the confidence level, I think I previously asked for some of those bridging items. But I guess just the line of sight and confidence to that 60% right now?

Yes, we're confident in our projection that we've got out for this year. We've got the increase in our earnings, and it's being driven by our sales growth. The sales growth is strong. You heard Pat talk about the backlog. So that's certainly contributing to it as well. We do have customer advances in line in sight. Not to the extent that we had last year, but we have those in sight, so we can do that. And then I mentioned a couple of the areas where we have -- especially on pushing out some of the material receipts. We've already achieved that. We've actually pushed some of those out already. So we're seeing that -- we know that, that progress is going to come through for us. So we are confident in our projection for next year.

There are no further questions at this time. I will now turn the call back to Pat Roche for closing remarks.

So that concludes our earnings call. I appreciate you taking the time to listen to our update on the business, and I look forward to updating you again on our next quarterly call. Thank you.