Welcome to the Curtiss-Wright First Quarter 2023 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. Please go ahead. .

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 available for download through the Investor Relations section of our company website at www.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 and our public filings with the SEC. As a reminder, the company’s results including an adjusted non-GAAP view that exclude certain costs in order to provide greater transparency in the Curtiss-Wright’s ongoing operating and financial performance.

Any references to organic growth are on an adjusted basis and exclude foreign currency translation, acquisitions and divestitures, 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.

Lynn?.

Thank you, Jim and good morning, everyone. I will begin by covering the highlights of our first quarter 2023 performance and a brief update on our full year 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 our prepared remarks before we move to Q&A.

Starting with our first quarter 2023 highlights, we are off to a great start. Sales increased 13% overall to $631 million and improved 11% organically. Our overall results reflected strong conversion on our backlog and higher year-over-year sales in all aerospace and defense and commercial markets.

Starting with our A&D markets, we were encouraged to see some stability in the electronic component supply chain which played a strong role in driving 13% growth in A&D sales in the first quarter. Those results also reflected the contribution from the Arresting Systems acquisition completed last June.

As you have seen in some of our recent press releases, this business continues to secure new orders for its military, aircraft arresting systems equipment and its integration into Curtiss-Wright is going very well. Rounding out A&D, we achieved mid-teens growth in our commercial aerospace reflecting strong OEM demand.

Turning to our commercial markets, which increased 12% year-over-year, we delivered strong sales growth across our commercial nuclear process and general industrial end markets. Growth in our operating income, up 15% year-over-year exceeded our strong sales growth and we delivered 20 basis points in overall operating margin expansion in the quarter.

This performance reflected favorable absorption on higher sales and our continued dedication to driving commercial excellence and improved supply chain management, although we did face some unfavorable mix on operating margin.

Diluted earnings per share of $1.53 increased 17% year-over-year and exceeded our expectations, primarily due to higher sales. Adjusted free cash flow reflected a strong year-over-year increase of 18%, despite the typical first quarter outflow.

Of note, I'm pleased to report that this included the second and final cash payment tied to the delivery of our AP1000 reactor coolant pumps to China. As noted during our February earnings call, we expected to achieve this key milestone prior to shipping the final four pumps, as we wind down on this contract in 2023.

Chris will provide some additional color on the key drivers of our first quarter free cash flow later in our prepared remarks.

New orders were also strong in the first quarter, up 13% year-over-year, reflecting increases in defense electronics and commercial aerospace within our A&D markets and strong demand across the majority of our commercial markets, particularly for industrial valve and commercial nuclear products.

As a result, we achieved a book-to-bill of more than 1.1 times in the first quarter, which builds on our already strong backlog now at $2.7 billion and provides great visibility and confidence in achieving our 2023 sales outlook. Next, I would like to touch upon our full year 2023 guidance.

While we are encouraged by the strong start to the year, we have elected to maintain our overall guidance at this time and continue to project mid-single-digit sales growth, driven by increases in nearly all of our major end markets. I'd like to briefly highlight some considerations in two of those markets.

First in defense, which represents more than 55% of Curtiss-Wright's total 2023 sales. We are closely tracking the major metrics correlated with the ongoing recovery in our defense electronics supply chain such as lead times and customer decommit and we remain cautiously optimistic for steady improvement throughout the year.

Next in General Industrial, while conditions appear to be a bit more favorable for Curtiss-Wright following a strong first quarter, we continue to remain cautious in our guide to the full year given the current economic environment.

Despite those dynamics, I feel confident in our outlook for the full year sales growth of 4% to 6% and expect continued operating margin expansion in 2023.

It is important to note we will expand our margins while increasing both internally and externally funded research and development as we balance our current commitments and continue to invest in Curtiss-Wright's long-term profitable growth. We also remain on track to deliver solid growth in diluted EPS and generate strong free cash flow.

In summary, Curtiss-Wright remains well positioned for continued success in 2023 driven by the strength of our combined portfolio and our execution of the Pivot to Growth strategy. Now, I would like to turn the call over to Chris to continue with our prepared remarks.

Chris?.

Thank you, Lynn. I'll begin with the key drivers of our first quarter 2023 results by segment. In Aerospace & Industrial, sales increased 6% overall and grew 8% on an organic basis when excluding the impact of FX.

Within the segment's commercial aerospace market, we experienced double-digit sales growth driven by strong OEM demand most notably on Airbus narrow-body and wide-body platforms.

In the general industrial market, our results reflected high single-digit growth driven by increased sales of surface treatment services as well as industrial vehicle products serving on-highway platforms.

As expected, those gains were partially offset by reduced sales in the segment's aerospace defense market due to the timing of production on various fighter jet programs including the F-35. Turning to the segment's first quarter profitability.

Our results mainly reflected favorable absorption on higher sales and the benefits of our commercial excellence initiatives which continue to help offset inflationary pressures persisting in early 2023.

Next, in the Defense Electronics segment overall sales growth of 13% principally reflected the conversion of our strong order book which drove higher sales of tactical communications equipment to the ground defense market.

That increase was partially offset by lower first quarter revenues for embedded computing equipment on various helicopter and UAV programs in aerospace defense. Regarding the segment's operating performance.

Operating income was flat despite higher sales principally due to the timing and availability of electronic components and the resulting impact on mix as well as a year-over-year increase in R&D investments.

Despite the impact of timing and mix and as I'll review in more detail later in our prepared remarks, we remain confident in achieving the segment's full year sales and strong profitability. Next in the Naval and Power segment.

Overall sales growth of 18% was driven by low double-digit organic growth as well as a solid contribution from our resting Systems business. And as a reminder, the sales from that acquisition are mainly reflected in the aerospace defense market.

Elsewhere, in the naval defense market, higher revenues principally reflected the ramp-up on the Columbia Class submarine and CVN-81 aircraft carrier programs.

In the power and process market, our results reflected mid-single-digit growth in commercial nuclear aftermarket supporting the operation and maintenance of existing reactors and strong MRO valve sales in process. Turning to the segment's profitability. Our results again principally reflected the strong sales growth and resulting favorable absorption.

To sum up the first quarter results, overall we generated strong double-digit growth in both sales and operating income which resulted in a 20 basis points in year-over-year operating margin expansion, highlighting the strength of our combined portfolio and continued focus on commercial and operational excellence.

Next, turning to our full year 2023 guidance on Slide 5. I'll begin with our end-market sales outlook where we continue to expect organic sales to grow 3% to 5% in line with our long-term guidance and unchanged from our initial guide provided in February.

And overall, we're projecting total sales growth of 4% to 6% which includes the contribution from the Arresting Systems acquisition, partially offset by a small headwind from FX. I'll start with a few comments regarding our aerospace and defense markets where we expect sales to increase 6% to 8%.

Of note and despite the slow start to the year, we continue to expect that aerospace defense will be our fastest-growing end market in 2023 with 9% to 11% sales growth.

This reflects the contribution from our resting Systems business as well as a mid single-digit organic growth for Defense Electronics based upon the expected gradual recovery in the supply chain.

In Ground Defense, while we were pleased with the strong first quarter performance for our tactical communications equipment, we continue to project full year growth of 4% to 6%, as we proceed with some conservatism in light of the supply chain environment.

Enable defense and commercial aerospace, our estimates remain unchanged and we are confident in the long-term visibility that these markets provide to our portfolio. Outside of our A&D markets, our commercial market sales growth also remains unchanged at flat to up 2%.

And as a reminder in the power and process market, while we are expecting flat growth overall this outlook includes a revenue headwind from the wind down on the CAP1000 program of approximately $20 million.

Excluding that impact, we expect mid-single-digit growth in both the commercial nuclear and process markets, and we anticipate those sales will be weighted to the first half of the year in 2023, due to the timing of outages and turnarounds.

Finally, as we look at the combined total commercial market it's important to note that excluding the $20 million CAP1000 headwind, overall commercial sales growth would be up 3% to 5%.

Continuing with our full year outlook by segment on slide 6, I'll begin in Aerospace and Industrial where our top line guidance remains unchanged and reflects 1% to 3% sales growth, including a $10 million or 1% headwind from FX.

Looking at the segment's profitability, we continue to project solid growth in operating income and margin reflecting favorable absorption on sales and benefits of our ongoing commercial excellence initiatives. Next in Defense Electronics, we continue to expect sales to grow 5% to 9%.

And we now expect revenue to be less back-end loaded than what we experienced in 2022 and more in line with our historical cadence as we look forward with increased confidence following the solid first quarter performance.

In addition, we remain on track to our full year outlook for operating margin expansion of 30 to 50 basis points supported by our strong and healthy backlog and expectations for supply chain improvement as we move through the balance of the year. Lastly Naval & Power, our guidance of 5% to 7% sales growth remains unchanged.

Despite favorable absorption on higher sales profitability in this segment will be impacted by both negative mix on lower CAP1000 revenues and a shift to the lower-margin development contracts in the power and process market. However, excluding those items operating margin in this segment will be nearly flat year-over-year.

So to summarize our outlook, we expect total Curtiss-Wright operating income to grow 5% to 8% overall in excess of sales growth and expect operating margin to improve 10 to 30 basis points ranging from 17.4% to 17.6%. Continuing with our financial outlook on slide 7.

We've maintained our full year adjusted diluted EPS guidance ranging from $8.65 to $8.90 or up 6% to 10%, principally reflecting our strong outlook for operational growth.

Building upon our solid first quarter performance, we expect sequential quarterly improvement throughout 2023, and we project approximately 40% of our full year adjusted earnings per share to be recognized in the first half and expect the fourth quarter will be our strongest. Lastly, turning to our full year free cash flow outlook.

Our guidance remains unchanged for the range of $360 million to $400 million of 22% to 36%. And as Lynn shared earlier in Q1, despite the typical outflow of cash we experienced a solid year-over-year improvement in adjusted free cash flow in part due to the collection of the final CAP1000 payment.

Also, during the quarter, while we saw healthy collection levels beyond the CAP1000 payment, these were largely mitigated by cash outflows due to the timing of the year-end payables and higher first quarter tax payments. As we look forward across the balance of the year our greatest challenge and opportunity remains in inventory reduction.

The supply chain conditions begin to ease and we execute on a very healthy order book. Given our first quarter performance and continued focus on working capital management, we remain confident in achieving our full year free cash flow guidance which as a reminder yields a free cash flow conversion rate in excess of 110%.

Now, I'd like to turn the call back over to Lynn to continue with our prepared remarks.

Lynn?.

Thank you, Chris. As we have discussed today Curtiss-Wright is well positioned to deliver strong results in 2023. Our A&D and commercial markets each generated a book-to-bill in excess of 1.1 times in the first quarter adding to our growing backlog while providing visibility and confidence to achieve our 2023 financial guidance.

Looking beyond this year's strong top line growth of 4% to 6%, the long-term prospects for Curtiss-Wright and the markets we serve remain very healthy. I'd like to review a few of those areas, which we expect to positively influence our near- and long-term sales outlook.

First Curtiss-Wright is well aligned to benefit from the multiyear growth in defense markets driven by the strong bipartisan support for the US defense budget. Following the signing of the FY 2023 DoD budget in December, which reflected 10% year-over-year growth, we have continued to generate a very strong and healthy order book.

More recently, the President's FY 2024 DoD budget request of $842 billion reflected an increase of approximately 3% over the FY 2023 enacted amount.

Within this legislation we are well aligned to benefit from the strong support for growth in US aircraft and Navy platforms, as well as the modernization of the US Army and Marine Corps fighting vehicles.

Initial indications suggest that the final appropriated budget will likely grow to a higher level to minimally cover inflation, while addressing the continued rise in global threats. However, we understand the likelihood that we could be faced with another potentially linked the continuing resolution before the FY 2024 budget is enacted.

Should that occur, Curtiss-Wright is well-positioned to deliver on a growing order book and healthy backlog, and when combined with our expectations for further stabilization in the defense electronic supply chain, it should provide some insulation from any temporary funding delays.

Regarding the AUKUS joint submarine program, while the decision to supply up to five Virginia-class submarines to Australia was lower than initial expectations, the resulting increase in funding combined with emerging ramp in Columbia submarine production, is expected to drive sustained naval defense revenue growth for Curtiss-Wright well into the next decade.

Beyond that the expectation for an overall increase in global defense spending from our NATO allies supports our long-term growth outlook across our defense end markets.

Next in Commercial Aerospace, we continue to remain aligned with our customers and the expected production rate increases from Boeing and Airbus over the next several years should drive steady growth for Curtiss-Wright.

We are also well positioned for long-term growth in our Commercial Nuclear businesses, supporting the drive for carbon-free energy and energy independence. This includes nuclear innovation and safety within the existing nuclear infrastructure and the build-out of next-generation advanced reactors, which continue to receive strong development funding.

In addition, we remained enthusiastic about the growing list of potential new Westinghouse AP1000 power plant expected to be built in Eastern Europe. Regarding our industrial markets, we maintained strong alignment to the favorable long-term secular growth trends, including the push for commercial vehicle electrification.

Along those lines, we recently secured a large contract with a leading truck OEM to provide power management and electronics that will support safe and efficient electrical vehicle performance. This represents another great example of our commitment to provide customized solutions for on and off highway, commercial EV and hybrid vehicles.

Turning to our profitability. We expect growth in operating income to once again exceed sales growth this year, which is in line with our long-term guidance, reflecting the continued execution of our Pivot to Growth strategy.

We continue to drive our commercial excellence programs throughout the organizations with expectations that these efforts will contribute at least 10 basis points in margin expansion in 2023 and support our overall increase of 10 to 30 basis points.

Also, as mentioned previously, our 2023 outlook includes a year-over-year increase of approximately $20 million in total research and development investments, including both contract and internally funded R&D programs.

Curtiss-Wright continues to deliver overall operating margin expansion while making these strategic investments to fuel future organic growth. Turning to our healthy balance sheet. Our adjusted free cash flow remains strong as we expect to generate north of 110% free cash flow conversion in 2023.

While the high interest rate environment has made capital allocation and the pursuit of high-quality acquisitions more challenging the team remains disciplined and focused on allocating our funds to the highest and best use including organic growth and operational investments.

In closing, we continue to have line of sight to the three-year Investor Day commitments issued in 2021. We remain solidly on track to achieve total revenue CAGR in excess of 5% over the three-year period operating growth in excess of total revenue growth implying solid margin expansion, double-digit EPS growth.

We are also tracking close to our average free cash flow conversion target. At the midpoint of our current guide, yields three-year average conversion rate, just shy of the 110%.

I can assure you the team is working diligently to mitigate the ongoing supply chain pressures on our free cash flow in an effort to achieve each and every one of the targets we established.

Overall, I remain confident that Curtiss-Wright is well positioned to demonstrate strong profitable growth in 2023 and deliver on our Pivot to Growth strategy to drive long-term value for our stakeholders. At this time, I would like to open up today's call for questions..

The floor is now open for questions. [Operator Instructions] Our first question is coming from Kristine Liwag with Morgan Stanley. Please go ahead..

Hey. Good morning, everyone..

Good morning, Kristine..

Good morning..

Hey. Just following up on Poland and nuclear reactors. There were some reports last month that suggest that the US may be gearing up to lend Poland $4 billion for 20 small nuclear power reactors.

How does this embrace of small nuclear power reactors affect the outlook for AP1000 sales to Poland? Is this complementary? Is this competing? And then also, Poland previously indicated its deal with Westinghouse could cost $20 billion.

Do you see any risk around financing for this project? And can you give us an update on how you view this opportunity?.

So, I'd start out really talking about very strongly the perspective is that the build-out of SMR is completely complementary to the build-out of the AP1000. And it's not an either or. The power outputs are fairly different. And so where an AP1000 is needed it's a much better and a more economical fit than the multiple SMR.

So we're not -- we don't see them as competing in any way. We see them as very complementary and that was from what I understand of the announcement you're referring to of the SMR build-out. In Poland, it was always framed as in complement to the plan for six large reactors that they stated over a year ago. So that's good.

I think the funding of these we're seeing initial indications from the IMF that they are working to make sure the funding available across Eastern Europe. And so I think there are still things to be worked out with that things to be worked out with the regulatory agencies in Poland.

But I think we continue to see pieces of progress with legislation out of our government for ways for the U.S. to be very ready to help these countries accomplish their goals and reach energy independence. .

Thanks for the color. And if I could ask a second question on supply chain.

Can you provide more details or metrics regarding where we are how the problem has evolved? And what we need to see for inventory pressures to alleviate?.

So, yes. So, the area which really has remained the most problematic through 2022 is obviously the Defense Electronics segment and the complex components in there that we use electronic components elsewhere across the organization.

But largely those teams have mitigated the pressures from the supply chain and continue with redesigns on components that are more available and that's just not an option that's available in the complex electronics going into defense platform. So that remains the focus of our efforts as we analyze the supply chain.

And it's not to say there aren't other pressures with raw materials in some cases and other things. But things -- we're very much -- I'm very proud of the teams are managing their way through those.

Some of the things we're seeing in the electronics we monitor -- and you've heard us talk about essentially the middle of last year component lead-times, supplier on-time delivery, our ability to pull in or push out vendor commitments, and a number of parts on allocation, et cetera just a variety of things.

And across the board, I don't want to say it was dramatic in Q1 but we absolutely saw the trending in the right direction across those various measurements.

And much stronger commitment out of key suppliers that have had these lead-times that have gone up to 52 weeks in excess is really being way more specific about when they're going to start bringing those down say the 26 weeks.

So, still not to 2019 levels where 10 to 14 or 16 would have been like the longest we would have seen but to a much more manageable rate and begin to just beginning to see the quoting and the acknowledgments with those kind of lead-times.

But something that's less measurable but from talking to the teams just last week is when we're calling up suppliers and asking them that we're missing one part to build a board could we get some components pulled in several weeks that -- the tons from 2022 was look we have nothing to work with.

We can't accommodate this to starting to have a much more engaged conversations and then being able to work with us and accomplish the specific needs. So, we can really feel it beginning to change in our engagement with the supply base. So cautiously optimistic.

We feel our guide in the Defense Electronics segment a little bit wider than normal $725 million to $750 million. Accounts for some of the variability that is still out there. It's not like every part comes in on time. So, we feel really strong that that's a good guide and we'll be able to achieve it in the year.

So, that's really I guess I don't know Chris if you have anything you'd add on the supply chain or--.

I mean just specifically Kristine on we're targeting a $50 million reduction in inventory by year-end. We have specific inventory burn down plans for the businesses that are most impacted by the supply chain headwinds and we're closely monitoring those plans on a monthly basis.

It really requires enhanced focus on our forecasting planning and purchasing processes really to make that type of shift. And we've invested in supply chain analytical tools that provide us with more real-time visibility and recommendations for managing and adjusting inventory levels.

And where we don't have new tools we're improving our focus to align material deliveries with our new orders and shipment demand more closely. So, at a higher level I mean across our entire business I think your strong order book is really just going to provide us with a lot of opportunities to burn down that inventory at a faster pace.

So, we feel good about what we can do there in its contribution to cash flow. .

Great. Thanks for the color guys..

Thank you..

The next question comes from Peter Arment with Baird. Please go ahead..

Yes. Good morning, Lynn, Chris, Jim. Chris, on the defense electronics the margin guidance after the first quarter print, kind of, implies kind of a mid-20s operating margin for the kind of the rest of the year. The big step up but obviously you guys have had that kind of performance before.

So maybe just -- maybe you could talk a little bit of walk us through some of the factors that give you confidence in that guide? Thanks..

Yes, sure. I mean first it's really important to know what happened here in Q1. And as we've talked about on past calls it's really the changes in sales volumes on a quarterly basis can have a disproportionate effect on the quarterly margins versus the full year margins.

Across the full year the overall incremental margins are typically 25% to 30% and that's absent increases in R&D investment mix or other items. In the first quarter we faced some pretty significant changes in mix based upon the availability of electronic components.

And we saw some improvements in some areas of the business and I think you can see that impact in ground defense. But last year as we were talking about on these calls it only takes a small fraction of components that basically hold up a fairly decent chunk of revenue.

So in general, I would say higher margin cost revenues decreased and lower-margin systems revenues increased. I mean there were -- while the revenues were up in total we had a few businesses that faced lower component-related output which also created some pockets of under-absorption.

And then beyond that in Q1, we increased our R&D $1 million year-over-year. So for 2023, I mean, we expect Q1 and our typical cadence will be our lowest revenue quarter for defense electronics. As that revenue improves as we get deeper into the year the absorption will improve.

And we expect the full year incremental margins to be within our typical range. So a lot of that is related to the supply chain diving deep and understanding the material that we have and the commitments that we have understanding vendor stability and promises and commitments. And we feel pretty good about that right now. .

That’s very helpful color. And then just switching over -- Lynn nuclear aftermarket is up nicely. Can you maybe talk about some of the trends you're seeing in the plant life extensions and how that's kind of impacting your business and then kind of really how sustainable you see this growth? Thanks..

Yes. So I mean that is exactly what it is. And it's commented before that it's our teams don't always have exact line of sight whether something is just traditional maintenance work or additional maintenance work because they're starting the work associated with the plant life extension.

It sort of blends together, but we're definitely having dialogue with our customers that the commitments to extend these reactors from the 60 to 80 years is driving that growth. And honestly I think it's sustainable well, well, well into the next decade and even the back end of next decade. It's really early days.

And there's only about one-third of the plants of the 90 plants in the US have already achieved their licensing extensions and more we'll keep going into that through the middle in the back end of this decade as they reach their license period. So really early days. I think that trend is very sustainable..

Okay. Thanks, Lynn..

Thank you, Peter..

The next question comes from Myles Walton with Wolfe Research. Please go ahead. .

Thanks. Good morning. I was hoping to...

Good morning..

I was hoping to just go back to defense electronics for one second for clarification. Is it right to read that FX was -- is actually a benefit to margins in the quarter. So the year-on-year decline is closer to 300 basis points.

And I understand mix can be super volatile here, but I also think it's a little bit of a volume-based business in some of your embedded computers markets.

Is that not where the growth came from and therefore we didn't see the benefit?.

No, FX really wasn't a big impact on the quarter. I mean, we basically -- we did see some impact very, very slight on the sales in Q1. I mean it was less than $1 million. And within operating income the impact was fairly insignificant as well. So nothing really of note that's going on that way.

I mean it really all boils down to just the timing of availability of components and how that affected different businesses.

I mean our higher margin cost revenues decreased and our lower-margin systems revenues increased and there were a few other businesses that just didn't get the output that they needed to kind of make their absorption and that will improve as we get deeper into the year. .

Okay. And it was just an exhibit in your press release that showed an FX impact operating income, but I can circle around with Jim. And then maybe Lynn on the Industrial business any sign -- it sounds like you had good to order flow sort of across the board.

Can you give us any more, sort of, under the covers look at what the industrial order pipeline looks like and any signs of slowdown or customer behavior that shows some hesitation?.

Broadly we still feel confident about what we're seeing in our industrial order pipeline and very much though this is a watch item for us and something we're trying to stay very close with our customers.

I will say that in our vehicle end markets, the orders have slowed a bit since last year which were still very strong, but they're still above 21 levels. So good.

I think what we're understanding in some of those order trends is that as we're being able to lower our lead times people are -- customers are adjusting their order patterns a bit to burn down some inventory and do that but nothing concerning maybe a little bit of Q2 sluggishness and then back to the levels we've been seeing in Q3 and Q4.

And then if I take another major area in our industrial order patterns is around our surface technologies business, they're continuing very strongly. And so it's definitely a watch item. It's part of our cautionary thinking in maintaining our guidance for the year is what is to come in that area.

But today we still feel really solid with the forecast we have out there for the full year..

Okay, all right. Thank you..

Thank you..

[Operator Instructions] And the next question comes from Michael Ciarmoli with Truist Securities. Please go ahead..

Hey. Good morning guys. Thanks for taking the questions. Lynn or Chris, maybe just back to supply chain, can you maybe parse out. I think you said you were optimistic on the aero defense portion of supply chain. But the caution around growth in ground defense was also based on supply chain.

Can you just maybe reconcile that, or is this a totally different products that you're pulling through and you've got better line of sight, or what's the dynamic there?.

Yeah. They are slightly different products Mike that support those different markets. So ground defense is it's not like a semiconductor. You're dealing with more routers and switches and things along that -- those lines. So in that regard, good volume coming in inventory here that -- and we were ready to convert on that strong backlog for the business.

I think within the aerospace side of the business, I mean you're seeing that's really where you have your -- some higher margin cost revenues. There's a greater alignment there. I mean, also system I don't want to get too detailed into the mix. But there were some component availability issues.

But based upon what we're seeing coming in the door, the ramp that we have planned here for the year, the increased confidence that we're getting out of the supply chain I think we feel confident that that's going to pick up as we get deeper into the year. And then that will also help with that margin mix..

Okay. That’s fair. And then Lynn, you mentioned AUKUS and the five subs. Have you guys seen any funding there yet? I was under the impression that maybe trying to get back to two per year. I know Australia is throwing out some total cost estimates with some big contingency funding, but I haven't seen any progression there.

So could you maybe give us a little bit more as to what you're seeing on AUKUS, and if and when you think some of that would convert into revenues for you guys?.

It has -- the information flow has been a bit slow. And even though the announcements were made in March, they left a lot of head scratching to be frank as to how this was going to play out. And no we have not seen any funding flowing from that yet. We're just beginning to have engagements.

I mean, the interesting thing when the office announcement was made, it was for three with optionality of two on Virginia-class subs. I mean, we're pretty steadily producing at the two Virginia-class subs a year. So that's good and steady for us. But they also put forth a reasonable amount of money in that bill for strengthening the supply base.

And so that money will probably be some of the first money that's spent and we're still waiting to have some meaningful engagement on that to understand the color of that. So maybe 2024 2025. But I mean this whole thing -- the current talking is it's moving pretty slowly to be frank.

But I think they're still figuring out some things underneath the scenes and one day, it may show up and be more near-term than it seems, but no funding flowing yet for us..

Okay, okay. And then just the last one for me.

Strong growth in commercial aero in the quarter, I think you called out the Airbus platforms but based on the full year outlook, it looks like we're going to see I guess some growth deceleration there even though we've got -- obviously there's still supply chain risk there, but Boeing ramping up even Airbus.

Anything just conservatism in there? Anything you're seeing? Was there any pull-forward that satisfy some of this increased demand, or any color on commercial aero?.

I mean, we had a really good start in commercial aero in the first quarter. I mean, again the order book is up 24% for the year. Strong orders both in our short cycle and long cycle businesses. So we've got a lot of confidence in the current outlook. Sales in Q1 were up 16%.

I mean, it was mainly strong growth across Aerospace and Industrial to a lesser extent. We have some contributions indeed with avionics and FTE. But we continue to ramp with Airbus and Boeing.

And as we look across the full year and we do have some conservatism like to your point for the supply chain really just understanding what -- trying to think about what the customer could do right in managing their supply chains and how that affects us.

We're forecasting a growth of 5% to 7% and at 7% to 9% when excluding FX, it's really a good OEM growth rate high-single-digits, low-double-digits excluding FX. And then the aftermarket for us is really not to traditional aftermarket and that business is going to be relatively flat year-over-year..

Okay. Okay, that’s helpful. Perfect. Thanks, guys. I’ll turn back in the queue..

Thanks Mike..

The next question comes from Tony Bancroft with Gabelli Funds. Please go ahead..

Everyone thanks for taking my question. I just had a question about the -- it seems like you had a pretty good performance for the rest into your acquisition. Anything else sort of maybe outside your maybe core sort of what you guys do core wide but it seemed like it's done very well and it made a lot of sense.

Are there other acquisitions like that out there? And just maybe sort of give us a review of the pipeline, sellers' expectations and maybe go over that. Thank you..

Thank you for that question. Yes, honestly, we are really, really pleased with what we're seeing out of our resting Systems business and we've been making a pretty steady drumbeat of announcements of really double-digit millions of multiyear wins. These guys are securing across the globe that is really driving healthy growth in the business.

There are 22 revenues for them were around $75 million and we're definitely anticipating mid-single-digits minimally for their year-over-year growth. And so, really, really pleased.

And they really are the type of acquisition that is really a sweet spot for Curtiss-Wright that it can really take advantages of being part of Curtiss-Wright through our supply chain, through our lean initiatives but also our sales channel and our business development reach. And so, they can bring things to us.

We bring things to them and they grow stronger as part of Curtiss-Wright. And so -- that is the type of acquisition that we obviously added Keronite, which was a much smaller business but it brought a key technology to us. So it's not like this very narrow filter that will take acquisitions through.

But we definitely started seeing the pipeline of acquisitions pick up this year. We've probably already passed on five to eight acquisitions this year because as we review them they don't meet our strategic and our financial filters. We just wouldn't see that we can get them to a financial spot.

Mostly has been the issue to be accretive to the types of performance that we demand out of our businesses in Curtiss-Wright. And so -- but that doesn't mean we won't find them. We're always something you may have heard us talk about in the past that -- we're very active in the banking community.

So as books come along that might be relevant to us, we're seen as a steady acquirer and those books reach our desk for consideration.

But we equally even to a greater extent work with our teams to target private companies that are family held with the PE and really try and convince the ownership to go into a more exclusive process with Curtiss-Wright. So there's a good number of properties out there like that that we're working on.

And so, I feel confident we'll be able to maintain some of our steady drumbeat of acquisitions going forward..

Very helpful. Thank you. Great quarter, Lynn, Chris and Jim. Appreciate it..

Thank you..

Yes, thanks..

The next question comes from Nathan Jones with Stifel. Please go ahead..

Good morning. This is Adam Farley on for Nathan..

Hey, Adam..

I wanted to follow-up -- hey, good morning. I wanted to follow-up on the strength in new orders.

You've already provided some pretty good color here but are there any end markets that are showing relative acceleration or deceleration that you could call out? And through April as order growth continued at kind of a similar rate as the previous quarter? Thanks..

Yes. I'll take that one. So the book-to-bill in Q1 was pretty solid. It was just above 1.1 times sales, and just as a reminder, our Q1 sales were up 13%. So the order book exceeded that sales conversion. Our orders were up $85 million in total. The backlog is up 3% year-to-date.

And we continue to see positive order trends in aerospace and defense in particular, aerospace and ground and higher commercial markets as well in both process and nuclear. I think as you think about sustainment and what we've seen, consistently commercial aerospace orders, the growth rates are high.

As you look at what we've been seeing within the process and nuclear markets, I mean those order books are growing in the teens. I think there's some good things that are happening there.

We talked a lot last year about the Defense Electronics business and the -- between the continuing resolution and the slow start to the outlays, we had that record order book last year in Q3 and Q4 was just slightly off of that.

As we enter into the year here for Defense Electronics, our order book is up 47% year-over-year and that business continues to sustain those order levels that were near those Q3, Q4 record highs. So I think a lot of positivity.

I mean, Lynn had mentioned that when you step back and you take a look at what's happening within the industrial vehicle markets, and you take a look at the GI markets, our economic bill weather continues to send good signals.

I mean, that surface tech business order growth rates across all the markets that it served were at high single digits, low double digits for Q1. So that's a big confidence booster.

And then I think that business, the only other thing that's important to note is just the backlog is so strong from that order book in 2021 and 2022 that even with a little bit of order degradation here in Q1 back down to 2019 pre-pandemic levels, we feel like we're in a good space for that business as we look out in the year.

And then when you look out even further, and I'm not going to provide a guide for 2024 at this time.

But we are doing some things like new product introductions in the product -- the power management space and that's supporting trends in vehicle electrification, and some of those product launches have LTVs in excess of $100 million over the next five years. So there's some exciting stuff that we're working on from a development perspective.

And then beyond that we just continue to listen to many of our industrial companies, the customers who've had similar strong starts to the year. They largely remain cautiously optimistic and some are even beginning to see signs of the infrastructure bill funding have a slight boost on demand.

So, we feel pretty good about the order book and looking all around it. .

Thank you for taking my questions..

Thank you..

And the next question comes from Myles Walton with Wolfe Research. Please go ahead..

Thanks for taking the follow-up. And I apologize if you did say this, but I think you alluded to 40% was the composition of EPS in the first half on the last quarter call. And obviously, you'd also guided the first quarter to be up just mid single digits in your mid-teens.

So is it purely a pull forward from the second quarter that you're sort of seeing in the course of the year? And also within the first quarter if you can point in particular to the areas of upside versus your plan? Thanks..

Yes. So I think you should take a look at the first quarter and the results did come in a little bit better than expected Myles. I mean we've been trying to take a more cautious approach to what's been happening here given the availability of the electronic components.

So it was a very strong year-over-year performance for the Defense Electronics group. I mean, we're pleasantly surprised with the overall results and what we had there.

I think with where we are right now from an order book perspective and what we're seeing within defense electronics we're certainly feeling more confident on the year right? But given how radically things can change in that business based upon the availability and we're just taking a conservative position.

I think when you go back and you take a look at this last year, and how things kind of shook out from an EPS perspective and you look at the half-to-half split, I mean, we were more in the range of from an EPS perspective of like 39-60, 40-60 at the end of the day. Right now we're saying 40-60.

We feel pretty good about that and certainly have some confidence. But I think it's just we have to approach things cautiously at this point and that's how we're -- that's why you're seeing that in the numbers. .

All right. Thank you..

There are no further questions at this time. I will now turn the floor over to Lynn Bamford Chair and Chief Executive Officer for additional closing remarks. Please go ahead..

Thank you all of us for joining us today. We look forward to speaking with you again during our second quarter 2023 earnings conference call. Have a great day. .

Thank you. This concludes today's Curtiss-Wright first quarter 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day..