Curtiss-Wright Reports Third Quarter 2022 Financial Results and Updates Full-Year 2022 Guidance

Curtiss-Wright Corporation (NYSE: CW) reports financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights:

• Reported sales of $631 million, operating income of $108 million, operating margin of 17.1%, and diluted earnings per share (EPS) of $1.91;
• Adjusted operating income of $114 million, up 6%;
• Adjusted operating margin of 18.2%, up 70 basis points;
• Adjusted diluted EPS of $2.07, up 10%;
• Reported free cash flow (FCF) of $86 million;
• New orders of $818 million, up 32%, reflecting strong Aerospace & Defense (A&D) and Commercial market demand, and book-to-bill of 1.30; and
• Backlog of $2.6 billion, up 19% year-to-date.

"Curtiss-Wright delivered solid third quarter results, despite continued supply chain challenges, as the strength of our combined portfolio, coupled with the benefits of our company-wide operational excellence initiatives, enabled us to generate stronger than expected profitability with 70 basis points in operating margin expansion and double-digit EPS growth," said Lynn M. Bamford, Chair and CEO of Curtiss-Wright Corporation. "Sales in our Commercial markets increased 9% during the quarter, led by double-digit growth in our general industrial and process markets, while sales for Aerospace & Defense markets were relatively flat. We once again experienced robust order activity, as bookings increased 32% year over year, and both bookings and backlog grew 19% on a year-to-date basis. This was driven by strong demand across the majority of our defense and commercial markets, including record level quarterly orders within our Defense Electronics segment."

Full-Year 2022 Financial Outlook:

• Sales revised to new range of 2% to 4% growth (previously 4% to 6%), including 1% to 3% growth in our A&D markets and 6% to 8% growth in our Commercial markets;
• Adjusted operating income revised to new range of 3% to 6% growth (previously 5% to 7%), reflecting the timing of revenues within our Defense Electronics segment, partially offset by stronger profitability within our Aerospace & Industrial segment;
• Maintained Adjusted operating margin range of 17.1% to 17.3%, up 10 to 30 basis points compared with the prior year;
• Adjusted diluted EPS revised to new range of $8.05 to $8.20 (previously $8.10 to $8.30), which continues to reflect double-digit growth; and
• Adjusted free cash flow revised to a new range of $275 to $315 million (previously $345 to $365 million), reflecting the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our CAP1000 reactor coolant pumps to China, which has likely pushed to 2023, to align with our customer’s project schedule.

"Although underlying demand across the portfolio remains strong, we are revising our full-year 2022 guidance to reflect the ongoing global supply chain disruption which continues to impact the timing of production, deliveries and free cash flow within our Defense Electronics segment. We have taken numerous actions, including consistent engagement with our supply base that supported our prior expectations of a strong second half, however, conditions are not easing as quickly as anticipated. While we are confident these dynamics will get resolved over time, the challenges are delaying the recognition of our strong order book."

"Looking forward, the business fundamentals in the Defense Electronics segment remain quite strong, driven by record bookings, strong profitability and favorable long-term secular tailwinds. In addition, we remain focused on mitigating the impact of other macro-level headwinds through our ongoing operational excellence initiatives. As a result, we are able to maintain our previous operating margin guidance despite the topline reset."

"Overall, Curtiss-Wright remains in a strong position to deliver significant long-term value for our shareholders and on track to achieve the financial targets that we set out at our 2021 Investor Day."

Curtiss-Wright and X-energy Sign Preferred Strategic Supplier Agreement:

• On September 15, 2022, the Company signed a preferred strategic supplier agreement to advance the design and deployment of X-energy’s Xe-100 advanced Small Modular Reactor (SMR);
• Under the agreement, Curtiss-Wright has been selected as a preferred supplier to develop and provide three of the most critical systems for the Nuclear Steam Supply System; and
• Curtiss-Wright estimates that its content for these three systems will be in excess of $100 million in revenue per four-unit (320 MW) plant.

Poland Selects Westinghouse AP1000 Technology for its First Nuclear Power Plant:

• Earlier in 2022, Curtiss-Wright secured Westinghouse’s commitment to our reactor coolant pump (RCP) technology in future AP1000 power plants, including Eastern Europe;
• Westinghouse's initial partnership with Poland covers the first three of potentially six AP1000 reactors, which are expected to begin producing electricity in 2033; and
• The agreement provides an opportunity for Curtiss-Wright to receive new RCP orders within the next three to five years.

Third Quarter 2022 Operating Results

• Adjusted sales of $631 million increased 3% compared with the prior year, and included a 1% headwind from unfavorable foreign currency translation;
• Total A&D market sales were flat, while total Commercial market sales increased 9%;
• In our A&D markets, our results reflected the contribution from the acquisition of our new engineered arresting systems business in the aerospace defense market and mid-single digit sales growth in commercial aerospace; Those increases were principally offset by the timing of defense electronics revenues due to ongoing supply chain headwinds;
• In our Commercial markets, we experienced double-digit sales growth in the general industrial market and mid-single digit sales growth within the power & process market, despite the wind down on the China Direct AP1000 program as it nears completion; and
• Adjusted operating income of $114 million increased 6%, while Adjusted operating margin increased 70 basis points to 18.2%, principally driven by the benefits of our ongoing company-wide operational excellence initiatives and favorable overhead absorption on higher revenues in the Aerospace & Industrial and Naval & Power segments, partially offset by unfavorable overhead absorption on lower revenues in our Defense Electronics segment.

Third Quarter 2022 Segment Performance

Aerospace & Industrial

• Adjusted sales of $213 million, up $17 million, or 9% overall, and included a 3% headwind from unfavorable foreign currency translation;
• Higher commercial aerospace market revenue reflected continued strong demand for sensors products and surface treatment services on numerous narrowbody and widebody platforms;
• Strong double-digit revenue growth in the general industrial market was driven by increased sales of industrial vehicle products, principally serving on-highway and specialty platforms, and higher sales of surface treatment services; and
• Adjusted operating income was $39 million, up 27% from the prior year, while Adjusted operating margin increased 260 basis points to 18.3%, reflecting favorable absorption on strong sales and the benefits of our ongoing operational excellence and pricing initiatives.

Defense Electronics

• Adjusted sales of $161 million, down $21 million, or 12%, principally reflected the timing of defense market sales due to ongoing supply chain headwinds related to the availability of electronic components;
• Lower aerospace defense market revenue reflected decreased sales of our embedded computing and flight test equipment;
• Ground defense market revenue declines reflected reduced sales of our tactical communications equipment; and
• Adjusted operating income was $37 million, down 14% from the prior year, while adjusted operating margin decreased 50 basis points to 22.7%, primarily reflecting unfavorable absorption and mix on lower A&D revenues, partially offset by the benefits of our ongoing operational excellence initiatives.

Naval & Power

• Adjusted sales of $256 million, up $21 million, or 9%, principally driven by the contribution from the arresting systems acquisition for arresting systems equipment within the aerospace defense market;
• Naval defense market revenues increased slightly as higher revenues on the Columbia-class submarine and CVN-81 aircraft carrier programs were mainly offset by timing of revenues on the Virginia-class submarine and CVN-80 aircraft carrier programs;
• Higher power & process market revenues reflected continued strong growth in industrial valve sales in the process market, as well as higher nuclear aftermarket revenues supporting existing operating reactors; Those increases were partially offset by the wind down of production on the China Direct AP1000 program; and
• Adjusted operating income was $48 million, up 11% from the prior year, while adjusted operating margin increased 30 basis points to 18.9%, as favorable absorption on higher organic revenues, as well as the benefits of our restructuring and ongoing operational excellence initiatives, were partially offset by unfavorable mix in the power & process market.

Free Cash Flow

• Reported free cash flow of $86 million decreased $11 million, primarily due to the timing of defense revenues and higher inventory levels as we continue to work through the challenging supply chain environment;
• Adjusted free cash flow of $86 million; and
• Capital expenditures decreased $1 million compared with the prior year.

New Orders and Backlog

• New orders of $818 million increased 32% in the third quarter and generated a book-to-bill of 1.30, principally driven by strong demand for defense and commercial aerospace products within our A&D markets, and for nuclear aftermarket and process products within our Commercial markets; and
• Backlog of $2.6 billion, up 19% from December 31, 2021, reflects strong demand in both our A&D and Commercial markets.

Share Repurchase and Dividends

• During the third quarter, the Company repurchased 90,307 shares of its common stock for approximately $13 million; and
• The Company also declared a quarterly dividend of $0.19 a share.

Other Items – Completion of Financing of $300 Million in Senior Notes

• On October 27, 2022, the Company announced the successful completion of a private placement debt offering of $300 million for senior notes (the "Notes"), consisting of $200 million 4.49% notes due 2032 and $100 million 4.64% notes due 2034.

Full-Year 2022 Guidance

The Company is updating its full-year 2022 Adjusted financial guidance⁽¹⁾ as follows:

• Revised Adjusted free cash flow reflects the timing of defense revenues, as well as the expected delay in receipt of a significant cash payment upon the final delivery of our CAP1000 reactor coolant pumps to China, which has likely pushed to 2023, to align with our customer’s project schedule.

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A more detailed breakdown of the Company’s 2022 financial guidance by segment and by market, as well as all reconciliations of Reported GAAP amounts to Adjusted non-GAAP amounts, can be found in the accompanying schedules. Historical financial results are available in the Investor Relations section of Curtiss-Wright’s website.

Conference Call & Webcast Information

The Company will host a conference call to discuss third quarter 2022 financial results and updates to 2022 guidance at 10:00 a.m. ET on Thursday, November 3, 2022. A live webcast of the call and the accompanying financial presentation, as well as a webcast replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.

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Use and Definitions of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these Adjusted (non-GAAP) measures provide investors with improved transparency in order to better measure Curtiss-Wright’s ongoing operating and financial performance and better comparisons of our key financial metrics to our peers. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

The following definitions are provided:

Adjusted Sales, Operating Income, Operating Margin, Net Earnings and Diluted EPS

These Adjusted financials are defined as Reported Sales, Operating Income, Operating Margin, Net Earnings and Diluted Earnings per Share under GAAP excluding: (i) the impact of first year purchase accounting costs associated with acquisitions, specifically one-time inventory step-up, backlog amortization, deferred revenue adjustments and transaction costs; (ii) the sale or divestiture of a business or product line; (iii) pension settlement charges; and (iv) significant legal settlements, impairment costs, and costs associated with shareholder activism, as applicable.

Organic Sales and Organic Operating Income

The Corporation discloses organic sales and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic sales and organic operating income are defined as sales and operating income, excluding contributions from acquisitions made during the last twelve months, loss on divestiture of the German valves business, and foreign currency fluctuations.