Curtiss-Wright Corporation Stock

Hi. Good afternoon, everyone. I'm Kristine Liwag, Morgan Stanley's aerospace and defense analyst. Super excited to have you join us for our next session. We have Curtiss-Wright with Lynn Bamford, CEO and Chairman of Curtiss-Wright; and Chris Farkas, CFO.

So what an exciting time. Before we get started, I'm going to read our standard disclosures. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. I really don't know who goes to that website. But it keeps the lawyers employed. When we support the lawyer industry.

So with that, Lynn, Chris, maybe starting out capital allocation. Curtiss-Wright, you guys have been a historically acquisitive company, and you've gone through the ebbs and flows of deals that you did before, a pause and you're back to the pivot to growth where you've been more active in the acquisition front.

More recently, you've done smaller deals in the commercial nuclear realm. Can you talk about what that M&A pipeline is currently? I think in the last earnings call, you've suggested you were in due diligence. So can you talk about what's happening in the M&A space?

Absolutely. And I first want to say thank you for inviting us to you, Justin and to Morgan Stanley. I also have a disclaimer statement that today's remarks may contain forward-looking statements that come with risks and uncertainties, and they're outlined on our website. So now we've both done our exception statement.

So again, I know there's many familiar faces here, but I also see a lot of new faces. So if you are less familiar with Curtiss-Wright, to give some context to today's comments, I'd encourage you to go to our website, curtisswright.com, and look in the Investor Relations section. You look at our Q2 earnings material, some other presentations in our 2024 Investor Day that set out our 3-year targets that we're wrapping up at the end of the year. And so give you a good baseline and overview of the company.

So first, just starting out talking about the pipeline. The pipeline has been strong. We have looked at quite a few companies over the past 18 months, and again, we're a diversified company, which gives us the opportunity to look at various different end markets. We're pretty quick to say one of our top priorities is to add on to our defense electronics capability. It's our highest margin segment. We know how to buy business in that segment and bring them in and have them reap the benefits of being part of that bigger team.

Major naval propulsion and safety systems is another priority where we're always looking. Commercial nuclear remains an area we look. There's not nearly as many targets in that space, but it is an area we look. And specialized aerospace components that really have differentiated IP and durability of revenue would be another place we would look. And so I think one of the things, as you pointed out, Curtiss-Wright has had M&A is our top priority for our use of our capital, and it absolutely remains there.

But as we very consistently say, we are looking for a strategic and a financial fit and are willing to walk away from properties if they do not have both of those characteristics. And I think through our acquisitive history, we've really developed very good, strong processes and call it a playbook, whatever for how we go about approaching diligence and vetting forecast and such.

And with that, I think we do a really good job of bringing in companies that are going to meet financial targets within the company. And so I'm really proud of what the team does. We've walked away from a handful of properties over the past 18 months, as I just said, where the willingness of others to pay very, very high multiples up into the 20s on forward-looking EBITDA. It's just not an area where we're thinking we'll be willing to go. You never put absolute limits on things, but they just wouldn't have made financial sense. So we continue to look and exercise our diligence process, and we will find things to acquire. I feel confident about it.

And Lynn, with the strategic and financial targets, can you just give us a little bit more color on what those thresholds are?

Sure. Maybe Chris can talk about the financial targets.

Sure. I think as you take a look across the business, it's going to be very hard to find one that you can instantly integrate into the business and meet Curtiss-Wright's 19% ROS target, especially we don't measure EBITDA. We do it on a ROS basis, so we cover the depreciation and amortization when we bring businesses in. But it has to be able to accrete to that in a relatively short period of time. We want businesses that are going to be also accretive to the top line growth and strong cash flow generators and the ability to hit our ROIC targets, which given some of the higher multiples that you're seeing in the market today, you may not be able to hit cost of capital by year 3, but these are long-term investments.

So we'll hit it by year 5. But it will be flexible. I think you're not going to hit every KPI every single time. To me, as a finance guy, it's strategic fit, strategic fit financials. But we do take a lot of time and care to make sure that, that alignment is there.

And then I guess just harkening back to the strategic fit. It's many things I imagine you can -- we're looking to build out positions in our end markets. We're not looking to add a fourth leg to the company. But we really want companies that own their intellectual property. There's very good durability of the revenue streams, high strategic barriers, companies that have good alignment to our culture and places, companies that maybe can extend our customer reach or we can use our customer reach to extend for them. And so a lot of different things depending on which end markets you're looking at. But as Chris said, we start there. And if they don't make the strategic fit, we don't go on to the financial fit, but they have to pass both.

That makes sense. So good luck. I hope you find what you're looking for.

We will.

So with that, staying on capital allocation, you increased your share buyback by $100 million. I think now your new share repurchase authorization totals about $700 million, and you're on pace for $460 million in buyback this year, pretty much around the same level as your record year last year of the buybacks. Can you talk about what's driving this incremental spend? And also, has there been a change in your strategic priority where buybacks is now more higher up on the list?

So I'd just start out by talking about the strategic priorities and then turn it over to Chris. The strategic priorities have definitely not changed. And I see we have bought back a lot of stock that is right there in plain sight. But acquisitions for growth in our end markets is absolutely our strategic fit. And we just sort of talked about what those criteria are. And I look at the future for Curtiss-Wright and feel so confidence in where we're taking this company that we're not going to push the limits on an acquisition that could be harmful to the value I know we can create to our shareholders with the investments we're making in ourselves and the growth that we have before us.

Yes. So I agree with Lynn. Absolutely. The answer is no. I think the key for us is discipline, right? I mean I think it's a disciplined capital allocation strategy. So as you take a look at what we're generating very, very strong cash flow. And if you take a look at how much capital we've deployed since 2021 through 2025 is $2.5 billion. Now half of that went to organic investments and inorganic investments and the other half of that went to returning capital to shareholders. And I think you can see in the stock price growth over the past few years, a very, very good investment.

Now more recently, the Board approved that $700 million of additional authorization, and we saw some opportunity here in the market in the month of August, and now we've launched another $100 million plan here, which is going to extend through October. But we look at everything. This isn't really just a cash jump. We'll take a look at the valuation. We understand where we stand relative to other mid-teens earnings compounders. We recognize the dynamics in the industry. But the thing that we see that we don't share because we don't typically guide more than 1 year unless we're at an Investor Day, is that tremendous growth in earnings that's ahead of us. So we are absolutely a great buy right now.

I mean you see the stock price, I mean -- and this new buyback, I could see that the confidence that you're signaling is clear.

Yes. I'm sure we're going to touch on it in future questions that we're just so well positioned in so many of our end markets and the technologies that we bring, but I'll let you ask questions about those in the order you choose.

Sounds good. So I mean, I guess the next order is you see the administration, this administration has been vocal about different priority set that's important for the war fighter. Can you talk about the alignment of Curtiss-Wright's portfolio on these 3 priorities? And where opportunities do you see are most interesting?

Yes. So obviously, we've been in the defense industry in naval shipbuilding since the inception of the Nuclear Navy and Defense electronics since the kind of birth of the COTS industry. And so we're long-standing players in these industries. And Naval shipbuilding, the budget has nearly doubled from '26 to '27. I mean that's pretty amazing. And we're aligned across all the major platforms. They're trying to get to a rhythm of 2 Virginia and 1 Columbia. That's great for us.

We have major content on each of those platforms. They're moving forward with the CVN82 long lead material funding. So these are all very good developments for Curtiss-Wright. And then across our defense electronics portfolio, we have been in this industry for years. We have a global reach to where we sell our products. And whether it's aircraft modernization, we announced the C-17 program with Boeing is one program that we can announce what we're doing. There are so many times we win things that we're not able to announce.

What we're doing, whether it's that an advanced threat detection system that will go across multiple rotorcraft that has got a huge future for us to whether it's tactical communications, whether it's just so many different things of pushing electronics out to the war fighter and making the battlefield more advanced technology, we play in many of those places. And then that's not to mention having a great reach for Golden Dome, which is obviously another priority.

So I think that's a great segue. On Golden Dome, there's been a lot of discussion about the project. I mean it's a big priority for President Trump. But at the same time, the funding for Golden Dome for fiscal year '27 is uncertain. It was mostly funded out of the reconciliation budget, which looks unlikely. There are discussions of maybe folding some of it into the base budget. I guess with all this uncertainty and funding for Golden Dome, let's take a step back. Where do you see the program? Where is Curtiss-Wright positioned? And how do you think about that in terms of your core business versus optionality?

Yes. So it's interesting because there's different opinions on the reconciliation. Golden Dome is essentially taking a lot of existing systems, either using them as they are, upgrading and networking them together to make a unified front for defending the homeland. And as just mentioned, we've been in the COTS industry since its inception. We are on so many of the things that will be part of the buildup of Golden Dome.

So some of those will come in their existing form, and we'll participate in that way, whether it's on the sensor side to look for threats coming in or effectors to look for countermeasures to take action and whether that's counter UAVs, counterballistic missiles, these are all areas where our technology is very relevant. And things like our NVIDIA Blackwell product that we brought to market last year are all critical pieces for -- when you think of the time and the speed and the decision-making, these are all critical Fabric100 capabilities for the fastest interconnect that exists in the industry.

So these are all things we have, and we can work with the defense industry to build these things out. And then our tactical communications equipment is critical for the networking. And personally, I think they're going to find ways to put the important pieces that need developed and acquired into the budget one way or the other. And I think we're very well positioned to make more advanced technologies where they're going to spend money in that way or to build out the existing platforms that we will be able to build into the Golden Dome.

Great. So it sounds like you're very bullish on the Golden Dome.

Yes, very much. One other aspect of the Golden Dome that hasn't come up yet is one part that is already being well funded. And again, the IFPC program where we do the electromechanical actuation, we just announced a $40 million award at the end of August in that. And so again, that has been fielded in Guam is going very well. That program is going to lead to the follow-on CAML program, which is another multi-domain launcher. And again, these things are finding ways to be funded. So the reconciliation, that money in out, I believe the pull for this equipment is so strong that it's going to find its way in the defense budgets.

That's super helpful. And maybe bringing to the 2026 outlook. At the last earnings call, you've called about a flattish 3Q and then another recovery in 4Q. And some of this is -- most of it, I guess, the key variable is defense electronics. Can you walk us through your confidence level about that level setting of that cadence? And then also, how much visibility do you have in the supply chain that gives you confidence that you would have that big 4Q?

Your turn.

Yes. So I think when you're talking about confidence, and I'll just kind of step it up a level for those that are maybe less familiar with Curtiss-Wright, we had a beat and raise in Q1. We had a beat and raise in Q2. So overall, we feel very comfortable with the guidance of the corporation and where we're headed. And if you've come to know us over the years, we do what we say we're going to do.

So on the second quarter call, we did talk a little bit about defense electronics and some flatness in the revenue between Q2 and Q3. But if I go back a little bit further, it's very gratifying for Lynn and I to talk about things that actually come to fruition. And given the fact that last year was a full year continuing resolution, we had a government shutdown for 45 days. There's been changes to the PMO offices, a lot of confusion last year. But what we said in the fourth quarter was that as soon as the NDAA was signed and we got through this, we'd start to see order patterns resume to a more normal cadence. And 60 to 90 days later, we would start to see that uplift.

And Q1 was a very solid order book. Q2 was a record order book. It was up 47% year-over-year. We're seeing another strong order book here in Q3. So very gratifying to be able to forecast that, that's happening and where we are. But we also said that there would be some timing issues relative to the revenue recognition. And while the pipeline for Defense Electronics is incredibly healthy and the business is really doing great, it's just a matter of execution. So 4% to 6% revenue -- increase in revenue guidance this year. We didn't increase it. It's just the time -- the short time frame that we have to turn this around.

Now when it comes to the supply chain, yes, most manufacturers that participate in our space are facing problems with maybe memory and processors and things like that. But I'll tell you, when we went through this back in 2022 when this issue was more systemic through the industry and wider scale in nature, the team learned a lot, a lot of best practices that we're incorporating today. We started placing advanced buys knowing this was coming earlier this year. We've got DPAS ratings that we're flowing down to suppliers. We're building healthier, stronger relationships with our suppliers. And we feel very well positioned. We've got the materials that we need for 2026, and we're working on 2027, credit to the team.

Wonderful. You recently announced your $80 million investment in your Cheswick, Pennsylvania. I think that's how you pronounced it. I've actually been there maybe 10 years ago, maybe it's time for another trip. But $80 million in investment. Can you give us more color on -- and by the way, on a separate note, that's the biggest pump I've ever seen in my entire life. I thought reactor pool -- I mean, this is massive, massive, massive giant pump. No wonder, it costs millions of dollars.

Good advertisement.

Well, I think I'm out of budget for a $500 million spend, but I'm sure others could build some factories like that for plants. But with the $80 million expansion of Cheswick, Pennsylvania, can you talk about what's coloring that? I mean that facility supports both the U.S. Navy, but also commercial nuclear power. Any sort of color on what that investment provides? And also taking a step back, how should we think about growth CapEx in general?

Okay. So yes, thanks for pointing that out, Kristine. Back in July, we posted a press release online that we were making an $80 million investment in our Cheswick, Pennsylvania facility to be funded through in ranked order, Curtiss-Wright funding, Maritime Industrial Base funding from the Navy and then state support from Pennsylvania. And it's an investment in the facilities to expand for naval growth that we're facing. And there's so much work on the naval side of the business right now. It's very, very exciting.

And then also to prepare for what's coming here in SMR production and then also the AP1000. I think if you step back and look at this, it's going to create 150 additional jobs over the next 3 years in that area. And it's really a reflection of our commitment to the community and the workforce that we're going to be a critical supplier in this industry for decades. I mean this is something that's really long term in nature when you put this much money into a facility, and it's a very strong operating facility.

You step back and look at Curtiss-Wright, we've always been very -- I don't want to say frugal, but very critical with our use of capital and how we deploy that. And we've increased our investment in CapEx pretty substantially over the past 3 years, 30% in '24, 50% this last year, another 30% this year. We're providing a great return on invested capital for our investors. This is a sign and a statement that we have growth that's coming ahead and profitable growth that's absolutely going to cover these investments that we have.

And on top of that, it's very gratifying to be in our position and say, while we're increasing that CapEx, we're also increasing free cash flow. So we're not saying, hey, we're going to go invest and you guys have to slow down with what you're going to expect in terms of capital allocation. We're doing both. So it's gone very well.

It's all like pretty positive news. I guess, Chris, you talked about higher investments, but also you're getting MIB funding. Can you talk about the opportunity of -- or both of you could talk about the opportunity of Curtiss-Wright as a second source for the U.S. Navy and what your position is?

So if I -- for those, the MIB funding is maritime industrial-based funding, if anybody doesn't know that term. And it's money that the government will invest usually in a partnership into industry to help them grow to prepare for future capacity needs. And I think it's great to take note that in our '24 Investor Day, we were at $15 million of MIB funding, and we're just under $100 million now. And so that is a lot of money the government has sent our way to help us build for capacity. And this has been across a variety of our naval plants.

And often, the thinking around with the government and the handshake deal you'll make is that you'll invest in facilities and they'll help invest in the equipment. And so that's a lot of how this has been being balanced as we go forward. But when you think of $100 million or close to $100 million of investment. That is both to grow current content, ramp, expand repair capabilities and take on some second source work. And we're not at liberty to say what that is at this time, but it's meaningful content on existing naval platforms that will really grow what our shipset content is. And so it's something that hopefully we'll be able to talk about in the near future. But again, if you go back to that Investor Day briefing from '24, we lay out the major naval platforms and what our shipset content is. And I think we'll be able to move the needle on some of those numbers.

And would that be profitable growth?

We only grow when it's profitable.

We don't have to do anything else.

No. I mean our naval -- being very transparent, our naval business is even in the Naval and Power segment, it's some of the lower ROS work, but it's very cash flow positive, and it's important work to us. We're very proud of the work we do for the U.S. Navy and develop a lot of fantastic capabilities that one of the things I think has been Curtiss-Wright's strengths over the years is we have a core capability we develop for one industry and then we take it into other markets. And our core capability of the reactor coolant pumps as an example, was developed for the nuclear Navy.

We've taken that same technology to commercial nuclear and subsea pumping. And so you have to think about it in totality of what we can do as a business based on some really outstanding engineering capabilities.

Super helpful. I think that's a great segue to talk about the commercial part with the AP1000 and Westinghouse. So I know it wasn't part of your financial outlook, and you're hoping you wouldn't get peppered with questions on this since it's not in your outlook, but here we are. Do you still expect potentially 2026 as an order year? And where are we in terms of the discussion with Westinghouse on the order? And do you anticipate the U.S. coming through first? Or is it Europe? What's the order of the order?

Order of the order. Yes. So we still are anticipating an order for their initial AP1000 pumps in 2026. And I do realize exactly we're in the middle of September. And so that window is getting a little narrow. But we engage with Westinghouse very actively multiple times a week, if not daily, and have gone through extensive capacity planning with them preparations, a lot of advanced negotiations on the structure of orders and other things associated with that. And so this is not something we're just sitting and waiting for. We've been working with our supply chain for the past 2 years to help them be ready.

So when we get an order, we can flow orders to them. And this is very active and very transparent with Westinghouse. But we will get an order from Westinghouse. Westinghouse will get an order from either one of the utilities or Poland are kind of the 2. Nobody knows exactly, but they're kind of the 2 more likely places. And I think it's generally thought that a utility will be in front of Poland. But honestly, the IAEA conference is going on right now, and Poland is making a lot of noise about really getting close to placing their orders. So for us, we're going to build the same things. We're ready to take orders as those orders come, and it's pretty exciting times, all things nuclear. AP1000, obviously, is the next big thing, but our work with SMRs just continues on, and we continue to build our partnerships there.

Great. I'd love an SMR question. But before that, maybe pivoting back to capacity, right? Because with your Pennsylvania facility, that's for the Navy and commercial RCPs for Westinghouse. What does the $80 million capture? Are you able to meet the increase in submarine build that the U.S. Navy wants plus these opportunities in commercial nuclear power? What's the capacity like? And what does that $80 million allow you to do?

So it definitely grows our footprint, and we very much are looking at our Navy backlog is outstanding right now. And so it's definitely to support both that growth subsea pumping, which we're anticipating is going to start moving into some of the higher production rates. And so it's also to support that.

The good thing is we're very flexible into exactly how that space is going to be used and what we will do with it. But it's part of a multifaceted capacity plan. When I think of the Cheswick facility, that is not the last thing we're going to announce there for being able to expand for storage and manufacturing space. And again, as we are considered more and more for second source components on major platforms, that brings in new work.

Now not all that work goes to Cheswick. Some of that work goes out into our other plants, which is a good thing. But yes, we have monthly capacity planning across the nuclear and how that ties into the Navy where the work is co-located.

That makes sense. And now on SMR. So you've announced you're working with leading SMR providers, including Westinghouse and Rolls-Royce. I guess what's the update on this segment? How mature is the technology? And how close are we to kind of the commercialization, monetization part of SMR?

So I think it's one of the powerful investment thesis with Curtiss-Wright is that if you see the nuclear energy production is becoming more and more important here in the U.S. and globally. We really have a reach across the existing fleet that is operating and doing service work on it, life extensions, restarting some plants. The build-out of the AP1000s and then SMRs. And we really have targeted making -- challenging ourselves to have somewhere between $20 million and $120 million of content across the 6 large SMR providers. And those are the ones we think of that are 300 megawatt or a little bit higher of content. And I think we will achieve that across the board.

If I take 2 to talk about that have had a lot of headlines and are really seem to be gaining traction, we've been very public about our content with X-energy that we're at the top end of that range, exciting to see that they just got another $1 billion of funding from the U.S. government, which is just a great sign of the determination to help them be able to deliver their first ARDP plant down to Dow in Texas. And so it's exciting that we started talking earlier this year, we've really moved out of a design phase working from them since 2020, 2021, but really doing clean sheet design work. And now we are in the prototyping phase.

So they are moving to be able to have test facilities, put things on test loops and be able to build that first plant for Dow. And so that's a very exciting one. Another partnership that we're very excited about that I feel will put us at a revenue range in that top end range is our partnership with Rolls-Royce. And we've announced a few wins with them. We have a lot of things in the work, and I think we'll have more announcements coming in the near future. And they're really building out their footprint across Europe right now, but I don't think they will stop there. And so if you think of those 2 sides, we've really positioned ourselves well to grab that growth that will go through the middle of this century.

And that's not to say, not the other ones. We'll be somewhere between the $20 million and the $120 million, the middle probably with TerraPower and NuScale, maybe slightly on the lower end with GE. And then with Westinghouse, our content on the AP1000, we think we'll be north of $150 million by the time we have not just the RCPs, but other plant equipment that Westinghouse has selected and the AP300 should be half of whatever that content is. And so it's just -- it's a lot of business that is just going to layer on top of each other across Curtiss-Wright for decades and decades.

That's super helpful. Now we probably have time to take a few audience questions. If you have a question, please raise your hand, and we'll bring you a mic and don't be shy. I'll just call out names.

Jim, do you have a question?

Justin? We get a mic to Justin, please.

Justin Lang, Morgan Stanley. You were talking, Lynn earlier about taking one technology developed in one area and porting it to another. So I remember back in your Investor Day, a lot of talk about subsea pumps and the prospects there. I was wondering if you could give us an update on that front and what to expect for the next year or 2?

Yes. So we continue to do our work with Petrobras. We've delivered a pump to Shell. We're hoping to think it may be installed yet this year. And so a couple of new customers along that we haven't gone public with yet that are seeing how the technology plays out, but we're really anxious to get that first pump installed that Shell is really kind of a technology leader in the industry. In this industry, a lot of people -- a lot of the different providers watch what Shell does is kind of the gold standard for how to go forward. And I think we're going to have a significant milestone with them in hopefully the next 6 months.

Other questions? So Chris, you said it yourself earlier, beat and raise in 1Q, beat and raise in 2Q and then you're saying, oh, flat 3Q, I mean, come on. So I guess my question is for the variable part, what are the variables you're watching that could potentially give you that beat and raise again in 3Q and another beat and raise in 4Q. What are those moving pieces? What milestones are you monitoring that could get us there?

Yes. So there's a lot of positive things that are kind of going on across the business right now. And I think that you can just kind of go down the list of where we are. I mean the work that we're doing on next-generation aircraft, whether that's supporting the U.S. military or advancing commercial technologies on current aircraft in the A&I segment. I mean, the momentum there just continues to improve.

So we're seeing some strength there. I think as you step back and look at general industrial within the A&I segment, I mean, it's been flat for the last 2 years, while we've been growing at like 8% to 9%. So flat was kind of great for that industry over the past 2 years, but the order book is up 21% year-to-date, and it's a relatively short-cycle business.

We just increased our guidance from flat to low single digits. And I think as you step back and you look at what's happening there, we're listening to our customers, they're saying good things. We're following ACT for on-highway research. We're following off-highway research. All of these things are kind of coming together at once. So we're very optimistic about where we're headed as we approach 2027. The question is, does some of that convert into additional opportunity here given the short-cycle nature of the business? Perhaps. We've talked a lot about Navy today, right? And the backlog is very strong. And the key there is can you continue to accelerate backlog through production? So could there be some additional opportunity in Navy?

Sure. There could be. The commercial nuclear story is very, very strong. That opportunity continues to show itself to investors. But as you go through the rest of the year here, I think we're extremely well positioned. We will hit our Defense Electronics numbers, and we just have a lot of confidence in not only where we are here in 2026, but the positioning entering into 2027.

Great. And Lynn, the opportunities that we're seeing in commercial nuclear power was really a technology harvest from the U.S. naval work you were doing in reactor coolant pumps. And then that also then seeded subsea pumps and SMRs. Are there other areas that you're looking at in your technology-rich portfolio where there could be avenues in the industrial world that gives you another layer to monetize?

Yes, it's a great question, and there's a handful of them around the company. I may just pick a couple out. But we've talked about our flight data recorder capability. That's one where we really developed that capability for a military customer and now have taken it to a commercial customer. So it goes both ways. But like that is a core capability that we have taken now and sold into 2 end markets. Interestingly, our electromechanical actuation equipment that's on the IFPC that is -- we talked about it briefly just a few minutes ago. That was a capability really developed for commercial end markets that we have taken to the military market, and it has been performed so well that it's leading to other opportunities into the military market.

And so there's other places in defense electronics where we have electronics developed for the military that we can then take into some side markets that I might not be very specific about yet, but maybe things more associated with law enforcement and things along those lines or other 3-letter agencies. So there's just a lot of opportunities that we're able to do that in. And some we don't chop from the mountain tops just because we have things in work that it's very much part and parcel with who we are as a business. I mean another one -- just one other I might mention and we're at the time, but is our valve technologies. We have a really strong portfolio of valves and valve technologies, and we are very much able to take those across process markets of various forms and then into the nuclear market. So kind of getting one example out of each of the 3 segments.

Well, thank you very much, Lynn. Thank you very much, Chris. This concludes our session at Curtiss-Wright. Thank you for joining us this afternoon.

Thank you.

Welcome to the Curtiss-Wright Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.

Thank you, Angela, and good morning, everyone. Welcome to Curtiss-Wright's Second Quarter 2026 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Executive Vice President and Chief Financial Officer, Chris Farkas. A copy of today's financial presentation and the press release are available in the Investor Relations section of our website. A replay of this webcast will also be available on our website.

Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with the forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I would like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. Curtiss-Wright delivered excellent second quarter results that exceeded our expectations. We also raised our full year earnings guidance to reflect the strong first half results, record backlog and the outlook for the balance of the year. The successful and ongoing execution of our Pivot to Growth strategy has been the key to our quarterly performance, and I'm proud of our team's ability to deliver consistently strong results for our shareholders. With that, and turning to today's presentation, I'll begin with the highlights of our second quarter 2026 results. Sales of $924 million grew 5% year-over-year, reflecting solid growth across our overall A&D and commercial markets.

Operating income increased 12% year-over-year, exceeding our sales growth and resulted in 110 basis points of operating margin expansion. As a result, diluted earnings per share increased 15% year-over-year and was slightly ahead of our expectations, driven by the strong operational performance. We also generated $160 million of free cash flow, representing a year-over-year improvement of 37% and a strong cash conversion rate of 116%. Free cash flow generation continues to be an important focus for the team, driving funding for continued investments back into the organization to support our future profitable growth. I'll provide more information about these targeted investments and our alignment to growth vectors across our markets later in my prepared remarks. Regarding our order book, we experienced strong demand in the second quarter as new orders increased 8% and reflected an overall book-to-bill in excess of 1.1x.

We have a robust and growing pipeline, which continues to demonstrate positive momentum across our A&D and commercial markets. Digging into the details by segment, I'll start with Defense Electronics, which delivered a record performance as orders grew nearly 50% year-over-year and are now up more than 30% year-to-date, reflecting the team's alignment to the strategic growth priorities of the U.S. and allied militaries. Notable bookings within the segment included some significant awards for Turret drive stabilization systems supporting international ground vehicles, along with tactical communication equipment supporting the U.S. Army, Marine Corps and Air Force operations. We also received numerous awards supporting the modernization of existing helicopter, UAV and fighter jet platforms, some initial orders on Golden Dome and various development contracts supporting next-generation programs.

Next, in the A&I segment and starting with our defense market, we experienced strong demand for our industry-leading EM actuation technology supporting the U.S. Army's IFPC program. This program is on track to receive another sizable increase in funding under the FY '27 budget and maintains continued healthy growth projections. I would also emphasize the notable progress in our industrial vehicle order book, which has achieved strong growth for 3 consecutive quarters and is contributing to our more positive outlook in the general industrial market. Chris will discuss this further in his remarks.

Lastly, within the Naval and Power segment, following a strong Q1 order book, second quarter orders were down year-over-year, principally due to the timing of naval defense orders on submarine programs. Aside from that, we continue to benefit from increasing demand in our commercial nuclear aftermarket supporting plant outages and restarts and also experienced a strong demand for valve equipment in our process markets. To sum up our overall order activity and based on the strong demand thus far in 2026, orders are up 12% year-to-date, exceeding sales growth of 9% to yield an overall book-to-bill in excess of 1.2x. In addition, Curtiss-Wright's strengthening pipeline enhances our confidence in meeting our near-term targets and establishing a strong foundation for sustained medium- and long-term growth across our end markets.

Turning to our full year 2026 guidance. Overall sales are now projected to increase 8% to 9%, driven by more favorable outlook in our defense and general industrial markets. We continue to expect that operating income growth will outpace sales growth and our increased guidance reflects 50 to 70 basis points of margin expansion in pursuit of a record 19.1% to 19.3%. As a result, diluted EPS is now projected to grow 14% to 16% as we continue to compound our earnings at a mid-teens pace over time. Lastly, we raised our free cash flow guidance and continue to expect strong free cash flow conversion in excess of 105%. Overall, Curtiss-Wright's strong growth in revenue during the first half of 2026, along with gains in operational efficiency have positioned our team to continue to deliver outstanding financial performance. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. Turning to Slide 4. I'll begin by reviewing the key drivers of our second quarter 2026 performance by segment. Starting in Aerospace & Industrial, overall sales increased 12%, which was in line with our expectations. Beginning with the segment's defense markets, our results reflected higher sales of actuation and sensors equipment within our aerospace defense market, supporting various U.S. and foreign fighter jet programs. In addition, we experienced solid sales growth for EM actuation equipment supporting ground-based mobile launcher systems. Within the commercial aerospace market, we experienced solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms.

And in the general industrial market, our results reflected modest growth in sales for industrial vehicle products. Regarding the segment's operating performance, operating income and margin grew 25% and 180 basis points, respectively, driven by favorable absorption on higher revenues, favorable mix and restructuring savings, which were partially offset by continued investments in development programs. Next, in the Defense Electronics segment, overall sales were down 3% and essentially in line with our expectations. Within the segment's ground defense market and as anticipated, our results reflected lower sales of tactical communications equipment due to the timing of prior year orders, which were partially offset by higher Turret drive stabilization systems revenue supporting international programs. Growth in the aerospace defense market was driven by higher domestic sales of embedded computing equipment supporting various aircraft modernization, UAV and next-generation development programs.

Regarding the segment's operating performance, we delivered stronger-than-expected second quarter operating margin of 28%, up 120 basis points year-over-year, reflecting a favorable mix of business and cost containment, which more than offset higher investment in research and development. Moving to the Naval and Power segment. Sales growth of 7% was primarily driven by strong growth in our naval defense markets associated with the timing of production on submarine programs. We also experienced a solid uplift in aftermarket revenue supporting naval shipyards, including increased support for the CDN-75 refueling and complex overhaul program. Growth in the power and process market was mainly driven by increased revenues in the commercial nuclear market supporting advanced small modular reactors. We also experienced higher government nuclear revenue supporting various DOE projects at National Laboratories.

Regarding the segment's operating performance, operating income grew 12%, generating 80 basis points in operating margin expansion, mainly reflecting favorable absorption on higher revenues. To sum up Curtiss-Wright's second quarter results, our solid top line performance generated a strong operating margin of 19.4%, driving 110 basis points in operating margin expansion. Turning to our full year 2026 guidance. I'll begin on Slide 5 with our end market sales outlook, where we now anticipate total sales to grow 8% to 9%, driven by improved expectations in both our defense and general industrial markets. Starting in aerospace defense, we raised our full year outlook to a new range of 12% to 14%, reflecting increased sales of actuation and sensors equipment supporting both domestic and international fighter jet programs.

Additionally, we continue to project strong year-over-year sales growth for Defense Electronics, which we expect to accelerate across the remainder of this year. Within ground defense, while confident in the pipeline and growing strength in the 2026 order book, we maintained our full year 2026 outlook based on the timing of production for our tactical communications equipment. Beyond the timing matters, we continue to expect increased actuation sales supporting the IFPC program as well as increased demand for Turret stabilization systems supporting international ground vehicle programs, most notably through our relationship with Rheinmetall. In Naval Defense, following our strong first half results, we now project full year sales growth of 7% to 9%, mainly due to expectations for higher production revenue on submarine programs, while we continue to expect solid growth on the CVN-81 carrier program. This raise in guidance also reflects increased aftermarket revenue supporting the CVN-75 refueling and complex overhaul program.

Moving to Commercial Aerospace. Our guidance continues to reflect the strength of our backlog supporting the ramp-up in OEM production across both major narrow-body and wide-body platforms. Our outlook for 10% to 12% sales growth remains unchanged, and we remain on track to deliver steady sequential growth over the remainder of the year. Wrapping up our aerospace and defense market outlook, we now expect total sales in these markets to increase 7% to 9%. Moving to our commercial markets. In Power & Process, we maintained our outlook for full year sales to increase 13% to 15%. Starting in the commercial nuclear market, we expect to deliver mid- to high-teens sales growth this year, driven by the continued underlying strength of our order book.

Of note, we anticipate sales in this market to be flat sequentially in Q3 as fewer outages are expected during peak electricity demand followed by a strong fourth quarter performance. Shifting to the process market. We remain on track to demonstrate solid growth based on higher sales of MRO valves and instrumentation solutions as well as higher revenues from subsea pump development and then similarly deliver a strong fourth quarter performance. Lastly, in general industrial, as Lynn mentioned earlier, we're seeing steady improvements in our industrial vehicles order book and now anticipate full year sales growth of 1% to 3%.

We remain encouraged by the improving outlook and expect continued momentum in this market as we approach 2027. Wrapping up our total commercial markets, we continue to project that total sales in these markets will increase 8% to 10%. Moving on to our updated full year 2026 financial outlook by segment on Slide 6. I'll begin in Aerospace & Industrial, where we increased our revenue guidance to a new range of 8% to 10%, driven by the strong first half performance in the segment's A&D markets, continued growth in our order book and the anticipated ramp-up in commercial aerospace production. Regarding the segment's profitability, operating income is now projected to grow 15% to 17% and drive operating margin expansion of 110 to 130 basis points, ranging from 18.5% to 18.7%. In addition to the improved top line guide, this revised outlook reflects a more favorable absorption and mix on higher sales.

For your modeling purposes, we expect strong second half growth in total sales and profitability with the results fairly evenly distributed between the third and fourth quarters. Moving to Defense Electronics, where we continue to anticipate sales will grow 4% to 6%, principally driven by strong growth in aerospace defense and partially offset by the timing of revenues in ground defense. Regarding the segment's profitability, we now expect operating income growth of 5% to 7% and operating margin expansion of 20 to 40 basis points, marking continued improvement in our industry-leading margins to a new range of 27.5% to 27.7%. For your modeling purposes, we expect the segment's third quarter sales to be flat with our second quarter results, mainly due to the timing of ground defense revenues, followed by a strong finish to the year.

In addition, third quarter operating income and margin are expected to be down sequentially as favorable mix experienced in the first half of this year is anticipated to normalize by year-end, while we also expect a higher level of second half R&D investments. In Naval and Power, we now expect sales to grow 10% to 11%, reflecting the increased naval defense market outlook and overall solid growth across the segment's commercial markets. Regarding the segment's profitability, we now expect operating income growth of 14% to 16% and operating margin expansion of 50 to 70 basis points with this uplift mainly driven by the stronger revenue outlook. For your modeling purposes, we remain on track to deliver steady sequential sales growth over the remainder of the year.

In addition, we expect the segment's third quarter operating income and margin to be in line with our second quarter results with higher absorption mainly being offset by increased R&D investments. So to summarize our 2026 outlook, overall, we now anticipate total Curtiss-Wright operating income will grow 11% to 13% and expect operating margin to range from 19.1% to 19.3%, now up 50 to 70 basis points. For your modeling purposes at the overall Curtiss-Wright level, we expect third quarter 2026 sales to reflect modest growth relative to our second quarter results, while operating income and margin are projected to be flat sequentially based on the timing of revenues, unfavorable mix in Defense Electronics and overall higher R&D investments.

We anticipate the fourth quarter will reflect a record top line performance, resulting in a strong operating margin in excess of 20% to conclude the year. Continuing with our financial outlook on Slide 7 and starting with our EPS guidance. Building upon our strong first half performance, we've increased our full year 2026 diluted EPS guidance to a new range of $15.10 to $15.40, up 14% to 16%. And based upon the timing of sales and profitability, as previously discussed, we expect our third quarter 2026 EPS will be on par sequentially with our second quarter 2026 results, followed by a strong finish to the year. And lastly, turning to free cash flow. Based upon our strong second quarter and first half free cash flow and the confidence that provides in execution, we raised our full year outlook and now project record free cash flow of $585 million to $605 million.

Please note that this guidance includes a nearly 30% increase year-over-year in capital expenditures associated with ongoing growth investments which will be more than offset by strong growth in earnings and a record level of working capital as a percentage of sales below 18% as we continue to deliver a free cash flow conversion rate of approximately 105% again this year. Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide 8. As we have discussed today, the team continues to deliver tremendous results under our Pivot to Growth strategy, reinforcing our confidence in achieving record financials across all major metrics in 2026. Our success in meeting these objectives is supported by the strength of our order book, close alignment with our customer priorities, focused investments back into the business and our commitment to drive sustained margin improvement. At the same time, we are targeting record levels of profitability and are delivering strong results as we continue to accelerate investments in R&D at a faster pace than sales. This steady drive for top quartile financial performance, combined with substantial and targeted reinvestment in the business remains fundamental in our ability to compound earnings at a mid-teens pace over time.

It also supports our ability to deliver strong and consistent free cash flow generation for our shareholders and drive strategic investments in growth CapEx across the portfolio. These efforts will ensure that our workforce and factories have the necessary tools, systems and resources to continue to drive strong growth in sales and operational efficiency. I wanted to highlight one of those critical investment opportunities shared in the recent press release. In July, we announced an $80 million multiyear investment to expand our Cheswick, Pennsylvania facility within our Naval and Power segment to support growing market demand across our naval businesses and also in anticipation of future commercial nuclear awards.

This expansion, which began in 2025, will be financed through various channels, including internal capital investments, maritime industrial base or MIB funding and state assistance. Regarding the MIB funding, we've spoken quite a bit about it recently and the growing support from our U.S. Navy customer. This continues to accelerate, and Curtiss-Wright has now been awarded approximately $95 million in industrial-based funding to date. Note, this award value was $70 million as of the end of March. Overall, this funding provides us an opportunity to gain increased content and potentially become a second source to further support our customers' efforts as they look to expedite production on U.S. Navy's most critical platforms. This is one of many investment opportunities that we have been pursuing across our operations to position Curtiss-Wright for long-term growth.

Turning to the right-hand side of the slide and taking a broader perspective across Curtiss-Wright's entire portfolio, we continue to build momentum. Our teams remain focused on executing in the short term while investing to capture the strongest medium- and long-term growth vectors globally in the markets in which we compete. While the slide outlines many of the meaningful end market drivers, I'll direct your focus to the commercial nuclear market. For those less familiar, Curtiss-Wright possesses long established and significant commercial nuclear expertise dating back to the industry's inception. Today, our technologies support the entire life cycle from the new build to the aftermarket. The company's extensive portfolio of aftermarket technology support the continued performance, safety and modernization of operating reactors worldwide, including content on every reactor across North America and South Korea.

In the U.S., the administration has exhibited a clear dedication to expediting life extensions of existing nuclear facilities and expanding the reactor fleet with the goal of quadrupling U.S. nuclear generation capacity to 400 gigawatts by 2050, including restarts and new builds. Curtiss-Wright remains well positioned to serve this massive acceleration in demand. Leveraging our established foundation, we also anticipate a substantial near- and long-term opportunity to support the construction of Westinghouse AP1000 reactors. On that front, AP1000 efforts in the U.S. continue to advance. In June, the Department of Energy issued a conditional $17.5 billion loan commitment through its Office of Energy Dominance Financing to support the deployment of up to 10 new AP1000 reactors.

The loans are expected to finance long lead equipment purchases for up to 5 projects with 2 reactors at each site, potentially bringing all 10 reactors under construction by 2030, which remains in line with the President's 2025 executive order. It is anticipated that the long lead equipment purchases would include Curtiss-Wright's reactor coolant pumps and that these components will be procured prior to the projects reaching final investment decision. As a proof point, I'd like to highlight something which is not directly within the public sight regarding the progress being made between Westinghouse, the Department of Energy and the launch customers. During the month of July, one of the DOE's initial launch customers, which we cannot name, visited our operations, and they were overwhelmingly impressed with the quality of our critical manufacturing processes and our preparedness to support the impending build-out of AP1000 reactors.

Overall, we continue to expect an AP1000 order this year. We remain excited for the opportunity to support the build-out of AP1000 reactors not only domestically through the DOE, but also through the Department of Commerce and across Eastern Europe and internationally. We intend to fully capitalize on the tremendous growth ahead in our commercial nuclear power business. In summary, we anticipate another record financial performance this year, driven by the team's steadfast focus on execution. We can confidently state that we are on track to exceed all of the major financial metrics issued at our 2024 Investor Day at the top and bottom line. Looking forward to the coming year, we expect to share updated long-term financial targets during our next Investor Day, which is currently being planned for the second quarter of 2027.

The future remains extremely bright as the momentum continues to build at Curtiss-Wright across all these end markets, and we remain well positioned to continue to deliver long-term value for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.

[Operator Instructions] Our first question today comes from Nathan Jones with Stifel.

Orders have been exceptionally strong for several quarters here in the $1.1 billion to $1.2 billion for the last 3 quarters, which is significantly above the revenue level that's averaging kind of $925 million in the first half of '26. Can you talk about the duration of the backlog and how we should expect those strong order rates to translate into higher revenue levels?

Yes. Thanks for pointing that out, Nathan. I mean it is -- we are really, really pleased with what's happening here in the order book, and you can see the momentum. And I'll start by saying I think Q3 is shaping up to look pretty good as well. But when you step back and you take a look at what's happening in the Curtiss-Wright order book, there's a few dynamics at play. Number one is just kind of the alignment of our technologies to the overall strength in the defense budgets here in the U.S. and also internationally. But if I dive a little bit deeper into that, we started off the year talking about some of the delays in the defense electronics order book associated with the CR. We were forecasting earlier this year that it would take about 60 to 90 days for that to kind of clear itself up. And given the strong Q1 orders in DE that were up 18% year-over-year and now what we saw here in Q2 with the record in orders being up 47% year-over-year, that's corrected itself, but embedded within some of the Defense Electronics order book, there are some things that are a little bit longer term in nature.

We have the C-17 program press release that we talked about earlier this year, that's multiyear. We had an incredibly strong second quarter order book within ground defense, and that included some long-term production orders relative to Turret drive stabilization systems and we're seeing some things pick up just overall on the CR&D front. And that all speaks very positively not only to this year, but then as we look outward. And then looking across commercial aerospace, continued strength following the ramp and what's happening across the Boeing and Airbus and Lynn talked a little bit on the call here, too, about general industrial, we saw a strong surge in orders in Q4.

We saw a strong surge in orders in Q1 here again in Q2. And the order book there is up 21% year-to-date. And again, that business is having a strong July, again, 1 month. But yes, the order book is very strong. I think it speaks very positively not only to what's happening here in the current year, but also as we look forward into 2027 and beyond.

I guess the second question I'll ask is on supply chain. There's obviously very high demand for chips and electronics and things like that these days from data center demand. I know you guys generally are in a priority position given the industries that you're in and managed through it extremely well during COVID. But can you talk about any challenges that you're seeing in the supply chain, any inventory prepositioning that you're doing or anything like that, that we should be thinking about?

Thank you, Nathan. And it's a very worthy topic to bring up because the supply chain pressures have definitely increased in the first half of this year. And I wouldn't say it's back like COVID, but there are some similarities to back into 2022. But as we talked about back then, we learned a lot of things back in 2022, we installed a bunch of different pools, took on some different approaches to how we managed our inventory, and those are serving us well, and I think we're in very good shape. Really, the team is -- we're largely secured for our 2026 revenue and the real focus at this point is positioning for 2027.

So I feel positive about that. But we talked about things you mentioned, the DPAS rating and some different things, and we've often mentioned also the relationships we have with our supply base that we really focused on in a new and different way back in 2022 and kind of a recent example of where that's playing out that some of our leadership attended a meeting in Manassas, Virginia on May 22, that was initiation of the Alpha-1 DDR Made in America event at the Micron facility that was attended by the CEO of Micron and the Secretary of Commerce.

So a really big deal. And during that time, with the presence and their understanding of what we do, we have been assured that we have priority allocation out of Micron. And that's just one example, but it's in the press, so it's something that people can look at that I thought it would be fun to mention for the work that this team is doing. But it's very systematic and it's across the board, and they collaborate across defense electronics very much with the industrial team who also has dependencies on the electronics industry, and we make our power of our business work together in that area.

And it's not just electronics. I would mention that there are some pressures on some rare earth materials like across our surface treatment business. We use a couple of compounds that have become under pressure. And again, there -- the team is figuring out where -- which ones are going to have dual sources and then also qualifying other powders with the customer bases to make sure we can support ongoing production, and they're doing a good job with that. And where there can't be movement, we're making sure we're adjusting our prices to reflect the increased pressure on the supply chain. So it's not something you can never take your eye off of, but the team is doing a great job of managing it.

Our next question comes from Kristine Liwag with Morgan Stanley.

So Lynn, Chris, Jim, I mean, your pivot to growth strategy has clearly delivered. You're tracking well ahead of that 2024 Investor Day targets on margins, EPS, revenue growth, et cetera. I know it's premature to lay out another formal 3-year outlook today. But conceptually, from what you've said about the building blocks, whether it's Golden Dome, submarine production acceleration, commercial nuclear with AP1000 and SMR, plus you've got a very strong underlying cycle for your end markets in aerospace and defense. Are these enough to support double-digit revenue growth in the next 3 years, maybe even potentially mid-teens as we look out?

So I very much appreciate you starting out with running through our targets and that we are crushing them because that's something we're very proud of as a team. And yes, it is. I mean, we're -- as you said, we're well above the 5%. We're progressing 9% organic and 10% overall revenue growth. And just focusing on that because revenue growth gives you so much opportunity to have all the other metrics fall in line behind it. Really, when you do think of things that are coming in our end markets, a 2027 defense budget of maybe $1.5 trillion with clear support for where we are focused, commercial aerospace continuing to ramp. It's early days in this new build commercial nuclear that really we confidently are stating that we expect our first AP1000 order this year. I know you remember well what that can do for Curtiss-Wright.

And just really across the board, whether it's some of the businesses that had been a little bit more flattish, seeing the trends in our industrial vehicles and process markets, when you have good momentum across the board, then the areas that are really strong, just uplift the whole organization and aren't overshadowed by covering maybe some other areas that's not growing. So things are absolutely great. I really emphasize that we've been investing in R&D at a pace faster than sales for the past 5.5 years and 6 years by the end of this year. And the team knows where to invest to drive growth. And when you think -- one of the things I think that the perspective that says -- helps you understand why the future is so bright is our industries are long-term industries.

And when we bring new products forward or work on custom projects with customers, it takes several years for those to turn into production revenues. And when you think of when we started this and how you've seen our growth build and grow over the past several years in the pivot to growth strategy, the early investments are beginning to pay off. We have just a compounding list of those investments we've made year after year after year and continue to pay that are going to build for the future. And I think our Investor Day in Q2 of next year is going to be pretty exciting. And so we will hold the thunder until then, as you know, we would. But I think the future is really bright for Curtiss-Wright.

Super helpful. And if I could follow up. You guys have also been very historically disciplined about how you run the business. When you think about defense end markets in commercial, you've also brought in that commercial style approach for your defense business. That's why you're getting a pretty good margin. I was wondering, as you see the new generation of defense tech companies in the private markets where they succeed by moving fast, iterating quickly, getting capability into customer hands earlier, but also investing more of their internal R&D and spending CapEx ahead of programs of record. How do you see that opportunity? Do you think that your business model lends itself to be more successful in potentially doing more of that kind of approach and getting technology faster to customers? Or do you see this as a potential win for market share or a risk for margins? How do you think that ecosystem evolves?

So it's early days with it, but the thinking today is it's a great growth opportunity for Curtiss-Wright. And I say that for some very specific reasons. And that is if you think of what most of the nontraditional defense contractors are trying to do in the products they're promoting, they are end products that will be delivered to our militaries. They are UAVs, they are underwater vehicles. They are ground vehicles. There are different weapons capabilities. And not many of them are focused on the Tier 2 and Tier 3 type of supply chain, which is really where we play. We are a Tier 2 and the Tier 3 supplier, and that's not the focus out of those. And their mantra is quick, nimble, agile, fast and what supports that better than COTS capabilities that we have across our portfolio, specifically in defense electrics, but also some of the capabilities out of our A&I segment, also most specifically that we can get them products that they can use as part of their delivering those end systems in weeks where the development cycles for these products are well over a year, 2 years, even longer.

And so from our standpoint, it's increased opportunities for different levels of capabilities and additional customers. And the other element that I would say is that we have done very successfully over the past 5 years that makes that even more relevant is we've always had really some of the state-of-the-art technology, and we've talked about our NVIDIA processing line with the Blackwell chips and such that are really geared for some of the most complex systems that the militaries are needing. But we've also very much broadened our product offering to work very much across the size, weight and power offerings to be able to have products at different price points with different weights and different processing capabilities that fit a much broader range of products.

And so when you think of the types of things these guys -- a lot of the nontraditional defense contractors are bringing to market, they're not the largest, most complex radar systems. They're more nimble things. And I think our product offering has the span that very much fits that wide range of capability needs. So I feel like we're very well positioned. Our sales team is very active in being engaged across the U.S. with many of these different companies, and we're sought after as a supplier to them.

Our next question will come from Jan Engelbrecht with Baird.

Congrats on another set of strong results. I think I'll start with Aerospace & Industrial. I think the guidance implies around 20% second half margins, and I think you did around 17% in the first half. Just sort of can you just describe the various puts and takes? It does look like aerospace defense accelerates in the second half of the year sequentially, but commercial aerospace looks like it's down around 8% sequentially despite Boeing and production rates going higher. So I just wanted to understand that better.

Yes. So I think as we step back and just specifically talk about commercial aerospace, I mean we continue to see strong growth in orders. We're planning to be up -- we're up 11% here in Q2. And we feel very confident in the guide of 10% to 12% on the full year. As you take a kind of a more holistic view across the Aerospace and Industrial segment, and we did just recently lift our sales guidance. We raised it another $15 million to $17 million, and that was primarily driven by what's happening in aerospace, defense and then also general industrial. We definitely expect to see continued strong revenue growth in commercial aerospace going forward.

And with some of the good things that are happening in there from a margin perspective and absorption is part of that, but mix is also part of that story, we're going to see -- you'll see that we raised our margin 10 basis points or $3.5 million. So -- that sales volume absorption is in line with historical levels, 20% to 25% on the higher sales, but favorable mix in products. And you've heard us talk a lot about EM actuation. That's another example of commercial technology being spun off into the defense space, and that's got great margins that are associated with it. We're also getting equally strong uplift this year from our current year and prior year restructuring actions. And despite that, I mean, we still are investing in research and development. We'll see that increase here in the back half, and we'll deliver 110 to 130 basis points of margin.

Perfect. And then if I may, a quick follow-up. Just if we look at the second half for Defense Electronics, strong growth, it looks like high single digits, low double digits. Just how much of that second half revenue for that segment is already in backlog? And is there sort of -- can you give us a sense of how many sort of book and ship business that you still need to sort of book in the second half to meet the guidance?

Yes. I would -- I'm not going to provide an exact percentage of sales and backlog figure. We are very well positioned following a record second quarter. And as I mentioned, Q3 is expected to be very strong as well. I think as you take a look at the second half revenue profile, really what you're seeing there, and we talked about this last quarter is the pressure that's associated with the timing of those orders coming in and the ability to quickly turn that here at year-end. So we will see relatively flat revenues to down in Defense Electronics here in the third quarter sequentially from Q2. And we will have a big fourth quarter. We've had those in the past. We've been doing a lot of work to make sure that we're not facing those. But unfortunately, just given the timing of the orders, it's going to be a big fourth quarter for that business.

We'll go next to Myles Walton with Wolfe Research.

Lynn, Chris, Jim, you have [indiscernible] on for Myles. You guys have these -- or not you guys, but there were these large contracts signed for subs. What if any, flow-through have you seen from these? Or do you think you could see?

So there was a lot of press around that. And it's great to see. It shows the commitment and the willingness of the government to make sure the industrial base is funding starting at the shipyards, which is where the big announcements were around that $77 billion going to our 2 main shipyards. Really, that was fully funding work that is in our pipeline, of which some we were already under contract for. So it's good for the industry. It's good for the shipbuilders, which is good for Curtiss-Wright. So I don't want to minimize it, but it isn't a dramatic change in our order flow or how our business is going to transpire over the next couple of years.

Okay. Great. And maybe, Lynn, just latest thoughts on the M&A market.

Yes. So we adamantly state that it is still our top priority for our use of CapEx, and we are very active. We've been -- we have -- our last acquisition was closed at the end of '24. So it's been a bit of time since we've closed on an acquisition. I will assure you and everyone that we have been very active during that time. We have looked at a lot of properties. The market is a bit frothy right now, and you've seen some of the multiples that have properties that have executed within our space. And we remain very disciplined in understanding that we are going to assure that we want the strategic fit and the financial fit that's going to create value for our shareholders.

So -- we look at that very carefully. And we have a significant property we're looking at right now that seems optimistic, but I've learned in this process that many seem optimistic until they're not. And so we shall see, but we absolutely will continue using capital for acquisitions over time, but we will also put our capital to work. So we look broadly at the various use of capital. But I'm proud to say that over the past few years, we've increased our capital quite significantly, investing back into ourselves to assure our factories are ready. And that's going to continue into the next couple of years. So it's great to be able to fund that out of our free cash flow and really as stated in the prepared remarks, make sure we're prepared for the growth that's coming our way and whether that's potentially taking on second source work, which really would be incremental and new for Curtiss-Wright, but making sure we're a top quality supplier into all of our customers, not just our military customers, but with that as a focus.

We'll move next to Louie DiPalma with William Blair.

Yes. Earlier this year, you announced the C-17 GlobeMaster Modernization Award. How is those upgrades progressed? And are there similar electronics modernization upgrades in the pipeline?

Yes. So thanks for bringing it up. The program is off to a great start. We've had quite a few face-to-face meetings with Boeing on a lot of the early-stage parts of a program. But I personally sit on a monthly review of the project given the significance and it's really kind of a different scale of work than we have traditionally done out of that team to monitor the progress. And the team is doing a great job executing to it and keeping the customer happy. The customer is very happy. And so other items like that bridge that capability specifically on to some other platforms, which will be quite exciting. It's always great to see what you've -- we've done the work to develop, finding more production homes. So that's very exciting.

But this has really been a focus across the team for the past several years is to take on greater scopes of work with our customers. And so there are definitely other things in the pipeline like this that I hope we'll be able to make announcements on later this year. A lot of things that we do in that team, our customers don't want us making press releases around the scopes that we have won. And so there's a lot of -- some other things that we've won that we just can't talk about publicly, but the team is doing a great job.

Great. And also, what is -- Lynn, what is your long-term view of the ground defense end market? Right now, it's your smallest end market, and it's been shrinking. And there's a viewpoint that ground defense vehicles are highly vulnerable to drones on the modern battlefield. But do you see any improvement on the horizon? And I know you've said in the past that you're involved in the Army's next-generation command and control program. But are there other catalysts that could turn around that end market?

Well, I think the connectivity on the battlefield and across Golden Dome with a lot of land equipment that is either radars or effectors to -- for incoming attacks from our adversaries. That is obviously a fairly new program that we have not seen reach volume yet, and that is going to be a great growth driver for Curtiss-Wright. We are very well positioned across so many aspects of how that will be rolled out. There's a major push within -- I mean, there are changes, and you are right that building the very large tanks and stuff, there are shifts in that. But again, as we talked about with the nontraditional defense contractors, we've changed our product portfolio to be much more relevant to different size weights of vehicles, whether it's track vehicles or wheeled vehicles and not even tracked vehicles to be prepared for that. And the build-out across Europe with Rheinmetall, I mean, really, it's early days to see where that is going to take us.

And so there's both international opportunities that are very, very strong and the domestic opportunities. And there's some new things going on with ground defenses and how everyone is talking about munitions and restocking munition stockpile. And we've been transparent saying that it's not that we have no content, but it's relatively minor, and it's not necessarily at this point, we might be able to change that, I would say. But at this point, going to be a significant revenue driver for Curtiss-Wright. But there's also a big push towards different ways of shooting down incoming missiles that are not shooting off munitions, but directed energy and lasers. And those are 2 areas that we're very active in and have very relevant technology for.

So again, I think the team just is always knows the industry so well inside and out and where trends are going that we're making sure we're talking to the right people and have the right products to solve the challenges as the markets evolve, and they always evolve. And so you can't be afraid of that. You got to embrace it and it's opportunities to differentiate yourself.

We'll move next to Scott Deuschle with Deutsche Bank.

Sorry, I joined a bit late, so I apologize if this is already addressed. But just, Chris, for Tactical Comms specifically, are you expecting growth to step up in the second half?

Yes. I think if you take a look at Tactical Communications, we are expecting growth to improve in the second half. Now given some of the pressure here and the timing of the order book, you're not going to see that in Q3, but you will see that in Q4. We're expecting a very strong fourth quarter.

Okay. And then, Lynn, have you seen any signs as to whether the timing delays in Defense Electronics could be more than timing or potentially reflecting customers evaluating the actual products they want to buy? Or have you gotten pretty explicit signals from the customer that it really is just timing?

It definitely feels like it's timing. And I think you can see the evidence of that of a really great Q1 order book, a really great Q2 order book. We had a strong July and are anticipating a very strong Q3 and then that carrying into Q4. So I think we've seen the snapback in our order book. There's obviously a delay to being able to turn that all into revenue. But yes, I do not believe there's any demand destruction. It's just been timing.

Our next question comes from John Godyn with Citi.

This is Bradley Eyster, on for John Godyn. So I just wanted to circle back on your prepared remarks where you mentioned you received awards for both UAVs and Golden Dome. So I was hoping you could take a step back and just talk a bit about the opportunities in these 2 end markets for Curtiss-Wright. What role do you play here and how these opportunities take shape throughout the fullness of time for you guys?

Yes. So you're correct, we did make those comments. So the opportunities across Golden Dome are really multiple, and I kind of don't want to repeat myself, it was really just speaking about that, that there is the major detector systems, whether they're radars or different types that we have established footprint in and they're looking to evolve those systems. That's a rich opportunity base. the fundamental point of Golden Dome is to deploy these systems, first and foremost, which has never been done, but then have them work together as a network capability that is all interconnected with communications networks. And our communications equipment and our tactical data links are absolutely right in the sweet spot, and we're winning work in those areas to help with that networking and the secure networking even more importantly, across those.

And then the -- we do things with a lot of launches, and we talked very much about the IFPC program, which will be part of it, but we've definitely talked about other platforms over the years where we have content, and we're continuing very much to pursue new content across those. And that's both launchers for traditional munitions and then things like directed energy and laser systems that are coming on as new ways that are more sustainable for being able to have your defenses. And so it's really across those areas that we're pursuing things as kind of the main focus.

And across UAVs, I mean, we've participated in the UAV market for decades, starting back with Global Hawk few years ago winning major systems on that. And so it's just a broad focus for us. Our technology is very relevant. I mean there obviously need high-tech systems to be able to fly unmanned to process sensor data from surveillance types of missions, command and control types of capabilities. And so there's quite a variety of pursuits we have going on there that you can see how our technology just aligns to that.

Got it. That's very helpful. And also I just wanted to touch base on the general industrial outlook. I know you called this out a couple of times throughout this call and the strength we're seeing in industrial vehicles. I know that the market is not really the focus point with so much other things going on in the business. But I was hoping you could shine the spotlight here in terms of what you're seeing and what gave the confidence in this increase? And basically what's the future opportunity here?

Yes. So just starting maybe with last year, we talked about the fourth quarter orders, they were up 26%. We entered into the year and Q1 was strong as well. Q2 has been strong. Year-to-date, our order book is up 21%. July is following a very similar pattern. We're seeing some very strong signals here that are within our order book. But also as you dig into the order book and you look at where that growth is happening, we're seeing some pretty positive things in on-highway. We're now forecasting that on-highway is going to be up high single digits for the year, tracking in line with North America, Class 5 through 8 and rest of world. And when you look at off-highway, we had some good things happen here in the order book here for the second quarter.

We're now forecasting that, that will be up mid-single digits, and that's tracking ahead of global construction industry for the industry forecast. We're still seeing a little bit of delays in specialty vehicles and industrial automation and services. We're forecasting those submarkets to be down low single digits on the full year. But certainly, with what's happening here in the order book and continues to happen, it is improving our confidence in not only what we're seeing here for '26 to '27. And I'll also say that as you look at ACT and off-highway research, those outlooks for '27 and beyond are looking favorable as well. So there -- with a 1% to 3% guidance raise here on the year, we remain somewhat conservative given the order book and the macro environment. And we're looking forward here to seeing what happens in Q3, and it definitely represents an opportunity for us on the year.

I'm showing no additional questions at this time. I will now turn the floor over to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Thank you, everybody, for joining us today, and we look forward to seeing many of you again on the road or at our third quarter results. Have a great day.

Thanks, everyone.

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

Fantastic. Good morning. I'm Louie DiPalma. I cover aerospace and defense on William Blair's Equity Research team. This is the third and final day of the 46th Annual William Blair Growth Stock Conference. I hope everybody in the audience has had an amazing conference.

We're pleased to be hosting a presentation and discussion with Curtiss-Wright's management team. And joining me today are CEO, Lynn Bamford; CFO, Chris Farkas; and the Head of Investor Relations, Jim Ryan.

I'm required to inform the audience from William Blair's perspective that there is a complete list of disclosures and potential conflicts of interest on our website at williamblair.com. And Lynn will provide an overview of the business, and then we will have some Q&A.

So Lynn, please take it away, and thanks for joining us again.

Yes. Thank you, Louie, and thank you to William Blair for inviting us back to the conference for another year. It's always a great conference. So thank you for that.

I also am obligated to say that there are some forward-looking statements that contain risks and uncertainties, and our SEC disclosures are outlined on our website.

So now to introduce you to Curtiss-Wright, and I see many familiar faces in the audience that know Curtiss-Wright well, but a lot of new faces, which is wonderful. And if you are new to the story, I'd encourage you to go to curtisswright.com and possibly check out our first quarter earnings results and go back to May of 2024 and check out our Investor Day that really walks through our end markets and our key strategies and technologies that are within those markets to get an overview.

But really, when you step back and you think about who Curtiss-Wright is, you can see our end markets on the bottom left-hand side of the slide. We are a diversified company, but we really focus in creating highly engineered mission-critical technologies that really are deployed in must-not-fail applications. And so doing the hardest -- solving hardest engineering problems is really at the heart of who we are.

One of the things that I think is very special about Curtiss-Wright and has greatly contributed to the financial performance we've had over the past years, which we'll touch on in a little bit is that we are -- as much as we are a broad portfolio of capabilities and end markets, we are a very integrated company. And what's behind that is we very much look for opportunities where we can create core technology and then maybe modify it ever slightly and take it to different end markets. And so the investment on those initial engineering dollars, we don't just take the one end market, we take it to multiple end markets and leverage the sales channels and the deep customer knowledge we have across those various end markets. And that's really been one of the main reasons that Curtiss-Wright has been able to achieve the financial performance it has over the past many years.

Today, we are -- we just this year will be over $3.7 billion in revenue. We'll continue to grow our op margin again, grow EPS in the mid-teens and deliver very strong cash flow. So it's -- the company is performing well, and we're going to touch into some of the reasons why we are able to deliver such strong financial performance.

So going to sort of big picture of why we win as an organization. Innovation is at the heart of Curtiss-Wright. I said we solve the hardest engineering problems. We have a workforce of 9,000 people and close to 1/4 of those are engineers of multidisciplines. We have engineering councils. We challenge these people to work together, collaborate, leverage the expertise that's within the company, across the company to solve those hard engineering problems.

In the end markets that we work, whether it's commercial nuclear, commercial aerospace, the commercial off-the-shelf electronics market and others, we've really been in those markets since the inception of the markets and therefore, have deep domain knowledge, deep customer relationships, really understand the problems, the future problems the customers are looking to solve and very often are a design partner with our customers as they always look to continue to improve the product offerings they offer. And we really value those customer relationships and treat them with great care and work hard to always meet our commitments to our customer.

It's a highly engaged culture, something that I'm proud has changed during my tenure as CEO is really an enhancement of the collaboration across the company and the desire the company has to work across those different end markets and build a stronger company as an integrated company, as I was just mentioning. So a lot of great people lean forward with ideas, bring their best to work every day and work to solve our customers' problems.

I think we also do an excellent job of analyzing where we're going to spend our R&D. And I'm proud to say that with all the financial performance we have achieved over the last 5.5 years, we have grown our R&D investments at a faster pace than we've grown sales. So we're looking for those opportunities where we know we are aligned with key secular growth drivers and are seeing where we have unique IP and can bring very differentiated solutions into the markets and invest that R&D and are very purposeful in measuring how we get payback from those R&D projects. And I think the company does a great job of that.

Kind of taking a big picture of -- we launched the Pivot to Growth strategy back in the beginning of 2021. And just to touch at a high level, what's behind the thesis of the Pivot to Growth strategy. And it starts with -- we have a $4.3 billion backlog, which is a great place to be as a company, gives you very much the ability to plan and have those R&D investments to be able to make. But also with that, we've had a long-standing culture long before the Pivot to Growth strategy was launched of driving operational excellence and looking to always optimize our capabilities and how we go to deliver the products we do.

And with that, in the Pivot to Growth strategy, instead of just targeting specific new op margin types of targets, we made a commitment to the investment community. We would grow OI faster than sales, but would give ourselves the freedom to take some of the fruits from all those operational excellence work and invest back in ourselves given that we could see we were at such a crucial juncture in so many of our end markets and had great technologies that would really drive growth for decades to come and to allow ourselves the freedom to invest in some of those things. So it's a continuous cycle of driving that operational excellence, delivering results for our shareholders which is very important to us, but then also making target investments back into ourselves.

And I think many of you would realize, I'm sure that when you work in the end markets like we work, big defense projects, commercial aerospace, commercial nuclear, those investments are journeys that take several years to begin to pay back in dividends of revenue after you make those investments. And if you think of us really doubling down and focusing on this and starting in 2021, we're reaping the benefits today with some of those investments that were made in those early years. And that $3.7 billion that I talked about is close between a 7% and 8% growth this year. And so those investments are accelerating in our ability to drive revenue and get the payback. And so the investments we've made in '22, '23, '24, those are all coming in the future and are going to continue to accelerate that growth engine.

So talking a little bit more about really the way we think about the company and what's led to the industry-leading margins that we have as a company, we formalized some of the processes around operational excellence with our operational growth platform kind of in parallel with launching the Pivot to Growth strategy. And it's really given us a tool that we communicate with our employees, measure our different business units and encourage people what we need them to do. And it's everything from commercial excellence, and that includes terms and conditions you take in contracts, to how we analyze our pricing and the value we bring into our end customers to encouraging the cooperation and the continuous optimization of the portfolio.

And this entire system, which, again, we go out, we measure our various business units, score them in a very purposeful manner and find areas of improvement and then share those best practices that we have across our various business units to help each business gain from being part of the larger organization. And this has led to 300 basis points of margin improvement since the launch of the Pivot to Growth strategy. And again, that's why we've grown R&D at a faster pace than sales. So that's something that we're very proud of.

I mentioned earlier that as we entered this Pivot to Growth strategy, we could see a lot of key secular strategies that were very much aligned with where we have our core technologies. And as we think of those R&D investments, I think it's important to share that we plan for the success of our company for decades to come. And we're not only making targeted investments that we think are going to pay back in the short term in the next handful of years, 2, 3 years. But we're also -- we have to do things that we know are going to drive growth in the medium term, which we think of as 3 to 5 years, and then the long term, which is 5 to 10-plus years and make those targeted investments today, so we're prepared when those types of opportunities are moving to production and more meaningful revenues that we've secured content on those.

And if you start with naval shipbuilding, we're working to be an outstanding supplier on the content we have today as shipbuilding ramps, and you can see that in the FY '26 and the proposed FY '27 budget, very strong support for shipbuilding, and we're making sure we're there with that. We are working with the government to consider places where we can potentially be a second source across opportunities on the major naval platforms, which will provide growth in that midterm. And then we're doing work and have been with the government on SSN(X), which is the next-generation Virginia attack sub and positioning ourselves with very meaningful and increased content on that platform is just one example of how we're doing the things for both the near, the mid and the long term.

There's examples of that in how we bring technology to the battlefield and things with commercial aerospace, where we're taking very targeted activities that range from enhancing content on the current platforms where we have good coverage across Boeing and Airbus on the major platforms to preparing ourselves to find the role that will play on the next-generation single aisle, which is obviously a long-term platform.

I'll talk about nuclear a bit more, but just to frame our nuclear business because I know it's a point of interest and rightly so around Curtiss-Wright, and we're kind of unique in that position that our commercial nuclear business is 90% the aftermarket and 10% is the work that we've been doing with the SMR community broadly, and I'll talk a little bit more about that, that has grown from design work to prototyping. There's no large light water reactors or AP1000 orders in any of the targets that we've set today. And we'll talk more. That is surely coming shortly around the corner and is unbelievable business for Curtiss-Wright, but we've chosen to not make it part of our targets, so you can see how the core of the business is performing and then that just layers on top of it.

So turning a bit more to the commercial nuclear space. At our Investor Day in May of 2024, we laid out -- we gave targets for our commercial nuclear business for a 3-year period, but we felt it didn't really paint the full picture of what was the potential before us in commercial nuclear. And we talked about doubling our business from the 2023 base by 2028, which is a mid-teens growth rate and taking that business to $1.5 billion annual run rate by the mid of the 2030s, which is a high teens growth rate. And based on some very specific assumptions that are laid out pretty clearly in the slide that was a combination of the plant life extensions or the aftermarket work, AP1000 orders beginning to flow into the company and our work on the small modular reactors moving either to prototyping or early production.

And if you think what has happened in the world since we laid out these targets, most specifically here in the U.S., but sort of globally, the continued realization of what role nuclear energy needs to play in solving our electricity needs and the U.S. becoming not just willing, but government support and oomph behind having the United States get moving out and building both large and small-scale nuclear power. It's pretty dramatic. And that all has happened since these targets were laid out.

And many of you probably know, there were the 5 executive orders back in May of 2025, challenging industry to have 5 large light water reactors or AP1000s under construction by the end of the decade and many other things, streamlining the NRC to help support the ongoing operation of existing plants, restarting some plants and doing upgrades in some of the plants. These are all things that drive business to Curtiss-Wright and are good for us. So the pipeline for the AP1000 orders is just very strong, and this is just very great business for us, and we believe it's just around the corner and we'll begin seeing that opportunity.

So on top of what we're doing from driving our specific strategies, it's one thing we're very thoughtful about, I think, and very purposeful about, and that is how we deploy the capital that we have created over the prior years, but specifically looking at the Pivot to Growth strategy from '21 through '25, we've deployed $2.5 billion of capital. About half of that has been returned to shareholders, largely through share buyback. We've very much ramped our operational investments back into the company as we prepare for the growth that we see ahead of us.

And the past 3 years, we've ramped our capital investments in ourselves over 30% each of the past 3 years, and that's really us doing the work we need to make sure we can deliver on the increased demand we're going to get from our customers. And also $0.5 billion directed towards M&A. It does remain our top priority, and we are always as a company, working and looking for targets, trying to find targets we can source in a proprietary way, working actively in the finance community. But we're very selective in what we will do and are going to very much assure it is a strong strategic fit and a strong financial fit. And over the past 18 months, there's been quite a few properties we've looked at that we've chosen not to move forward with because they just did not meet our criteria, but they're out there, and we will continue to find them and add them to our portfolio.

So how is all of that resulted in -- I mentioned our May 2024 Investor Day a couple of times. We laid out targets. Those are in the white boxes along the top of the page of the financial targets we set for ourselves. And we're doing, I'd say, quite outstanding against those targets. And starting with revenue growth, we targeted a greater than 5% organic growth target. We're on track to achieve a 9% organic growth target and 10% total when you lay in acquisitions, a commitment to grow operating income faster than sales. And we're on track to have a 13% op income CAGR growth over that time frame, maintaining top quartile margins and topping 19% this year, we're really proud of that is really being up at the top end of that top quartile.

Greater than 10% EPS CAGR. We have really moved to really being an earnings compounder, delivering in the mid-teens earnings growth over the past several years and delivering 17% EPS growth this year. And that's again something we're very proud of. And all the while maintained very strong free cash flow generation, beating our 105% free cash flow target conversion rate by 5%.

So all that quick, quick overview. We're a complicated company, but a snippet of where our end markets are, how we think about investments, how we deploy capital. Things are really at early stages of so many of the great growth vectors across our end markets, and there's so many things coming that we've been working to earn the right for the growth over the past couple of years and new ideas that are being pursued now in this calendar year that will continue to support that Pivot to Growth strategy and continue to build momentum. We're a solid supplier into our customer base that has good relationships, understands our problem set, attracts great engineering talent and builds great products. And that's really the culture and the pride of the people who work in Curtiss-Wright and I think is the fundamental reason why we've had such strong financial performance.

So with that, I'll say thank you, and we'll go to Louie.

Yes. Thanks, Lynn. Defense modernization has been a major theme of the Trump administration. What areas of defense modernization create the largest white space opportunities for you?

Thank you, Louie. And our defense electronics portion of our business is our most profitable segment. Some of you know that. Some of you may check that out. But this team offers an absolutely fantastic portfolio of products that's really aligned quite well to support many of the modernization activities that are in the FY '26 budget and laid out in the FY '27 budget. We were pleased in -- as one example, we announced in Q1 our C-17 cockpit modernization project to really modernize the entire cockpit in the C-17 program. We were pleased that Boeing would allow us to put a press release out on that, that we do a lot of different things that we're not always able to talk in a public forum about. But that's a great example of bringing a more total capability of Curtiss-Wright in doing those things.

But whether it's aircraft or ground vehicles or upgrades within the submarine community, there's always opportunities for us to take our technologies, and we're always building on our technology portfolio, whether it's -- we brought our NVIDIA Blackwell capability to market at the end of last year. We're seeing great uptick with that. That takes us to new application spaces that were not really on the table prior to that. And whether it's the Blackwell or whether it's the Thor, which is a much more size, weight and power optimized processor that allows us to play in a very different range of applications for different size and scale of deployments of whether that's drones or anti-drones activities is just one example where that technology takes us. So I think the product breadth within that group has set the stage that we go down that FY '27 budget and have places where we can do everything.

Just to mention maybe one last one is there's a lot of talk around Golden Dome, and that will be a big growth opportunity for Curtiss-Wright. And whether it's in the systems that will be networked together that will be part of Golden Dome, where we have had content or working on some significant upgrades in some of that capability or the networking that really one of the fundamental principles of Golden Dome is to network all these systems together so they can work as a unified defense system for the country, and we are right in the middle of that with great technology to solve that.

Great. And then for Golden Dome, would you be a prime contractor? Or have you been bidding with partners? How should we think about that?

More with partners. But with the tactical communications equipment, that's one of the places where we work more directly as a prime into the government. So I think we'll find avenues for both where we're part of the networking, but then we'll work with the primes where they want to have whether it's a missile launcher or a radar system or whatever it is, be part of that network. In those cases, we'll work with the primes.

Great. And related to this defense modernization topic, one of the areas of consternation amongst many investors, perhaps not in the audience, but for many investors has been the different political back and forth with the midterm elections and the potential that the midterm elections could result in a deviation from the current path in terms of investing in like missile production ramps or other initiatives. How resilient or sensitive do you view your defense business to the different like politics that take place in Washington?

Really, we're pretty immune to it in all honesty. I mean we are working with the primes on the major platforms that I think there is bipartisan recognition are needed for the defenses of our country. And I was on Capitol Hill, and in the past couple of months, I've been both in the Pentagon and on Capitol Hill, meeting, of course, with a bipartisan group of people and support for the defense budget, quiet behind the scenes is very bipartisan. And so -- and we're aligned with the top priorities. I mean there will be some -- there could be some pushes and shoves based on how the elections shake out. But given the broadness of our capability and where we play, it's not something we spend a lot of time worrying about.

And I would just add to that, Louie. I mean we are on the major shipbuilding platforms, and there's a very long outlook and strong ramp that's coming regardless of who's in office across shipbuilding. And to further Lynn's point, we're on 400 platforms, and we've been on 3,000 programs globally for the past 10 years. It really doesn't matter where you're spending in defense, whether it's here in the U.S. or whether you're spending globally, we're going to be aligned to that growth going forward. And we have a proven ability given the fact that we've got this relationship to defense electronics and electronics are proliferating against these platforms and growing. It's kind of this embedded growth vector that says regardless of what's happening in the defense environment, you're going to see electronics continue to move across the platforms, and that's going to help us grow.

Great. Thanks, Chris. And you just spoke about the global defense. So I was wondering, can you provide more information in terms of what is your exposure to like rising European defense spend in terms of how there's been the conflict in Ukraine since 2022, and there's been back and forth in terms of U.S. NATO support and Europe is increasing spend. So how does that represent an opportunity for you?

Yes. I mean it's been a great opportunity for us to see the NATO and allied countries increase their spend relative to GDP over the past few years. Curtiss-Wright's broad portfolio, I mean, we're on all of the domestic platforms, but we're also on all of the foreign military platforms. So if you want to talk about the F-35 or you want to talk about the Rafale and Gripen, we're everywhere. But we've grown at a mid-teens pace in what we consider to be direct foreign military sales.

So as a Tier 2 supplier in most cases, that's when we're selling directly to the foreign customer. And that's now 10% of our total portfolio. Here in the first quarter, we started off with a forecast of high single digits again this year. We're already at 10%. We're getting great demand signals across our portfolio. We've got embedded computing across our defense platforms. We've got great positions on naval platforms and aircraft handling systems and towed array systems, but also within ground defense.

And the interesting thing about ground defense since you brought up Ukraine is that when we first saw the conflict erupt, I think everybody saw the stark contrast in vehicles that existed between Russia and Europe. And Lynn and I talked quite vocally about that. We said, wow, this is an opportunity for Europe. And we have a very long-standing relationship with Rheinmetall. You probably saw some press releases that we issued this last year where we're winning awards on vehicles for our Turret Drive Stabilization Systems. Germany is committed this year to spend another EUR 25 billion in ground vehicles, and we see that as a very strong area for growth as we move forward. We think we're going to have some more announcements here in the back half of the year to share with everyone, but it's a great growth factor. It's going to continue to help us exceed those defense budgets as we move forward.

Great. And one final question before we move to the breakout. Lynn, you mentioned how the pipeline for AP1000 orders is very strong, and you expect some activity just around the corner. Would you consider the pipeline just as strong as when you held your Analyst Day in May of 2024 in which you sized the European TAM? And just any other color.

Yes. So it's surely grown significantly since the May 2024 Investor Day. And whether it's the funds that are the Department of Commerce being behind building 10 AP1000 plants across government sites or the DOE supporting the build-out of 10 additional sites in partnership with utilities, that's all new since our Investor Day last year. There really wasn't an expectation the U.S. was going to build large light water reactors again.

And I think those are huge numbers in and of themselves, but the follow-on with that is as they get these reactors being built and the success is seen, the belief that more utilities, more hyperscalers will be willing to step in and add these projects to how they're getting to the electricity needs they have. So a couple of times, people have asked us should you be updating your targets or you may, and we will do that in due time. But clearly, there's been a lot of demand signals that were not known in that time.

And has the European opportunity remained strong as well?

Yes. And so it's almost gotten overshadowed and not talked about. But really, there's steady progress at probably a slower scale than having the DOC and the DOE really pushing behind these. But Poland has moved through the stages. They have their funding. Bulgaria has moved through the stages, have their funding. And it's kind of a little bit of an interesting dynamic. There is limited capacity and everybody doesn't want to be behind each other. So a lot of times we get asked what's our intelligence on where the first orders will come from. And I think that's -- we're surely not going to predict that, but I don't think it's really established because everybody is trying to move fast across all these opportunities, which is great for us. And we work with Westinghouse. That's our customer, and we'll work to support them definitely.

Thanks. And thanks, Lynn and Chris. And we are going to resume the conversation in the Adler room.

Thank you, everybody.

Thanks, everybody.

Great. Thanks. And to those in the lunch area, you can make your way in as you see fit. Happy to have with us today from Curtiss-Wright, Lynn Bamford and Chris Farkas, thanks so much for joining us and for the conversation. If there are questions in the audience, happy to hold those in. But at the same time, I'll go ahead and lead the Q&A. I don't know if there's anything you wanted to kick off with from a commentary perspective. Otherwise, we can get right into it.

Just jump right in.

I want to give you the freedom of navigation to start. So strong first quarter out of the gates, strong results and then raised guidance in several of the areas. Let's start with the largest, the defense market. In terms of the growth rate you're seeing there, how much do you believe is sustainable beyond, I'd say, the initial flood of money from reconciliation that's come through? And how much is more for ongoing investment beyond the current horizon?

Thank you for that question. And for those who don't know Curtiss very well, I'd encourage you to go to curtisswright.com and look at our first quarter's results. And if you go back to May of last year, 2 years ago, check out our Investor Day, it's a good overview of the company and our strategies and long-term growth targets and other financial metrics, which are tracking very nicely, as you will see. But getting to your question, and I think it's good to put in perspective, again, some of you guys know us well, some don't. Our naval defense business is about just over 25% of the company. So obviously, a very significant market. And we feel very, very positive about the prospects for long-term growth in this market. And there's a couple -- you can look at our content on the platforms that's in our Investor Day presentation. You can look at our growth -- our intended content on the replacement for the Virginia class, the SSN(X), which will be built in the mid-30s.

So you can just see we're building that kind of run rate of business. But one interesting data point that I think really reflects what business the government intends to put with us is as I imagine many of you have heard, there's a lot of industrial base funding that has been made available. And at our Investor Day in '24, that number was $15 million, and we're up over $60 million today. And it's not the dollar figure that's significant. It's the fact that the government is quite willing to invest in Curtiss-Wright for us to grow capacity and grow our ability to deliver to the U.S. Navy and help us afford capital improvements matched by capital improvements that Curtiss-Wright has made undoubtedly, but to build up that capacity.

And there's just a lot of different ways that's coming that is going to lead to the long-term growth. And it's our content on the Virginia class, the Columbia class, the CVN aircraft carriers, the complex overhauls. I mean all those are good, but we're continuously doing new things. We are a leader in additive manufacturing with the Navy, winning several awards in that space. to continuing to do tech insertions even on the Virginia class to building to a significant amount of development work for SSN(X) where we think we will double or triple our content off of Virginia. So you can see that's a nice growth vector right there as that cuts across. And they're already talking about adding 2 Columbia class to the development program.

And that's not even to speak about our aftermarket work, which is growing quite significantly and our FMS sales. So there's a lot of things going into it from growing content on platform to pushing the walls out. And one of the things that came through in the new builds is a real strong push from the Navy that they are quite willing to have second sources for content on ships where there's opportunity. And that is something Curtiss-Wright is very focused on is to be able to become a second source on some major components that will really drive very incremental -- meaningful incremental work to Curtiss-Wright. And so you take all those things together and where our naval business is rock solid well into the 2030s and beyond.

How quickly does some of the second source content come online? You've -- I don't know the last date certain, you updated the shipset content for each of your platforms, but have those moved significantly since the Investor Day in Virginia?

I wouldn't say they moved significantly since the Investor Day, but I think there is meaningful work. It's a journey, and it's a couple of year journey. But that mid funding that we've been taking over the past couple of years, not all of that -- some of that's just to us being able to take on increased content as we incrementally can win new content on the existing platforms. But some of that is undoubtedly for becoming a second source and you'll have to build something and cut it in. But again, the Navy, as you well know, is this isn't a sprint, it's a marathon, and we're in it for the marathon, and it's why the business is just such solid growth vectors.

This would usually be premature because we don't have a design yet for a battleship, but apparently, it's going to be nuclear, which is right in your wheelhouse. So as you look at that, and I'm sure it's very early for you all to be looking at it, but they are talking about using the same propulsion system or power system as the carrier. And the carrier, I think, is $450 million of shipset content.

Yes, that is correct.

Do you have any insight into what a battle shipset content might look like?

I'd say it's going to be somewhere between that and a Virginia class. So that's a pretty big wide swim lane. But our teams have had discussions. So there is early days, but really not to the point that I think we'd even begin to round out a number. But we're obviously a critical supplier into nuclear propulsion systems. And so it's great that we have a seat at the table, and we're helping them form those plans.

Okay. Great. Defense Electronics, solid 1Q order growth, and I think you're looking for that to continue. The Defense Electronics revenue has been expected to be flattish in the second quarter, followed by the inflection in the back half of the year. On the 1Q call, you highlighted the recovery. So just maybe elaborate on how the contract flow is happening and the confidence on that reacceleration.

Yes, sure. Maybe just for some context and background. If you step back to '23 and '24, the Defense Electronics segment had a record-setting order book that was only surpassed in the following year. Last year, with some of the full year continuing resolution, the government shutdown, there were some headwinds in the order book. Sales growth was very strong last year at 12%, and it's a very respectable 4% to 6% growth this year. But we did have some timing issues relative to the order book. On our year-end call, we highlighted that roughly $100 million in orders had slipped out from the second half of this last year to the first half of this year.

And we said as soon as the continuing resolution and the government budget was resolved, it would probably resume a normal order flow in 60 to 90 days, which kind of puts us in that April-May time frame. So pleased to report that in Q1, our order book was up 18% year-over-year. This was the largest order quarter that we've had since Q3 of 2024. So very gratifying to the management team to see the order book return to such strong health so quickly here in the process. We received a few large orders that were pushed out from this last year. You may have seen the press release on the C-17 aircraft modernization that we released in Q1. We received some orders regarding strategic deterrence and detection systems. We also received some large orders within Tactical Communications, which were arguably hit the hardest last year given the direct connectivity that they have to the government customer, but that was for the U.S. Air Force.

So really good things happened in the order book here in Q1, providing us with confidence on the full year. If I step 1 month forward, even into the month of April, the order book was up 46% year-over-year. So a really strong start here in Q2. That again provides us with confidence in the full year. Now Myles, you had mentioned that we're going to see some flatness in the revenue in Q2 and a sequential ramp in Q3 and Q4, more like what we've seen in the past. The good thing about what we are facing or had faced in the order book delays was that it's mostly short-cycle businesses. So we've taken a lot of steps to try to bring in inventory to align with our supply chain so that we can get the product out the door quickly. Management team has done an excellent job, and we have full confidence in being able to hit that 4% to 6% on the full year.

From a margin perspective within that business, which over the last couple of years has been quite, quite strong. Where is the ceiling for your Defense Electronics margins?

I don't think we're going to really give much color on that. So we felt we were there in the past, and we've been able to provide more. And the reason for that is not just to not give a number, but it's really one of the things that's been critical to the pivot to growth strategy is a willingness to reinvest in ourselves when we see solid investments we can make that are going to grow the top line and be accretive to the business. And so we really kind of the -- one of the fundamental principles of the Pivot to Growth strategy. We've been doing that. It's obviously turning out quite well. And the technology in that group is amazing and the things they do, the type of products they provide are truly unique in the industry. And as the teams have those ideas to bring really unique capabilities, we want to lose ourselves the option of reinvesting in ourselves.

Broadly across the aerospace and ground defense markets, there particular areas you find yourself better aligned with relative to the department, both looking backward and as well, maybe the fiscal '27 budget, if there's any areas that you're particularly focused on?

Yes. So there's -- I mean, it's one of the things I think that's powerful about the portfolio with Curtiss-Wright is we have such broad reach across so many programs that we're not exposed overly to any one program. But if you walk through the capabilities that we have, speaking -- staying in defense electronics for a second, but products that we brought to the market that are aligned with the MOSA and SOSA mandates out of the government our interconnect. And I think everybody listens to news and hears about the data centers and things. It's -- the talk is it's gone from the chip to the interconnect to all the pieces. And Curtiss-Wright does all those pieces in a way that's deployable on the battlefield for the soldier. And so our Fabric100 is one example of that.

It's a completely unique capability to Curtiss-Wright, which gives the fastest interconnect, which makes the fastest decision-making for the war fighter. There's just 2 examples. Our partner chip with NVIDIA that spans everything from the high-end Blackwell to the Thor processor, which is much more of a sizeway power optimized allows us to take that capability out. And this kind of equipment is needed in everything from whether it's the golden dome to aircraft modernization to next-gen aircraft down the line to the tactical battlefield stuff Chris was talking about that the places where the government is putting money are all places where our products have great applicability.

What about the budget scenarios from here for fiscal '27? How meaningful is it to get sort of regular order process going through the end of the year relative to your guidance and I guess, relative to next year as well, how you'd start the year?

Well, it's pretty exciting to see a $1.5 trillion budget -- $1 trillion budget wherever it lands, I think it's going to provide significant growth. And there's things -- it'd be great to see them just put -- go through the regular process, as you say. I don't know if you hold up much hope for that. But I think we're finding ways to work around that. And some of the things that have become a priority in these NDAAs is being an innovative, agile supplier and they're bending the rules or expanding the rules for ways companies can go to business and contract business. And I think Curtiss-Wright is very well aligned to take advantage of those types of flexibility and just see nothing but bright things for the future there. And across -- within our A&I segment where we have a growing defense presence that the capabilities they have are very well positioned to many of the priorities.

Your international business has been growing double digits for a while now. What's your outlook there? What are your key platforms or products that you're selling? And from an order perspective, what does that outlook like?

Yes. So it has been growing at kind of a mid-teens pace for the past 2 years. This year, it's now roughly 10% of our total business, and that's just direct foreign military sales. It doesn't include all the other products that we sell domestically that end up going internationally. And we did raise our outlook in FMS for the full year here for '26. We're expecting it to grow 10% year-over-year. And we've got a lot of capabilities across the portfolio that support not only the domestic U.S. defense priorities, but also the allied defense priorities. I think as you look across our aerospace markets, you can see that we have embedded computing, not on most of the domestic programs, but also the foreign programs.

You think about some of the big name fighter jets, whether that's the Typhoon or the Gripen or the Rafale we're on those programs and many others. As you think about ground defense, we've got a very strong relationship with Rheinmetall, have for a number of years where we provide drive stabilization systems. And the order book has been picking up. You may have seen in some press releases that we issued this last year that we had new order wins on the Puma, Panther, the Lynx, the Boxer fighting vehicle. And Germany has announced that they intend to purchase $29 billion worth of vehicles moving forward through Rheinmetall. And many of those are the Boxer, where we have strong content. So we're well aligned there. And then I think when you step back and you look at naval markets, we do have a lot of foreign naval content.

We provide aircraft -- naval aircraft handling systems and to array arresting systems. for use in foreign navies. And these are all very high-margin businesses that we're working within. So the outlook continues to be strong. We're encouraged by what we see going forward. Some of the first quarter order book that I just talked about had some wins in there for TDSS. And as we're looking forward and at the pipeline moving forward, we're very optimistic. So it's contributed substantially to our strong growth rates and what we provided to meet our Investor Day targets of mid- to high single digits. and we expect it to continue to provide some uplift as we move forward.

Is the margin profile there significantly different, better than your domestic profile?

I think when you look across the Defense Electronics business, those margins are so high to begin with that it's -- I would say it's on par in that area. But when you start to kind of venture out and talk about what may be in the other segments like the Naval and Power segment, which is traditionally more of a far part 15 type of business, yes, it's going to be accretive. And you'll see some of that, I think, as we get deeper into the year in the Naval and Power segment.

Okay. Moving to the commercial nuclear piece of the market. So on the aftermarket side, that's actually had a nice uplift, low double-digit growth both in your exposure in the Americas and Korea. How long do you see that pathway of continued growth on the aftermarket side before we get to the new build side?

New build. So just for framing, for those who don't know Curtiss-Wright, of our commercial nuclear business, about 90% is the aftermarket, which is great because it's just a great underpinning of, as you said, really strong growth business. One of the things, I mean, there's always been the normal outage seasons. But with the sentiment towards nuclear changing over the past several years, there's a real push to not allow any more nuclear power plants to shut down here in the U.S. and then that's same sentiment is broadly up in Canada and in South Korea. And so they're going for license renewals or license extensions, 60 to 80 years and even contemplating 80 to 100. And it is early days with that.

A year ago, at this time, 9 plants out of the 92 in the U.S. had received their license extensions today, that's 23 plants. Out of the 92, I think over 80% have indicated they intend to and the others are just early enough. They don't need to do that yet. But these cycles are maybe a decade long to do these license extensions. The work goes on over a very long period of time. And kind of talking specifically about them contemplating going from 80 to 100, that really opens the aperture for some larger improvement projects inside of the plants when you have that many years that you're considering the payback for capital projects. And that could be very good for Curtiss-Wright, where we have significant instrumentations and plant control systems that maybe they'll refresh or take from analog to digital in those. So it's -- we have decades of growth in that area.

So one of the bigger areas that investors are hoping for is AP1000s and the orders both in the U.S. and in Eastern Europe. And you have talked about an order in 2026 at some point. How is that looking? How is the horse race between whether it's going to come out of the U.S. or Europe looking? And what does that flow path look like after the first order? What do you expect to happen after that in terms of sequencing?

So it's a fantastic business for Curtiss-Wright and it's still a foot race. And I think if you asked me a couple of months ago, I was really thinking the first orders will probably come out of the U.S., but Poland is pushing even more than Bulgaria, I would say, at this point. And so they don't want to lose their places being first in line. So they are really lean in to try and be the leading customer. So -- but just to frame the size of the opportunity, Curtiss-Wright will have on top of the pumps, another significant amount of content. And we think our order book for each AP1000 plant will be $150 million to $160 million. Now over 2/3 of that is driven by the pumps, which is -- and that's the long lead material that will come in first. But in here in the U.S. the Department of Commerce has declared to build the 10 plants, and that was really part of the executive orders, and those will be built on government properties. There's also been a funding stream made available through the Department of Energy to build an additional 10 plants in partnership with utilities, and those will be built at existing sites.

Those utilities have been selected and the negotiations are ongoing, and that's all that can be said about that, but it's very much happening. There's very much some leaning for plants being built up in Canada. And then many plants across Eastern Europe that had declared really long before the U.S. and had really reinvigorated our interest in building. I think there was obviously a little bit of energy independence away from Russia more than anything else. But -- so it's a global opportunity. And we're very -- we work very closely with Westinghouse. They know our capacity. I think it will be a steady drumbeat of orders, which is really exciting for Curtiss-Wright. Our capacity is 12 to 16 pumps a year, but we are very much scenario play with Westinghouse. And if more is needed, we will be able to extend our capacity beyond that. And so it's many years of really good revenue for Curtiss-Wright. And that's layering on top of our SMR revenue -- our aftermarket and small amount of SMR work now that AP1000 revenue is just going to lay on top of that and provide a great building block for Curtiss-Wright.

That's 3 to 4 reactors worth per year.

Yes.

And...

I would just say, Myles, for those that are newer to the story, I mean, none of that's in our guidance right now. So if you take a look at the performance and the strong outlook that we have for 2026, the AP 1000 is something that we haven't worked on in quite some time when those orders come in, it's going to be transformational to our nuclear market growth rates.

Good point. Thanks.

And then just so I'm clear on the U.S. portion, your view is there's 10 plants and 10 plants. It's not the same 10 plants.

It's not the same 10 plants. And that was really -- there was some -- that really I don't think became completely clear until really a handful of months ago. And there's other stuff in the U.S. Fermi has declared that they're going to build 4 plants on top of it. Now that's gotten a little less certain. But that is the government's push to get everything moving. And I think as those plants go online successfully, there will be a willingness for more utilities to step forward and be willing to build plants.

Would we expect if you do get orders for that cash flow to be the most impacted in '26 versus revenue and earnings, for example?

Probably. But I mean, it really depends on when it comes in, but we don't think it will be significant revenue in '26, but it could be meaningful to '27. But again, there's a lot of active negotiations with our customer going on. So we're very cautious about speaking to how the contract will look.

But you know we love our cash flow. This year, we're going to set a record low for working capital as a percentage of sales, again, that doesn't contemplate the potential impact of that contract, and we love to negotiate cash in advance on large projects.

I mean -- yes, question. Repeat the question because we don't if there is...

Absolutely.

So the question was really around what gives you the confidence, particularly on the U.S. side. The Poland side, I think, is pretty clear what they're doing. The U.S. side, who are the customers? What gives you the confidence that these 10 and 10 will actually materialize into something real?

Well, I would say, Curtiss-Wright, even though our customers is Westinghouse, and we do have a lot of the knowledge we know through Westinghouse, we're very integrated into the whole nuclear industry. We participate in the NEI boards. We interact with the our team knows Chris right. I mean there's a lot of interactions, and it's with great confidence that the negotiations are active with the 5 utility sites that are going to each have 2 plants. Now I can't tell you what those 5 sites are, that is not public, and they are holding up very close to the vest for whatever reason they're choosing.

But things are advancing, and you can just see evidence of the willingness of this NRC to make things successful. And just kind of unrelated connection, but to show the NRC is changing and it's changing in how it works with the industry. The last plant life extension that was awarded happened in 12 months where that was a multiyear process in prior years. So it's -- the world is changing. And I think the momentum for nuclear energy and the energy demands, there's really no choice but for the utilities to build out nuclear power, there's no other way to meet the electricity demand. And I think that's understood.

And I would just offer, there's certainly a lot that's going on there, right, in order to line all of that up. But there's a clear recognition regarding the need for the acceleration of long-lead materials to support that process and ultimate flow and meeting that objective. The conversations that we're having with our customer are very, very active, and we're positive on that this is headed in a good direction.

Maybe to switch gears to the SMR side of the commercial nuclear side. You are under revenue and developing some of the prototypes for a couple of your partners. Give us a picture of where that sits today and then when you think larger orders would actually materialize.

Yes. So it's a great -- as an investor, if you're thinking of where you can invest and benefit from some of the nuclear energy growth. We have the aftermarket today, the AP1000, we believe we're getting orders this year. And the SMRs, the meaningful revenue out of the SMRs is probably more towards the end of the decade and into the 30s, but that is going to grow and layer on. And we've been doing design work with the larger, the 300 megawatt is our focus and up, SMR providers 2022, maybe even late 2021 started doing paid design work. We are pleased to announce that we've moved into prototyping with X-energy this year and that's meaningful because we're getting on to build new things that they test and have their demonstration reactors and that's not to say it's only X-energy that we are doing prototyping with.

Some of the other providers, they don't want us to speak publicly about what's going on. For X-energy, they see it as a proof for making Curtiss-Wright talk about the major systems we have and that we are starting to build major systems for the plant. And you take the 6 main 300-megawatt providers, Curtiss-Wright is targeting anywhere from $20 million to $120 million on those reactors. And I think we're well on track to accomplish that with X-energy. We're way up at the top end towards $120 million. I think Rolls-Royce will also be in that vicinity. And we feel really good. I think Rolls-Royce is going to have a dominant SMR position in Europe. And X-energy is -- there's going to be competition in the U.S. I don't think there would just be one winner in any way, shape or form. But I think the great thing is whichever ones get built, we're on track to really get meaningful revenue. And I think that will come in the 2030s. But between here and then, there's a whole lot of good nuclear goodness for Curtiss-Wright.

Maybe the last one on capital allocation. How is the M&A pipeline today? In the last couple of years, you sort of leaned into it and then market wasn't there and you repurchased shares effectively. How is it looking today? And maybe there was a deal today with Parker bought CIRCOR. Curious what you thought about that deal.

Yes. So I mean, M&A does remain our top priority. But as we always say, top priority doesn't mean we lower our principles for what we would choose to acquire. And so there's very much a strategic fit and a financial fit. And we looked at a lot of books in '25, very much aware of the transaction that was announced today. And we've talked in the strategic fit, unique IP, high barriers to entry, but the financial fit also needs to be there, and it was a pretty expensive deal. But that's the market right now. But Chris, I don't know if you want to talk about how we think about things financially, that might be a good closer.

So you know our cash flow is very strong. I mean this year, we're guiding $580 million to $600 million of free cash flow. We've been generating above 105% free cash flow conversion while accelerating our CapEx by more than 30% in the past 2 years and again this year. So we're putting the right infrastructure in place to accommodate growth in the future. But we still have a lot of cash flow since we began the pivot to growth, we've put $2.5 billion towards capital allocation, whether that's returning capital to shareholders buying acquisitions or reinvesting back into the business. And we feel very empowered as we then move forward that we're going to be able to continue to make those right investments, find the right acquisitions. to return capital to shareholders as we have done thoughtfully. And I'll also note that while we've bought back a lot of stock, we've also increased our dividend. This is the 10th consecutive year we increased it to align with sales growth again this year. But we maybe consider that the icing on the cake.

Great. Well, thank you.

Thank you.

All right. Thank you.

Welcome to the Curtiss-Wright First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations.

Thank you, [ Leo ], and good morning, everyone. Welcome to Curtiss-Wright's First Quarter 2026 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Executive Vice President and Chief Financial Officer, Chris Farkas. A copy of today's financial presentation and the press release are available for download through the Investor Relations section of our website at curtisswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC.

As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I'd like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. We had a highly productive start to 2026. We delivered a strong first quarter performance that exceeded our expectations as we demonstrated exceptional operating results, reflecting higher growth in revenue and operating income across all 3 segments. As we continue to compound sustained profitable growth, I'm pleased with the team's steadfast focus on innovation where we are driving incremental investments in research and development to support a number of critical pursuits across our end markets. These investments, along with the continued growth in our order book, better position us to accelerate the pace of long-term organic growth. We also continue to have strong alignment with leading industry growth vectors, which has been further reinforced by improving underlying demand and industry fundamentals across our A&D, commercial nuclear and industrial markets. The momentum continues to build across Curtiss-Wright's portfolio.

Based on the strong start, we raised our full year 2026 outlook, which provides us with confidence that we will exceed our overall Investor Day targets and continue to deliver strong results for our shareholders. With that, I'll turn to today's presentation. Starting with the highlights of our first quarter 2026 results. Sales of $914 million grew 13% year-over-year, while operating income once again exceeded our sales growth, resulting in 100 basis points of overall operating margin expansion. Of note, our results reflected higher year-over-year sales across all our major end markets. Diluted earnings per share grew 23% year-over-year, slightly ahead of our expectations and primarily driven by our strong growth in A&D sales. Regarding our order book, new orders increased 15%, reflecting a 1.3x book-to-bill ratio, driven by mid-teens growth in each of our 3 segments.

I'll cover some of the key highlights. Starting in defense, where we're pleased to see the overall improved pace of order activity, which is a testament to Curtiss-Wright's long-standing alignment to U.S. and allied military priorities. Digging deeper and starting with Defense Electronics segment, the team delivered the best performance since the third quarter of 2024 and is making great strides to move past the delays caused by the prior continuing resolution and 2025 government shutdown. Notable wins during the quarter range from the mission computer upgrades supporting the C-17 cockpit modernization to various awards supporting next-generation helicopter platforms and programs, along with increased activity for some of our short-cycle businesses, including tactical communications.

Overall, our pipeline of opportunities for these businesses remain strong. Our programs remain in good standing and the improved demand to begin the year provides us with increased confidence to deliver on our full year objectives. In the Naval and Power segment, which delivered a 1.5x book-to-bill ratio, we experienced continued strong demand for nuclear propulsion equipment supporting the U.S. Navy's current and next-generation submarine programs. We also continue to benefit from increased demand for our commercial nuclear aftermarket products.

Lastly, within the A&I segment, I would like to highlight the improvement in our order book for industrial vehicles, which has now delivered 2 strong quarters in a row and is contributing to increased optimism in our general industrial market relative to our 2026 guide. Overall, based on the healthy growth in Curtiss-Wright's order book, we reached a new record of nearly $4.3 billion, which provides us with great visibility and continued confidence in our future top line growth.

Regarding our full year 2026 guidance, we have raised our overall outlook for sales, operating margin, earnings per share and free cash flow and remain well positioned to deliver strong operational performance this year. Of note, we now expect overall sales to increase 7% to 8%, driven by improved outlook in our defense and commercial nuclear markets and further supported by the overall strength of our order book. We continue to expect that operating income growth will outpace sales growth and now anticipate an increase of 40 to 60 basis points in operating margin in pursuit of a record 19% to 19.2%.

As a result, diluted EPS is now expected to grow 13% to 16%. In addition, we raised our free cash flow guide to reflect higher confidence in the full year outlook, and we continue to expect strong conversion in line with our long-term targets. Overall, we are pleased with the strong growth in revenues and profitability to begin the year, and we're strategically positioned to deliver another outstanding performance in 2026. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. Turning to Slide 4. I'll begin by reviewing the key drivers of our first quarter 2026 performance by segment. Starting in Aerospace & Industrial, overall sales increased 12%, which exceeded our expectations. Beginning with the segment's defense markets, which drove the outperformance, our results reflected higher sales of actuation and sensors equipment supporting various U.S. and European fighter jet programs as well as increased demand for EM actuation equipment supporting ground-based mobile launcher systems. Within the segment's commercial aerospace market, we experienced solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms.

And in the general industrial market, the steady improvements in our order book, primarily attributed to increased demand for industrial vehicle products contributed to solid mid-single-digit growth in sales. Regarding the segment's first quarter operating performance, operating income and margin were ahead of expectations, growing 24% and 150 basis points, respectively, driven by favorable absorption on higher revenues, restructuring savings and favorable mix.

Next, in the Defense Electronics segment, overall sales increased 5%, which was slightly ahead of our expectations. Within the segment's aerospace defense market, we experienced higher domestic sales of embedded computing equipment supporting various aircraft modernization programs as well as higher direct foreign military sales of embedded computing and flight data recorders serving NATO and allied countries. Ground defense market sales were flat as increased Turret Drive stabilization systems supporting international programs were offset by lower sales of tactical communications equipment.

Regarding the segment's operating performance, we delivered a strong first quarter operating margin of 28.1%, up 60 basis points year-over-year, reflecting favorable absorption and mix on higher revenues. Moving to the Naval and Power segment. Sales growth of 21% exceeded our expectations. This was due to stronger-than-expected revenue growth in naval defense associated with the accelerated ramp-up in production on submarine programs. We also experienced a solid uplift in aftermarket revenue supporting naval shipyards through fleet services work and overhaul programs. Within the segment's aerospace defense market, our results reflected strong growth in revenues for arresting systems to international customers.

In the power and process market, overall, we experienced high teens year-over-year growth in revenues. This was mainly driven by strong growth in the commercial nuclear market, supporting maintenance and life extensions at operating plants across North America in addition to increased revenue supporting advanced small modular reactors. Regarding the segment's operating performance, operating income grew 33%, generating 140 basis points in operating margin expansion, principally reflecting favorable absorption on the better-than-expected growth in sales as well as favorable mix. To sum up Curtiss-Wright's first quarter results, we generated a strong operating margin of 17.6%, driving 100 basis points in operating margin expansion on the better-than-expected top line performance.

Turning to our full year 2026 guidance. I'll begin on Slide 5 with our end market sales outlook, where we now anticipate total sales to grow 7% to 8%. Starting in Aerospace Defense, we now expect full year sales growth of 11% to 13%, benefiting from increased sales of actuation and sensors equipment supporting domestic and international fighter jet programs as well as increased demand for defense electronics.

Within ground defense, while we were pleased to see the overall improvement in Defense Electronics order book, we continue to take a conservative approach in tactical communications resulting from the FY '26 budget delays. And as a result, our outlook in this market remains unchanged. Aside from those timing delays, we continue to expect increased EM actuation sales supporting the U.S. Army's IFPC program and increased demand for Turret Drive stabilization systems supporting international ground vehicle programs through our relationship with Rheinmetall.

In Naval Defense, following the strong first quarter results, we now expect full year sales growth of 6% to 8%, mainly due to expectations for higher production revenue on submarine programs, while we continue to project solid growth on the CVN-81 aircraft carrier program. In addition, we anticipate solid growth in aircraft handling equipment revenue supporting various international programs. Looking more broadly across all 3 defense markets, we expect direct foreign military sales to grow 10% this year and slightly ahead of our prior expectations, driven by the alignment of our technologies to global defense spending priorities.

Moving to Commercial Aerospace. Our outlook for 10% to 12% sales growth remains unchanged and continues to reflect our strong backlog supporting the anticipated ramp-up in OEM production across the major narrow-body and wide-body platforms. Wrapping up our aerospace and defense outlook, we now expect total sales in these markets to increase 6% to 8%. Moving to our commercial markets. In Power & Process, we now expect full year sales to increase 13% to 15%, mainly due to the continued underlying strength of our order book within commercial nuclear, we now expect to deliver mid- to high teens growth in sales this year.

Shifting to the process market. We continue to project strong growth in sales, which we anticipate will more prominently benefit our second half results based on the higher sales of MRO valves and instrumentation solutions. And lastly, in general industrial, we continue to take a cautious approach in this market and anticipate sales to be flat in 2026. However, we're encouraged by the more recent improvements in the order book and remain cautiously optimistic that we'll see a return to growth as we approach 2027. Wrapping up our total commercial markets, we now expect total sales in these markets to increase 8% to 10%.

Moving on to our updated full year 2026 financial outlook by segment on Slide 6. I'll begin in Aerospace & Industrial, where we now expect sales to grow 6% to 8%, driven by the strong first quarter performance in the segment's defense markets, continued growth in the order book and the anticipated ramp-up in commercial aerospace OEM production. Regarding the segment's profitability, operating income is now projected to grow 13% to 15% and drive operating margin expansion of 100 to 120 basis points, ranging from 18.4% to 18.6%. In addition to the improved top line guide, this outlook reflects the ongoing benefits of our operational excellence and restructuring initiatives more than offsetting higher year-over-year investments in development programs.

Shifting to Defense Electronics, where we continue to expect sales to grow 4% to 6%, principally driven by strong growth in aerospace defense and partially offset by the timing of our orders and revenues in ground defense. Regarding the segment's profitability, we continue to expect operating income growth of 4% to 6%, and we remain on track to deliver record levels of operating margin at 27.3% to 27.5%.

In Naval and Power, based on the continued strength of our orders and backlog in both our naval defense and commercial nuclear markets, we now expect sales to grow 9% to 11%. Regarding the segment's profitability, we now expect operating income growth of 13% to 15% and operating margin expansion of 40 to 60 basis points with this uplift mainly driven by the stronger revenue outlook. Also, as a reminder, this outlook reflects the savings generated by our restructuring actions as well as continued investments in both internal and customer-funded development programs.

To summarize our 2026 outlook, overall, we now anticipate total Curtiss-Wright operating income to grow 9% to 12% and expect operating margin to range from 19% to 19.2%, up 40 to 60 basis points as we lift at the bottom end of the range to reflect our increased confidence. Next, to aid in your quarterly modeling of sales and operating margin, we expect overall second quarter 2026 sales to grow by mid-single digits while also targeting high single digits plus growth in operating income, both relative to the second quarter of 2025. Of note, within our A&I and Naval and Power segments, we anticipate strong year-over-year growth in sales, resulting in improved second quarter profitability, while we expect both sales and profitability within the Defense Electronics segment to be in line with last year's Q2 results.

In summary, at the overall Curtiss-Wright level, we expect modest year-over-year improvement in profitability to result in a high teens second quarter operating margin. We expect this to be followed by strong second half operating margin expansion, keeping us on track to deliver record results this year. Continuing with our financial outlook on Slide 7 and starting with our EPS guidance. Building upon our strong first quarter performance, we now expect full year 2026 diluted EPS to range from $14.90 to $15.30, up 13% to 16%, reflecting improved sales and profitability within our A&I and Naval and Power segments. To aid in your quarterly EPS modeling, we expect second quarter 2026 EPS to grow by low double digits relative to the second quarter of 2025. We then expect modest sequential EPS growth over the remainder of the year with the fourth quarter EPS being our strongest.

And lastly, turning to free cash flow. Overall, we were pleased with the strong start to the year, and that provided us with increased confidence to raise our full year free cash flow projections to a new range and record of $580 million to $600 million, up 5% to 8% over 2025. This outlook continues to reflect our expectations for strong growth in earnings and a record level of working capital below 18%, while overcoming a nearly 30% year-over-year increase in growth investments through capital expenditures. We are confidently executing while continuing to deliver a free cash flow conversion rate of approximately 105% again this year. Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide 8. I would like to conclude today's prepared remarks by highlighting how we are accelerating momentum across Curtiss-Wright's portfolio through our strategic initiatives and our alignment with industry growth drivers, positioning the company for long-term financial success. As we have discussed today, our strong execution to begin the year, combined with our growing order book and strength of our backlog reinforces our ability to deliver record financial results across our major metrics. This outlook is underpinned by increased sales in the majority of our end markets, while we're also targeting a record level of profitability with overall operating margin at or above 19%.

The team is focused on driving margin expansion through an unwavering commitment to operational and commercial excellence while continuing to accelerate investments in R&D and infrastructure to support future organic growth. As a result, we continue to be successful under our operational growth platform as we sustain Curtiss-Wright's stature as a top quartile margin performer relative to our peers. We are also compounding earnings at a mid-teens pace over time by pairing that focused operational execution with our commitment to a balanced capital allocation strategy. In addition, Curtiss-Wright remains strategically aligned with many favorable secular growth trends across our markets.

Starting in defense, Curtiss-Wright is firmly anchored across the most critical current and next-generation platforms of programs to be funded within the U.S. Department of War budgets. As a reminder, our technologies are trusted on over 400 platforms and 3,000 programs worldwide. Building off of a strong and funded base of approximately $1 trillion in the FY '26 NDAA, we're pleased to see the upsized levels to a historic level of $1.5 trillion issued in the President's budget request this past month.

In naval defense, we remain aligned with a strong drive for accelerated production across the U.S. Navy's major platforms as well as investments in the next-generation SSN(X) submarine. Similarly, within our aerospace and ground defense businesses, we maintained strong alignment to the Dow's top strategic priorities, including tactical aircraft modernization, next-gen air superiority, radar and strategic missile defense and Golden Dome, just to name a few. All of these areas have received increased requests for funding in the FY '27 budget.

Equally important, we're making focused investments in research and development to further advance our technology and ensure we maintain strong positions across our entire defense portfolio. On an international front, our NATO allies continue to strengthen their operational readiness by targeting record levels of defense spending, while we continue to solidify our positions with technologies such as Turret Drive stabilization systems, embedded and tactical computing and both ground and naval arresting systems.

Turning to commercial nuclear. Curtiss-Wright's extensive portfolio of aftermarket technologies support the continued performance, safety and modernization of operating reactors worldwide, where we have content on every reactor across North America and South Korea. We remain aligned with plant operators and their incremental investments in plant extensions, power upgrades and modernization. In the U.S., we have seen an increased pace in number of plants receiving NRC approval for subsequent license renewals. Thus far, 23 reactors have been approved to extend their operating license, up from 9 reactors at the beginning of last year, with the most recent SLR completed in a record time and in less than 12 months.

Similarly, in Canada, we continue to support the modernization of reactors progressing through major component replacement programs to extend the life of their plants. We are also committed to supporting the construction of new Westinghouse AP1000 reactors expected to be built in the U.S., Poland, Bulgaria, Canada and other locations globally. While not included in our current year guidance, we still anticipate an order for our reactor coolant pumps this year. In addition to large light water reactors, we continue to grow our relationships and secure content across leading 300-megawatt plus SMR designs.

Our strategy ensures we will be engaged regardless of who is participating in the SMR race, which will ultimately support a number of winners. We expect SMRs to be a meaningful contributor to our revenue growth in 2026 and beyond. As we highlighted yesterday, one of those driving forces is our strong position on the X-energy Advanced Reactor where we have transitioned from design to prototype manufacturing of both the helium circulator and the reactivity control and shutdown systems as we continue to support the advancement of their next-generation reactor.

Overall, we have a clear path to capturing tremendous growth in our commercial nuclear power business, and I'm confident in our ability to capitalize on the robust industry growth that lies ahead. Within commercial aerospace, we continue to build upon our strong core positions and alignment to the OEM production ramps across Boeing and Airbus platforms and support our customers' growing backlog. Over the next years, the elevated growth trajectory based on increased rates of narrow-body and wide-body production will provide us with durable opportunities for growth. At the same time, we expect that our continued investments in critical technologies and highly engineered components will bolster our ability to capture new positions and expand our portfolio across both current and next-generation platforms.

Shifting to Industrial. Earlier, I spoke about the improved order momentum that continues to build in these businesses. This reflects our ability to grow our leadership positions while simultaneously investing in technologies that advance customer efficiency, performance and safety. This, in turn, together with the team's ability to successfully navigate global macroeconomic pressures, mitigate the impact of tariffs and identify opportunities to drive pricing and cost containment initiatives has enabled us to routinely overcome industry headwinds in this market.

Overall, across all our end markets, we continue to take the necessary steps to ensure Curtiss-Wright remains aligned with the fastest growth vectors and that we are well positioned to capitalize on the needs of our customers, both today and well into the future. Turning to the bottom section of the slide. We are intensely focused on leveraging the full breadth of Curtiss-Wright's financial resources to maximize our returns across numerous investment opportunities. We are driving record levels of free cash flow, and we are doing so while investing in critical technologies at an accelerated pace across the portfolio.

In 2026, we are ramping up our investments in people, systems and capacity to drive increased throughput across our naval businesses and also in anticipation of future commercial nuclear awards. Overall, we have and remain very focused on efficient capital deployment. Finally, Curtiss-Wright maintains a very healthy balance sheet, and we have remained extremely disciplined in our approach to capital allocation, continuing to strategically pursue acquisitions as our top priority in order to further accelerate top and bottom line growth. Beyond this, we look to further balance that allocation and sustain our strong track record and commitment to return capital to shareholders.

In closing, I'm excited about Curtiss-Wright's numerous prospects for growth and we look forward to delivering another record financial performance this year as we continue to drive long-term value for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.

[Operator Instructions] Our first question is coming from Kristine Liwag with Morgan Stanley.

Your pivot to growth has been very successful, and you're seeing that with your strong book-to-bill of 1.3x in the quarter, and we're seeing very strong demand signals from customers. I guess when we look at the industry as a whole, U.S. defense primes have a record backlog of over $500 billion, but their ability has been gated by the supply chain. You guys have been executing fairly flawlessly the past few years. And Lynn, you highlighted that you're interested in also doing more deals. So are there specific areas when you look at that broader ecosystem where you see gating factors that are pretty high ROI? And is that an area that you would be interested in doing more M&A? And so any color you could provide here would be really helpful.

A great question, Kristine, and thank you for joining us today. We are positioned very broadly across both all 3 branches of the U.S. Department of War and have a great footprint in NATO. And so I feel like we're very well positioned. And from an ROI standpoint, obviously, our Defense Electronics team continues to really deliver very strong results for our shareholders. And so that's always when we talk about M&A and where we're interested in pursuing targets, they usually remain at the top of the list. We know how to buy businesses there, integrate them. And even if their profitability, which we were very open with PacStar as an example, our last acquisition there was well below the segment's margins.

We've had outstanding performance with that team, and it continues to grow and expand its footprint, both here in the U.S. and really some early days traction internationally, which is exciting to see. So that is always a focus. We're we very much appreciate the tone out of the Department of War with wanting to have more commercial acquisition, be more willing to do second sources, dual sourcing equipment. And so first and foremost, that's a good reminder for us, we need to be a great supplier into our customers, and that is a big focus for us, and we don't take that for granted, and we're not perfect. So there's always areas we can improve. But that's also an area where we are making ourselves clear to the Navy. We're very open to being considered to become a second source in some of those areas.

And I think when we think of our scaling in the naval business, when you look at our MIB funding going from $15 million 3 years ago to $60 million now, that's indicative of where the Navy wants us to go and our ability to be a vital part of their supply chain. So that is one. But we're also looking more broadly across our aerospace and defense areas where there's critical aerospace technologies, especially the things that we can take both to the commercial space and the military space. That's one of our strategies that drives our ROIC in the company is having technologies we invest in for one end market, but then leveraging the breadth of our end markets to be able to take the same core investments and spread them across.

Aerospace is a great place to do that. And so definitely an area where we're interested. And our last 2 acquisitions were in commercial nuclear. We continue to look. There's less targets out there in that space, but we found 2 and who's not to say we won't find more. That's another area where we continue to look. But we're really looking -- we consider how we look at things -- we have KPIs that we're very focused on, and you have to look at that in balance. And I don't know, Chris, if you'd add anything for -- from a financial perspective and how we think about that.

Sure. Yes. I would just kind of note in the current environment, I mean, there's a good amount of competition for acquisition targets that are out there right now. There's a scarcity of high-quality strategic assets. And that, in turn, is driving some elevated multiples. But we are very stringently applying our strategic and financial filters as we're looking at books in the process. We're generating a significant amount of free cash flow. We're continuing to invest in our organic growth. But you can see from the health of our balance sheet, I mean we've deployed $2.5 billion towards acquisitions since we began the pivot to growth. Despite this, our leverage is approaching record lows. We've got a fully untapped revolver, $3 billion of borrowing capacity today. So as we look at financial -- acquisition targets from a financial lens, we're looking for businesses that can really be accretive to our core KPI growth rates over time, revenue, operating margin, EPS, free cash flow and ROIC.

I think this in combination with the market environment, it's just -- it's important to note that not every asset is going to be immediately accretive to all KPIs, but we'll balance those strengths and opportunities in various ways against the full portfolio and generate improvement over time as we've done successfully for many years.

Great. Super helpful color. And if I could follow up on margins. The company, you guys have done a lot of restructuring, and we see that benefit with your record margins here. I guess as the Department of War wants to shift more towards more commercial terms, I mean, I presume, is that more margin accretive for you in the long run? And also, I guess, it's a broader margin question as we think about demand from international customers also coming in. I would also presume that would be higher margin. And it'd be great to get your views on those long-term drivers.

But then also within the defense ecosystem, you're seeing more players like Anduril, like nontraditional player come into the industry. How does that shift the margin opportunity for a supplier like you where you've got pretty core capabilities that could be used by the incumbents and the new and you've got these new shifts in contracting approach. Is this good for margins in the long run?

So we feel confident about and comfortable with where we are. And this year, we're not going to speak beyond this year, but continue to expand margins this year. And you can see that's across our portfolio, including some uplift in our defense businesses. And I really -- as a team, we like to think of it with delivering value. We spend over half of our internal IR&D is spent in our defense electronics portfolio. We have brought some outstanding capabilities to the market that are really unique to a product offering in Curtiss-Wright around some of the capabilities with a variety of NVIDIA-based products from things that use the Blackwell 5000 down to products that leverage the 4 that are much more size-weight-power oriented.

And so really having that our Fabric100 capability, which is unique to Curtiss-Wright, the Microsoft Azure offering that we have. But from our perspective, we're very targeted at delivering technology excellence to our customer base, and that goes hand-in-hand with the value you can ask for those products. And so we just keep our eye on solving the hardest, most critical problems that our customers have and believe we will be comfortable. We work with the nontraditional primes. We have active engagements with many of them. There's places our products fit and places our products don't fit. So we're not -- we don't have applicable products to all of them.

But the things that we build are complicated and hard and take lots of investments in long periods of time, especially around the defense electronics, not setting aside all the submarine work and such like that. And they're in a foot race. And so for them to be able to acquire product from us is really -- fits hand-in-hand with their value proposition. So I think we're in a very solid place for where we are regarding margins and our ability to continue to grow.

We'll move on now to Myles Walton with Wolfe Research.

This is Greg Dahlberg on for Myles. I was just hoping to follow up on the X-energy announcement, shifting from design to prototyping work. Can you just give us a context of how much of the announced chipset content this allows you to recognize or maybe frame how large SMR revenue is in 2026?

So it's not really our place to talk about what exactly the content is we're prototyping with X-energy. We've been very open and said our content is $120 million per reactor. We only mentioned 2 of the 3 major subsystems that have moved to prototyping. So it's obviously below that. And we're not -- and I will be open, we're not prototyping the full complement of what an end reactor would be, but it's still great and meaningful revenue for Curtiss-Wright. And we're underway with that. And there's also some things we need to do from an infrastructure and test fixtures and stuff to be able to prepare to be able to do that testing. So it's a good revenue driver for this year, but I'll let leave it to Chris to talk about maybe any specifics he'd be comfortable giving.

Sure. I would just say embedded within that mid- to high teens organic growth guide that we're giving for commercial nuclear, you've got aftermarket coming in at approximately low double digits. I mean we're seeing a lot of global strength related to that business. But also, there's a very strong ramp-up in SMR revenues for the development transition to the initial prototyping phase. And last year, we were roughly 10% -- it was roughly 10% of our commercial nuclear revenues. And this year, with the guidance, we're targeting 12% of our commercial nuclear revenue. So a pretty sizable and growing improvement for a smaller part of our overall commercial nuclear portfolio today.

Great. And then I just wanted to touch on Defense Electronics bookings real quick because it sounded like things were good in 1Q based on your commentary and the short-cycle tactical comms work was accelerating. So can you share your expectations for 2Q book-to-bill maybe just given the context of the ground defense end market reiterated for the full year?

Yes. I mean maybe I'll just kind of back up a little bit before I kind of dive into Q2. Lynn mentioned in her comments, some of the changing government structure and budget delays we faced this last year. And on the last call, we said once that was resolved, we expected we'd see a normal flow in approximately 60 to 90 days, which would put most of that at the time into the April and May timeframe. And I think broadly, across Defense Electronics, that held true. We had the best order quarter for that business dating back to Q3 of '24 and also in Q1, Lynn mentioned, we received several of those orders that we had expected in 2025, including the C-17 and tactical comms and strategic returns.

But the Q1 order book was up 18% year-over-year. We had a book-to-bill that was near 1.1x. And then I'll also say that as we're looking at the April order update right now, we're seeing an improvement of 46% year-over-year for that month. So we're really off to a great start here in the second quarter, and we're expecting another good order quarter here in Q2. I will say that you heard in our prepared remarks that there will be some pressure on the second quarter revenue. I think we forecasted that and discussed that a little bit on the last call as well. But what's fortunate for us with some of these delays is many of the businesses here that are impacted are shorter cycle in nature and we've been taking steps to ensure that we can convert those orders into revenue as quickly as possible, and that gives us confidence in the full year guidance.

We'll move on now to Nathan Jones with Stifel.

I guess I'll start with a question on industrial vehicles. It's not one we talk about too much, and it's obviously been a tough market over the last few years for industrial vehicles. But it does seem like that market overall has kind of troughed out here and you're starting to see some growth. Some of the end customers there are starting to talk about increased production. I guess maybe a little bit more color on the order book, the growth in that. I know you kept the revenue outlook for general industrial flat for this year. Is that one of the areas that we might see some upside in the second half if things continue to progress on the same trajectory they are now?

Yes. We've had 2 good quarters of bookings, which is really nice to see. And I definitely always want to give a shout out to the team. It's been a couple -- 3 years that have had industry headwinds in them. I think we do feel optimistic that 2027, we will return to some growth in this end market and the trends continue to indicate that. You can see the reports out of our customer base of what's being built. But the team continues to do a good job with bringing new products to market and winning new content. So we're very well positioned as that growth does come back in this market segment that we will be there to position it.

We focused on our content across the European markets where I think growth is predicted to be a little bit more accelerated. So we feel good about what we've done there. And it's still a watch item. So we're being cautious. We're not going to meet our 3-year Investor Day targets of low single digits in this market. But it's nice to think that we will -- we're feeling good that '27, '28 is going to be a better position.

I guess just a follow-up on some of the delayed spending you've seen out of some of the stuff that's going on with budget approvals and continuing resolutions and stuff like that. The current administration has shown a real propensity to want to spend in these areas. How would you handicap the potential for that spending to get accelerated in the back half of the fiscal year, your 2Q, 3Q for the government and perhaps see some upside relative to some of the forecasts that you've put out there for continuing headwinds in those areas?

Thank you, Nathan. It's -- we're definitely -- you can see our book-to-bill across Naval and Power, 1.5x. I mean we're definitely seeing the aggression and the desire to spend and to get things moving. And if I gauge it, the chance for upside by our quote activity, our order activity, the analysis of the pipeline across our defense business, it's very strong. And you see what -- the shipbuilding is very visible. Our defense electronics is across so many platforms that it's not driven by any one target.

But even taken within our A&I segment, Chris mentioned in his prepared remarks, the IFPC program. The number of IFPCs procured this year has more than doubled from last year, and it's expected to almost double in '27. And there's lots of examples like that around that are some really dramatic upticks that are going to drive revenue for Curtiss-Wright. It's too early to count on anything. The President's budget request at $1.5 trillion, there's a lot of hand wringing on that.

And I was up on the hill just a couple of weeks ago, and lots of people have lots of opinions on it. But I would say universally, everybody thinks there's going to be a much larger than the $1 trillion defense budget this year or next year. And so between that and NATO countries ramping their spending, our prospects are very good.

We'll move on now to John Godyn with Citi.

This is [ Bradley Eyster ] on for John Godyn. So I wanted to circle back on the defense aerospace side that you called out earlier in your prepared remarks. So you highlighted strong trends for the quarter that benefited both aerospace and industrial as well as defense electronics. And this has been a common theme we've heard across this earnings season. So I was hoping you could talk a little bit more about what demand signals you're seeing here in the military aviation side looking ahead for the year and how things are shaping up relative to your expectations even from a few months ago. Are there any platforms or platform types such as fixed-wing versus rotorcraft growing faster than the other? I appreciate any color that you can give here.

Yes. I mean it's definitely an area of great growth. And whether it's modernization programs, things like the C-17 that we were able to announce in Q1, but there's a lot of aircraft modernization programs going on, the F-15EX, the KC-46 to just name 2 others. And we're very active and are participating in those early days, but as some of the next-generation air dominance programs are being selected, whether that's the F-47, F/A-XX is supposed to be awarded finally, and we're well positioned, we think, with that. And the CCAs, there's just -- the demand is very heavy.

And clearly, the current situation over in Iran, there is definitely driving a lot of sparing activity type of work that we're already beginning to see. So it's not any one platform per se, but good steady content and growth. And even another example is with the President's budget in '27, the number of F-35s from here in the U.S. alone is going to double. So we'll see where that takes us.

Got it. I appreciate the color. And then I want to circle up on the commercial nuclear side, specifically on the AP1000. I'm just trying to get a sense of like when a customer or country finalizes an order or a deal, what's the timeline for when you guys could complete the product for these RCPs and start recognizing revenue? I'm just trying to get a sense like how the timing flows through these deals.

It's really a changing landscape right now. If you go back to our '24 Investor Day, we kind of laid out kind of the traditional approach to how the contractual situation has moved and how EPC contracts were led and how that led to us getting orders. But in the current environment, specifically more maybe here in the U.S. than across the European customers, with some of the funding that's being made available out of the government, it's less clear whether we're going to follow this traditional trajectory. And we really take our cues from Westinghouse. I mean, regardless of who's buying the plants, our customer is Westinghouse.

And so we take our cues and work with them to understand when we can expect an order. And as I said in the prepared remarks, we do still expect that order this calendar year and our scenario playing a variety of things with Westinghouse to make sure we're ready to ramp with them and meet their needs so they can be successful in the marketplace. That's the most important thing for us is making them successful.

And so we've talked in the past, we recognize the revenue over a 4- or 5-year bell curve. And so it will start a little slow at first as we -- there's work to be done that will drive revenue, but they started securing long lead material and things along those lines. So that's why we felt it was just prudent not to put any AP1000 revenue in our guide for this year's revenue because the exact timing of the order, we don't know and I don't want to try and predict it. And then whether it will have -- be in time for us to have meaningful revenue is TBD.

We'll now move on to Louie DiPalma with William Blair.

Lynn, you mentioned F-47 and CCA. How are you positioned to potentially be involved for those next-gen platforms? Or have you already secured a spot in terms of content supplier relationships for those platforms?

So it's a little bit of both. There is content we have secured across those platforms, but there's absolutely content that we're still pursuing that there are still opportunities for us. So I think they will both provide solid revenue streams for us going forward. We're on both the winners of the CCA. We have nice content with both. So we'll see how that goes, whether they both wind up producing planes or just one of them. And when Boeing won the F-47, we were very pleased with that. We had strong content that we secured with them and some things that are still under work. So...

Great. And for the Navy, has the strength been broad-based across the nuclear pumps and valves that you provide in addition to electronics and R&D and perhaps overhaul? Or has anything stood out in terms of how you've been able to maintain the double-digit growth for the Navy for so long?

Yes. I would say, Louie, the vast majority of the Navy order book and backlog is really focused within the Naval and Power segment where we are embedded across the key naval nuclear platforms. And that's a very steady stream of work that continues to come on in. It gives us a very long-term view of where that market is headed. It's very durable revenues, and it's great cash flow. You may have noticed here in the first quarter that while it was an outflow for us in cash, it was better than what we had seen in prior years and even beat our expectations a little bit. That was really based upon the very strong orders that we had received across the submarine programs in Q1 and the related advances that come on into that. So great cash businesses as well.

But we are seeing some uplift in other areas of the business for technologies such as EM actuation and various things that we do there on the ships. And then I think as you look across the Defense Electronics group, while it's not as significant a portion of their overall portfolio as, say, defense aero or ground defense, there's a lot of work that goes into the subs and surface combat ships for that business. So -- but the vast majority of what's happening there in the order book is really just kind of accelerating through the core of naval defense across the key platforms.

I will say just maybe one last thing about naval, you can't forget about what's happening on -- with FMS. We are seeing a lot of naval aircraft handling system growth looking outwards. And then also, we mentioned, I think, in the prepared remarks, we're seeing a lot of good work with fleet overhauls and repair work. So those last few categories can be accretive to the overall margin profile of the naval defense work.

How significant is the overhaul work for the broader Navy segment?

Yes. I think when you look at just the RCOH as an example, I'll maybe just throw that out. And we do approximately $50 million in work every time one of those carriers comes in. We'll recognize that revenue over kind of a 4- to 5-year timeframe as they're doing the work on the ships. But beyond that, I mean, we talked a little bit too about some of the growth that's been embedded across the Virginia-class submarine programs more recently, initial spares provisioning that's happening there. We haven't given exact values. But with some of that work and then also the service centers that we have on the East and West Coast, it's really kind of opening us up to other opportunities to help get the fleet repaired and back onto the water. So it's good business for Curtiss-Wright.

[Operator Instructions] We'll move on to Jan Engelbrecht with Baird.

Congrats on another strong set of results. I think I'll start off with if you can give us sort of the puts and takes over the next couple of years for the commercial nuclear franchise, how you're thinking about margins as you're sort of progressing through this decade? And just how we should think about sort of operating leverage on double-digit growth in the aftermarket and then SMR development ramping up, the impact of large reactors, AP1000 and then just the South Korean design, which I think you have around $20 million of content today. But if they can sort of figure out a way that there could be a domestic build of that as well, I would assume that you'd be in a great position as having the domestic facilities.

So important question and one that I don't know if we're being comfortable giving a ton of color on. I will say starting in the SMR space, we've been doing paid design work for 4-ish years now. And that's always some of your lower-margin business. And so as we begin to move as we were really pleased to be able to announce into a prototyping phase with X-energy and then some of our other content is in the same vicinity, but the only one we're really talking about is X-energy, that will be better margin business than the design work. And then we're still working on how we will move into early production quantities later this decade. So I feel like there's natural margin uplift as we get volume and move through that work tied to the SMRs.

Relative to the aftermarket work, we make healthy margins on that business. It's more growing our content. And I don't know if there's any major margin changes coming in the aftermarket market work. I mean, as they do larger -- take on maybe some more sophisticated improvements that are being afforded as they contemplate not just the 80 years, but the 100 years. There could be a little bit of something there, but I don't think it's dramatic. And really, with the AP1000, we just need to work to support Westinghouse and it's a very active situation right now. And I just -- I don't think it's appropriate for us to make any comment on that.

And I would just add maybe to answer your question on the revenue growth. When we started the -- we had our last Investor Day back in May of '24, we put a slide up that showed the art of the possible, and we said that we would double our organic commercial nuclear footprint by 2028, which was taking $300 million of revenue to $600 million and then you can layer on the acquisitions and stuff that we've done since then. But it was a pretty reasonable outline of how we would actually achieve that. And while the slide said possible, I mean, certainly, some of the things that have been happening here in the industry since we had that Investor Day have given us increased confidence that the possible is looking really good. So I think as you're looking outward, we feel much better today about what's possible than we did back then.

That's very helpful. And just a quick follow-up, if I may. If you guys can just give us an update on the cockpit voice recorders franchise, sort of updates on the Airbus certification timeline? And then just how is it tracking the North American fleet sort of upgrading from 2 hours to 25 hours? I know there is a 2030 deadline, but what are you seeing so far?

So the work continues with Airbus, and we think we will achieve certification in the back half of this year. So that's good. I mean we're getting pretty close to having that achieved. I will say our deliveries remain pretty steady with Honeywell for new market build for Boeing. The aftermarket uptick has maybe been a little slower than we would have anticipated for retrofitting the existing fleet. But the good thing is as much as that was announced back in '24, it was actually signed into law February of this year.

So I think that final step of making a legal requirement, it's just taking a little bit of time for the airlines to figure out how they're going to execute to that. So overall, that business is relatively flat year-over-year for us, but there's absolutely -- it will be a good growth driver for the Defense Electronics segment through the back end of this decade. So no concerns. It's just -- it's going to really start healthy growth next year.

We'll move on now to Scott Deuschle with Deutsche Bank.

Lynn, there's obviously a lot of talk in the semiconductor industry about supply constraints and things like printed circuit boards and memory. I think this is something you've been pretty active about getting in front of and managing, but just curious for an update as to how you're thinking about managing those potential constraints and whether you see any impact to the business there?

There is definitely demand, and I really give a shout out to the team for their ability to manage their way through it. And we've talked about this. One of the areas that's a big focus in that team is the memory and storage chips has been a real focus, and they've done a great job of really working with our suppliers to secure supply. We tackle through so many different approaches. We work with our customers to fund the supply base for us. And in some cases, they're willing to do that. In some cases, it's more forecasted business and things we have to do.

We definitely leverage government high-priority ratings where we can, which is a reasonable amount of the business, but not all. I'm not going to say that.

But also just really from the COVID time and how we work with our suppliers, it's really become much more sophisticated over the past couple of years. And whether that's the personal relationships we have or tools we have to be better monitoring lead times and doing advanced buys. I know I've talked directly with the team about how they feel about the needs for '26. I think we have that well in hand, and they're focused on 2027 and being able to have things in line. So we're prepared to continue the great growth trajectory in that area and not let that impact us.

And the other supply area that we're -- if you say the 2 that are top of mind, rare earth minerals are an issue that we watch, and that's more across our surface tech and industrial businesses, and they're also doing a lot of creative things with qualifying alternative minerals and looking for second sources and just various approaches. There's never one silver bullet that it's worked, but the teams do a great job with it.

Got it. And maybe this is overreaching, but have you seen competitors have maybe greater issues with the semiconductor constraints such that your ability to secure these supplies actually creates a market share opportunity relative to competitors that maybe haven't managed these input constraints as well as you have?

Not anything that would be meaningful that I would make comment on. I mean we are always after market share, and we are doing things to take market share. I will assure you that. And there are things that we're doing product capabilities. We talk frequently about our Fabric100, that's 100 Gigabit Ethernet, and that's a unique offering to Curtiss-Wright. We're leveraging that to take market share. But we're -- if they stumble, so be it, but we will do it through technology leadership and creating great value for our customer base that nobody else can deliver.

There are no further questions at this time. I'm happy to return the call to Lynn Bamford, Chair and Chief Executive Officer, for additional or closing remarks.

Simply, thank you all for joining us today, and we look forward to speaking with you again on the road or following the release of our second quarter results. Have a good day.

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

Welcome to the Curtiss-Wright Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations. Please go ahead.

hank you, Jamie, and good morning, everyone. Welcome to Curtiss-Wright's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Executive Vice President and Chief Financial Officer, Chris Farkas.

A copy of today's financial presentation and the press release are available for download through the Investor Relations section of our website at curtisswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website.

Now I'd like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. As you saw in last night's results, the momentum continues to build at Curtiss-Wright. I would like to begin by acknowledging our 9,100 hard-working employees for driving another record year of financial performance. We continue to deliver on our pivot to growth strategy, which resulted in strong growth in sales, profitability, free cash flow and new orders in 2025. Our performance reflects the critical positioning of our technologies across our A&D and commercial markets, our ongoing pursuit of operational and commercial excellence and our commitment to delivering exceptional results for our shareholders. I'll start with highlights of our fourth quarter 2025 results.

Overall, sales of $947 million increased 15% year-over-year, highlighted by strong organic growth of 11% and a solid contribution from our I&C Solutions acquisition. We delivered 16% growth in our aerospace and defense markets, which exceeded our expectations, driven by an acceleration of ground and naval defense revenues into 2025. Of note, growth in our A&D markets reflected our continued strong alignment to U.S. military priorities and accelerated pace of growth in NATO and Allied funding, while Commercial Aerospace sales increased more than 20%. Growth in our commercial markets was also impressive, up 13% year-over-year, primarily driven by higher revenues in the power and process market. Operating income increased 14% and included higher R&D investments to drive future organic growth, while operating margin was strong at 19.7%. We delivered diluted earnings per share growth of 16% year-over-year, slightly ahead of our expectations, which was primarily driven by higher A&D sales. Free cash flow was strong at $315 million, up 13%, which reflected a 224% conversion.

Regarding our order book, new orders increased 18% in the fourth quarter, reflecting nearly 1.2x book to bill and were driven by continued solid demands within our naval, defense and commercial nuclear markets. Next, I'll highlight our full year 2025 results.

We delivered another record financial performance with higher growth in revenue and operating income across all 3 segments, reflecting the underlying demand and the momentum that continues to build across our portfolio. We delivered exceptional margin expansion, up 110 basis points year-over-year to reach a new record of 18.6%. This performance reflected the strong growth in sales, the benefits of our operational excellence initiatives and the savings generated by our restructuring actions. Furthermore, we continue to accelerate investments in research and development across the portfolio to support future organic growth and reinforce our commitment to grow R&D faster than sales over time.

Diluted earnings per share increased 21% year-over-year, driven by improved operational performance as well as a lower share count. Adjusted free cash flow also reached a record at $554 million, which reflected strong conversion of 111% based on the growth in earnings and near record levels of working capital efficiency. We achieved these strong results despite a nearly 50% increase in capital expenditures in 2025 to support growth investments across all 3 segments.

Turning to our full year 2025 order book. Strong overall demand in our A&D and commercial markets yielded a new record of $4.1 billion, up 10% year-over-year and a book-to-bill of nearly 1.2x. Starting with our A&D markets. Continued strong demand for Nuclear Propulsion Equipment supporting submarine programs in Naval Defense was partly offset by lighter-than-anticipated demand within our aerospace and ground defense market due to delays resulting from the continuing resolution and government shutdown. This principally impacted timing of orders with some of our short-cycle Defense Electronic businesses, including tactical communications. As a result, we delivered a book-to-bill of 0.96x in Defense Electronics initially leading us to take a more conservative 2026 guide in our overall ground defense market.

However, looking across the pipeline of opportunities for these businesses, our customers have expressed their confidence that this is timing. Our programs remain in good standing and our technologies closely align with the modernization priorities of the U.S. and our allies. Wrapping up our A&D markets. In Commercial Aerospace, we remain aligned with the anticipated production ramps across the major OEM platforms, which continues to drive demand for our products. Within our commercial markets, we concluded the year with tremendous growth in Commercial Nuclear driven by strong demand for aftermarket equipment, supporting scheduled plant outages and restarts as well as continued advancement across leading SMR designs. Additionally, we continue to see stabilization across two of our consistent watch areas. Process and Industrial, each of which recognized solid order demand close to conclude the year.

Overall, the healthy growth in orders build on Curtiss-Wright's already strong backlog which increased 18% in 2025 to reach a new record of in excess of $4 billion and provides greater confidence in our future top line growth. Another important takeaway from this past year was our disciplined approach to capital allocation to ensure deployment towards the highest return opportunity in order to enhance shareholder value. We executed a record $465 million in total share repurchases in 2025, and we increased our annual dividend for the ninth straight year.

Now I would like to briefly introduce our full year 2026 guide. Overall, we are projecting organic sales of 6% to 8%, supported by growing momentum in our overall order book and our commitment to continued investment in the business. Operating income growth is once again anticipated to outpace sales growth and reflects 30 to 60 basis points in operating margin expansion this year to range from 18.9% to 19.2%. As a result, diluted EPS is expected to grow 11% to 15%. Furthermore, we anticipate another year of record free cash flow generation and continue to expect strong conversion in line with our long-term target.

In summary, Curtiss-Wright is poised to deliver an outstanding performance in 2026. And as we'll discuss later in our remarks, we have line of sight to exceed the 3-year financial targets that we issued at our 2024 Investor Day. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. Turning to Slide 4, I'll begin by reviewing the key drivers of our fourth quarter 2025 performance. I'll start with the Aerospace & Industrial segment, where overall sales increased 5% and was in line with our expectations. In the segment's commercial aerospace market, our results reflected solid OEM sales growth supporting increased production on both narrow-body and wide-body platforms. Within the segment's defense markets, we experienced increased demand for EM actuation equipment supporting ground-based mobile launcher systems. And in the general industrial market, sales were essentially flat overall, but outpaced the global macro conditions affecting industrial vehicle markets. Turning to the segment's fourth quarter operating performance. We delivered a strong operating margin of 20.1% and benefited from favorable absorption on higher A&D sales, the overall profitability was tempered by a less favorable mix of business, mainly due to higher customer-funded R&D.

Next within the Defense Electronics segment, sales growth of 17% exceeded our expectations, mainly due to timing within ground defense's embedded computing revenues accelerated into the fourth quarter. We also experienced solid year-over-year growth in sales of tactical communications equipment as well as increased turret drive stabilization systems supporting international customers. Within the segment's aerospace defense market, higher direct foreign military sales of embedded computing and flight test instrumentation was offset by the timing of domestic fighter jet and UAV programs. In this segment's commercial aerospace market, our results reflected solid growth in flight data recorder sales as well as higher avionics equipment supporting various helicopter programs. Regarding the segment's operating performance, we delivered a strong 25.9% operating margin, up 160 basis points and in line with our expectations, reflecting favorable absorption on higher revenues and the benefits of our ongoing operational excellence initiatives. Those increases were partially offset by higher investments in research and development.

Turning to the Naval & Power segment. Overall sales increased 21% and were well ahead of our expectations. This performance was once again driven by strong revenue growth in naval defense following continued improvements in the supply chain and an acceleration of production on submarine programs. We also experienced an increase in aftermarket revenue supporting naval shipyards through fleet services work. Within the segment's aerospace defense market and as expected, we experienced a strong sequential and year-over-year increase in revenues for our resting systems products, principally supporting international programs. In the power and process market, our results reflected a strong contribution from our INC Solutions acquisition, which contributed to higher sales in both our commercial nuclear and process markets. On an organic basis, growth in commercial nuclear sales reflected the continued ramp-up in development across several SMR designs as well as higher government nuclear revenues.

Additionally, strong growth in the process market was driven by higher MRO valve sales where demand continued to improve throughout 2025, providing us with increased optimism for growth in 2026. Regarding the segment's operating performance. Operating income grew 13%, while operating margin was solid at 17.9%. Our results reflected favorable absorption on higher sales, which was more than offset by unfavorable mix, including higher research and development, supporting next-generation SMR designs.

To sum up Curtiss-Wright's fourth quarter results, we delivered mid-teens growth in sales and operating income, which resulted in an overall strong operating margin of 19.7%. Building on our strong performance in 2025, I'd like to take the next few minutes to review our full year 2026 guidance.

I'll begin on Slide 5 of our end-market sales outlook where we anticipate total sales to grow 6% to 8%, driven by continued strong organic growth in our A&D and commercial markets. In Aerospace Defense, our outlook for 9% to 11% growth mainly reflects the alignment of our technologies to the FY '26 U.S. defense budget, including key military priorities such as aircraft modernization and golden dome. This, in turn, is driving increased demand for secure embedded computing solutions across numerous applications from communications and radar to various mission packages supporting both existing and next-generation platforms.

Within ground defense, we anticipate sales to decline 4% to 6%. As a reminder, this follows a strong pace of mid-teens sales growth in both 2024 and 2025. Based on the acceleration of embedded computing revenues into 2025 and the delays in the orders for tactical communications equipment that Lynn referenced in her opening remarks, we're beginning the year with a more conservative outlook in this market. Aside from those timing delays, we expect continued growth in embedded computing towards radar and strategic missile defense applications across a wide number of programs. In addition, we expect increased EM actuation sales supporting the U.S. Army's ISPC program and higher sales of Turret Drive Stabilization Systems supporting international ground vehicles through our relationship with [indiscernible].

In Naval & Defense and building upon our strong performance this past year, growth of 5% to 7% mainly reflects higher revenues on the CVN-81 aircraft carrier and Virginia Class submarine programs. Looking more broadly across all three defense markets based on our strong backlog across key platforms globally and the alignment of our technologies to support NATO and allied countries, we expect direct foreign military sales to remain a key contributor to our overall defense growth in 2026. Turning to commercial aerospace. Our outlook for 10% to 12% sales growth reflects the high teens growth in our order book this past year and the anticipated ramp-up in OEM production on narrow-body and wide-body aircraft. To wrap up our Aerospace and Defense outlook, we project total sales in these markets to increase 5% to 7%. Moving on to our commercial markets. In power and process, our outlook for 12% to 14% sales growth reflects mid-teens growth in our commercial nuclear market along with low double-digit growth in process. Our outlook in commercial nuclear reflects continued strong U.S. demand driven by a step-up in year-over-year outages as well as higher revenue supporting both plant life extensions and restarts of existing plants.

In addition, we anticipate higher international aftermarket sales, mainly from Canada and South Korea. Our guidance also reflects strong growth in SMR revenues as we begin to transition from development to the initial prototype stage for critical systems on the X Energy Advanced Reactor including both the helium circulator and reactivity control and shutdown systems. Please note that our initial guidance does not include an AP-1000 order that we continue to anticipate that we will receive an order for reactor coolant pumps in 2026, and in the process market, our outlook is mainly driven by improving demand for our severe service valves as well as higher sales of instrumentation solutions from our I&C business.

Lastly, in the general industrial market, while we anticipate sales to be flat once again in 2026, we saw signs of improvement in our Q4 '25 order book and entered 2026 with a solid backlog. Looking deeper, we expect modest growth in medium duty industrial vehicle sales this year as well as a small benefit from international growth. We remain cautiously optimistic that conditions within our overall industrial vehicle business will improve through the year and into 2027. Wrapping up our total commercial markets, we're targeting strong full year sales growth of 7% to 9%. Moving on to our full year 2026 financial outlook by segment on Slide 6, and I'll begin in Aerospace & Industrial, where we expect sales to grow 5% to 7% overall, reflecting strong growth in Commercial Aerospace and Ground Defense as well as flat sales in General Industrial.

Regarding the segment's profitability, we project operating income growth of 11% to 14% and operating margin expansion of 90 to 110 basis points ranging from 18.3% to 18.5%. This outlook reflects our expectations for higher sales, the benefits of our operational excellence initiatives and the savings generated by our restructuring actions, while we continue to accelerate investments in R&D.

Next in Defense Electronics, we expect sales to grow 4% to 6%, mainly driven by strong growth in aerospace defense, partially offset by the timing of orders in ground defense. Regarding the segment's profitability, we expect operating income growth of 4% to 6% and operating margin to be flat to up 20 basis points to a new all-time high range of 27.3% to 27.5%. Of note, this outlook reflects our expectations for higher sales and the savings generated by our restructuring actions as well as $4 million in incremental investments in internally funded R&D.

And in Naval & Power, we expect sales to grow 8% to 9%, reflecting the strength of our orders and backlog in both our naval defense and commercial nuclear markets. Regarding the segment's profitability, we expect operating income growth of 10% to 13% and operating margin expansion of 30 to 50 basis points. This outlook reflects our expectations for strong revenue growth and the savings generated by our restructuring actions, while we continue to support investments in both internal and customer funded development programs.

To summarize our 2026 outlook, overall, we anticipate total Curtiss-Wright operating income to grow 8% to 11% and expect operating margin to range from 18.9% to 19.2%, up 30 to 60 basis points. Next [indiscernible] year quarterly modeling, we expect first quarter 2026 sales to grow by high single digits relative to the first quarter of 2025 and we are targeting low double-digit growth in operating income with solid year-over-year operating margin improvement across all 3 segments. Continuing with our financial outlook on Slide 7, I wanted to provide some color on a few nonoperational items. I'll start with other income, which we expect to increase by approximately $3 million to $4 million this year based upon our strong free cash flow generation and the resulting impact on interest income.

Looking ahead to December, we'll pay down $200 million in senior notes coming due, which will have a minor benefit and lower interest expense. Regarding our 2026 tax rate, we're targeting a slight reduction to 21.5%, which reflects our ongoing success in reducing our effective tax rate. Turning to our EPS guidance. We expect full year 2026 diluted EPS to range from $14.70 to $15.15, up 11% to 15% and reflecting strong profitable growth within our operations and a reduction in our share count following record share repurchases in 2025. For 2026, to start the year, we anticipate $60 million in standard share repurchases as we continue to offset dilution. To aid in your quarterly modeling, we expect first quarter EPS to reflect high teens growth relative to the first quarter of 2025, mainly driven by a strong operational performance with a supplemental benefit of $0.10 from a lower year-over-year first quarter tax rate.

And similar to last year, we expect sequential quarterly EPS improvement with the fourth quarter being our strongest. And lastly, we're projecting a record full year free cash flow of $575 million to $595 million, reflecting our expectations for strong growth in earnings and our continued focus on working capital management, more than offsetting increased growth investments in capital expenditures. As Lynn mentioned earlier, we delivered near record levels of working capital in 2025, reaching 19.2% of sales. And for 2026, we expect to further improve upon that metric and to reach a new record level of performance. Beyond that, our outlook for $110 million to $120 million in capital expenditures represents an increase of more than 25% year-over-year, which follows last year's nearly 50% increase and reflects our ongoing investments to support future growth.

Overall, as we accelerate investments across our operations this year, we continue to expect free cash flow in excess of earnings in a healthy free cash flow conversion rate of approximately 105%. Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide 8, where I'll wrap up today's prepared remarks. Curtiss-Wright has demonstrated strong growth and financial performance over the past 2 years since our May 2024 Investor Day event, and we are well positioned to continue that momentum by delivering strong profitable growth again in 2026. I'll spend the next few minutes providing a few insights into the increasingly favorable industry tailwinds for two of our largest end markets, defense and commercial nuclear, which are benefiting from positive market forces and provide us with increased confidence as we look into the future. I'll also provide some additional color on a few of our targeted growth initiatives across the portfolio. Then I'll conclude today's presentation by reviewing our financial targets shown at the bottom of the slide.

I'll start with defense. Curtiss-Wright is primed to benefit from the tremendous acceleration in global defense spending driven by a record U.S. budget of approximately $1 trillion, including reconciliation funding and the increased commitments from NATO and Allied starting in naval defense where we continue to benefit from strong demand and the call for accelerated production across the U.S. Navy's most critical platforms. As a key supplier of nuclear propulsion equipment, our decade-long relationships, along with capacity to take on additional business uniquely positions Curtiss-Wright to secure new content across existing and future platforms.

In Defense Electronics, we stand to benefit from the administration's focus on commercial solutions and agile contracting and also through our strong alignment to the DOW's top strategic priorities. These include areas such as next-generation fighters, golden dome and aircraft modernization just to name a few. Our broad offering of embedded computing products are used in a wide number of ARC and ground-based systems and are an integral part of mission-critical applications such as comms, networking, threat detection, jamming, targeting and fire control. Curtiss-Wright continues to make purposeful and focused investments in research and development to advance our technology portfolio. To name a few significant examples, we are designing and building ruggedized computing solutions with NVIDEA's GPUs ranging from the high-end Blackwell to the swap optimized store tailoring them to match the compute needs of those different applications.

Additionally, our Fabric 100 family of products provides industry-leading 100-gigabitt connectivity, enabling the highest performance in deployable computing systems today. Also, we recently announced our ruggedized servers are now validated as part of Microsoft Azure ecosystem, bringing the enterprise class computing to the tactical edge. These solutions and others uniquely position Curtiss-Wright as a leader in defense technology, supporting next-generation applications while ensuring our alignment to the U.S. government's most standard and highest priorities. Overall, this is but a sample of our ongoing investments in and development of new technologies to help ensure Curtiss-Wright maintains a strong position on leading defense programs today and well into the future.

On the international front, there is a clear recognition of the need and movement by our NATO allies to strengthen their defense capabilities. This year, NATO committed to Boost Defense spending from 2% of GDP per year to upwards of 5% by 2035. Similar to our market position in the U.S., we have a very broad reach across a large number of platforms. As a result, over the past few years, we have recognized mid-teens plus growth in our direct revenues, and we continue to solidify our positions with technologies that support operational readiness such as embedded tactical computing, ground-based arresting systems and Navy aircraft handling systems.

In addition, we remain well aligned with [indiscernible] where the expected growth in ground vehicle platforms afford us the opportunities to supply our turret drive stabilization systems technology to thousands of new vehicles over the coming decade. These represent just a few of the many ways the Curtiss-Wright stands to benefit from the continued acceleration of global defense spending. Turning to commercial nuclear. During the last 2 years, the momentum and pace of activity has accelerated globally, broadening the near and long-term scope of opportunities for Curtiss-Wright in the industry.

Here in the U.S. the President's executive orders issued last May are providing tremendous uplift by advancing support for the industry at large and in keeping with the focus on U.S. nuclear energy dominance. These directives are already advancing the speed at which approvals for reactor licensing are being completed, particularly for plant life extensions of U.S. reactors. This, in turn, is creating a pathway for a broad acceleration across our customers' business models while further supporting the administration's goal to quadruple nuclear generation capacity to 400 gigawatts by 2050. Additionally, and perhaps the largest potential boost for Curtiss-Wright is the Administration's $80 billion commitment to support the construction of 10 new Westinghouse AP-1000 reactors. This expanded scope across the U.S. builds upon the existing AP-1000 opportunities in Europe, particularly in Poland and bulk area, which continued to demonstrate steady progress.

Overall, we remain aligned in these pursuits and continue to expect our net order this year. Meanwhile, the SMR development continues to evolve in the U.S. and globally, including Canada, the U.K. and Europe, and we expect to benefit as these efforts transition from ongoing design activity, stability and prototypes before shifting to production later in the decade. Of note, we have maintained a steady pace of investment to support Curtiss-Wright's growth as we work to enhance our relationships and expand our content across the leading 300-megawatt plus SMR developers. Overall, Curtiss-Wright is extremely well positioned to capitalize on the expected surge in demand and future growth in this industry, providing us with increased confidence in our ability to deliver on our growth targets in commercial nuclear.

Next, I'll review our progress against our 3-year Investor Day targets. Starting with sales, we are currently on track to deliver an organic revenue CAGR of approximately 8.5% well ahead of our target of 5% and clear acceleration relative to our historical top line growth rate. In addition, we are consistently delivering operating income growth in excess of revenue growth, which is a foundational premise under the Pivot to Growth strategy that opens funding for reinvestment back into the company. Since 2023, we have grown R&D at a faster pace than sales and at the same time, are driving towards operating margin expansion of 170 basis points over the 3-years plan. This year, we expect to reach a new milestone with the potential to deliver an operating margin of 19%, which firmly entrenches our position as a top quartile margin performer relative to our peers.

We are also well positioned to expand our EPS growth target by more than 700 basis points and are on track to deliver a 17% EPS CAGR over the 3-year period. Through a combination of strong operational performance and our dedication to a balanced capital allocation strategy, we are compounding earnings at a mid-teens pace over time. And finally, we're driving record levels of free cash flow across our business. We are tracking well ahead of our expectations while more than offsetting increased growth investments in CapEx and expect to generate 110% average free cash flow conversion over the 3-year period. Our strong free cash flow generation helps to fuel organic and inorganic investments across the business that drive efficiency expand capacity and help enhance our overall customer offering, along with our commitment to returning capital to shareholders.

In closing, we look forward to the year ahead and achieving another record financial performance in 2026. Looking on this year, I am very excited about the medium and long-term prospects for Curtiss-Wright that will continue to provide momentum under our pivot to growth strategy and drive long-term value for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.

[Operator Instructions] First question will come from Kristine Liwag with Morgan Stanley.

Good morning, everyone, and Lynn, thank you for the details you provided on the different growth vectors in defense. I wanted to dive a little bit deeper on missiles. We've seen multiyear agreements that increased volume by 300% to 600% on certain programs at Lockheed and at Raytheon. I was wondering, can you provide more color regarding your exposure to this? Is it in your radar or sensors business or Defense Electronics. How do you think about the potential opportunity of this specific growth vector and what's your exposure?

Thank you for that question, Kristine. So we have some content directly on the missile, but it's relatively minor. Its telemetry and flight test instrumentation type of content, which could be meaningful revenue but maybe not deployed across every single missile that's produced. So just to level set that focus in our portfolio.

However, as the demand and the belief that we need to restock pile is all connected to the golden dome and very many things that are related to the defense of our country where we have fantastic exposure. So we've talked about in golden dome there's kind of you think of it in three technology buckets, the sensors, the networking of those sensors and then the effectors to combat any incoming threats. And across all three of those areas, we are very well positioned that have very many active developments. I mean that -- the system will be built up of existing capabilities that our long history has us well positioned on. We're very well positioned in the networking with the various standards that are going to be used for the command and control across it.

And on top of the existing platforms, we are engaged in quite a few exciting new developments across industry to provide some upgrades into those systems and deliver new capabilities. So -- just broadly speaking, the overall growth of defense, I'd say we are very well positioned not just here in the U.S. but across Europe.

Great. Super helpful. And if I could do a follow-up question on no surprise, the AP-1000. So you guys mentioned that you are expecting an order in 2026, but it's not in the financial outlook. So I wanted to clarify, one, which customer do you expect this to come from this Poland, Bulgaria, U.S. customer? And the second question to that is how many are you expecting in this order for 2026? And the third one would be, if you do get this order and noted that it's not in your 2026 guidance, how do we think about potential moving pieces to your outlook for the full year? Sorry, I know that's three questions into one, but basically, if the AP-1000 question.

So it's a topic we definitely anticipated being asked about. And so really, I mean, the first orders could come from either a European customer, Poland or Bulgaria or from the U.S. How this $80 billion that the government has committed to jump start the build-out of AP-1000 reactors in the U.S. is going to flow is still something I think everybody is coming to understand. And for us, our customer's Westinghouse. We work very hard to stay aligned with Westinghouse. We are definitely communicating with them on different scenarios production ramp and are just committed to being a great supplier to Westinghouse and working with them. So I don't think at this time, we can give any color on the size of the first order. It could be of different quantities. And really to Westinghouse decides how they want to do that, I don't think we would get ahead of what that would mean for Curtiss-Wright.

I was just going to add, you had asked about the financial impact. And I think as you think about the timing of the order and when that hits us during the year, there's going to obviously be some labor that we're going to incur upfront in the contract. But we mentioned the bell curve and that taking place over a 5-year period. So there'll be a little bit of a start-up, and then as we're able to place orders for material and start to see that material come in the door, which I would expect a greater portion of that material will start coming in this next year, we'll see some uplift in the revenues. That's when we'll really start to accelerate within the bell curve.

And then just from a cash perspective, I mean, we're in negotiations with Westinghouse. We're here to ensure that they're successful in the deployment of the AP1000, but I think you can see from our focus on working capital and what we've demonstrated in free cash flow that the team is dedicated to ensuring that we continue to improve upon that. So I think that there'll hopefully be some good news of that in that area as we progress through the year.

We'll move now to Myles Walton with Wolfe Research.

This is Greg Dahlberg on for Myles. I wanted to start on the free cash flow guidance, just because you've seen big step up in CapEx in '25 and you're calling for it again in '26 with minimal impact to free cash flow conversion. And Chris, I know you mentioned the working capital performance in your prepared remarks. So I was curious if you could just kind of put a finer point on what's actually happening with the working capital to enable this? Like are you getting better advantages from your customer? Kind of can you just talk through the dynamics there?

Sure. So I mentioned on the call that we were at 19.2% working capital as a percentage of sales in 2025. And if you take a look at our financial statements, you're going to see that our deferred income has been increasing gradually over the past several years. A lot of that has to do with the team's focus on commercial excellence and success that they've had in negotiating contracts, and kind of supports the way that our sales are growing, a lot enabled defense work, a lot of strong commercial nuclear growth ahead of us. So the team has been doing a good job in that regard.

This last year, we had higher DPO. We did some good things with the supply chain ensured that they were protected at the same time participating in our cash flow goals. But as we head into this next year, we're going to continue to improve upon collections. We've got opportunity across the board, whether it's DSO, inventory turns, DPO, and we'll be targeting a working capital percentage of sales of approximately 18%, that will be record. I think if you step back to the years when we had the last AP1000 contract, we were somewhere in that high 18s rate, and we're expecting to beat that this year. The team outside of commercial excellence and negotiating with contracts has done a lot of good systems work. We talked about that at Investor Day. We have new levels of information at our disposal regarding daily billings and progress on cash flow across the corporation, that scales all the way from wind and myself down to the business unit level. So we've done some good things there to improve the systems that help to enable improved cash flow management.

Got it. And then just quickly on the C-17 order you guys announced earlier this week. Was that order booked for you in 4Q just because I think that's when Boeing out the order? Or is that a 1Q order? And if not, we expect relatively quick snapback in Defense Electronics bookings, just given what seems to be a timing issue.

Yes. So it is -- we definitely saw delayed bookings and we mentioned in the script, the 0.96x book-to-bill in Defense Electronics, and that was very much affected by the delay. So to be clear, it was a Q1 order for us, and it's a very [indiscernible] new platform for us, but it's also very indicative of the bookings we clearly saw that we believed would come in 2025 that were delayed partly due to the shutdown, partly due to the CR, some structure changes within the government. And so it's a very meaningful example of one of those and a platform we're pretty excited about.

We'll turn now to John Godyn with Citi.

This is Bradley [indiscernible] on for John Godyn. Just want to dial a little bit on the Aerospace & Industrial and -- sorry, Naval & Power headwinds that you called out for fourth quarter on mix. Is this something that's more of a seasonality item here? Or is it more structural? And how should we think about that going to '26 of the guide that you have?

Yes. So as we enter into 2026, we're going to continue to see a heavy ramp-up in not only in Naval & Defense. And as I mentioned on the script, that will be work in performance to accelerate where we are in the CVN-81 but also the Virginia-class submarine program. But we're also accelerating in commercial nuclear and our process markets. The process markets, I'll start there first.

We saw a healthy order book and continued growth in the order book here later in the year in 2025, and that's positioning us really well in 2026, for MRO growth. And there's some accompanying margin benefits to a higher concentration of MRO valves. But we also had mentioned in the script that commercial nuclear is going to accelerate quite a bit here in 2026. The fourth quarter order growth in commercial nuclear alone was up 50% year-over-year a lot of orders coming in relative to SMRs and work that's beginning to transition from development to prototype, which is happening this year in that work does represent a little bit more of a challenge for us from a margin perspective.

As you would imagine, it's not production work. Eventually, it will transition there, and that will convert into stronger margins. But we're also underpinned by a strong increasing footprint and global aftermarket content, and that will help us as we move through the year as well. So thematically, I think, process and maybe the transition into prototyping are probably the two things that you can think about as we go into 2026.

We'll turn now to Nathan Jones with Stifel.

Hello, everyone. This is [ Adam ] on for Nathan Jones. I wanted to talk a little bit about operational and commercial excellence although it was a big part of driving margin expansion over the last 3 years. How should we think about these initiatives moving forward? And what was the contribution for the last 3 years?

So maybe I'll start off and talk about some of the efforts and such, and I'll let Chris speak to what he can about the contribution, but when you run a complex business, there's a lot of things that go into how you expand margins and you can't always completely bucketize them from one thing to the next. But our operational growth platform has really become a fundamental part of the company and how the teams evaluate themselves. And it has a robust set of focus areas with everything from the commercial excellence and includes pricing and making sure we can analyze that aspect with -- as there's been inflation in the world, and such that making sure we're really understanding how we're pricing our products is very critical, and we've become much more sophisticated in how we can do that.

So people don't always think about that as part of operational excellence, but it's very much how we manage the company. But we continue to do things in our supply chain. We've added commodity managers at a corporate-wide level is just one example that are helping making sure we maximize the buying power across the organization and achieving the best results there to ever ongoing activity on integrating robotics into our operations, [indiscernible] pulled those out as some examples. So it's very widespread. And the team has made great successes over the past 3 years. We have a clear list of things that are still in our windshield that we're going to go after and in no way shape or form does this end. So it's definitely still an ongoing focus and something that's part of our DNA at this point.

Yes. And maybe I won't go all the way back to 2024 at this point in time. But if I just kind of start with what happened here in 2025 as a base. We had close to $12 million of commercial and operational excellence roll through our P&L this last year. The operational growth platform is affecting all entities. And -- the greater portion of that was really operational excellence, but still some pricing successes this last year.

Additionally, we have been conducting restructuring programs, restructuring for growth in many areas of the business, but also efficiency, and you saw some of that benefit come through in 2025. Now as we enter into 2026, we're going to continue to see some of that restructuring benefit from the programs that we started in prior year continue to roll through our P&L. You'll see some uplift from that and operational excellence and pricing initiatives. Again, not quite at the same pace. But as Lynn had mentioned, there's plenty of opportunity in front of us, and we'll continue to kind of drive towards that opportunity.

But overall, looking at Curtiss-Wright's margins for this next year, we're going to have a good strong incremental contribution margin on sales of roughly 25%. And we'll benefit from all those initiatives that are helping us in the P&L, and that's going to more than offset what's happening in our increase in R&D and CRAD this next year. So I'm pleased to be able to come on out of the gate with a guide of 30 to 60 basis points of expansion.

Also just a quick one here. With the 4Q power and process benefiting from strong growth in industrial valve sales, called that out earlier. Are you seeing any improvements in the underlying process markets, maybe an update there?

Yes. I think we are seeing some improvement in the underlying process markets. I mean, as you look forward in 2026, North America MRO is really projected to grow in that low single-digit to mid-single-digit range. We're seeing some good benefits across North America related to CapEx. I think the -- and that's particularly in the oil and gas side of things. When you look at the petrochem the global growth is going to be a little bit below GDP. North America will probably be in line with GDP.

But I think one of the things that's important to point out and really just kind of credit back to the team is that they've done an exceptional job really focusing on customer satisfaction, being able to tighten lead times get product in the hands of the customer sooner, heavy focus on quality and at the same time, kind of expanding some of those sales channels globally so that they could take advantage and gain some market share in the process. So they're really doing some good things, and I think that's going to help us kind of beat the overall industry market growth rates as we head into 2026.

We'll move now to Michael Ciarmoli with Truist Securities.

Lynn or Chris, I think I know the answer to this, but I figured I'd ask it anyway. You mentioned some of the timing in defense, but you've got pretty big deceleration in just your pure defense revenue growth. I think you've averaged 13% over the past 3 years. The guide points to 6%. I think Naval growth is down 2%. And again, tough comps. I understand what you're lapping, you did talk about the strong direct foreign military sale. But anything else going on besides timing and just kind of what's been a strong kind of prior trajectory? I know you talked about the bookings in Defense Electronics being below 1x, but any other color there?

So we feel very strongly optimistic about our ability to continue to grow the Defense -- our Defense business at a pace that matches or beats what the U.S. DOW is doing. And that does -- foreign military sales are part of that, but we are very well aligned here in the U.S. And there can be just some timing issues. And having a multi, multi-month CR and then the shutdown definitely had an impact. So we've taken a bit of a conservative stance, as Chris mentioned in our ground guide that we think now that we have a budget, we expect the normal order flow would begin in 60 to 90 days. But we're watching that.

We thought it was a great sign to see the C-17 order come in so quickly after the [indiscernible]. Broadly speaking, across Defense Electronics specifically, we can clearly have line of sight over $100 million of orders, we fully expected to get in '25 that have been pushed into '26 and that C-17 is one of the first ones that has landed. And again, we're very close contact with our customers. There's nothing going on that is disruptive to the long term. We're very well positioned with our technologies. And I think of things that the team is doing and whether it's the Fabric 100, we bought over 20 -- 20 MOSA, CMOS compliant products up to market in 2025. We will exceed that number in 2026. Our relationship with NVIDIA is just at its beginning for being a growth vector. The Microsoft Azure is also just at the beginning. And those are things we made public in 2025, and the team continues to do things that will provide other differentiated capabilities that are unique to Curtiss-Wright and bring those to market.

And so whether it's that portion our alignment with the systems around gold dome and we are aligned in our ship building. And I think regardless of the shipbuilding to your comment there, the fact that at our Investor Day, we had $15 million of maritime industrial-based funding, and that is up to $55 million. Now that is a clear indication that of how the Navy sees Curtiss-Wright as a critical supplier and they want to assure we're ready for the growth that is coming our way. And so that's a tangible thing we can point to, tied to the Navy. So there's no concerns looking out to '27 and potentially having a $1.5 trillion budget is very exciting, and we're doing the things to make sure we're ready for the growth that our customers are signaling to us.

Okay. Perfect. That's really helpful. And then maybe just totally shifting gears back to nuclear. You've given us sort of the end market waterfall detail for '25 and '26. So we can probably back into what looks to be maybe $60 million of OE revenue on new nuclear builds this year growing close to 40% over last year. Is anything else you mentioned X-Energy transitioning into the prototype build? Are there any other SMR reactors that are expected to transition to drive that growth? Or can you point to other specific platforms or partnerships that are kind of driving that sort of SMR growth this year?

So we've made some announcements on our partnership with Rolls-Royce. We continue to build out the capabilities of what we're going to do with Rolls-Royce, and some of those will turn into early prototyping types of revenue in 2026. We're well positioned with TerraPower. We really work across the gamut, and everyone is maturing in their designs and working hard to be bringing plants online in the 2030s. So without getting ahead of our customers, I don't think I would say anything else.

But the revenues from these three restarts to trying to build out and complete some of the reactors that were installed. All in all, these things are all very active, very real, and our teams doing real work and gaining real business opportunities across the industry. And so the thing I like is it is very widespread. It's not one thing. And as we said, the AP1000 work is still in our future. The order we believe strongly is coming in 2026, and that will be pretty dramatic when it comes in a very, very good way.

And Mike, I would just add one other kind of interesting data point as you think about this because we get a lot of questions about new builds and the AP1000 and SMRs, but we also have content on other reactors. As you look at the APR1400 out of South Korea, and we talked about $10 million to $20 million of content per new build there. Now those are multiyear projects, but we did have some order activity here in the fourth quarter for new build in South Korea. So I'll have some content there that's affecting the newbuild splits as well.

[Operator Instructions] We'll turn now to Louie DiPalma with William Blair.

In December, the Secretary of the Navy, [ John Seelan ] announced the implementation of the shipbuilding operating system powered by Palantir to use AI to achieve supply chain efficiencies for submarine construction. And [indiscernible] indicated that 30 key suppliers were on the platform. Has this software platform had any impact on Curtiss-Wright in terms of volumes and the impressive margin expansion that you're seeing?

So very much in tuned with what's going on and have had discussions with Palantir around that topic. I'd say to date, it's definitely still in the forming stage. And so no, I wouldn't say there's any impact to-date, but it is something that is an initiative by the Navy and Curtiss-Wright will participate as is appropriate for us as a business. And those discussions have begun.

Makes sense. And is there the potential -- another topic that's been in the news, is there a potential for Curtiss-Wright to be involved in the development for a lunar nuclear reactor? The Secretary of NASA discussed the need for like nuclear propulsion in space and a nuclear reactor to provide consistent power generation. Do you view these opportunities as viable over the long term? Or is it just something that's just too early to provide a specific opinion on?

So there's different ways that we potentially will have an impact. And we -- when we talk about our nuclear footprint, we tend to talk and focus and we have as a company on the 300-megawatt and larger reactors. But we do work with a variety of the more micro reactors. And there's a few names that are more in the press, and we have content with a lot of those. It's not something that's ever going to -- it appears today anyways, be as significant to Curtiss-Wright revenue-wise is say, what's going on with AP1000. But we do work with them. Our capability and quality as you put something into space and wanting to assure you're going to have that generations of reliability. That fits into Curtiss-Wright's sweet spot. So we will see on top of electronics capabilities, in that space. So nothing specific to mention yet, but there could be relevance.

Great. And as it relates to your -- the last question and answer. Do you expect to announce more SMR content agreement similar to what you announced with Rolls Royce and X-Energy and TerraPower?

Yes. I do -- I mean, we are continuing to develop and expand our content across some of the providers and -- or most of the providers and believe we'll have more announcements in 2026 of new systems that we've reached a level of confidence with our customer that they're okay with us talking about it publicly. And again, we really work very hard to be a great supplier into our customers and not get ahead of them with things that we're announcing. But there's a lot more activity going on, and there will definitely be more announcements.

We'll move now to Tony Bancroft with Gabelli Funds.

Congratulations, Lynn and Chris and team on all your accomplishments very well done. There's been a lot of discussion, you heard major OEM, commercial OEM talking about supply chain improvements. And on the other side, you've seen maybe some countervailing commentary that there's still a lot of need especially further down the supply chain, just difficulties in getting those up to speed. What are you seeing maybe in your supply chains? And is there any opportunities to -- for M&A, where it would make sense, it would be accretive for you to have that being internalized and obviously, other opportunities there with that? Any thoughts on that line?

Yes. I think broadly speaking, our supply chain remained fairly stable in 2025, and there wasn't a lot of disruption. But that's not to say we don't have watch items. One of the things that's very much in the news is memory, high-bandwidth memories and storage parts as tie as there are common things used in this AI infrastructure build-out. And then there's some raw materials in rare earth that are watch items for us. But really what I -- for Curtiss-Wright, we have learned a lot as a company, and it started in -- during COVID, we've implemented many, many new tools that we use across the organization in all 3 segments, and have added these centralized resources that I mentioned a moment ago to really assure we're driving the best performance we can broadly across where we're leveraging the supply chain.

We do things like we look for getting dual sources. We very much leverage our government high-priority ratings, which is very often that we're able to do with a lot of our Naval work and even some of our Defense Electronics work. And so that keeps us at the front. And we spend a lot of time in with our supply chain, working with them. So the team does a great job and is really staying on top of it. It's something you have to continuously be in tune to and work. From an acquisition standpoint, it's not something that's currently a high priority for us. It does not -- our strategic priorities but it's not to say I would never say never to a lot of things that if there was an opportunity, it could be something we would consider if we were looking for global diversification to be able to be better aligned to end markets where they want localization would be an example where it really opened up the ability for you to have a good active business in an end market. And so I wouldn't say never, but the team does a great job managing it.

And ladies and gentlemen, in the interest of time, that will conclude today's Q&A session. I would like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer, for any additional or closing remarks.

Thank you, everybody, for joining us today, and we look forward to speaking to you either on the road or when we release our first quarter results. Have a good day.

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

Okay. Okay. Thanks, everyone. Good afternoon. My name is Peter Arment Senior Aerospace Defense Analyst here at Baird. We are delighted to have Curtiss-Wright with us. Thank you back for joining us.

With us Curtiss-Wright, we have Lynn Bamford, who's Chair and Chief Executive Officer; and Chris Farkas, who's Vice President and Chief Financial Officer. Lynn, Chris, welcome. Thank you very much for coming back and supporting the conference. Appreciate it. Let's jump right into Q&A, right? No opening statement, right.

Good. Okay. We'll jump right in. So maybe we'll get to the nuclear, relax, everyone. We're going to start in aerospace defense briefly which supports -- when we think about aerospace defense, supports about 2/3 of your portfolio today. You've recently raised your '25 outlook in several of your defense markets are now projected to grow 10% to 11% revenue growth in aerospace defense.

What are some of the key drivers you think about growth this year? And then you can give us some early indications when you're thinking about '26?

Okay. Thank you for that. And I really sincerely want to say thank you for having us back. This is a fantastic conference, and we're pleased to be here. I am obligated to say that today's statements will include some forward-looking projections with risks and uncertainties that are outlined on our website.

So with that, I just -- I see a lot of familiar faces here. So I know a lot of you do know who Curtiss-Wright is, but in a snippet, who we are as a company is we are a complex engineering design and manufacturing company that builds a lot of critical components that are highly engineered and often are part of must not fail systems that have safety-critical applications.

In many of our end markets, we've been in those markets since the inception of the markets and obviously, the name Wright comes from the Wright brothers. So aviation and aerospace, a lot of people don't utilize that, and I just got a couple of looks that indicated that. But from that to Navy nuclear to commercial nuclear to the birth of the COTS electronics industry.

So we're proud of that because we really are seeped in these industries and know the market dynamics and know our customers. There's a lot of things going on, a lot of different market growth vectors going on across our various end markets that are really providing solid projections of growth going forward. And Peter has asked about one of those, and we'll come to that in just a second.

But we launched our Pivot to Growth strategy 5 years ago. It's focused on driving organic growth while driving ongoing operational excellence and delivering strong free cash flow and it's really provided great value to our shareholders as we've moved to the point where we're compounding earnings at a mid-teens rate over time and generating strong free cash flow.

So sort of a quick snippet of the company. If you want to learn more, you can go to our website and see our last earnings call and look at our Investor Day from May of 2024.

But turning to defense -- aerospace and defense. It is about 2/3 of our portfolio, and I'll just start out in commercial aerospace because it's not -- it's a smaller portion of the segment, but it's got the highest growth rate at 13% to 15% within our A&D markets. When we got really solid positions across all the major Airbus and Boeing platforms that as they look to see a ramp going to the future, we think we're well positioned and don't really see ourselves in a from what we can tell in a destocking position across those, we believe we're going to be afforded a ramp in revenues as those platforms ramp.

And it's not just the content we have, we're always bringing new capabilities to market whether it's sensor technologies or surface tech to meet the future demands as the platforms evolve and temperatures and the engines go up. We're right there winning new content.

Another thing we've talked about recently is we've done this for a while, but it's really started to ramp and drive some revenues in the commercial aerospace is our 25-hour flight data recorder. And I won't go into too much detail here but it's been mandated by the FAA for all new builds and a retrofit of the Boeing planes that are out in the field and a lot of regional jets, and we have our partnership through Honeywell where we're delivering that.

EASA has also mandated that across the European markets, and we're working with Airbus to achieve certification on the Airbus platform. So that's really just started ramping this year and has got a great growth trajectory through the back of our -- back half of this decade and beyond, quite frankly. And so that's commercial aerospace not -- doesn't get quite as much the talk time. So I thought maybe I'd lead with that.

But across our defense businesses, we have very solid positions really across ground, naval and aerospace predominantly here in the U.S., but we've got great positions in Europe, which as NATO considers ramping its spending, and we're beginning to see early signs of it. We're well positioned to be aligned with that. And if I look inside of the '26 budget, naval shipbuilding is a priority. We're on all the major platforms.

Again, content is in our Investor Day presentation from 2024. You can go through those numbers in there. So well aligned there. And then all things about increasing the superiority, air superiority, golden Dome, various defense systems fit very nicely into our defense electronics capability and the really interesting new capabilities we're bringing to market continuously in that space as long -- as well as our footprint across Europe, where we've always had sold directly into the European defense industry. That positioning those relationships position us well as they ramp spending were there.

And one example that's particularly exciting for us is our partnership with Rheinmetall to do turret drive stabilization equipment and other things that as a lot of the NATO spending really will be geared building ground vehicles, we're very well positioned there.

Perfect. That's great. So a lot of growth drivers as we enter next year. A lot of good tailwinds. You mentioned last week on last week's earnings call, I spoke about how you -- kind of the bullish pipeline in defense electronics, maybe give us a few examples on what's driving that optimism. I think that's -- and obviously, there's some really strong margin performances when it comes with?

Thank you. And if you're not familiar, our Defense Electronics business is about $1 billion business that is the highest margin performing business across the portfolio. And there's a lot of things that have allowed us to operate in that manner for many years at this point in time.

And one, the business goes to market from a commercial standpoint, if you listen to stuff in the Defense Department, the push for commerciality only continues. There were stuff in the forge in the SPEED Act or stuff the secretary head set talked about just last week, and it very much fits our go-to-market strategy.

So I talked a little bit before about some of the programs where we're well aligned. But I think it's really important to know kind of what we're doing to assure our leading position and bringing value through the products we offer that even though we're going to market commercially, you need to bring the value to drive the types of margins we have.

And just a couple of examples. Forces that are very strong in that market is compliance with the MOSA SOSA CMOSS mandate. This year, we'll bring over 20 products to market aligned with those open standards. And that's just very important. I know it's probably a hard number to completely digest if you're not familiar with the industry, but that's a significant amount of new product introduction, broadening our capability and broadening where we can take in different applications we can play in.

We've talked a little bit about our NVIDIA partnership. We are now shipping our embedded Blackwell products to customers, the demand is great and we were the only company to demonstrate a running embedded Blackwell processor at the GTC conference just shortly ago, our Fabric100 product offering is out in the marketplace. It provides the highest speed internet between the computing element that's available in the industry and a very specific unique differentiator for Curtiss-Wright.

And then just to name one that's a little more off the beaten path is we've recently had some of our small form factor products achieve what is considered Microsoft Azure validated. And with that, they are put in Microsoft's Azure catalog, which has a customer reach that I don't even know if we fully appreciate what kind of doors that's going to open up to a company like Curtiss-Wright.

So it's early days but we're really pleased with that. And I really listed things out to just try and put some specificity on the things we're doing with that IRAD, we spend in this group to make sure we're always looking for new applications, new places that we can push our available market and go win new content.

That's terrific. Well, and just if you didn't see 29% operating margins in the third quarter, defense electronics. So tremendous performance. So really, really a great growth story and a great margin story. Let's shift a little bit. Let's let's think about -- how do you view Curtiss-Wright's exposure to Golden Dome?

Yes. That's -- I didn't maybe barely mentioned it before, but this is very well aligned with how we have product offerings. And if you think of what Golden Dome is to do for the United States, it's a combination of 3 major buckets of technologies. There's the sensor technologies that's looking to find anything that's coming towards the United States. There's the effector technology, which is to defend against anything that's coming at the United States.

But most importantly, what's new is the networking capability that ties all these different systems together into a unified defense system across the country. And so we have been in this industry for a long time, we have not just our electronics, but our electromechanical actuation products on many of the products that are the sensors and effectors. So we're well positioned there. But our tactical communications capabilities is really embedded in the 3 main approaches that are being decided how they're going to work together to form this command and control capability that ties these networks together and we are well entrenched in the 3 different approaches that will be intertwined to build this networking capability.

So it's very -- it's going to be a fantastic opportunity for Curtiss-Wright. A lot of the networking configuration is classified, so it's not something to be talked about. And it's early days, we don't have content yet. It would be too premature to talk about that. But a lot of very senior level conversations and it's going to be very positive for Curtiss-Wright.

That's great to hear. Another area, I think, where you're seeing -- continue to see benefits is related to outside of domestic spending NATO and kind of sort of allied spending. And obviously, we know that funding is accelerating. How do you think you're positioned there to benefit?

Yes. So maybe just I'll talk a little bit about our direct foreign military exposure, Peter, not where we're selling to the F-35 or F-16 or Stryker, which is then sold internationally, but where we're selling direct to international customers. I think, first, it's important to note that we have a very broad defense portfolio across Curtiss-Wright. We're selling both domestically and we're selling internationally. When we're selling internationally, it's the NATO and allied countries.

And we're selling products into the aerospace defense markets, the naval defense markets and the ground defense markets. So just some examples to build upon what Lynn was saying in the aerospace defense markets, we're selling embedded computing to European fighter jets. We're on all the major platforms here in the U.S., and we've got great content on the major platforms that are over in Europe.

But we're also selling arresting systems, ground-based arresting systems so that you can land those aircraft and locations. You look at the naval market. And while we're selling embedded computing equipment, we're also selling like rotorcraft arresting systems or towed sensor arrays that go on the back of frigates, and that's to NATO and allied countries. And then within ground defense, we've got a great tactical communications business.

And then in addition to that, we sell things like turret drive stabilization systems that go into ground vehicles. And if I dig a little bit deeper into ground defense, that turret drive stabilization systems business that we have has a great relationship, a long-standing relationship with Rheinmetall. We've been working with them for a number of years. You probably all heard in the news earlier this year, there were some announcements regarding Germany's intent to procure $30 billion worth of ground vehicles going forward, 3,000 to 3,500 boxes.

We released some press releases earlier this year where we're actually selling product to drive stabilization systems, not only to the Boxer, but to the Hungarian Lynx to the Panther and other vehicles. So these are some of the things that are actually influencing our results. And the order book has shown tremendous growth. Over the past 2 years, revenues in this area have grown at a mid-teens pace. This year, they're growing at greater than 20%. It's 10% of our total business. So it's $335 million. Now so great momentum. But then as you look forward, and we've all heard the statements that have come on out of the NATO Secretary General, Mark Rutte statements recently where he said, "Hey, we need to move this NATO spending from 2% of average GDP to 5% of GDP going forward. And that's a very favorable thing for Curtiss-Wright in the way that we're positioned.

Rheinmetall is particularly well positioned to benefit from that, and we'll certainly leverage our customer relationships to be the best supplier that we can to help make them successful in that going forward. But as we look out, we think this is a strong area of growth for us, and it will help to accelerate that already strong base that we have in defense spending going forward.

Terrific. So we've got strong tailwinds across the board in aerospace defense, both domestically and abroad. Let's shift to the topic du jour. Let's talk about little nuclear. So last year, when you were here, we were discussing kind of the expected increasing news flow out of Eastern Europe and the potential for AP1000 reactor orders. And clearly, I think a lot has changed also domestically. We've seen the administration's executive orders and most recently, $80 billion in funding that is going to be earmarked for nuclear. And so how do we think about this U.S. and Europe opportunity for Curtiss-Wright?

Yes. We've reflected a little bit with a couple of people today on how exciting this was a year ago and how much new things have come even in the past year. It's pretty amazing. But to frame our nuclear business really just again for people less familiar with in the room, it's about 12% of our revenues. And it's dominated 90% in the aftermarket business, which is mostly here in the U.S., but has a global footprint. And that's really keeping the existing reactors online and being able to extend those life cycles from 60 to 80 and most likely to 100 years over time. And so that's a good healthy portion of our business that's growing very nicely.

We're also very active with the SMRs, but to touch specifically about the AP1000, this is fantastic news. The executive orders were really great. And there's one thing to target building a nuclear power plant, but you need the whole infrastructure around it, whether that's fuel, a willing NRC, a workforce. And the executive orders really covered all that. So it really set the stage for the revitalization of a successful nuclear industry in the United States.

And this announcement, we put out Investor Day targets that had strong growth targets in this area. And none of this U.S., you can see them in our Investor Day presentation from May of last year. And we really didn't have any predictions of new AP1000 builds in the U.S. And so that's all incremental on top of that. And this is really meaningful business for Curtiss-Wright. And we're in the middle of a lot of capacity planning with Westinghouse and figuring out how we're going to ramp for this. But this is a fantastic growth driver that's going forward. And we didn't include it in any of our 3-year Investor Day targets that we gave last year.

So this is incremental revenue to those targets. But at that time, we talked about getting to a $1.5 billion annualized revenue rate by the middle of the next decade, and that was before these announcements. So that surely layers a lot of additional revenue into our projections going forward.

Yes. And just to be clear, because we -- this was talked about last week on the earnings call. So AP1000, you are the only one in North America that can make a reactor coolant pump to support that. You have an exclusive relationship with Westinghouse, 4 reactor coolant pumps per reactor. It's one of your higher price point products and also a very attractive margin. I know we haven't discussed the margin opportunity for that, but we know it's previously from what past history was. So this is clearly -- and there's some incremental content as well that you have with AP1000. So maybe you could just highlight that it's not just for reacting coolant pumps.

Yes. Very, very good point. Thank you for bringing it back to that. So we laid out, again, this $110-plus million of content for the reactor coolant pumps. In prior contracts, we had, say, $10 million to $20 million of other equipment that we supplied into each plant to build and reactor build, I should say. And we're looking to double -- ideally triple that content per reactor, putting our content up more in the nature of $150 million per reactor. And we're still working opportunities that we're trying to be the best supplier we can to Westinghouse and where they have need -- supply chain needs that were there to meet them, and we're working hard to be a rock solid.

So you can take that content, the number of plants. Eastern Europe is still going. It's still -- today, we still think that the Eastern European opportunity, whether it's Bulgaria or Poland, will drive the first orders. But believe me, in the U.S., whether it's these -- the funding from these 10 plants or the [ Fermi ] opportunity, there's a lot of horses in the race that are heading down with a pretty close alignment. So...

Yes. So Bulgaria, Poland, potential order for next year, right? I think that's kind of the timing. And then obviously, this all from America is happening at a pretty fast clip. And it seems like you've got huge support from not only the administration, but both sides of the aisle and for nuclear is very, very supportive.

It's been great to see that the ARDP program started in the prior Trump administration. It was very well supported through the prior administration and continues to be. And thank you for mentioning that. We've been very steadfast in saying the time lines of when we believe this would turn into an order, starting back in 2022, and we have held that exact cadence, and we do feel confident we're going to get an order next year. And again, that was not in our 3-year Investor Day targets. And we feel very positive about the possibility of it coming.

Great. Great. And then let's just quickly move over to kind of thinking about SMRs. So Curtiss-Wright has also discussed align with several of the major designers and advanced SMRs. Maybe if you could remind us and maybe content on some of those designs and when you would start to think of those start to ramp to revenues.

Yes. So when we talked about the size of our nuclear business, the 90% is the aftermarket. The 10% today is paid for design work we're doing across the various SMRs. And when we think of the SMRs that are of the size that they're relative to our capacity, it's X-energy and TerraPower, who are the RDT funders, but Westinghouse has a small modular reactor, NuScale, Rolls-Royce are the predominant ones where we have the most significant content. And we've sized that content as $20 million to $120 million based on the different designs.

And we feel really good about working towards not just achieving the low end of that, but working through that range and getting to the midpoint or the upper point across those various platforms. So one of the things I think is so great, investing in nuclear is part of your thesis. The thing I think that's really exciting about Curtiss-Wright is you get the here and now in the aftermarket. You get the very near future of the AP1000s that is coming really faster than we even anticipated or I think Westinghouse might have anticipated, but that's around the corner. And this SMR thing, we've been doing design work for quite some time. I think we'll be moving into prototyping of those various complex components next year, 2027, maybe through 2028. But that's meaningful business to Curtiss-Wright when you're prototyping $50 million, $60 million, $80 million, $100 million of content on these plants and then moving to production in the early 2030s.

Now there's a lot of things that need to be accomplished between -- to make that happen, but there's a lot of forcing functions driving this. And as that portion of the market grows, we're well positioned to grow with that portion of the market.

So there's obviously a lot of demand signals. So let's talk a little bit about your capacity to be able to support that. So when we think about the ability to kind of help support all the RCPs in production, how do you think about what the factory can support today and just capacity overall?

Sure. So I mean, it's something -- and maybe I'll let Chris speak to this a little bit more, but -- we've been very much focused on capacity. We have a standing capacity planning meeting where we're going through various iterations of what we need to do. We've mentioned a couple of times, we can imagine we may need to greenfield a site by out in the middle of the 2030s. That's prior to the $80 billion announcement. So believe me, these are real-time discussions. But when I think of capacity planning, I think of cash flow. And with that, I'll turn it over to Chris.

Yes. So just to step back a little bit, I think it's important when you think about Curtiss-Wright and when we talk about increasing our CapEx investment to know that we produce a very strong free cash flow. This year, we're guiding $520 million to $535 million in free cash flow and 108% free cash flow conversion. We've got a strong track record of producing cash ahead of earnings and being in that range of above 105%.

Over the past 2 years, in '24, we increased our capital spending by 30%. This year, we're going to increase our capital spending by 40%. So we're maintaining those strong free cash flow conversions and the strong free cash flow despite the fact that we're increasing our capital expenditures. And when we think about CapEx, we view this as a great sign for our stakeholders. This is Curtiss-Wright committing to growth and committing to efficiency in our capital equipment going forward.

We're convinced that when we spend capital money on CapEx, that it's going to be a great return on investment for you going forward. And Curtiss-Wright with all these great growth factors that Lynn has been talking about is extremely well positioned to grow going forward. So maybe I'll just talk about a couple of different areas where we're seeing CapEx spend as we look forward in '26, where we expect things to kind of accelerate.

And the first I'll talk about is funded outside of Curtiss-Wright, but it's still very relevant. Back in the February time frame, Lynn had mentioned that we had secured $20 million in marine industrial-based funding at that point in time. Since then, we've secured another $20 million worth of marine industrial-based funding.

Now in the grand scheme of things, you look at that and you say that's not a tremendous amount of capital. But the signal that we really want you to take from that is that Curtiss-Wright is seen as a very solid supplier to the U.S. Navy. And the U.S. Navy is convinced that they need to provide us with more capacity to be able to grow going forward. So while the naval defense market is growing at very strong rates this year, the strong support that you see for naval shipbuilding going forward, this injection of marine industrial-based funding that's coming to Curtiss-Wright, and we believe that there's more even on the way, this is a strong signal that growth lies ahead for us in this business.

The second example that I'll talk about is we spend a lot of time talking about commercial nuclear. And while we are pen to paper right now in design on SMRs, starting this next year and into the following year, we're going to be working on prototypes. So this design work, which is 10% of our commercial nuclear portfolio today is going to be accelerating. We need to have the capital in place to be able to build those prototypes and then eventually have that shift into production.

And regarding the AP1000, yes, that's exceeding our expectations, right? I mean the conversations that we're having with our customers about capacity are very exciting. So we're having those discussions. We're not only thinking about the people, but the capital equipment, and we're preparing ourselves for the future volumes that lie ahead. And we've talked, Peter, before that we have the capacity today to do 12 to 16 RCPs a year within Curtiss-Wright, that's 3 to 4 plants, but we're looking beyond that and preparing ourselves to make sure that we can handle more going forward. So more CapEx to come, but we'll continue to maintain a highly efficient working capital structure to balance that out.

So growth CapEx for sure. The RCP, just to double-click on the kind of 12 to 16 RCPs, it still is kind of a 4- to 5-year build process when we think about delivering an RCP. So you're talking about sustained kind of capacity of that 16 to 18 because there's that many RCPs that would be needed, what you're talking about?

Yes. I think that's what's different about now. And for those of you that maybe followed us during the China period, I mean, when we entered into our Investor Day in May of '24, we were just talking about a European opportunity to hit that art of the possible $1.5 billion in annual commercial nuclear revenue by the middle of this next decade. A lot has changed. Now you've got the U.S. opportunity. We're pretty excited about the art of the possible of becoming more probable.

Sure. So -- we only have 2 minutes left here. Lots coming to the left, which is a good sign for nuclear. So very excited about that. Maybe just talk briefly on capital allocation. You've been on track for record share repurchase activity in '25. Maybe help us understand that, and maybe we'll wrap there.

Okay. So first, I do -- when people are topic comes up, I think it's important to note, we do still prioritize acquisitions as our top priority for our capital use. And -- but we're very diligent and have a pretty high bar for bringing acquisitions into the company. We've looked at a few that we thought there was a chance we might close on this year and have chosen to walk away from them for various strategic or financial reasons.

And so the pipeline is still strong. We have a couple of companies we're in dialogue with right now that are more on a proprietary basis, which is always good in my opinion, but we'll see. I know we walk away from probably 10 potential acquisitions or more for any one that we close on. So we just got to be willing to do the work and keep working through that. But the decision to buy back our stock is a very purposeful one, and it reflects our opinion and the Board's opinion that the value in our stock is still there at the prices that we repurchased. And maybe, Chris, just...

Yes. I agree with Lynn. I mean acquisitions are absolutely our top priority. We're looking for critical adjacent technologies to help supplement our customer offering. But beyond that, share buyback, we believe, is the most effective way to return capital to shareholders. And to kind of further Lynn's point, this isn't just kind of a cash dump for us. I mean we are having a lot of discussions with our Board regarding the growth in earnings that lies ahead for Curtiss-Wright. We look at the relative valuations from a number of different angles, and we're making a conscious decision to buy back stock.

I mean earlier this year, they increased our authorization by $400 million to $535 million. We've had 2 successful $200 million buyback programs here in the third quarter. We're going to have a record share repurchase here for Curtiss-Wright. The future is bright. And beyond that, our ninth consecutive year of increasing the dividend 14% this last year, and we expect that to continue going forward.

Terrific. Well, we're out of time. Thank you very much, Lynn. Thank you, Chris. Thank you to support the conference.

Thanks everybody.

Thank you, everyone.

Welcome to the Curtiss-Wright Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations

Thank you, Erica, and good morning, everyone. Welcome to Curtiss-Wright's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Vice President and Chief Financial Officer, Chris Farkas. A copy of today's financial presentation and the press release are available for download through the Investor Relations section of our website at curtisswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance.

We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website.

Now I'd like to turn the call over to Lynn to get things started.

Thank you, Jim, and good morning, everyone. As you saw in last night's results, we continue to deliver on our Pivot to Growth strategy. Our top line is accelerating. We continue to drive operational and commercial excellence initiatives throughout the organization while making focused investments and remaining measured in our approach to capital allocation. .

Looking ahead, I am encouraged by the positioning of our technologies across the A&D and commercial markets we serve and see meaningful growth opportunities for Curtiss-Wright well into the next decade. Later in our prepared remarks, I'll spend some more time discussing Curtiss-Wright's opportunities for growth within those markets and will provide some high-level commentary on our outlook for 2026.

The momentum continues to build, and the team and I are excited about the long runway ahead. With that, I'll turn to the highlights of our third quarter 2025 results. We delivered another strong operational performance with revenue and growth in operating income across all 3 segments. Overall, sales of $869 million represented an increase of 9% year-over-year, in line with our expectations and highlighted by 6% organic growth.

Operating income increased 14% year-over-year, exceeding our sales growth and driving 90 basis points of overall operating margin expansion to 19.6%. This translated into a 14% year-over-year increase in diluted earnings per share. This result slightly exceeded our expectations based on improved operational performance and fewer shares outstanding.

Free cash flow was $176 million, up 8% year-over-year, reflecting nearly 140% conversion due to higher cash earnings and lower tax payments, while increasing growth investments in capital spending. Regarding our order book, new orders increased 8% and resulted in an overall book-to-bill of 1.1x providing continued confidence in future top line growth.

Starting with our A&D markets, we continue to experience strong demand for commercial aerospace products, signaling a low risk of destocking as production ramps across the major OEM platforms. In naval defense, we saw higher orders for nuclear propulsion equipment supporting the U.S. Navy's current and next-generation submarine programs. Those increases in demand were partially offset by the timing of orders within our aerospace defense and ground defense markets where despite some delays due to the extended continuing resolution, our pipeline remains strong.

Within our commercial markets, we experienced tremendous growth in commercial nuclear orders, including 2 new DOE-funded multiyear contracts in support of Idaho National Laboratory and other government sites. This is a small but growing opportunity, which leverages Curtiss-Wright's nuclear pedigree and broad portfolio of products and services in support of increased government focus towards commercial nuclear.

Beyond that, we continue to experience solid demand for aftermarket equipment supporting planned outages and restarts in addition to new development contracts supporting SMRs. Overall, the continued growth in orders builds on Curtiss-Wright's already strong backlog, which is now up 14% year-to-date, reaching a new record in excess of $3.9 billion.

Regarding our updated full year 2025 guidance, our strong year-to-date performance and growing backlog that provided confidence to once again raise our overall outlook for sales, operating income and earnings per share. We now expect sales to increase 10% to 11%, reflecting the strength within our A&D markets. This, in turn, supports a new range of 16% to 19% growth in operating income.

We continue to expect more than 100 basis points in margin expansion and remain on track to deliver record operating margin in excess of 18.5%. Diluted EPS is now expected to grow 19% to 21%, which also includes the benefits of our increased 2025 share repurchase activity. And lastly, we maintained our free cash flow guidance, while accelerating overall capital expenditures to support future growth initiatives, and we continue to expect strong free cash flow conversion exceeding 105%.

In summary, Curtiss-Wright's strong year-to-date execution and demonstrated success under our Pivot to Growth strategy ensures that we remain well positioned to deliver exceptional results for the full year. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials.

Thank you, Lynn. Turning to Slide 4, I'll begin by reviewing the key drivers of our third quarter 2025 performance. I'll start with the Aerospace & Industrial segment, where overall sales increased 8%. In the segment's commercial aerospace market, growth was driven by continued strong demand supporting increased production on both narrow-body and wide-body platforms. In Aerospace Defense, we experienced modest growth for sensors and surface treatment services supporting both domestic and international fighter jet programs. .

Within the segment Ground Defense market, our results reflected increased EM actuation sales supporting ground-based mobile launcher systems for the U.S. Army's IFPC program. In the general industrial market, sales were flat overall despite the ongoing macro challenges affecting global industrial vehicle markets. And turning to the segment's third quarter profitability. Operating income grew 17%, while operating margin expanded 140 basis points to 18.6%.

These strong results were driven by favorable absorption on higher A&D sales, restructuring savings and a more favorable mix of business. Next, in the Defense Electronics segment. Sales growth of 4% exceeded our expectations, mainly due to the timing of tactical communications equipment revenues within ground defense as some revenues and deliveries accelerated into the third quarter. Within the segments aerospace defense market, growth for embedded computing equipment supporting European fighter jets and domestic UAV programs was partially offset by the timing of revenue on helicopter programs.

Growth in the segment's naval defense market was driven by higher embedded computing equipment revenues supporting both domestic and foreign military customers. In the segment's commercial aerospace market, we once again experienced solid sales growth, mainly for our flight data recorders, supporting the FAA's 25-hour safety mandate.

Regarding the segment's operating performance. we delivered a strong operating margin of 29.2%, up 270 basis points and [ out of our ] expectations, reflecting favorable absorption on higher revenues, the benefits of our ongoing operational excellence initiatives and a more favorable mix of higher-margin business. Of note, this favorable mix is mainly due to the timing between the third and fourth quarters, and we expect this to normalize across the remainder of the year.

Turning to the Naval and Power segment, where overall sales increased 12%. In Naval defense market, we once again experienced strong revenue growth driven by the acceleration of production on both the Columbia Class and Virginia Class submarine programs. Those gains were partially offset by lower sales within the segment's aerospace defense market based on the timing of arresting systems revenues. And as a result, as we look ahead to the fourth quarter, we now expect a strong sequential increase in revenues for arresting Systems products, principally supporting international customers.

In the Power and Process market, our results reflect yet another solid contribution from our I&C Solutions acquisition, formerly known Ultra Energy, driving higher sales to both our commercial nuclear and process markets. On an organic basis, commercial nuclear sales grew more than 10%, reflecting the ramp-up in development across several SMR designs as well as higher government nuclear revenues. Sales in the process market were down slightly overall, but reflected modest growth in subsea pump development revenues. Regarding the segment's operating performance, operating income grew 14%, while operating margin expanded 20 basis points to 16.6%, mainly reflecting favorable absorption on higher sales, which was partially offset by higher research and development supporting next-generation SMR designs.

To sum up Curtiss-Wright's third quarter results, the strong top line performance resulted in an overall operating margin of 19.6%, driving 90 basis points in operating margin expansion.

Turning to our full year 2025 guidance. I'll begin on Slide 5 with our end market sales outlook where total sales are now expected to grow 10% to 11%, driven by improved expectations for organic growth across our A&D markets. Starting in aerospace defense, our outlook of 7% to 9% sales growth remains unchanged and continues to reflect strong growth in defense electronics as well as higher sales of aircraft arresting systems equipment. Within Ground defense, full year sales are now expected to grow 7% to 9% based upon increased EM actuation sales as well as higher tactical communications equipment revenues.

In Naval Defense, while we expect a sequential decline in revenues in the fourth quarter based upon the timing of material receipts, the strong year-to-date performance on submarine provides us with confidence to raise our full year sales guidance to a new range of 9% to 11%. Looking more broadly across all 3 defense markets and based upon our strong backlog supporting key platforms globally, we're well positioned for continued solid growth in these markets in 2026.

Turning to commercial aerospace. Our outlook for 13% to 15% sales growth is unchanged, and we remain on track to deliver strong growth based upon both the ramp-up in OEM production as well as increased sales of flight data recorders within our Defense Electronics segment. Additionally, our order book in commercial aerospace continues to demonstrate tremendous growth, providing increased confidence in our 2025 outlook and our ability to once again deliver strong growth in this market in 2026.

Wrapping up our Aerospace and Defense outlook, we now project total sales in these markets to increase 10% to 11%.

Moving to our commercial markets. In Power and Process, despite some timing between the third and fourth quarters, our outlook for 16% to 18% sales growth remains unchanged. of note, the continued strength of our commercial nuclear order book now provides us with increased confidence to be closer to the high end of our full year guidance range in this market.

Overall, our outlook continues to reflect the combination of strong organic revenue growth as well as the contribution from I&C Solutions. And lastly, in the general industrial market, while we continue to expect flat sales in 2025, our team has done a great job positioning Curtiss-Wright to overcome the ongoing global macro challenges facing industrial vehicle markets. Wrapping up our total commercial markets, we continue to target strong full year sales growth of 9% to 11%.

Moving on to our full year 2025 outlook by segment on Slide 6. In I'll begin in Aerospace and Industrial, where we raised [indiscernible] both our revenue and operating income guidance based upon the strong year-to-date performance in our A&D markets. Overall, we continue to project sales growth of 4% to 5%. Regarding the segment's profitability, we continue to project operating income growth of 6% to 9% and operating margin expansion of 30 to 60 basis points ranging from 17.3% to 17.6%.

Next, in Defense Electronics, we increased our revenue guidance to a new range of 10% to 11%, reflecting solid growth projections across all A&D markets and improved confidence as we close out the year. Regarding the segment's profitability, we now expect operating income growth of 19% to 22% and operating margin expansion of 220 to 240 basis points to a new all-time high range of 27.1% to 27.3%, reflecting more favorable absorption, the benefits of our commercial and operational excellence and mix on higher sales.

At Naval and Power, we now expect sales to grow 13% to 15%, including 7% to 8% organic growth reflecting our increased naval defense market outlook and our overall strong backlog, which provides solid long-term visibility. Regarding the segment's profitability, we raised our operating income guidance to a new range of 17% to 20% based on the higher revenue growth.

However, we maintained our prior margin outlook of 16.3% to 16.5%, reflecting the increasing mix towards naval revenues. To summarize our 2025 outlook, overall, we now anticipate total Curtiss-Wright operating income to grow 16% to 19% and we continue to expect operating margin to range from 18.5% to 18.7%, up 100 to 120 basis points.

And as a reminder, we are delivering these strong results while continuing to grow our total research and development across the portfolio, positioning us for future organic growth. Continuing with our financial outlook on Slide 7. Building upon our year-to-date performance and expectations for continued strong growth in earnings, we've increased our full year adjusted diluted EPS guidance to a new range of $12.95 to $13.20 or up 19% to 21%. Note that our guidance now includes a reduction in other income due to lower year-over-year interest income resulting from the accelerated share repurchase activity, which also supports the lower share count.

We also reduced the bottom end of our tax rate, which now reflects a range of 21.75% to 22% as we continue to pursue and demonstrate success in our tax optimization strategies. Overall, we remain well ahead of the EPS growth targets that we set at our May 2024 Investor Day as we continue to compound earnings at a mid-teens pace over time.

And lastly, we're maintaining our free cash flow outlook and expect them to deliver record free cash flow of $520 million to $535 million, up 8% to 11%. of note, based on the strength in earnings, we increased the low end of our expectations for operational cash flow by $10 million. That increase was equally offset by a $10 million acceleration in anticipated capital expenditures. As a result, our outlook for $85 million in capital expenditures now reflects an increase of approximately 40% year-over-year and is reflective of our ongoing investments to support near- and medium-term growth.

And despite these increased investments, we continue to expect cash flow in excess of earnings and a free cash flow conversion rate of approximately 108%.

Now I'd like to turn the call back over to Lynn.

Thank you, Chris. And turning to Slide 8, where I will wrap up today's prepared remarks. As we demonstrated today, we continue to build momentum and deliver consistently strong financial performance through our relentless focus on execution. As a result, we are positioned for a strong finish in 2025 with expectations to generate record full year financial results across all major metrics.

As mentioned in my opening remarks, as I look to the future of Curtiss-Wright, I am excited about the positioning of our technologies across the A&D and commercial markets we serve. This position is driven by thoughtful and targeted investment to ensure that our businesses remain deeply aligned to the major near, medium and long-term growth vectors within our end markets.

I would like to spend just a few of the next minutes highlighting several of those critical market dynamics that have and will continue to provide compelling upside for Curtiss-Wright well into the future. Starting in defense, we are well positioned to capitalize on the continued acceleration in global defense spending based on the accelerated pace of growth in NATO and Allied funding and our strong alignment to U.S. priorities.

For example, in shipbuilding, which ranks near the top of the priority list of the combined FY '26 budget and reconciliation bill, we have significant content on Columbia class and Virginia class submarines and the [ Ford class ] aircraft carrier program and also continue to receive significant development funding on the next-generation SSN(X) submarine. Additionally, Curtiss-Wright's position as a mission-critical partner to the U.S. Navy has led to a meaningful increase in maritime industrial-based funding, now up to $40 million and nearly double our [ pace ] entering the year.

For investments in capital equipment and capacity expansion to support our near- and long-term growth, and we continue to believe there's still more funding expected to come our way. Beyond the strong support for ship holding, I would also like to highlight our confidence in defense electronics, where we continue to maintain a leading position with the broadest and most differentiated portfolio of products and with our alignment to open standards like SOSA, MOSA and CMOSS. We are investing in and developing a broad range of technologies to support the battlefield of the future focused on the highest processing capacity, interconnect speeds and secure communications, which, in turn, will allow us to secure positions on a wide range of applications at the tactical edge.

We also have a great opportunity to support Golden Dome. Curtiss-Wright has the potential to provide numerous solutions across our defense electronics segments, including embedded computing, tactical communications, tactical data links and EM actuation equipment. Elsewhere, we remain aligned with [ Rheinmetall ] to support increases in ground vehicle production throughout Europe with our turret drive stabilization systems and we were pleased to recently announce Curtiss-Wright's collaboration on the prototype phase of the U.S. Army's new XM30 combat vehicle program. In commercial aerospace, we have a strong foundation with established content on every Boeing and Airbus platform and remain well positioned to support the anticipated production rate increases going forward.

Beyond our existing content, we continue to address our customers' future needs through development of sensor technology in the hottest sections of the engine, EM actuation equipment and specialized coatings, all of which are yielding new opportunities for growth. And as Chris noted earlier, we are delivering improved cockpit voice recorder solutions to the market to meet FAA and the EASA safety mandates for longer recording capacity.

While we have yet to define the full opportunity set, this has begun to translate into meaningful revenues this year and is forecasted to accelerate over the next several years to support both retrofit and new build opportunities.

Turning to our commercial market and starting with General Industrial. Despite the ongoing global macro challenges affecting the industrial vehicle market, our order book has remained generally stable over the past 12 months and actually inflected slightly higher in the third quarter, which is an encouraging sign heading into 2026. Our team has done a great job navigating the impact of tariffs, driving pricing initiatives and building upon its leadership positions to generate market share gains, which is enabling us to remain essentially flat despite the declining industry growth rate in this market.

In the process market, we continue to drive innovation and diversification of our critical valve technologies to position the business to support future growth segments such as the [ LNG ] market, which is expected to experience a significant surge in production by the end of this decade. In addition, we are developing applications to drive enormous value and savings to customers that operate deep sea drilling and offshore production facilities. Our first subsea pump was delivered to Shell in the third quarter, while our development testing and support activities with Petrobas and others continue to progress.

Through the advancement of this new technology, we have an opportunity to win significant new business by the end of this decade. Lastly, turning to commercial nuclear, which continues to play an important role in meeting future energy demand. Curtiss-Wright is very well positioned to support the strong growth anticipated to drive this market over the next 25-plus years. Our technologies are aligned to support the entire life cycle both in new build from AP1000 reactors to small modular reactors and in our growing global support in the aftermarket.

Our opportunity to reach our Investor Day objectives has been reinforced by the administration's focus on nuclear as a matter of national security. In addition, it is encouraging to see more and more technology companies address their [indiscernible] power needs and support future data centers through nuclear power. Adding to that, what we have been seeing continued progress from Poland and Bulgaria and other European countries to build new 1 gigawatt plants. Private enterprises such as [ Fermi ] and Texas have raised the possibility of beginning construction on new AP1000 plants within the next 12 to 18 months. As a result, we see the potential for significant orders supporting AP1000 reactors likely as soon as 2026.

This, in turn, provides us with increased confidence in our ability to meet our 2028 target to double our 2023 revenue base in this market and then generate more than $1.5 billion in annual commercial nuclear revenues by the middle of the next decade. The momentum and pace of activity continued to grow. Overall, looking across all our end markets, these are just a few of the many examples highlighting the alignment of our technology, strong positive market growth vectors that are driving confidence in our outlook for 2026 and beyond.

Next, I wanted to share a few comments on the topic of capital allocation. and highlight our third quarter announcements regarding the acceleration and timing of our share repurchase activity. In May, the Board approved a $400 million increase in our share repurchase authorization, reflecting their confidence in the company's strong free cash flow generation and the momentum we are building in the Pivot to Growth strategy.

Subsequently, in August and then again in September, the Board approved our request for 2 separate $200 million expansion of our 2025 share buyback program. As a result, we now anticipate a record of more than $450 million in share repurchases this year. We continue to see the value in our stock price relative to the strong growth and earnings potential in front of Curtiss-Wright. Aside from share repurchases, our record free cash flow generation and efficient balance sheet continue to provide flexibility to enable future growth under our strategy, including ongoing investments in R&D talent and systems as well as acquisitions, which remains our top priority beyond fueling the core.

Lastly, to conclude our prepared remarks, Overall, we remain on track to exceed the 3-year objectives provided at last year's Investor Day. Note that these targets exclude an AP1000 order, which as we mentioned earlier, is anticipated in 2026. As we look ahead to next year and beyond, the strength of our order book, expanding positions across our end markets and the contributions from our capital allocation strategy ensure that we are well positioned for continued profitable growth well into the future.

In 2026, we are targeting solid top line growth in each of our 3 segments and continued operating margin expansion while increasing investments in research and development. In summary, we are executing on our pivot to growth strategy by compounding earnings at a mid-teens pace and delivering consistent financial performance across all major metrics.

Momentum continues to build at Curtiss-Wright, and we remain committed to driving our business to new heights and delivering exceptional results for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions.

[Operator Instructions] Our first question is coming from Myles Walton with Wolfe Research.

I was wondering if you could pick up where you left off on the AP1000 and maybe speak to the shipset content that you have currently on that reactor, classically thought about it as $30 million per reactor coolant pump -- for reactor coolant pumps. But is a complement of your work scope improving there, increasing? Maybe just to level set us.

Thank you. It's a timely question as we've been really looking into this and making sure we're appreciating the full range of content we have. And when you start out with the RCP. The last time they were sold was just over $28 million per RCP. So you're in line with what you're thinking there. I'm really pleased. We've made some rough comments on this in the past. We've historically set our content on top of the RCPs as $10 million to $20 million of content. And the team is doing a really good job of increasing that incremental content.

I think 2x, 3x from what we had prior had is what today is in play for Curtiss-Wright. These are ongoing pursuits. So nothing is assured yet. But I do think we are going to really add meaningful business on top of the RCPs to the content we have per AP1000 plant.

Okay. Great. And then just a follow-up, if I could, on the bookings. Could you provide that by segment and defense electronics in particular, did that bounce back? And is there any concern on the government shutdown?

So maybe I'll start with a little color on bookings and then maybe Chris can walk through a little bit more of the specifics after that. So broadly speaking, good quarter, 1.1x book-to-bill. But the government shutdown and CR and now shutdown is having some impact on portions of our business. Our largest end market, the naval defense market, there really hasn't been much disruption our year-to-date results and especially the growth in submarine programs are very strong.

We work on large multiyear contracts. And so that portion of the business has not been very affected. The most prominent impact within our order book has been in the Defense Electronics segment, where the team has identified over $50 million of orders that have pushed out of Q3 during the CR. And so this is definitely something that we're very closely tracking. We feel very confident none of this business has gone away. The guys in the field talk to the customers, and it's really a matter of being able to process this business that the pipeline of business across defense electronics is healthy and growing.

And there's a lot of things. I want to take the time to just talk on a couple of things that we're doing that is give us understanding as to why we are able to grow the pipeline of business for this so much. And the things that have kind of come up, but just to touch on them briefly, we are confident we have the strongest, most associate CMOSS aligned offering in the marketplace. And this year alone, we've introduced 20 -- over 20 new product [indiscernible] into this family of products, which is a very strong contribution out of the team and something we're really proud of.

We have talked about our NVIDIA partnership. We are now delivering NVIDIA-based products at the [ GTC ] show just a little while back. We were the only company to demo a CMOSS-based Blackwell processor. So again, that's something very special to Curtiss-Wright. Our Fabric 100, which is the highest speed interconnect available in the marketplace is out and helping really provide a very unique differentiator for Curtiss-Wright in our ability to provide solutions at that tactical edge.

But we're also doing things that we also are continuously looking at new capabilities that widen the application space where we can sell our products to keep pushing those walls out. And to name just one, we recently achieved Microsoft Azure validated across several of our small form factor products. And that means these products have been added to the Microsoft Azure [ locale ] or catalog, which obviously has a huge customer reach. And so that's something we're very excited about.

And again, another another notable capability of taking cloud applications to the tactical edge. So I list those these are the types of things the team is always doing that is ensuring that, that pipeline is healthy in growth in spite of the fact we didn't see the push out in Q3. So Chris, I don't know if you want to add some color on the segments.

Sure. Yes. Let me try to jump into some of the numbers here, Myles. And I think it's important to note, I think as you look at the overall orders and what's been happening for Curtiss-Wright, that we had a very strong first half in naval bookings. First thing is, if you just remove that off the table, we have seen sequential growth in our orders since Q1 and then includes defense electronics.

So important to kind of pull that out. The Q3 book-to-bill was about 1.1x and that was on 9% sales growth. We had a 1x book-to-bill in Aerospace and Defense and we had a 1.2x in commercial. So the orders were up 8% year-over-year. The backlog is now up -- was up 14%. We had a record backlog right now of $3.9 billion. Diving into the segments and just the book-to-bill for the quarter, we were about 1.04x on Aerospace and Industrial, and we were about 1.14x in Naval and Power. We talked about the strength of the commercial aerospace orders. and the nuclear orders on the call. But to dive into Defense Electronics, maybe just a little bit more on that topic. The order book did improve sequentially here in the third quarter. As Lynn had mentioned, the pushouts had affected that. It was a 1x book-to-bill. Had we not had the pushouts, we're confident that it would have been 1.1x book-to-bill. The backlog in that segment is up 3%.

Strong revenue growth at 10%. It's above the prior year September backlog number, but the book to bill has been holding steady at a long time. So as we look ahead, I mean, right now, we're assuming that the shutdown is going to get resolved here in mid-November. We believe that once that gets resolved, it's a 30- to 45-day turnaround time before orders begin to resume a more normal flow.

But fortunately for us, the businesses that are most impacted are generally short cycle in nature. And we would expect to recover very quickly. So I think it's important to note that there's nothing that's affecting our 2025 guidance. You then mentioned the pipeline is strong. You have good confidence levels in 2026. And strong alignment to the customers' priorities next year defense spending between the budget and the reconciliation [ were up ] 13%. So we see positivity as we look out into the future, we just need these guys to come to agreement in the meantime.

That's great. And Lynn, I'm sorry, just to clarify on your prior AP1000 comment, is the $10 million to $20 million of incremental content on AP1000. Is that a historical benchmark of which I should think about it's growing 2x or 3x? Or is that the current benchmark?

No, that's the historical benchmark, Myles, that we had back in the mid-teens.

And we'll go next to the line of Kristine Liwag with Morgan Stanley.

Maybe following up on Myles' question on the AP1000 pricing. I just want to make sure we get it right. when -- in the past, when you guys looked at your content, so each cooling tower used to be like $250 million, roughly. And then so a build with twin towers would be about $500 million. And I think the [ Poland one ] they're doing triplets so that will be $750 million. So the numbers that you're saying incremental to that, the 2x, 3x, is that off of that specific base? Or are we talking about the initial U.S. order from 2007, which is a much lower amount?

So maybe just to back up a second. And if you look in our -- like even in our Investor Day briefing from last year, we think of it as a plant, which has 4 RCPs and that's how we've -- when we talk about our revenue per plant, that's the framework for it. We talked about we have $110-plus million of revenue per plant. So [ Poland ] is talking about building 6 plants, Bulgaria is talking about building 2 plants, Firmi is talking about building 4 plants. So that's just to keep the terminology because it's easy to get confused between the RCPs versus the plants and such.

And so having that as a baseline prior, we had the RCPs and about $10 million to $20 million of content per plant. And that is the area where we've been working very purposefully to see where else we can supply Westinghouse as a supplier to them and engaging with them on different work scopes. And at this time, it looks like we are targeting, taking that incremental on top of the RCPs content, that $10 million to $20 million and doubling it or tripling it. And it's still a work in progress as they're still working through their supply chain things, and we're just trying to be there and support them as much as we can and make them successful. So pretty excited that that would be pushing that content per plant up into the mid-100s for sure.

Got you. That makes sense. And maybe digging more into this on AP1000, I mean it looks since your Investor Day last year, and we've seen a lot more support for U.S. large nuclear power plant builds. And so we've seen the support of executive orders from the White House. But then also last week, we saw Cameco and Brookfield established a transformational partnership with the U.S. government to accelerate deployment of Westinghouse nuclear reactors.

I was wondering, can you give us more color regarding the potential of the U.S. market and the timing? And also following up on the expected order that you have for 2026, are you expecting Poland order and the U.S. order? Or is that just Poland and Bulgaria?

Yes. So we work very closely with Westinghouse to try and -- I mean, this is a fast-moving market, and that also was a just fantastic to see because it's really the money that needs to really get this machine running. So we are very excited to see that partnership get announced. And then there was also the announcement with Japan of putting some money into building nuclear in the U.S.

And all these things are sort of taking form, but 2 separate pretty positive announcements in October relative to that. So really what's in the public knowledge is this funding for these 10 plants. How the Japan money overlaps with that, there's -- I don't think there's a clear vision of it. And we have some insights from Westinghouse, but really sticking to what's in the public eye. We're focused on those first 10 plants, which is great.

And so today, the team still does believe the first order we get will be driven by the Poland opportunity, although Bulgaria is right there with it and the thinking is those will be ahead of the U.S. But how this [ $80 billion ] which is targeted at long lead material types of expenditures is going to play out that still needs to take some form. But -- so whether that happens in 2026 is very much TBD. I wouldn't foreshadow that yet at this point. But we do feel good overall about getting our first order in 2026, and the team is doing a lot of work to get ready for it. And to think through the various ramp scenarios with this accelerated activity in the U.S. and then what's going on elsewhere. Along with, it's exciting, but our work on SMR opportunities continues to grow and move towards prototyping too. So the team is busy. I'll leave it at that.

Yes. I mean it seems like when it rains, it pours. And so can you just remind us, Lynn, what your capacity is to build on AP1000, especially because, right, the U.S. Navy content is also increasing. So just trying to understand what could you produce in a given year and you had called out elevated CapEx this year or next year, what is that supporting? Is this in anticipation of commercial nuclear power or the opportunities in the other segments that you had highlighted?

Yes. So we think of our capacity as 12 or 16 reactors per year. But again, that needs dovetailed exactly as you just said, with the naval work. And I will say the team is committed from a CapEx standpoint to our Investor Day targets of 105% free cash flow conversion. And we increased our CapEx spending both last year and this year by 30% each year. And a lot of that is geared around preparing for expansion in the space, and the $10 million that Chris spoke of in his prepared remarks is geared at expansion capabilities tied to nuclear.

And so how -- what we need to be prepared for to support Westinghouse is a very active discussion with them. But we're trying to make sure we're doing the things that we're ahead of it and prepared to support them and that $10 million as part of us getting ahead of it.

And we'll take our next question from Peter Arment with Baird.

Lynn and Chris, Jim, nice results. Chris, maybe just to stay on the theme of AP1000. If you get an order in 2026, maybe could you just give us a high level how quickly you begin to recognize revenues on that? I remember back with the China direct order how that all works back in the day, but maybe just to level set us on how quickly that begins to flow through on the financials. And then I have a follow-up.

Yes, sure. I think we've had a lot of discussion on the call today regarding reactor coolant pumps and then other content and I'll focus on the reactor coolant pumps to begin with. When we get that first order, I think a lot of it's going to depend upon the timing of receipts and long lead materials and how quickly we can get that in the door.

Lynn's talked about the fact that we're in active discussions with our customer regarding capacity and how to accelerate potentially some of those flows. So as you look at the receipt of the order, it's going to be under [ POC ] accounting. And typically, in the past, it was maybe a 5-year bell curve. I think the China contract went out 7 years because their schedule was delayed. But with this flood of activity that we're seeing here, I could see that be accelerated into a tighter window than a 5-year period of recognition.

So again, a lot's is going to depend on the timing of the material receipts and then the labor that kind of follows that. But there would be some revenue recognition upfront to 2026, but then it would quickly accelerate in 2027. When we talk about this extra or the other product that can go into the AP1000 power plants, a lot of that won't be long lead material type items. You've got to get some of that bigger stuff into the plant first. So I would expect that to be recognized a little bit further towards the back end of the bell curve, but certainly an opportunity for us as well.

I appreciate that color. And then just, Lynn, on the, I guess, near term more when you think about your targets that you put out there for [ doubling ] the business by 2028. Did you contemplate a lot of these restarts that we're seeing, whether it's Palisades or Three Mile Island or some of the others. When you were thinking about that planning just because it seems like that is, again, an incremental tailwind to all things else nuclear.

Yes. I mean that was -- there might have been talk about it, but that was not on the table at a level that we would have had that in how we put together our targets. So there's a lot of things -- a lot of good things have happened since we put our targets out just 15 months ago, 18 months ago however long it was. It's amazing how the industry has come alive and announcements around Europe. .

The GBM announcement [ with picking ] Rolls Royce. I mean there's just -- there's a lot of things that are incrementally happening. But you're right, that is new.

Yes, this whole AI wave has been something that's been new for us as well. That's a lot of positive momentum. And I would just remind the listeners is you go back and look at what we provided at Investor Day and we said we would be doing $1.5 billion in annual commercial nuclear revenue by the middle of this next decade. That really only [ contemplated ] the European opportunity at that point in time. So I know we're still several years away from that, the middle of this next decade, but we feel much stronger and more confident [indiscernible] order the possible as it was labeled at that point than we did back in May.

And we'll go next to Scott Deuschle with Deutsche Bank.

Lynn, are you seeing meaningful retrofit demand for the 2- hour flight data recorder yet? Or is it primarily only OEM demand at this point? And then how should we think about the retrofit gross margins on that product relative to the OE gross margins?

So it is a blend. But a lot of the retrofit is, I think, staging of material to prepare for the retrofit more than the actual retrofits is our understanding dealing with our customer that is Honeywell. So I think that's very much another layer that's ahead of us as this -- we just continue to say it's going to continue to grow through the back half of the year as that comes to reality.

But it's not even just the retrofit market. It is also -- we are working with Honeywell to figure out how we would have an appropriate product offering that would target the regional jets that are over 30 seats that are also part of this mandate. Those are obviously big, big numbers. And our work with Airbus continues on in a positive manner, and we think we will receive certification in the first half of 2026. And then we need to see how our production ramps with those.

So we've really not given a 10-year view of revenue on this program yet because there are still a lot of moving parts that are taking form and really how this retrofit is going to take place is it's still a little bit of a work in progress. And really, we haven't given much color on the shipset content nor the margin on this for the OEM or the projection. But I will say it's inside of our Defense Electronics segment, as you know. And we like the products we produce to support the margins in the segments.

Okay. And then, Lynn, can you give an update on the state of the M&A pipeline and how we might think about the opportunity for a reacceleration in M&A activity in 2026?

Yes. So I mean, it's -- we're not [indiscernible] about saying it's our top priority. And the team is definitely out there. We have some -- a couple properties that we are having discussions with that are more ones that I like when we work with somebody possibly to come join Curtiss-Wright in the proprietary fashion more than we're in an auction. .

But I know some people have noted, we've kind of acted like there was more excitement and then not announced anything over the past earlier part of 2026. I do remind everybody we only closed on Ultra, at the IND at the end of last year changed by terminology at the end of last year. So that's going great. But we do have some properties we're looking at that are very strategic in nature for how they would add to our portfolio.

And there's still a lot of focus on it. But strategic fit and financial fit, we're not going to overpay for a property. And some of the things that we thought were strategic that's just the price tag I just -- I don't think it would create value for our shareholders, and we're not going to do it if it won't.

[Operator Instructions] We'll take our next question from Nathan Jones with Stifel.

I guess I'll ask you a nonnuclear question. You talked about stabilization in industrial vehicles and maybe a little bit of a positive inflection in orders during the quarter. So maybe just a little bit more color on regions, geographies or end markets that might be driving that improvement? Or any color you've got for us there?.

Yes. So I'll start. I mean, obviously, it's been a very challenging situation for industrial vehicle markets as a whole. And the team has been doing a great job at staying above that and flat for the year. I think as we position ourselves for this next year and look forward, while we do recognize that the North American on-highway markets are going to continue to be challenged, we do feel that there are some opportunities and pockets in Europe as the team continues to try to expand its customer and market reach in a few areas.

But the team is doing -- we're seeing some good signs within the order book. We actually had an improvement here in the third quarter that was roughly 4% year-over-year. And again, I'm sometimes reluctant to talk about these data points that are hot off the presses, but we're -- we had a very strong October. And that's a real positive kind of a standout month over the past few years. And with the conversations that we're having with some of our customers, we feel like we're positioning ourselves for a very strong fourth quarter. So I don't want to diminish the fact that there will be challenges again for this market in '26. We expect uplift in '27. But the team is doing a great job. And they continue to kind of push the boundaries to gain more share.

Then maybe 1 just on following up on the government shutdown potential impact. I think historically that when we've had these kinds of disruption, it tends to make the defense electronics business, especially maybe a little more second half weighted once it gets resolved. So I think, Chris, you were talking about some of the delays being more on the short-cycle side. So maybe just any color you can give us on expected cadence through the year in 2026 relative to historical patterns just based on what's happened so far and what you know so far?

Yes. So we have been very focused over the past few years is trying to make the fourth quarter less dramatic. And I think as you look at what's happening here in the fourth quarter, we've got a very strong backlog. We raised the bottom end of our guidance here to show a little bit of increased confidence as we go to close out the year in 2025.

But to the extent that the government shutdown continues and we have delays in the receipt of those orders, yes, it will take a little bit of time to kind of pick back up. So I'm assuming that there will be a little bit more pressure on Q1 at this point in time than there would historically. And that will force us to be a little bit more back-half weighted. But we are confident in the orders that are out there and coming our way, and we'll cautiously balance that against things like advanced buys and other positions in inventory that will help us to kind of recover and deliver those revenues to our customers as fast as possible because I know that they want the orders, they want the product and they're equally disappointed with what's happening here right now. So I would expect there to be a little bit of pressure on Q1, but then we will recover over the course of the year, and we'll continue to try to keep the fourth quarter from being a [ dramatic data point ].

And we'll go next to Pete Skibitski with Alembic Global.

Next quarter. I want to ask specifically about the Switzerland business in Defense Electronics, the turret drive stabilization business because it seems like some of your key customers like Rheinmetall, for instance, are getting a good amount of new orders for ground vehicles. So I just wonder if you could talk to kind of the visibility in that business. It seems like the growth outlook could maybe even outperform your -- the rest of that segment. So I was wondering if you could talk that through with us. And maybe valid also, I'm assuming that unit doesn't use commercial pricing unlike some of the rest of DE, maybe you can clarify that as well.

So I mean this is -- just put the nature on the [ team ] I mean they've been part of Curtiss-Wright for several decades. It's had periods of strength years gone by. We talked about the Kingdom of Saudi Arabia program about a decade ago when it was on a gross trajectory. And prior to the Ukraine war and such, it has been a very slow growth portion of our business. We expected it to pick up when -- I think when Europe woke up and realized what they have for militarized vehicles.

And it has been slower than we thought, but it's pretty exciting that it does feel like it has turned the corner and those orders are going to deliver. And we have a very good relationship with Rheinmetall and they're strategic partner for turret drive stabilization. I mentioned in the prepared remarks, the wins for the XM30. So that's a first for them getting outside of the European market. But Germany is kind of leading the charge of being committed to ramping their vehicles, and we're very much aligned with them to be participation of that. So I don't think it's appropriate really to talk about the pricing at this point.

They're not subject to the far, obviously. And the product does have applicability into some commercial markets outside of defense. We sell it into tilting trains and a couple of other end markets. So there is a commercial capability, but I'll just leave it at that.

And we'll take our next question from Tony Bancroft with Gabelli Funds.

Congratulations, Lynn, Chris and Jim, great numbers and a great job doing managing this. I just had a bigger picture here. You have 4 businesses that have very strong growth outlook going forward, a lot of secular tailwinds for the long term, and you've talked about M&A relighting. Could you just maybe sort of just very high level walk me through -- these are 4 big opportunities. How do you see you prioritize them? I mean you only have so much CapEx that you can probably do in reinvesting in the business. Can you sort of sort of prioritize those for me?

So I think we've been pretty transparent that our CapEx allocation and acquisition focuses over the recent past have been around our aerospace and defense and commercial nuclear markets. And those are priorities for the company in places where we see really strong growth, really differentiated technologies.

But I think one of the things we always remind people of -- you take just, for example, pick one thing randomly, the electromechanical actuation capability that goes into industrial markets, it also is the same capability, engineering teams, manufacturing floors that builds this for aerospace and defense markets. So even though our business lays on paper as if it has these different buckets and there's isolated pieces from an engineering capability, manufacturing standpoint, our businesses are intertwined across end markets, and it's something we're proud of and pursue that we've always believed that investing in a technology once and taking it to different end markets, as part of how Curtiss-Wright has achieved the margin expansion we've achieved over the past years.

And the latest, very visible example of that is the flight data recorder technology that was developed over decades ago and for defense applications and now has this fantastic foothold in a commercial application. So I know I didn't really directly answer your question, but it's hard because- I see a business and I see it going across many of our end markets. They're not just like I can look at that business over there and that business over there and say it's just serving one of the end markets. .

And we do have another question. We'll go to Alexandra [ Mineri ] with Truist Securities.

This is Alexandra [indiscernible] on for Michael Ciarmoli with Truist Securities. How are you guys thinking about 2026 in terms of growth trajectories, end markets and margin expansion?

So we touched a little bit on 2026 in the prepared remarks that we feel good about driving growth across all 3 of the segments. So that's really positive. There's -- I try to talk about what some of the things that are going on in the closing remarks of what are the market dynamics, what are our technologies that support, you can look at things in the industry, whether it's the growth rates in commercial aerospace that Boeing and Airbus are talking about, to defense spending to all things nuclear is sort of the ones that are top of everyone's mind. .

That will support that growth into 2026. We do believe we'll be well ahead of our 2024 Investor Day targets really down the line. And we're committed to driving operating margin expansion faster than cash, and we'll be given more specific guide obviously on 2026 when we close out the year and have our Q1 call.

So I would just say, I hope we were able to kind of project some of that confidence in the script today we -- in the areas that we kind of called out. We're excited for what's happening now and as we look out into the future.

At this time, there are no further questions in queue. And I would like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer for additional closing remarks.

Thank you, everybody, for joining us today, and we look forward to speaking with you possibly on the road or with our Q4 results out in the beginning of 2026. So have a good day.

Thank you. This concludes today's Curtis right earnings conference call. Please disconnect your line at this time, and have a wonderful day.

Hi. Good afternoon, everyone. I'm Morgan Stanley's aerospace defense analyst, Kristine Liwag. I'm very excited to have with us today Curtiss-Wright for this session. So welcome, Lynn Bamford, she's the Chair, President and CEO of Curtiss-Wright. And we also have Chris Farkas, who's CFO. So welcome, both of you. Thank you for being here.

Thank you for having us.

Well, great. So maybe kicking off on the historical DoD budget. We're seeing the fiscal year '26 budget for the modernization accounts maybe up a little more than 20%. So a pretty robust number. Historically, your defense business has outgrown the overall DoD top line and the overall DoD modernization accounts. Can you give us an idea in terms of like how these higher funding flows will affect your business and what kind of growth rate you're looking at with your portfolio?

Sure. So just for those in the room and maybe online that are less familiar, I might just take a second and introduce Curtiss-Wright real briefly. And today's statements may contain forward-looking statements that contain risks and uncertainties. Curtiss-Wright is a 95-year-old company. We are over 50% defense business. So your question is right on to the biggest portion of our business.

But broadly speaking, we're an engineering and manufacturing company who builds highly engineered systems that operate in critical must not fail applications. And they're often safety critical to the people that operate that equipment. And so it's very important things that we do across the business. We serve a variety of end markets. As I said, defense is the largest of those end markets. And I'll get to just one second about the alignment with the budget. That's very good. But -- or we just go there because I know you're probably going to ask questions on the other topic.

So we have outpaced the growth of the defense budget over the past many years. And that we spend a lot of money. We -- our biggest 2 areas are shipbuilding and defense electronics. We put a lot of R&D into our defense electronics to assure we have state-of-the-art product offerings. There's great stuff in the FY '26 budget around shipbuilding, trying to get to the cadence of the 2 Virginians and 1 Columbia, and it looks like some long lead funding on the CVN-82. So all things that work very nicely for Curtiss-Wright.

Our MOSA and SOSA product offerings are very well aligned to some of those big priorities that are in. It should be in the past defense bill here, hopefully, this fall. And whether that's Golden Dome, where we are pursuing very aggressively some very meaningful content for what's obviously an entirely new system to whether it's that or aircraft modernization, whether it's the F-47, the MB-75, the F-15EX, these are all things -- places where Curtiss-Wright has great content to ground modernization programs and whether that's the tactical battlefield build-out or Abrams and Bradley modernization programs, that if you step back and think about Curtiss-Wright's business in defense, we're on 400 platforms, 3,000 programs internationally and are well positioned to -- as the defense budgets grow, to find those pockets of growth.

We're also well positioned for the aftermarket business. So as that work is very much needed across the U.S. fleet, we're well positioned there. And we have a very strong and growing presence in foreign direct military sales to sales directly into global defense contractors. And all those things are leading to really great confidence that we will continue to have very strong growth in our defense business.

And maybe taking a step back, you have other segments outside of defense. So if we look at your end markets, you've got defense, commercial aerospace, industrial, you've got the commercial nuclear power opportunity. When you look at these end markets, which segment are you most excited about for growth, do you rank and stack on?

Yes. So we do have a variety of end markets. And the thing that's really exciting for Curtiss-Wright now is I think there are very unique things going on in each of those end markets that are -- we've had very strong growth. There are new things coming in those end markets that are just going to continue to provide new avenues of growth. And commercial nuclear is top of mind for everyone. So that's clearly one.

We have a well-established position in commercial nuclear, have been in this market since its inception, largely the aftermarket. There's things going on in aftermarket with the NRC helping facilitate the existing plants accelerate their plant life extensions. That's great business for Curtiss-Wright. Obviously, the intent to build AP1000s across Europe and all these executive orders to help to drive growth of new large plants here in the U.S., that's definitely meaningful growth.

And then we're very active and well positioned on the small modular reactors. And that growth is -- we've been working on that for a couple of years, and that's kicking into prototyping. So commercial nuclear is top of mind. But the things we're doing in our defense, aerospace and ground enabled markets to really take new market share, bring new products to market, to bring an NVIDIA product line to market.

Our flight data recorders, which we've been talking about that are just beginning to ramp into production. There's just a lot of different things going on. I go down into our process markets, which is an end market, that does not get a lot of headlines when people are talking about Curtiss-Wright. We shipped our first subsea pump this quarter and are hoping it will get deployed in the back half of this year. And that's another brand-new market that we're opening up.

So those are just some examples. And really, we work really hard to make sure that we've got really meaningful growth initiatives across all of our end markets.

That's wonderful to hear. And I think this has been your pivot to growth strategy finally materializing, right?

Yes, very much, launched 4.5 years ago, and it's bearing fruits. But I do think it's important to talk about those new things that are just beginning to help. Potential investors understand we are at the beginning of many cycles across these industries. And the commercial nuclear hasn't kicked in. The flight data recorders haven't kicked in. Subsea pumping hasn't kicked in. And I can go on and on, on things like that, that are the things we've invested in prior to the pivot to growth strategy, but during it, that are just beginning to come to fruition with a very strong focus on profitable growth.

Great. But maybe we could dive deeper into defense, and we'll go through the other end markets next. On Curtiss-Wright for Golden Dome, can you talk about the opportunity set for the company? What does this mean? And where do you see yourself fitting in with the program?

So Golden Dome, I believe, will be a very strong program for Curtiss-Wright and kind of the at a high level, you can think of the fact that there are sensors to figure out maybe what it'd be attacking the United States. There's effectors to defend against those. And then there's the networking that ties all those systems together. A lot of the sensors and effectors will be a lot of programs and platforms that exist currently, maybe with upgrades, maybe change slightly. That great content we have across hundreds of programs and thousands of platforms makes us well positioned to already have content on those.

Our tactical communications equipment is well positioned for the command and control and networking with necessary encryptions, et cetera, to be able to serve as a backbone for a large portion of what is networking those sensors and effectors together. And so it's an exciting program for us. We're very active in making sure we secure content where we have appropriate products.

Thank you, Lynn. You highlighted the strong growth internationally and your direct international sales. There's also foreign military sales. And these budgets abroad continue to grow at some higher pace in the U.S. It looks like you're about to recognize 20% growth in FMS in 2025, which is up from mid-teens year-over-year growth the past several years. So we're seeing that inflection above the historical norm. I guess what are you seeing for the higher defense budget internationally? How long do you think this higher growth sustains for? And what product lines are you seeing the most interest from customers?

I'll turn that over to Chris.

Okay. Thanks. No, we're really excited about the momentum that we're building, and it certainly is, to your point, Kristine, accelerating. That broad base of platforms that Lynn was talking about, I mean, yes, while we're well positioned here domestically, we also have great content overseas. And we've seen growth in embedded computing over the past few years, along with tactical communications.

And then even outside of our defense electronics segment within Naval and Power, the demand for increased naval aircraft handling equipment, specifically rotorcraft. As we look forward and into '25 and beyond, I mean, it will certainly be much of the same in embedded computing, maintaining that state-of-the-art technology as those programs begin to upgrade, it will be the naval aircraft arresting system, but also ground-based arresting systems. You may recall, the acquisition of ESCO that we made a few years back, and that business is off to a great start.

I think as you take a look at longer term and the growth prospects, what are making us -- what's making us exciting -- excited about it is as you think about the commitments that have been made by NATO recently, Secretary General, Mark Rutte stating that they're going to get up to 5% of GDP in military spending over time over the next 10 years, 3.5% of that coming in core military hardware, the other part coming through infrastructure, cybersecurity and others. I mean, just by getting from where we are today to that 3.5% in today's dollars, it represents roughly a $400 billion opportunity. So that's significant not only for Curtiss-Wright, but for all defense companies that are selling their products internationally. So we expect that to continue to grow as we look out into the future at a good pace.

Great. And on top of the higher defense growth, we're seeing your defense electronics business, the margins are just -- I think your guidance for the year is just shy of 27%. That's just close to 30%, but not quite yet. So I guess when you look at the margins here, how long can this higher margin sustain? And when you look at -- you've already highlighted that you're at the cusp of this incremental growth. When we see these growth kind of materialize and some of these programs mature even more, what's the margin profile for defense electronics? Could this be a 30% margin business?

Sure. So yes, we are seeing great growth in defense electronics this year. If you recall, last year, in 2024, we were restructuring for growth. We saw -- we had record backlog, and we needed to deliver on this. And we're seeing some accelerated throughput through the shop, which is yielding improved absorption as well. When we started the pivot to growth strategy, we launched what we refer to as the operational growth platform, which is really the way that we get best practices across the organization, leverage those best practices in both commercial and operational excellence, and we're seeing that in defense electronics this year.

It's not just about cost containment. It's not about just employee efficiency and reducing cost of poor quality, but it's in maximizing pricing effectivity. So some of that is coming through this year. I think as you look out in defense electronics into the future, while we're committed to kind of growing our margins faster than sales over time, it's important to note that we spend the greatest portion of our IR&D in defense electronics to maintain that state-of-the-art technology so that, that business will continue to stay at the forefront and grow profitably into the future.

So we're not really willing to commit to saying where exactly we're going to be in the future, recognizing that, but, boy, it's a great business, and there's a lot in front of it.

Wonderful. And maybe switching gears to the commercial aerospace business, the FAA's mandate for the 25-hour cockpit recorders has presented some nice lift for your business. Can you talk about the wins and the possibilities for retrofits and the size, the opportunity set ahead?

Yes. So kind of mentioned in one of the new growth areas, so thank you for bringing it back up that Curtiss-Wright has built cockpit data recorder since the inception of the concept 60 years ago. And across defense and commercial aircraft, those have typically been 2-hour recorders. There was a few accidents where that was not long enough and talk of making that a 25-hour mandate. That was mandated in Europe a couple of years ago and mandated in the U.S. just last summer.

And the thing about they mandated in the U.S. last summer was not just for new build, but also to retrofit the existing fleet in the U.S. by the end of the decade. We've announced our partnership with Honeywell, which is important a few years ago and had our 25-hour cockpit recorder type certified for the Boeing set of platforms, the 3767 and 77 last year and are seeing that ramp up. We're working very hard to get certified with the Airbus A320 set of platforms and do believe we will have that type certification for both new build and retrofit in the first half of 2026.

The airlines are just figuring out how they're going to retrofit their existing fleet and Honeywell is a very important partner for us in that and helping with the logistics trail with that. But our increase in our commercial aerospace guide at the end of Q1 was really driven exclusively by that ramp beginning to come into focus and really starting in the back half of this year. So there's -- we're at the very beginning of that cycle of growth of retrofits across the U.S. fleet, new build here in the U.S., hopefully with Airbus.

And then the mandate even reaches across some of the regional jets, and it's early days in figuring those out. So we've been a little cautious about sizing this market or giving a unit cost because we're still in a competitive situation in some of these areas, and a lot of this has to unfold yet, but this is definitely going to be a meaningful growth area for Curtiss-Wright.

Well, that's a lot of growth. I mean I've got more questions and there's going to be other growth topics. So let's pivot to commercial nuclear power.

Okay.

Right? So for commercial nuclear power, we've seen a lot of executive orders from this administration supporting domestic production, domestic new builds and also life extensions of existing nuclear power plants. I feel like we've talked about this a lot, especially in the 2010s of the U.S. nuclear renaissance that didn't happen. It feels different this time.

But can you level set us regarding like what's different this time? What are you seeing on the ground regarding actions you've had to see from key players to show that we're going to be breaking ground on these new reactors. What's the time line you think we could see these first orders really come through if they're going to build some AP1000s?

Yes. So I would -- for anybody who's not really familiar with our nuclear story, I'd encourage you to go back to our May 2024 Investor Day review of this topic, which laid out some 3-year targets, targets through the middle of the end of this decade and into 2035 as a baseline. And I do take note that those targets were all set before the executive orders that were released just this past May.

We participate in really the 3 main buckets for this market. We've been active in the aftermarket. That's what drives our revenues today. It's 90% of our commercial nuclear revenues as of today are working in that aftermarket, which the regulatory parts of the executive orders are really going to accelerate helping existing plants do some bold things and be able to drive increased aftermarket activity. That's a great business for Curtiss-Wright.

On top of that, we had put in a forecast for revenues for AP1000 bids in Eastern Europe with different forces than the nuclear renaissance. And it really does feel very, very different than 15 years ago, whether it's carbon-free energy or energy independence in Eastern Europe, but really sizable business over in Eastern Europe. And then now that is added to by this push to build, it would have 10 large light water reactors under production -- under construction, excuse me, by 2030.

And the activity that we see with our participation in working groups with the NRC make it clear that the traction on making this happen is real. The administration, whether it's administrator Wright or Doug Burgum, are out there trying to break down barriers and make sure this can happen. And we saw shortly after that, Fermi applied for 4 operating licenses in June and reaffirmed their alignment with Westinghouse in August.

And so you can see the activity. I can't even go through all the announcements of more plants being built and the power of the data center revenue that's behind pushing not necessarily as much the AP1000, although Fermi is a site to power data centers, but the SMRs, which is also a big area for us, has just a level of traction and spending and attention that makes this opportunity very, very different now than before. And we feel very positive about what's coming to Curtiss-Wright in this area.

Great. And time line when you think you would get an order for the U.S.?

Yes. So we still believe strongly that we will get our first AP1000 order in 2026. So that's pretty exciting, and we've held that time line for quite a few years. So it's really exciting to see the industry demonstrate they can set forth plans that hold those plans to what's different this time than before, that's one of the things that's different.

We still think that order will be from the Poland opportunity. But I'll tell you, the activity in the U.S. is bringing it up pretty much to a horse race as to how all of these orders are going to line up. And we're very focused on our capacity planning, testing our supply chain for their capacity planning and working very close with Westinghouse to make sure we're really prepared to be a great supplier to them and meet their needs so they can maximize their ability to win business.

And Lynn, you've been very consistent about Poland being the first opportunity, also Bulgaria in Eastern Europe. Can you talk about the milestones for these programs and the time lines they're at? When do they still want to plug into the grid? Is it 2033, 2032? And also how early they'd have to -- or how late they'd have to order your parts and also what milestones we should be watching for these contract orders?

Chris, you can talk to the time lines and some of the milestones.

Yes. So as Lynn mentioned and you recall from Investor Day, we've got a time line in there that will allow you to kind of watch these events unfold with Curtiss-Wright. We're obviously having conversations with Westinghouse, but they're working with their customers. So it's really important to stay in tune with what's happening in those projects globally.

As you look at that time line that we laid out, one of the last things that you're going to see happen is this what they refer to as site-specific engineering and these engineering service agreements are one of the last phases where they're doing the site-specific engineering. Within Poland, they renegotiated the engineering services agreement in April of this year and extended it through year-end. So the thought process is once you complete the site-specific engineering, then you will enter into an engineering procurement and construction contract. Westinghouse will with its customer.

And then that opens the door for the long lead material negotiation of RCPs that we provide into Westinghouse. So another great data point just looking externally beyond the internal discussions that we're having to say, "Hey, '26 is a good time frame."

Now you had mentioned Bulgaria. I think one of the interesting things about Bulgaria is they do have a standing nuclear program. Westinghouse held the supplier Symposium in the month of April. The Energy Minister from Bulgaria was there along with U.S. Secretary of Energy, Chris Wright. And at that meeting, Bulgaria said, "Hey, we want to have the first AP1000 online in Europe."

So they're operating underneath an engineering services agreement that they opened up in the month of April. That could take a year. But boy, I love the spirit of the competition and seeing who can get their AP1000 online first because obviously, that's a good thing for Curtiss-Wright. So we're excited, and I think there's an opportunity in the short-term future.

Great. And shifting back to the U.S. large new reactor builds, I think 10 by 2030. I mean that's a lot. We've only built one so far in the U.S. We have one operational. So can you talk about -- you talked about talking to your supply chain being able to potentially support this build. What are key bottlenecks you're watching? And what other preparations do you need to have because the reactor coolant pumps you provide are in the earlier part of the build. And so you're going to be a key gatekeeper for those builds to really get underway?

Yes. So the goal is under construction by -- 10 under construction by 2030. So there will be some build-out time from that. And to these ends, we've been very proactive with our supply chain really over the past 18 to 24 months to work with them and to take steps with them to assure they're ready. So I think we're doing the right things along those lines. We're also very actively working with Westinghouse for their broader supply chain outside of the RCPs and maybe some source of supplies that have gone away over the past 10 years where we have relevant product and can be a good supplier to them for additional content.

So that's ongoing work, but it's exciting time that we're looking to see what all we can do with work at Westinghouse and very much working our supply chains. And so it's a complicated problem. I definitely would not minimize it, but I think there's a lot of transparency about how things are going to play out, and that's really good, so we can have teams of people get on this and work.

And from a capacity capability within the plant, we have an ability to ramp within our existing infrastructure and meet the initial needs for capacity planning. So from thinking of needing to truly expand facilities and do things along those lines, that's a little further down the road. So we have time to plan for that. So there's a lot of watch items in this and a lot of items to keep track of and really for Curtiss-Wright to be a good supplier into Westinghouse, but I think we're -- the teams are doing a fantastic job with it.

Great. And so now I think for commercial nuclear power, we've talked about the aftermarket stream, the large build -- last piece would be small modular reactors. So going to the SMR piece, can you talk about the opportunity set ahead of you there? I know you've laid out some things in the Investor Day. But since then, you've also announced a partnership with Rolls-Royce on their SMR fleet. What are the key gatekeeping items for this industry to really get to volume? And where do you see your particular strength? And any color you could provide on this Rolls-Royce partnership and what it means for you would be really helpful.

Sure. Thank you for that question. So our goal is across the larger small modular reactors, and that's really one is putting out 300 megawatts, example and above. So we have less of applicability to some of the micro reactors, the 50 megawatts. We might do a few things, but that's not really our main place where we'll garner business, is to really be active across all of those. But I think there's places for all of them. They have different characteristics, different strengths and different ways that they can provide energy on the grid, provide things such as high-power steam for processing applications, which is unique to the X-energy reactor to a large degree.

And so there's different characteristics of each. Our goal and I think an advantage for us as a place to invest is we are agnostic and we intend to have content across that spectrum. And the partners -- the acquisition of Ultra, which we only closed on at the end of last year, 1 of 2 nuclear acquisitions in 2024, we're pretty pleased with that. It was really the spearhead for getting our partnership with Rolls-Royce, being put into the public with the announcement of their partnership.

We're working on a variety of other things with Rolls-Royce, too early to talk about, but I feel confident that, that launchpad, that position of having localized U.K. content has really set the stage that we're well positioned to build a very strong relationship with Rolls-Royce and become a meaningful supplier to them.

And we've talked about our content with X-energy being up to $120 million plus in content. So that's the one we've been the most bullish and visible about the content. But we've set the floor at $20 million across the other major players and I think we'll be in the middle there for many of them. So if this industry takes off and reactors are being purchased at 10, 20 a year, you can definitely see what this stands the potential to do for Curtiss-Wright by into the 2030s.

But again, people wonder how is this meaningful in my investment horizon. We've been doing the design work over the past couple of years. We're moving to prototyping work across some of these platforms in '26, in '27. And all that content, we need to build portions of that, if not all of it, to allow for testing of the reactors and then build content for the first reactors to really ideally go on the grid, 2030-ish is the target for a lot of them. So there's a lot of work that we will be doing through the end of that decade before there's that big exciting ramp.

And you called out the 2 acquisitions you did last year. How do you think about M&A more broadly now? When you look at your portfolio, are there things you want to add like bolt-ons? What's your appetite for a transformative deal? Do you really need it with all these growth vectors that you have in the portfolio? Or is it time to prove?

So we're very purposeful and have been very consistent in saying M&A is our top strategic use for capital, but we have very specific criteria, both financial and strategic for where we would look to buy properties. We clearly want a differentiated intellectual property with durable revenue streams that align largely within our end markets. And that's a pretty -- and then have very specific financial criteria that also are -- drive us to be fairly selective.

And we will say we don't need to buy businesses that are accretive to our margins on year 1. We're willing to work in businesses and apply some of the goodnesses of Curtiss-Wright to have them fit. Fantastic that we could buy 2 nuclear acquisitions last year. Our top priorities remain tuck-ins across our defense electronics portfolio, naval nuclear propulsion and safety systems and commercial nuclear.

And to the size, PacStar is our largest acquisition to date at $400 million. But we've looked at many acquisitions over this past year to 2 years that extend well above that to the transformative level that we would consider and believe we have the financial wherewithal to do. Obviously, we would take great rigor before we would act on something like that. But we're exploring acquisitions across a wide range from bolt-on to transformative. But for use of our capital, maybe I'd turn it over to Chris to talk about how we see share buybacks and some of the other options for capital deployment.

Sure. Yes. Thanks. I mean we're generating very strong cash flow. It's something we've worked hard on for a very long time. Our objective is to grow cash flow faster than earnings over time, and that takes strong working capital management. We've got a long track record, as you know, and doing in excess of 105% free cash flow conversion. So that all kind of powers the balance sheet that we're looking at here. We've got a fully untapped revolver at $750 million, $250 million accordion feature. And we're not going to be on that this year.

So we're well positioned for when those acquisitions come in to be able to seize them and bring them into Curtiss-Wright. But beyond acquisitions, we believe that share buyback is the most effective way to return capital to shareholders. And this year, we are going to have another record year of share buyback at $450 million. We just announced coming out of our Board meeting the other day, another $200 million this year, announced -- executed another $200 million back in the August time frame, and then we operate obviously, under a 10b5-1 to cover dilution.

But I think the important thing that I want people to understand when we go do this buyback, acquisitions are our first priority. But we do this consciously. We take -- Lynn and I spend a lot of time. We look at the valuation of the company, and it's very important to look at future growth and earnings. We have these discussions with our Board. So when we make decisions to buy back stock, it's not just a cash dump. We're looking at the valuation. We're looking what lies ahead for us, and we're a good buy.

So we've talked about a lot of exciting growth vectors and where we're going in terms of profitability and cash flow, and that speaks to that future. Beyond returning capital to shareholders through share buyback, we have a modest dividend approach. We grow our dividend with sales growth over time. This year, we grew at 14% and it was our 9th consecutive year at growing the dividend. But we're really well positioned from a capital standpoint, and we're at about 1.3x debt-to-EBITDA today.

You had mentioned something transformational. I think if Lynn and I found ourselves in that situation, we maybe have the comfort level to go on up to 3.5 to 4x debt to EBITDA, but would quickly delever back below 3 given that strong cash flow generation that we have.

Great. We'd open up the Q&A to the audience. If you have a question, please raise your hand. The mic will -- bring a mic to you.

So you spoke about earlier the subsea pumps. That's a growth area that people haven't really appreciated. Could you talk a bit more about that, whether it's like the strategic value, the timing, if you're able to size it up somehow?

Yes. So it's a great example of one of the things Curtiss-Wright focuses on that I think is very critical to the margin expansion we've been able to realize over the past decade. And that is we look to take really specialized core capabilities and look across end markets and take one technology, maybe adjust it, tweak it and then take it to a different end market.

And our canned motor pumping is absolutely a great example of this from the navy nuclear to commercial nuclear and now the subsea. Surely repackaged in a different format for this application, but that same core capability. And we've been working on this for 5-plus years on working this capability. And it's great we delivered our first subsea pump to Shell this quarter, are hoping -- it's not in our control, but hoping that it will be deployed at the back half of this year.

And Shell is often looked to as a technology leader in demonstrator. And so as it gets deployed there, I think it's going to open up a whole new market for us. And we've said we anticipate $250 million of orders by the end of this decade and $500 million by the middle of next decade, I'm sure my number is right.

And then the point on site engineering leading the work leading to orders in 2026. So I just wanted to understand that a bit more. Are you seeing that accelerate like the time shortened from the NRC? Or what was the commentary around site engineering that gives you a lot of positivity on 2026 orders?

Yes. So if you go back and you take a look at the time line that we provided, and this is a Westinghouse published time line for the specific events that will proceed the construction of a plant and then through all the way through completion. Site engineering is one of the last phases that they go through. Working with the customer, defining how the plant is going to go in, how the technology is going to fit in that plant.

And at the end of the site engineering, they then commence the construction of the plant. So when they complete the site engineering contracts, these engineering service agreements that they're currently operating under, which are supposed to come to conclusion at the end of the year for Poland and shortly thereafter for Bulgaria, the next step is the placement of the engineering procurement and construction contract between Westinghouse and its customer, and then our RCP orders will follow that shortly thereafter.

I think I just had one more question, we'll take it, and then we'll wrap.

And keep in mind, those are Poland and Bulgaria, so it's not tied to anything with the NRC, obviously. So.

I was wondering if you had any perspective on the cost of new nuclear capacity these days. So whether it be Poland or Bulgaria and what that could mean for United States?

I think that is where the new regulatory environment that -- it's not just been spurred by these executive orders. If you go back to our May 2024 Investor Day, we had a leader of the NEI as a guest on the panel talking about the NRC realizing they need to streamline the regulatory environment for everything from getting sites kicked off to the running of sites to make nuclear be able to fall in and be affordable across other energy sources. And so I think these executive orders have put extra up behind it.

I think the new administration is surely putting a strong focus on this. And so there's a lot going on and whether that's with the funding streams trying to accelerate fuel manufacturing, workforce development. There's a lot of things going on to make that entire nuclear build-out realistic and doable. And the executive orders are a really good approach to attacking that from a lot of different angles.

Well, great. Well, thank you very much. This concludes our session on Curtiss-Wright.

Thank you very much.

Thank you.

Okay. Now we're very honored to have Curtiss-Wright here with us today. And with us here today, we have Ms. Liz -- Lynn Bamford, CEO of Curtiss-Wright and Mr. Chris Farkas, CFO. Curtiss-Wright designs, manufactures and overhauls precision components and engineered products and services primarily in the aerospace and defense, general industrial and power generation markets worldwide. Curtiss-Wright has 38 million shares outstanding. The stock trades at $475 for $18 billion market cap, and $630 million of net debt for an $18.5 billion total enterprise value. We are delighted to have Lynn and Chris here with us today to discuss the growing role in -- growing role in the aerospace and defense industry, and we'll sit down and have a nice chat. Thank you for being here.

So great to have you here, and congratulations on all your success. You guys have just been ripping through the roof here with your performance.

Maybe let's start broadly by giving -- just giving maybe a more broad overview of what you do and maybe sort of go down your business lines a little bit?

Okay. Well, welcome, everybody, and it's my pleasure to be here, and thank you for the invitation. Today's comments may contain forward-looking statements, which have risks and uncertainties, which are outlined on our website. I'm obligated to say that. So -- but I don't know there's probably very different levels of awareness that who Curtiss-Wright is in this room.

And so one thing I would encourage you to do, if you aren't very familiar with the company is, if you go to our website, we had an Investor Day about 15 months ago in May of last year, where we really give a pretty thorough overview of our end markets and our strategies in those end markets and 3-year forward-looking guidance. So it's a great place just to introduce yourself to the company and then maybe possibly check out our Q2 earnings call where we had some pretty strong results and raised guidance across the board. So just two good reference points to introduce yourself.

But Curtiss-Wright has been continuously traded on the New York Stock Exchange for 96 years. The Wright in the name comes from Orville and Wilbur Wright, which most people don't realize. So it's just kind of an interesting and it's a great legacy to have as a business that people are very proud of that history. But from what matters today is, I think we are an engineering-centric company. We're just over 9,000 employees, of which about 1/4 of them are engineers. And so we are an engineering and manufacturing company that designs niche products for safety-critical applications that often operate and must not fail applications.

And so we like hard problems that take lots of engineering smarts and then manufacture complex things that are of the highest quality. And that's kind of what binds us together is the capabilities and the engineering knowledge and approaches to be able to design those kinds of products.

One of the things that we do as we design those products that is a powerful part of who we are is many times, we can take core technologies and take it across the various end markets. Tony introduced the end markets. And as you can see, and when you go through the material, we are at a variety of different end markets. So -- but we make that work for us by leveraging technology across those end markets. So we launched our Pivot to Growth strategy just over 4 years ago that the company had spent the prior decade, which Chris and I were both part of it, really driving financial performance in the company and really getting to some top quartile -- quartile numbers, but the thing that we had not been able to achieve was growth of the top line.

And so as I became CEO, 4.5 years ago, that became the focus of what really was needed to continuation of operating margin expansion and things like that. But to really like that growth engine and our pivot to growth strategy, as you mentioned, has really been delivering results. But I think one of the really important things that I'm sure we'll cover in some of the specific questions is what -- we're at such an early stage in so many of our end markets and things that we have been working on over these past 4 years that are just coming to bear fruits, not even maybe yet. Some of them are coming in '26 and '27 and '28. And so our future is great, and there's a lot before us.

Lynn, that's a great overview. You and Chris have just done a great job and your team has done a great job. Maybe you could talk about a little more about the defense business with this $1 trillion budget coming into 2026, fiscal year '26, potentially the reconciliation bill funding where you've got a lot of plus up. It seems like you're well aligned with that -- with those budgets. Any areas where you expect to benefit more from than we'd expect in the areas of maybe concern where there's lower levels of funding that could impact you negatively?

Thank you for that. The Curtiss-Wright is 2/3 in aerospace and defense company and the majority of that is defense. So if you say our largest end markets, it is defense. And so we're really pleased with what we're seeing out of the budget that's moving itself through the process and having that $1 trillion amount of spend is pretty amazing. And we are very well aligned to what's in the budget. Shipbuilding is our biggest single end market. We're on all the major platforms. And there's very strong support for shipbuilding, getting to the 2 plus 1 as it's called the 2 Virginias and 1 Colombia is supported in the '26 bill. And so that will be very good for us.

There's also a lot of funding in there for the industrial base. And we've been very good at going after this funding and receiving significant amounts of funding and have much more before us. And I think it's -- the amount of funding we're getting is indicative of the role the Navy sees Curtiss-Wright will play in the growth in shipbuilding. So it's not that the dollars are that significant, but it shows where we fit into the value chain. So that's one that's fantastic.

The whole Golden Dome initiative surely will drive business in many different facets to Curtiss-Wright as we're participate in a lot of the systems that will build up the shields that the system is. We do things with hypersonics and then the connectivity that ties the Golden Dome surely is an area of expertise we have with all of our communication and networking equipment that is a real area of strength for us. There's aircraft -- there's nuclear deterrence, the B-21, we think will be a good platform for Curtiss-Wright and some of the new aircraft dominance programs, the F-47, the MV-75, these are all going to be great platforms for Curtiss-Wright and then upgrades to other aircraft, F-22, F-15EX, F-15s.

Again, these all fit into our MOSA and SOSA compliant hardware, which is another interesting aspect of the bills going through and slightly different in the House and the Senate, but we'll see how they sort out is really the push for more commercial acquisition and more commercial solutions raising thresholds for where you have to have auditable business, but also a mandate that the MOSA and SOSA compliance systems be moved to a mandate from a benefit in how system selections are performed. And Curtiss-Wright is -- has the leading portfolio of products that are MOSA and SOSA compliance. So there's just a lot of different aspects about the bill, and that's only the U.S. half that is great for us.

I guess that leads me to the other portion, which is international defense markets. You mentioned on the last call that you're expecting direct FMS to grow 20% this year with expecting uplift. And obviously, from NATO spending like we saw earlier. Where do you see the biggest opportunities, this level of growth sustainable -- is it sustainable for the foreseeable future?

First of all, let me say it's a pleasure to follow Rheinmetall. We actually had a press release that we issued back in March, where we had won some work on turret drive stabilization systems supporting some of their vehicles, they're long-standing customers. So that was a treat, thank you. But just for some context, I think as you step back and look at when we talk about foreign military sales, we're talking about direct foreign military sales. Those sales to international customers that excludes that work that we do for Lockheed Martin on the F-35 that ultimately goes international.

And we've seen order activity increasing globally and across many NATO countries over the past few years. We've been compounding sales in this area at a mid-teens growth rate for the past 2 years. And it's really based upon the broad defense electronics portfolio that we have. We've worked on more than 400 platforms and 3,000 programs globally. Obviously, there's a strong domestic content there, but also a very strong international content. And that's been helping to drive some of that growth along with content and naval arresting systems over the past few years.

This year, as you mentioned, Tony, we are going to be growing 20%. So we're seeing that order activity accelerate. It's across many of the same products that we sell and have been benefiting from the past 2 years, but we're also seeing some increased growth in ground-based arresting systems this year. So it's been attractive for us. And this year, it will reach roughly 10% of Curtiss-Wright's total portfolio, which is $340 million.

Now going forward, we see -- we continue to see this as an exciting growth area for us. I think as you step back and you look at the commitments that were made by NATO Secretary General, Mark Rutte alone, the NATO would reach 5% of military spending as a percentage of GDP. Over the next 10 years, 3.5% on that on core military spending, and then 1.5% on infrastructure and other defense cybersecurity and other defense spending. But if you just take that 3.5% alone, and you turn it into today's dollars, that's a $400 billion opportunity for U.S. defense contractors or defense contractors that are selling to international countries. And we believe that we're really well positioned to benefit from that going forward.

Yes. That's a huge opportunity, Chris. That's going to be impressive to watch. Maybe back to the sort of the commercial side. You recently highlighted a great opportunity with Honeywell in a press release to supply flight battery recorder technology to Boeing with aspirations to support Airbus and others. Help us understand that relationship with Honeywell and the potential upside for this critical update? And maybe give us a little background on what this all is?

Yes. So Curtiss-Wright has been building flight data recorders for 60 years since there was the concept of a flight data recorder, but really never been in the commercial aerospace realm. And if you look back on our website, it was just over 5 years ago, we signed our partnership with Honeywell as the world came to the realization that the 2-hour recording time really was not significant and actually didn't provide the data it was supposed to on a couple of critical situations. And Europeans mandated 25 hours of recording several years ago, the U.S. mandated it last year. And so everyone knew it was coming. So, we've been getting ahead of it and working with Honeywell.

It's a great partnership because they want -- they used to build flight recorders, they don't -- they wanted to get out of that business. This is a business we love, but we don't have the logistics arm to support the airlines. And so they use their logistics arms, we produce the hardware, and it's a great prototype. We're actually trying to duplicate around the business for some other examples where they have a better reach than we do, but we can build really quality hardware. And so the partnership has been going on with Boeing. We've been shipping for OEM content for about 2 years at this point in time.

The part of the FAA mandate last summer was to retrofit the existing fleet in the U.S., and that's tens of thousands of airplanes that need retrofitted. And so as that's come into focus, we really are just experiencing the very beginning of that ramp in the back half of the year to be able to produce these recorders at the rate that's going to be needed to accomplish that. And we raised our guide in Q1 in Commercial Aerospace, the entire raise was tied to what we could see of the ramp in this area in the back. We are very active with Airbus. We have a type certified flight recorder across their A320 fleet. We think we'll receive that certification in the first half of next year. And so that's obviously opens up yet another big window of opportunity for us.

And in addition, the FAA mandate really requires a 25-hour capability on all planes that have 30 or more passengers. So that reaches to a lot of the regional jets and it's early days of figuring that all out, which will work again with Honeywell as they reach into these fleets of airplanes. So we haven't really sized the opportunity from a dollar value yet, because there's still a lot of things being worked out. But this is going to be a significant driver. We realized this business through our Defense Electronics segment and is going to be yet another additional driver within that segment of the very strong profitable growth that they drive through the segment.

Another great win, Lynn. That's pretty nice upside there with those opportunities. Maybe we'll go to the commercial nuclear. Last year's Investor Day, you provided an impressive long-term outlook consisting of, as we've heard with some of the previous briefs, consisting of increased growth opportunities across the portfolio in commercial nuclear. Since then, we've seen tremendous support from the administration through a number of executive orders. How should we think about the timing on key new projects? And can you put some context around your long-term growth expectations in the commercial nuclear business?

Thank you for that. Again, that is an important part that's part of that Investor Day. So thank you for mentioning that. And a lot has happened since we put out those long-term targets. So just to kind of frame our nuclear business, for those who don't -- again, don't know Curtiss-Wright quite as well. It's about 12% of our overall revenues. And of that 12% today, 90% is the work we do in the aftermarket, which again, we've been doing since the inception of the industry. We are proud of that, and I think it's important. It shows our history and our knowledge of these industries.

And that work is seeing nice ramp rates. A lot of the nuclear power plants in the U.S. are doing their 40- to 60-year life extensions and that drives extra aftermarket type of work and some other opportunities I won't dwell on. So that part of the business has got very healthy growth drivers in and of itself outside of the new build type approach that's going on. And the targets that we put out in our Investor Day were to double our business by 2028 and to reach a $1.5 billion run rate by the middle of the next decade. And all this activity in the U.S. through the executive orders obviously happened after we put those targets out. So maybe at some point, we'll be looking to refresh those targets. But you can say for now, it sure gives us confidence in those targets.

But some specifics outside of the aftermarket is we have a long-standing relationship with Westinghouse in providing major componentry in their AP1000 builds, which we saw as part of the opportunity is them winning roughly half of the new large light water reactor plants in Eastern Europe, which they're really being a strong contender for. It's the only Gen III+, all passive safety systems reactor that's been built in the world. And so clearly, they're in a very strong position. So that business still exists in the executive orders, there was a mandate for 10 new large light water reactors, Gen III+ to be under construction by the end of the decade. And we're very engaged with Westinghouse on making sure we're ready to ramp for all this business that is coming. And we're -- we've been pretty public about saying we expect our first RCP order, which will be well north of $100 million per plant is our content on that, and we're still seeing additional content we can get, but in 2026.

And so that's a really exciting thing for us as a business. And we've been doing the work to make sure we're ready for that, whether the anticipation is that will be Poland, but the things are moving amazingly fast in the U.S. with the firm applying for their licenses already this summer after the mandate. So it's pretty exciting to see the pace at which people are moving forward on this.

And then the third area is the small modular reactors that are very much in the news right now. And one of the advantages we think Curtiss-Wright brings to a potential investor is our goal is to work with all the larger small modular reactor players, and we're doing a great job in this place and having meaningful content across the various providers. So we've targeted $20 million to $120 million of content per reactor and are well on track to receive this. One of the latest announcements we made was our strategic partnership with Rolls-Royce was announced about a month ago. And that's just the tip of the iceberg of the content I believe we will be able to drive with Rolls-Royce.

And so we're in great shape across those. We've been doing design work for the past several years. That design work is going to turn to prototyping work in the next 12 to 18 months, estimate has begin to go. And that's really going to drive revenue growth. And then we've got to move to some of the -- we have over $100 million of content on a reactor, I'll leave it at that straightforward, but we have to prototype that work, and then move to production with it. And so as this moves out, it's really great work for us. So it's really -- to us, we're very excited. We're in the aftermarket. We're on the leading large light water reactor, and we're definitely securing content across the board on small modular reactors.

You're definitely in a good position, Lynn. Back to ramping, you discussed, given the breadth of the opportunities cited like you've just -- you went through in detail, is there a limit to how much commercial exposure you can actually accommodate? I mean it seems like this is, again, sort of unconstrained demand here? And then what would the CapEx be on that horizon?

I feel fortunate to be a CFO that's got to solve for the growth problem. And I think we have been very efficient with our capital expenditures historically, 2% on sales on average, maybe a little bit less. But with the growth that we have now and the growth that's ahead of us, we've been increasing that CapEx. It's 30% last year, roughly 30% again this year.

And fortunately, we also have been very focused on working capital management. So as we've been increasing that capital spending, we've also been maintaining extremely high conversion margins. Last year, it was 111%. This year, it's going to be 108%. So we've been generating more cash flow as we've been investing as we move forward. And with all this work in these growth vectors that Lynn has been mentioning, we've been spending a lot of time looking at capital expenditures, how do we best accommodate the strong volume that we have going forward, not just from a CapEx standpoint, but also from a head count standpoint, engaging with our customers, engaging with our suppliers to make sure that all of the right things are happening to support this going forward.

And we feel extremely well positioned as we're looking out over the next few years, even though we've got this growth in front of us, we're not looking at anything extraordinary that's going to disrupt the pace and growth of our cash flow expectations going forward. And then I think as you look out towards the end of the decade and you start to think about, well, you've got this specifically as it relates to commercial nuclear work, this great aftermarket base, you've got AP1000 work kicking in domestically and internationally, and then the SMR starts to shift from prototype to production, and we could potentially see ourselves greenfielding a site at the end of the decade. But if we put that money down on CapEx, that's going to be an incredibly positive signal for our investors regarding where the growth in revenue is going for this business going forward. And it does feel more realistic now than it's felt at any other point in time in my career. The momentum is certainly there. So I'm excited about it.

Yes. It's very exciting, Chris. Adding to that, last year, you bought 2 commercial nuclear companies. One was Ultra. How is the integration going? And where does this provide the most long-term upside for you guys?

Yes. We're really very pleased to be able to put 2 nuclear acquisitions into the company. And use some capital to that end last year. The integration is going fantastic. They're having a very strong year. They were the focal point of the strategic partnership we announced with Rolls-Royce. It's their reactor protection system that was that point. And Rolls-Royce really likes that we now have a major nuclear facility in the U.K., that we're having many discussions with how we can drive more localization through that site. So we're working -- the fit is just fantastic where we have customer reach and content, some places in the U.S. where they didn't. We're having great fortunes introducing them to those customers and really leveraging what they have over in the U.K. with good interactions with Rolls Royce ahead of time, but Rolls-Royce was very pleased to see us do this as localization is just such a big part of this.

So we've done a lot of the mechanics of integrating them. And that's gone very smoothly. The teams have worked hard to make it work that way, but we know how important that is. And I think they're a very excited part of Curtiss-Wright that has such a big focus on nuclear and there's so much emphasis as a company that it's, I think, rewarding for them to be part of the company and part of this much bigger nuclear team.

So we're on track to drive $80 million of revenue out of the team this year. So that's quite an achievement. And they're not accretive to margins yet, but we have a clear path to make that happen, and we'll be focused on that over the next couple of years as we just continue to capture more business.

Maybe we could follow up still with capital allocation. You haven't bought anybody. I know we've talked about on the calls, I asked you a couple of times on the calls about acquisitions in 2025. Could you maybe once again discuss M&A activity pipeline? What are you seeing today? And then how do we think about the other parts of capital allocation, share repurchases in this environment?

Okay. So maybe I'll talk a little bit about the pipeline and then ask Chris to speak a little bit to the share repurchases. So I would say we've been an active acquirer for many, many years, but we're a very stringent acquirer and have a pretty high bar for both the strategic fit and the financial fit, and we're not afraid to walk away from properties. And we've done that so far in 2025. But the pipeline is full. This is part of our DNA and how we're going to grow is acquiring companies.

And really throughout the businesses, our teams are always looking for companies out there that maybe they work with that they understand maybe are still private or whatever the circumstance might be and court them over years sometimes to have them when it is the time for them to sell, that they want to sell their businesses to Curtiss-Wright. And we've had many of our acquisitions come to us that way. And those are really great.

We're active in the banking community, but acquisitions is our top priority of our use for our capital, but that doesn't mean we're going to force something that isn't a good strategic and financial fit. So we'll see what the future holds, but I'm sure we'll be announcing acquisitions in the future. But with that, maybe you'd like to talk about share repurchase.

Yes. And with that strong free cash flow that I have mentioned, we are a strong supporter of returning capital to shareholders. We believe that share buyback is the most effective way to do this. Excluding this year over the past 3 years, it was $750 million worth of buyback. We expanded our authorization with the Board earlier this year to get another $400 million of share repurchase authorization. In August, we just bought back another $200 million worth of stock.

I think it's very important for you to know that when we make these decisions, it's not just a function of there's not an acquisition or something out there in the market that we can leap upon right now. It's really a conscious decision regarding valuation and what we see in the stock going forward. Lynn and I have a lot of thoughtful conversations along those lines and also with the Board. So you can tell by the $200 million that we just repurchased that we are very excited for the future and all of these things that we see. Beyond that, we'll have more conversations as we typically do with the Board in September regarding the strong cash position that we're in and other opportunities that we have.

But while share repurchases are our most preferred method of returning capital to shareholders, it's also important to note that we are committed to increasing our dividend in alignment with our growth in sales, I mean a little bit of a catch-up this year because the growth is getting faster than our expectations that we started the year, and we increased our dividend 14% and that's the ninth consecutive year. So we are excited to be able to return capital to shareholders.

Very nice. I'll open the questions up to the audience.

The [indiscernible] session this week working on the NDAA. And as you noted, there's been a lot of growth in terms of awareness and appreciation, if you will, for the supply chain, the industrial base for large shipbuilding certainly. What -- do you have a wish list of things you'd like to see in the NDAA and what would that mean for the business?

So gaining industrial-based funding has definitely been a focus across our teams. And at our Investor Day, we gave the figure that we had received $15 million of industrial-based funding. Today, that number is up to $21 million, and it's going to grow significantly in the future. So really having the money be available, and then we make proposals in through the Navy and BPMI and different contracting arms for the things that we need to support the growth that is coming to us. And again, as I commented earlier, the funding that we see coming our way through that, I think, very much reflects the importance we play in that shipbuilding industrial base that they want to make sure we're ready to grow. And so it's -- we like a lot of what we're seeing coming through the NDAA. We just hope it gets passed.

I would just offer on top of that, that you've seen some proposals put together for the acts, the FoRGED Act and the SPEED Act coming out of the House and Senate, and we expect those to hopefully coalesce as we get deeper into the year. But the support that you've seen in those acts for commercial contracting for MOSA and not just making that a preferred contracting mechanism is something that you actually must have within your proposal in order to win.

Those are all very good things for Curtiss-Wright, our most profitable segment, which [indiscernible] before becoming CEO is the Defense Electronics group. And you can see by that entity's margins, what we are able to do when we are giving a chance to compete against other contractors commercially, I think it's a very good thing for us, and I'm encouraged by the changes in regulation that lie ahead.

Well, Lynn and Chris, thank you so much for being here. It's really an honor that we get you. And congratulations on your great performance, and we're hoping to get you back next year. Great job.

Thank you.

Thank you very much.