Don Guzzardo - Director, IR & Treasury Thomas Gendron - Chairman of the Board, CEO & President Robert Weber - Vice Chairman, CFO and Treasurer.

Gautam Khanna - Cowen and Company Michael Ciarmoli - SunTrust Robert Spingarn - Credit Suisse Peter Skibitski - Drexel Hamilton Sheila Kahyaoglu - Jefferies & Company, Inc..

Thank you for standing by. Welcome to the Woodward Incorporated second quarter fiscal year 2017 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you will be invited to participate in a question-and-answer session.

Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer; Mr. Bob Weber, Vice Chairman, Chief Financial Officer and Treasurer; and Mr. Don Guzzardo, Director of Investor Relations and Treasury. I would now like to turn the conference over to Mr. Guzzardo..

Thank you, operator. We would like to welcome all of you Woodward’s second quarter fiscal year 2017 earnings call. In today’s call, Tom will comment on our markets and related strategies and then Bob will discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions.

For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have again included some presentation materials to go along with today’s call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through May 3, 2017.

The phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call. Before we begin, I would like to refer to and highlight our cautionary statement as shown on slide three.

As always, elements of this presentation are forward-looking based on our outlook and assumptions for the economy and our businesses more specifically. Those elements can and do frequently change. Please consider our comments in the light of the risks and uncertainties surrounding these elements.

We also direct your attention to the reconciliations of non-US GAAP measures, which are included in today’s slide presentation and our earnings release and the related schedules. Management uses these non-US GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment.

Now turning to our results, net sales for the second quarter of fiscal year 2017 were $500 million an increase of 4% compared to $479 million in the second quarter of 2016. Earnings per share were $0.60 for the second quarter of 2017 compared to $0.65 in the second quarter of 2016.

Aerospace segments sales grew 10% and earnings increased 15% while industrial segment sales and earnings decreased 5% and 12% respectively as compared to the prior year quarter. Now, I’ll turn the call over to Tom to comment further on our results, strategies and market..

Thank you, Don. And good afternoon to those joining us today. Half way through fiscal 2017 our results are largely in-line with our expectation. For the second quarter aerospace segment performance was very strong offsetting some of the weaker industrial segment performance compared to the prior year.

As anticipated we continued our shift from investment to cash generation cycle delivering significant growth in free cash flow this quarter. Now I’ll turn trends for our aerospace and industrial segment on-line with our growth strategies.

Record commercial aircraft backlog support healthy production levels for the next decade and industrial application, initial regulations, as well as increased availability and favorable price in the natural gas are expected to drive long term growth in the natural gas utilization.

Talking to our market in some more detail, our aerospace market remain strong, our commercial sales are accelerating benefitting from the introduction of the next generation program. Airbus A320neo continues to ramp up and the Boeing 737 MAX is up to the launch in the coming months.

Account on both these programs has more than doubled from previous generation. Commercial after-market community is robust driven by strong growth and global passenger traffic which through February 2017, was up 7% year-over-year as well as improving global [indiscernible]. This positions for the new platforms is also a contributor.

Commercial craft and business jet markets remain weak and we are anticipating a near term recovery. Defense activity both OEM and aftermarket continues to be strong fueled by global and the rest and growing international defense budget.

Potentially end sales benefitted from growth in smart weapon while aftermarket sales were up as results of rising maintenance budget, aircraft service life expansion and major upgrade programs. Turning to industrial.

Macroeconomic indicators continued to point strength in industrial market in the latter half of the calendar year and we are seeing some positive order activity in our early cycle product family. The power generation activity related to natural gas reciprocating engine showed improvement and our order volume is increasing.

Industrial gas turbine OEM sales remain flat. Aftermarket sales for industrial gas turbines have been strong for some time now, at this quarter we saw some downward pressure. Wind turbine converter sales were off the leak.

And transportation, we are pleased to see the second consecutive quarter of meaningful improvements international gas fuel systems for trucks in Asia and we expect this trend to continue. In oil and gas, the price of oil has settled above $50 a barrel and we are seeing signs of stabilization.

In summary, as we look ahead to the balance of fiscal 2017, we expect the positive momentum in aerospace to continue and the industrial segment to have a stronger second half. While uncertainty remains many of our industrial markets remain confident in our overall fiscal year guidance.

Now, let me turn it over to Bob to discuss the financials in more detail..

Thank you, Tom. As Tom previously mentioned, our year-to-date results were largely consistent with our expectations. However, in the second quarter, aerospace performance was stronger and industrial was weaker than we expected. In aerospace, sales increased 10% this quarter with strength across most of the segment.

Rotorcraft business and sales were the only area of commercial weakness, consistent with our expectations. Combined commercial aftermarket sales for the quarter which includes aftermarket sales made through the joint venture were up 12% compared to the prior year quarter, putting us to about 5% growth year-to-date.

This is now more in-line with our full-year commercial aftermarket expectation up mid-single digit growth. Defense sales were also strong across the board with smart weapons growth accelerating in the quarter and anticipated continue growing throughout the fiscal year.

Aerospace segment earnings for the quarter were 18.2% of sales compared to 17.4% in the same period last year. The improvement was driven largely by the higher sales volume. Turning to industrial. Second quarter industrial segment sales up 180 million were down 5% compared to the second quarter of fiscal 2016.

While we appeared to be at the bottom of the cycle, for a number of our end-markets and see improving orders for the second half of the year, we still experience some pockets of decline, most notably in wind turbine converters and aftermarket sales for industrial gas turbines.

In the quarter, we saw improved sales of natural gas fuel systems used on trucks in Asia and on reciprocating engine power generation applications. Second quarter industrial segment earnings were 9.5% of sales compared to 10.3% in the prior year period.

Segment earnings were unfavorably impacted by lower sales volume and plant cost associated with the new facility which collectively more than offset the cost savings from strategic initiatives previously implemented.

We expect marked improvement in our industrial segment performance in the second half of the year largely driven by a return to sales growth in a number of markets.

We also continue to expect full-year margin improvement of 100 basis point to 200 basis points in the industrial segment on sales growth in the second half and as a result of various cost savings initiatives mentioned previously.

At the Woodward level, gross margin percentage for the second quarter of 2017 was 27.0%, compared to 27.8% in the prior year period. Research and development cost were 6.1% of sales in the second quarter, compared to 6.6% in the prior period.

Selling, general and administrative expenses were 8.6% of sales in the second quarter, compared to 7.7% of sales in the prior period, largely due to the timing of recognition of stock-based compensation expense. For the six month period, SG&A expenses were 8.2% of sales compared to 8.4% in the prior year period.

The effective tax rate for the second quarter of 2017 was 24.1% compared to 24.9% for the second quarter of 2016. Our full-year effective tax rate is now expected to be approximately 22% and favorable outcomes of certain tax matters.

Looking in cash flows, we generated 130 million of cash from operations for the first half of fiscal 2017, compared to 362 million in the prior year period. Free cash flow for the first half of 2017 was 87 million compared to 262 million in the similar period in the prior year.

The prior year period included 250 million from the formation of the joint venture with GE. Capital expenditures were 43 million for the first half of 2017, compared to 99 million in the same period of the prior year.

In the second quarter of fiscal 2017, we repurchased shares of our common stock for an aggregate purchase price of 37 million, a total of 61 million year-to-date. Lastly, turning to our 2017 outlook. As previously mentioned, our overall first half performance is largely as expected with strength in aerospace and some weakness in industrial.

We anticipate, based on current order volume and other indicators that our industrial business will improve in the second half. However, significant uncertainty remains in many of our industrial markets and we now expect industrial sales to be down slightly for the full-year. Overall, our fiscal year 2017 guidance remains unchanged.

Net sales are expected to increase by approximately 4% to 6% from the prior year and earnings per share are expected to be between $2.95 and $3.25. This includes our comments on the business and results for the second quarter of fiscal 2017. Operator, we are now ready to open the call for questions..

[Operator Instructions] Our first question comes from Gautam Khanna from Cowen and Company. Your line is open..

Hey, thank you. Good afternoon..

Good afternoon..

Hi..

So, a couple of questions. The first one, I was wondering if at either segments but aerospace in particular, if there were any onetime benefit as you had in Q1 and if in the guidance generally you are anticipating any one time items that are either positive or negative in the remaining quarters..

Yes. Nothing, we knows that a small gain of sales of product line in the first quarter. Nothing like that this quarter, there are always small significantly small items that occur in any given quarter. We had most notably maybe the facility expenses that are probably a good example of that, so we've been trying to call out and give you a feel for.

Other than that, no, there is nothing significant..

Okay. Obviously the tax rate previously was guided I think at 25% and today it's been updated to 22%. What, I'm just curious about why not change the range, the earnings per share range by the result in 10 sum variance or nine sum variance.

Was there anything else that changed in the guidance or below the line or elsewhere?.

Right, so. Yes, we mentioned overall at the Woodward level no change. Underneath that though we did mentioned that aero is looking stronger and industrial is weaker at this point. While we do see signs of improvement in industrial, that is where all the uncertainty currently lies and that's why we left the range where it is currently.

So, we do still see a lot of uncertainty on the industrial side.

I might want to also point out that we've been working really hard addressing the industrial recession and many of the cost actions that we've been taking our focused on that, so we do still anticipate the 100 basis points to 200 basis points improvement in industrial earnings as we go through the year, even if we do end up being down slightly on sales..

Okay.

Could you also just maybe expand on your comments about the industrial gas turbine aftermarket being a little softer, maybe how much softer and are there any specific things you can attribute it to be an advanced gas pass upgrades flowing or was it day-to-day maintenance or was it across all OEM, any flavor you can give us on that?.

Yes. Right now, I would say is we always have quarter-to-quarter variability in all of our aftermarket activities, it was primarily around upgrades and retrofit where we saw this decline year-over-year. It's uncertainty that, it's just timing or where that market is going.

So, at the moment it was year-over-year down and we're monitoring the work, those customers closely to see how the rest of the year roll out best half..

And was it across many OEMs or one in particular?.

It was I would say across the market, weighted by in our various market shares with each customers..

Right, okay. And just an update on the aero segment margin guidance, I think previously you said it be flat but slightly up. I just want to be clear, just trying to be a little better, it sounds.

Is there an update to that segment level guide and margin?.

No update at this time. As you point out, we said up slightly to flat, we are currently up with head cold slightly and no reason to believe that that won't continue. But as you guys have already seen aftermarket volatility can go both ways for us. So, at this point no change overall.

Aero appears to be doing a little bit better than expected at this point in time..

Thank you guys, I'll get back in the queue. I appreciate it..

Thank you..

Thanks..

Okay, thank you. Our next question comes from Michael Ciarmoli from SunTrust. Michael, your line is open..

Hey, good evening guys. Thanks for taking my question..

Sure..

Maybe just to follow-up on what Gautam was going down here on the industrial. So, to get that 100 basis points of margin expansion, it looks like second half year is going to have to average roughly 13%. And I'm just trying obviously you've taken cost out of the business.

I'm trying to engage the confidence level there especially in the context, if now there is a little bit of weakness in the aftermarket and maybe thinking that those are sort of your higher margin sales. I mean is, that run rate you guys haven’t been at that margin level in quite some time.

I'm just trying to I guess calibrate the confidence level there..

Yes. I'd say we're quite confident in achieving the margin expansion. In second half or see more of the cost savings that we initiated come through. Secondly, sales in the second half will be higher than the first half then we'll get positive leverage on that and we continue with our new factories to drive productivity.

So, combination of all of those, we have confidence that we will deliver the number..

Okay.

Quite, I guess based on the filings from last quarter, I mean those cost saves you were getting about $3 million run rate, is that kind of what you guys were looking for in those cost savings, should we see an acceleration of that?.

Well, you see some acceleration has kind of everything starts to flow through but that's a reasonable number. It's not going to be significantly changed from that as we go quarter-to-quarter..

Okay..

But we took the actions at different points in time during the year and as time sets, so they'll accelerate a little bit as we get into the second half..

Okay. And then just on aerospace, I mean, great performance there, just can you maybe help frame us or frame the risk around what's been happening with the A320neo engine, I think around some of the -- that there's been some combust or I think issues there.

Are you guys seeing any rework or are you guys seeing any risk to those specific component in the engine where they are all having some, I guess, growing pains or teething issues?.

I think that's why look at the neo, it's in total the whole A320 program. To be honest, I think everybody on the call recognizes. We have very good content on the current generation A320 and increased content on the neo.

We're on both the current generation and the neo run both engines, airbus is continuing to ramp their production and well they have hick ups and peer power engine they’re substituting the other aircraft in.

so, we see that the full year outlook for sales would be closing and we could be having our customers depending on proms we’re already doing that that’s part of we’re coming on that. But overall, we think 320 sales are going to hold through full year based on the balance between the engines and the two generations of the program..

Got it.

And you don’t really see any cost risk there?.

I don’t..

Okay, perfect. I’ll jump back in the queue thanks guys..

Thank you. Our next question is from Robert Spingarn from Credit Suisse, your line is open for questions..

Thanks.

At the risk of beating a dead horse on this industrial thing, I just want to understand where your visibility comes from for the second half, I mean, it seems like the, it seems up markets but down overall revenues for industrial and also seems like some of the pieces are moving in different directions then they were, so the aftermarket in gas turbine on the one hand going down sounds a little surprising.

Natural gas is up again also maybe a bit surprising, so if you could talk about the confidence and the visibility on where this comes from? That’s my first question?.

Good question. We’re happy to continue with these questions around, the major drive to us as well. I’m going to start first with, we do a lot of economic modeling and looking at a lot of economic deal and particularly in industrial production in U.S. and all the major countries in the world.

What we’re seeing is, industrial production is picking up, but we’ve been indicators in a macro level appointing to a strong second half of the calendar year to industrial application. With that macro -- from that we start looking and we do have what we would call vast cycle and long cycle businesses.

Some of our vast cycle businesses are around, are reciprocating engine application. The reason that’s vast cycle is there are going into something like construction equipment like truck, natural gas trucks or items that don’t take long term projects that’s why they are vast cycle.

If you take like big steam turbines or industrial gas turbines they’re long cycle because you got the whole project cycle, okay so that’s the different.

So what we’re seeing tied to that economic data is that vast cycle businesses, the order intake is raising nicely and that’s where Bob highlighted on our natural gas truck application, our natural gas power gen those are going up some of the retrofit activities is going up.

So that would correlate in our mind very well and our tracks history the economic indicators moving, our fast cycle moving, and then our cycle businesses trail. So that gives lot of confidence that we are seeing this turn and things are moving up..

If I could interrupt there.

On the vast cycle stuff what is the duration of backlog I mean can you see a quarter ahead, two quarters?.

So we are seeing about six months on that, six to nine months we are seeing that. It is that business is rising..

Okay..

Okay. So now to continue to answer your question our wind business did go down as Bob highlighted that I would say is primarily tied to market share of our customers. And we can't really go to individual ones, but we ride the market with our customers based on the applications we are on and I want to say is the overall wind market is doing okay.

It just happens to be a fourth quarter for our customer base and ourselves into that customer base. The gas turbine aftermarket is probably the one that it gets everybody's attention and that's what we are saying we had big – a bigger first quarter and a low second quarter here.

So it could be timing but we are also concerned about the sustainability and the high rate we are running and that one is a little harder for us to correlate economic data and other activities. So if you look at the balance of our business that's why we feel like we are seeing things turned up but we do have issue we can go back to gas service.

We can't forecast OEM. How that tracks with economic indicators would power utilization around the world things like that but the aftermarket is little more volatile. So that's the balance what we are looking at and that's little bit why we see the second half taking up.

We have confidence in the vast cycle business, we do have confidence in the economic indicators. So we think we are seeing that turn, however we have these two negatives wind and gas turbine aftermarket that have bided this quarter..

Okay and then my other question, Bob this is for you going back to cash flow, I thought CapEx was a little lighter than expected in the quarter and maybe free cash flow, you are trying to handle, you still looking for the same components of free cash flow for this period so I guess around 200 million for the year CapEx around one ten, or is there any changes there?.

No. All of the differences are just timing related. We are still getting the large project mode, so timing and payment so forth. So no those still hold..

Okay, alright, thank you guys..

Thank you and we will take our next question from Peter Skibitski from Drexel Hamilton. Go ahead with your question..

Good afternoon guys.

Tom, is when that fast cycle or long cycle?.

We would put wind more into the long cycle..

Okay. Go ahead..

The timing to setup the wind park it does take that time is longer and that's why we put it in the long cycle..

Okay. So I am guessing that you had some visibility to the quarter and it maybe the visibility for the year and that bad either is, I would assume would be flat for the year.

Is that a bad assumption now?.

That would be a bad assumption. It's going to be down for the full year..

Okay. So the gas turbine aftermarket is the real uncertainty factor here..

Yes. That's good clarification. Yes. The wind we definitely see being down from full year. Gas turbine aftermarket the drop we had third quarter run it maybe down for the full year. We just don't know that at this point..

Okay.

Is there any way or should we extrapolate wind into 2018 having another down year there or they are up opportunities for regain share of the customer level?.

We see some opportunities. We are looking at new applications and new projects and there is a good chance that it will pick up in 2018 again. .

Okay. Okay.

Just a couple last small questions, I guess that the resolution hasn't really impacted you yet do you fear the potential for full year continue resolution or I guess maybe giving your aftermarket exposure is that just not a concerning factor for you?.

What I would say for when you are looking at fiscal year 2017 we have a lot of confidence, the defense will be up mid single digit and we are confident that with the order book and the like if we get a better distance project that can improve and it definitely would be momentum going into 2018..

Okay, got it. And then just for Bob, the stock comp surprised me a little bit.

What's your full-year expectation for corporate expense now?.

Well, we are probably going to hold that rate a bit. It may come down a little bit in the second half but the overall rate that you see now for last couple of quarters will probably hold. Year-to-date you kind of saw the stock comp it doesn't have that much of an impact.

Very small year-to-date it's mostly something that's usually in the first quarter and ended up being the second quarter and it was not significant in the quarter. It was about $0.09 so it had an impact in the quarter.

That's totally related to – this time it had to go through a vote in our shareholder meeting which is in the second quarter so that's the reason why it changed. Normally, it does not require the vote and this time just for administrative purposes it did and that's why it's in the second quarter..

Okay.

So you end up being around 60 million or so for the full-year that alright?.

That's not too far off..

Okay. Thanks guys..

Okay. Thank you. Our next question comes from Sheila Kahyaoglu from Jefferies & Company, Inc. Your line is open..

Hi. Good afternoon guys. .

Hi Sheila..

Hey. I’ve few questions. I was wondering if you could quantify the commercial OE growth within aerospace just what you are seeing maybe with the different platforms on the [indiscernible] in particular..

The commercial, what I am sorry Sheila?.

The commercial OE growth. .

OE growth. Well, overall we look at usually it's about overall OE side and it started to pick up with the new platform coming. As you know we have 777 had called down the line rates.

We don't see anything different in the call down but overall OE is picking up and it's picking up to ramp in the launching of these new programs and we are always little head up deliveries we got to get our product to manufacturer first. So we are seeing a pick up and we are going to continue to see OE pick-up as we go through the year..

Okay. So it was the growth maybe high single digit nothing, but just wanted to get an idea. Okay.

And I know we might more of the facility business but just on the A320 and 737 Max can you talk about where you are in capacity realization and maybe on the ramp as to the finance?.

Well, in terms of capacity utilization the plants and hopefully I am glad you will be on the tour, all others will be there, but the plants were designed the physical structures were designed to handle the maximum volume and like 2021 so when you see the facilities you are going to see that there space like we put in our target is to be fixed nine months ahead of the ramp with equipment and with our number hiring and like so when you are going to see we are well ahead of the ramp and we will be able to make all the deliveries comfortably going forward.

No capacity concerns..

Okay and you would say you are about six to nine months ahead on the Neo versus the MAX at this point?.

I guess you have to see a lot of our equipment a lot of it is going to run on the same lines so we are building line capacity for the forecast and maybe it wasn't clear we are trying to have the capacity on ready six to nine months ahead of the steps in the ramp rates. That way everything we had no issue with meeting the committed ramp rates..

No. understood..

Okay..

And then just I guess lastly, stepping back whether you think about aero business or within industrial are there you have had significant aero wins you won HA turbine last year with TE can you talk about what you are maybe bidding on where the most activity that you are seeing throughout the company?.

Well, right now great deal of our, we have a lot of R&D going into development of the 777X. We are also working on the next generation turbine programs that are out there in the aerospace side. We are doing some R&D on looking at our market share expansion and product line expansion.

So that's without going into detail there for competitive reasons we are looking so that the next generation of programs that we can increase our content again.

On the industrial side we are seeing a lot of activity around dual fuel and alternative fuel or variety of fuel types, so some of those programs are coming back and we are investing again in those areas.

So those are some of the primary plus some of our growth initiatives that as I said we are looking at how to expand the business with our organic expansion..

Got it. .

Those are prime ones. We are also participated in looking at both Boeing air about the next generation aircraft or just middle of the market but we are involved in those activities as they are trying to figure out where those planes are going to be positioned and what time of the year but we are working on that activity as well..

Okay, understood. Thanks a lot Tom. Appreciated..

Okay. [Operator Instruction] And I am showing one question left from [indiscernible] from Stephens. Your line is open..

Yes hey guys thanks for taking the time.

Quick question on industrial gas turbine aftermarket again I am curious is there a historical correlation where when utility see under utilization from that normally one that maybe you see a correlation and pull back in aftermarket demand is that something you seen historically?.

Yes. There is a seasonality to the gas turbine aftermarket which would be tied to planned outages on those outages usually before you get to summer season where you are going to have high power use summer season everybody air conditioning. So usually you see it advance that so that's usually the seasonality around outages.

So we track outages we try to help our forecasting capability and working with our customers to see where they are. The other one is people working on emission regulation or if they are not compliant and they have to do an upgrade to get compliant that could also drive the timing of the aftermarket..

Okay.

And then on the 12% growth in aftermarket what would you attribute to legacy platform growth for initial provision?.

Yes, we had a real healthy mix this quarter. We are I think Bob mentioned earlier we are seeing initial provisioning for the new programs starting which is as anticipated and the initial piercing is ramping up but the programs we are on have some -- and some of the sweet spots in the aftermarket.

We are talking about -- where the A320 program itself, the B2500, the G90 all these are hidden great timing in their repaired overhaul cycles and we are seeing that coming through and we have a legacy that's going well.

So it was a mix across the board there but as we are highlighting we continue to see aftermarket being strong going forward but tied to that shop visit rates as well as ongoing initial provisioning that will occur for a number of years here..

Okay. And then just last one from me in terms of capital deployment I think you got $500 million authorization in place.

How kind of aggressive do you plan on being over the next 12 to 24 months and any increase appetite maybe actively start looking at?.

Well, we are both, Bob and I comment on that. Later first, okay..

Later first, okay. Well on the M&A yes our M&A approach is really targeted in with a lot of patience we get acquisitions that did with our strategic plan that would either enhance our system strategy or bring new technologies to us and we are constantly looking, but we are extremely patience to get the right asset at the right price.

So it's always really uncertain when you could time that and we want to make sure that we have the balance sheet to be able to do that but you can never exactly predict the timing. Outside of that we are going to go back to our capital deployment strategy with –.

Yes, I wouldn't call us any more aggressive. We are not aggressive in that second half as we go forward. We always have strategy of offsetting dilution. We will continue that strategy.

A lot obviously depends on where the stock price is as we go through the year and we love to see it up high and that kind of keeps us a little bit out of the market when it's up at the higher level.

So hopefully that will continue but as part of it also as we go forward people ask why are you going to let cash pile up on the balance sheet and no so then the balance between those comment and M&A and availability of opportunities there and where cash sits will be determined what we do with that I call it “excess cash”..

And we are committed to dividend growth rate that we highlighted. And we are going to continue to make sure we follow on that. .

Right, alright, thanks guys, best of luck..

Thank you and our next question is from Gautam Khanna from Cowen and Company. Please go ahead. You can check your mute button. You may have muted your phone..

Hi, sorry about that couple of follow-up questions. I was wondering if you could quantify how many leap equivalent ship sets you have already shipped into the channel and how that's going to progress through the year. So if you have a number that would be helpful and like what counter Q1 rate was how many shipped.

Secondly, on the PW1000 if you had any update on that as well. You can quantify for us..

Yes, I guess little bit that's sometimes sensitive information for our customers. And I would rather defer that they provide that data not us, but I can't tell you it's both programs are ramping up and obviously the leap is ramping quickly on the Neo, we are getting ready to launch the Max.

So that that's going to have a very steep ramp, they are making progress and we were planning and position ourselves to handle the full ramp rate that airbus is planning.

So around that I am confident that they are going to get over the issues they had and going forward we are just preparing for the step change that that's both Boeing and airbus are planning..

Maybe if you are not willing to quantify it could you at least give us some color on what the lead time is for Woodward? How far have you shipped relative to when they deliver?.

Yes. When we are in full rhythm it will be four to six months in advance to the aircraft being delivered..

And where is it now?.

Pardon. Sorry. .

Where is it now looking four to six months or you are saying down the road four to six?.

Right now it's forward towards the six months and basically we shipped, we do direction airbus and Boeing but the ones that when you are trying to leap and pure power goes first you have to go to engine manufacture, go to their build cycle and go to and then deliver the air frame or so it's a little bit longer on those.

I hope you are going to come to our facility tour. You are going to get real feel for how the rhythm of the production is and the flow and you get a feel for that if you are able to make the tour..

That's great. But to be clear six months ahead is sort of where you are relative to where they are delivering. So right now you are delivering at GEs Q3 exit rate on the lead approximately..

Approximately yes..

Okay. I wanted to also just parse this IGT aftermarket dynamic because you mentioned upgrades and aftermarket broadly.

I just can you trace what is actually in upgrade shipment versus a day-to-day maintenance general service kind of sale?.

We can..

You can and so which stepped down most?.

The most – they are both, they are all down most of the time with upgrades..

Okay. And that's volume that's not price but volume came down..

Correct..

Okay and –.

And we have to also -- you are looking at that some of that is timing because we had a big first quarter, a good first quarter and some of that first quarter could be an inventory that will be then going into the upgrade. So if there is a timing issue that does occur.

And it could be totally timing and order that's what we are trying to highlight so the overall we go on a color code it's down but there is some of that going on..

I don't remember you guys ever calling this out and so I am wondering is this the first quarter you have actually seen sizable step down sequentially on year-on-year in the upgrade market?.

What we have, is over the last couple of years we have had very strong upgrade market and so yes this might be the first down in the upgrade market that we had in the last couple of years. So I think that’s why we highlighted it.

So the OE side it's relatively flat and I comment earlier on the point in the cycle we are we do see that going forward increasing but we had couple of years very strong aftermarket here and I think first quarter we had down..

And we have called out that strength over the last two years..

Absolutely, that's why it’s surprising.

In terms of the typical order to revenue kind of conversion time line on one of these upgrades orders is it several months, is it a month like I am just curious how quickly these things can turn where – what's the lead time, what's the backlog if you will going into any quarter?.

Yes you mean our lead time within Woodward? Is that question you are asking on the project..

Yes exactly. So like right.

Your lead time to deliver the product you get an order, how long does it take to deliver the product typically? Is it book and ship?.

No. These are much long I mean I got to think about the exact lead time from if we take the total lead time probably four months lead time and there maybe a little longer depending on how we have the production line waited.

So if you just go pure accumulate lead time it's going to be much longer than that so we do a lot of forecasting planning to have the material on the pipeline so that we can respond quicker but that's you are talking pretty this isn't like book and ship really fast but it is longer cycle..

Okay. And how long would us say that the orders stock has been? Has it been through the first month of the current quarter as well? Like all of last quarter plus the first --.

We ended with the very strong first quarter of our fiscal year fourth quarter calendar year and the softening started to occur really beginning of January at the beginning of this year..

And just to be clear that's softness in orders because the sales were strong in the first quarter or --.

Sales were good..

Four monthly….

Sales were strong and orders declined in the as we move forward in the calendar year 2017..

But they were strong in fiscal Q1..

Orders, That's what you are asking. On orders started --.

Correct..

Orders started softening in the first quarter and as you go through the quarter you can get orders dropping in or timing of project and things so we -- the question we have seen some softening in the first quarter in orders yes because of lead time. But as you go through quarters we are not sure exactly what you pick up in the next quarter.

So we saw some softening forecast we had SOME concern but we had a strong shipment first quarter but the orders didn't continue into our fiscal second quarter and that's what you are seeing. So hopefully I clarify..

Got it, No that helps. That helps to explain the bit of the margin okay. Thank you very much guys. I appreciate for the answers..

Okay. Thank you. We will take our follow-up question from [Indiscernible] capital. Your line is open..

Hey guys, just a couple of model clarification questions.

On the tax rate the 22% sort of full-year is that implies kind of the first half of around 13 or in upper 20s for back half of the year?.

Yes. Of course yes..

Okay.

And then the second one was just in regard to question earlier about kind of the non-segment or corporate expenses I just want to make sure I understood kind of where that landed because this is up close to I think from throughout 60 is that very significant increase over last year on an adjusted basis at least?.

Yes. So run rates in roughly that 4% sort of area and -- but we will have some facility expenses and timing of some of those. We have got some of our in non-segment we have got some and all of our segments.

And so the timing is some of that will also determine in terms of move cost and something like that whether they are in the fourth quarter of this year or the first quarter of next year. So that will move around a little bit.

It will a little bit higher than it's been in the past years and then probably start to drop back down to where it's been more historically..

Got it. Thanks very much..

Sure. Welcome..

Mr. Gendron, there are no further questions at this time. I would now like to turn the conference back to you..

Okay.

I do appreciate everybody joining us today and I referred to it couple of times, but hopefully everybody saw the press release advising them, all of the analysts and investors to our aerospace facility tour on May 10 and Don and I, and Bob will be there joining the tour and we’re going to start at 9:45 central time and from there we’ll go to our new facility.

A lot of you there having had questions about, programs, the ramp rates, our productivity initiatives, I think this tour will answer a lot of those questions and I think it will be a good lightening to all of you about how we’re going to handle this commercialized aerospace ramp up. So I hope to see you there.

We’re looking forward to show our new facility to everybody. Again thanks for your questions today and we look forward to seeing many of you on May 10. Thank you..

Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it will be available today at 7:30 PM Eastern Day Light Time by dialing 1-855-859-2056 for U.S. call or 1-404-537-3406 for a non-U.S. call and by entering the access code 47791154.

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