Curtiss-Wright Corporation (CW) Earnings Call Transcript & Summary

And I see that the clock has started. Our mics have gone live. So we have to stop saying silly things now.

Yes.

So welcome back to Citi's Industrials Conference, our third and final day here down in Miami. We've had a really nice few days and some really nice weather, which has been great. We were just commenting on that before stepping up on to the stage. I now have the pleasure of hosting with us here today, Curtiss-Wright. We have both the Chief Executive Officer; Lynn Bamford, who has been with the company since 2004, I believe, through an acquisition, right? And you've, I think, led most or all of the segments of the company?

Most of them.

Most of them.

Yes, not quite all, but most.

Yes. Okay, great. You've done 9 acquisitions is what I've read.

Yes.

That's going to be something interesting to talk a little bit about. And then Chris Farkas. Did I get that okay?

Got it right.

Also since -- no, 2009, I think [indiscernible].

2009.

Yes. And you're previously the controller of the company as well?

I was, yes.

Okay. Great. And 17 years, previous experience including at United Technologies.

Yes, and Parker-Hannafin, yes.

Okay. Great. And they were here with -- well, what has become of United Technologies was with us here yesterday. You just reported results.

Yes, we did.

I think Tuesday night, held the call on Wednesday. I don't know if there's anything incremental you want to get on the record stepping away from that, but I certainly would -- I would be happy to provide you an opportunity to sum up what happened in the quarter. You might want to highlight us what you believe the most kind of important indicators that they might have highlighted on the call. And if there's -- you found that you are coming across any consistent set of questions from investors post that, maybe you want to kind of enlighten everybody or kind of get -- clarify anything, I'd be happy to give you some time to do that.

Sure. So I'd say, first, thank you to you, Jason, and for Citi to inviting us to this conference and having us be a part of it. It's a real pleasure. So thank you. We were pleased -- we really felt strong and good about how we finished the year. I know one of the things that we did talk about after the call with several people was, we had set ourselves, we felt unachievable, but a big goal for our bounce back in our Defense Electronics segment, and definitely got some kudos for pushing that well across the line and getting to the top end of that guidance that we had put out there. And so that was one of the things that got some dialogue. And we talked during the call but also continue about where we are with supply chain in that organization, which I think we went over yesterday, so I don't know if there's a need to go back over that today. But the other thing that I think I'm very proud of our ability to yet again expand operating margins in an environment where we lost revenues from our anticipated level in Defense Electronics, and the inflation and labor costs are a very real dynamic in the world. And so I think it really is a great reflection on Curtiss-Wright that we stay ahead of this. We started working on our pricing strategies back in 2021 really before inflation kicked in, in any seriousness. But in anticipation of it and really going through our contracts and looking at the terms and conditions, we had to flex our pricing as potential inflationary pressures came. And that's really just put us in a very positive position and I think demonstrated by our operating margin growth that we were achieving and that we're looking to yet push it up slightly again this year with our guide to 2023. And we feel good about our guide for 2023 and feel like it's really going to continue to deliver value to our shareholders.

Okay. Great. Chris, do you have anything to add?

I would just add that we're in the second year under Lynn's leadership in our Pivot to Growth strategy and the commitments that we made 3 years ago. We're well on track to achieve despite some of these things that Lynn is talking about with the inflation, supply chain electronics challenges that we faced this last year. So I think the messaging has been well received. We're executing according to plan and looking to have a successful completion to those 3-year targets later this year. So things are going well. A lot of good growth vectors within the market. So a lot of things that are happening under Lynn's leadership that are helping to enable that growth to happen. And just happy to have the opportunity to talk to you today a little bit about that.

Okay. Awesome. Great. So yes, maybe we'll dive right into kind of some of those topics. I give you an opportunity here to talk about some of the longer-term strategic priorities that you've set out for the company from a big picture perspective. And really try to answer the question the way I've been posing it this week is, okay, we're sitting here 3 years from now. What do you think we will have accomplished in that 3-year time frame? And I think more importantly, what are we going to be talking about in 2026 other than congratulating you for accomplishing all that you set out to do? But most importantly, kind of what does the second half of the decade look like? What are we going to be talking about in 2026 about the next 3 years after that?

Yes. So I was really -- of all the questions you could ask, that's like almost my favorite question to be asked because Curtiss-Wright is sitting at -- or so -- sorry about that. So proud of what we've been able to accomplish, the growth we're projecting in this next year, but really some of the big whales of opportunities that are going to come to Curtiss-Wright are coming in the middle of this decade, in the back half of this decade. And you can just walk right through our end markets, across the defense markets, as AUKUS gets layered in and NATO country starts spending to 2% or greater of GDP and bipartisan support continues on for defense budgets, as we definitely saw this year and anticipating next year. Those things are all going to ramp. Columbia class will be getting to 1 sub a year on top of at least minimally 2 Virginia class a year. I mean those are great drivers for our business. And I look across defense electronics, which has such a wide range of programs that the resurgence and really starting to build out some ground vehicles, which really provides us good volume sales. And the positioning we've got -- put ourselves in to really ride that tail is going to be really meaningful. And I think that's going to be an exciting thing to be talking about as those ramp -- early production years for those, but the ramp rates for them in the back half of the decade. I think when we think of commercial nuclear, we have so many good things going on, and I look at the stabilization of the current operating fleet and our capabilities in the aftermarket as they go to extend to their 60- to 80-year licenses and our position to service that market is really changed the trajectory of the growth in -- from that alone. And then you start layering in where we are with the small modular reactors and advanced reactors. The positioning we've publicly talked about our position with NuScale and X Energy, but we are very much working the main players in that field, and we feel confident we're going to have meaningful content on every one of those platforms. And if you say for TerraPower and X Energy, on the RDP contracts, they're targeting having those reactors online in '28, which, when you say it's 2023, they've got to -- work is going to be happening, meaningful work in that '25, '26 time frame to build out the prototype system so they can be getting those reactors to go through all the NRC approvals and be online in the 2028. So I think that will be real. We'll be talking about them receiving their various approval levels and that will be exciting there. We talked that -- we're in a good position with Westinghouse to continue selling them reactor coolant pumps for the Gen 3 Plus reactors. There's a lot of press out there of plans to build out -- plans across a lot of the Eastern European countries, but even some of the more Western European countries are starting to have more dialogue in that area. And just earlier this week, Poland, who has kind of laid out the most public time line, we talked about that in our February earnings call last year, they pulled that time line a year to the left, which is great to see and just shows the commitment to really getting -- so I feel like by the middle of this decade, 2025, 2026, we're going to be working on building those reactor coolant pumps to build out this Gen 3 Plus business, which is a fantastic business for Curtiss-Wright and really meaningful in volume. And then you continue on in commercial aerospace. I think we've done so many things in the company that are for the next 1, 2, 3 years, but so much of what we do and how we plan our R&D is really looking out for long-term growth. And I think -- when I think of commercial aerospace, some of the exciting things we've done -- we talked about our win with Eviation on the Alice aircraft as all electric aircraft, I don't think they're going to be in production by 2026. But I think that market is going to take form and some winners are going to have come to the surface, and there will be a line of sight on how that is going to turn the business. And I think we are doing all the right things to be positioned for that market. So sort of like our Gen 3 stuff is just over the horizon now. I think that will be another real growth vector that will be just over the horizon for us there. And another area that it's early days is we've really been doing a lot of work in electric vehicles to have some really meaningful content on the drivetrains in electric vehicles and winning some very good contracts in that space. And I think by the next couple of years, even some announcements maybe even later this year of content that you can really see is going to be a growth driver for Curtiss-Wright. So I think I just -- I could give even more examples, but I'll try and...

Yes, there's lot to unpack there. And I wish I could find my pen. I was going to write all this stuff. But I want to unpack a few of them as we go along. [indiscernible] myself the memory here. So starting on Columbia class. It's obviously a very high priority program for the Navy and, well, really for all of us taxpayers, I suspect, right?

Very much the top priority within the DoD right now.

Right. Yes, exactly. So from the perspective of Curtiss-Wright, where are you on the kind of the ramp in the revenue that you may or may not see on Columbia class, you mentioned to getting to one ship a year or one submarine a year. Does that lead to some growth in that program for you?

Yes, it absolutely does. And I think as you look at the Columbia class submarine, we've got $100 million -- $115 million of shipset content per sub. So the second submarine is -- will start to be produced in 2024. We usually start working on that about 18 to 24 months ahead of the ship builders. So we've already started to receive some orders. That is expected to ramp up to 1 per year starting 2026, so right around the corner. We're starting -- we would expect that we'll start to see a more significant ramp rate. Right now, as you look across our full naval portfolio, we're ramping up on the CVN-81. I think between the Columbia class and what's happening in the CVN-81 aircraft carrier this next year, you're going to see a very healthy growth rate in our naval defense business. And the Virginia class submarine is producing 2 per year at a very healthy pace. And there's an additional opportunity we're hoping to hear more about soon here in March in the AUKUS program where if that's something similar to what we have in the Virginia class, that would be $75 million of shipset content. So there's some really cool and exciting things that are happening in the Navy side of our business as well as nuclear and all these other growth factors that Lynn was talking about.

Great. And you mentioned -- staying with the defense area for a minute, ground vehicles. I'm kind of intrigued by that because at least from an investors' perspective, the Army has been the bill payer, I don't know, over the last 10 years or so, as we -- again, I am probably rightly so we were all in active campaigns. But I think what's happened here in Ukraine has proven out that groundwater is not dead, unfortunately. I'm kind of curious, your constructive commentary on ground vehicles, was that something that was kind of in the plan here for a number of years now, and this was something that was naturally going to occur? Is this something that's gotten a little bit incrementally better because of what's going on in Ukraine? What exactly is going on there?

I think it's really galvanized the governments, not just the U.S. government, that they need to follow through on some of these commitments. I mean there has been a lot of fits and starts and more stops in ground vehicle development over the past decade. And so development work programs get too expensive, they get canceled to go back to square 0. And I think some of that had been fixed naturally. I mean OMFV is moving through the system. There are some other wins that are moving through that I think would have happened anyways, but it never hurts to have the terrible reality award to put before you to say, wow, we make sure we've got the right vehicles. But that's -- I emphasize that's not just here in the U.S. We have a very much a European presence. And a lot of the capability we have in Europe, not all of it but a lot of it, is geared at outfitting ground vehicles. And we built up, in anticipation of this, build a very strong partnership with Rheinmetall over the past couple of years to be able to be there, provide some critical high-power electronic stabilization equipment with them and outfit some of the electronics and displays on their vehicles. And they have a good strategy that we announced our win. Rheinmetall BAE to build out the Challenger 3 in the U.K., and that's kind of their model is to work in a localized environment. So as governments want to spend money on these programs, they drive jobs in their own country. And so Rheinmetall has got a very good model of doing that. And I think unfortunately, the weakness of the vehicles that were available in Europe clearly came to light during this conflict. And so I'll say we really have not felt the money being spent yet in the European countries moving towards spending their NATO commitments. But I think we'll see that in the back half of the year and into '24. So I think, again, in your -- what will we be talking about '26, I think both here in the U.S. and throughout Europe, we're going to see ground vehicles be at a very different level than they have been.

Okay. Great. And maybe moving quickly on to the nuclear side of things. Again, maybe another lesson from Ukraine here from a big picture perspective and the dependency on Russia for natural gas. I haven't tracked the most recent figures, but I think the last ones I saw would suggest that the Europeans were very quickly exiting their dependence on nat gas. What do you think comes out the other side of this, particularly in Europe? I guess at this point, they can look for nuclear energy, renewables, gas. Is it going to be kind of all of the above? Are they going to put increased emphasis on one over the other? Kind of what's your expectation at this point?

I think our expectation and our focus area is, I think, a really broad realization that nuclear needs to be not the only player but a very dominant player that you can have these others but you need your base energy. And really nuclear is the best clean energy to provide that. And I just -- I think month by month, the world realizes that and there was an interesting article we saw last week that Japan who has been a very fervent antinuclear has really taken a countrywide sweeping change to say that they now think nuclear is an absolute necessity for them to hit their carbon-free goals. And so I think when you start turning -- it moved through Eastern Europe and were so driven by one to have the energy independence from Russia into mainland and then now to even a country like Japan that I do think that the future for nuclear energy is very bright. And I think it's coupled with things that maybe the average person would have no way to know about. But when we talk about these Gen 4 reactors, they have an entirely different safety envelope than what we saw earlier Gen 2 and even the Gen 3 reactors that the fuel is isolated, there's really no chance of melt down, they're designed with entirely passive safety systems and the fuel cannot melt down and things that I think, as they become more understood by the general public, there's a very natural acceptance of them. And I even think of those advanced reactors and a lot of them are in the 700-megawatt type range, which is a fairly common output for a coal factory and more and more wanting to keep the jobs in where -- maybe coal factories, we're tearing down cold factories, replacing them with these advanced reactors. The electric grid is already there. You have a workforce that is looking to move to that. You keep jobs in communities. It's such a good way to approach it that really works for communities, and it's pretty cost-effective. These advanced reactors are designed to be largely manufactured in a factory, then taken to a site and, I'd say, assembled. So there is work on the site that really derisks what we've seen in some of the larger nuclear power plants where there's just huge cost overruns during construction. And so they're taking that risk off the table. So it's -- the future is bright for nuclear.

Yes. I'm going to probably date myself by asking this question, but I feel like we haven't had a new start here in this country in decades. Is that still the case?

Well, the 2 plants that were started a while ago are going online down in Georgia. So there is the Vogtle 3 and 4, 1 and 2. Give me a life line -- thank you. Yes, so are just in the process of going online. But we haven't started a new build. And so that's what would make the headlines in a very, very long time.

So the ones that you mentioned are -- is it just kind of like a replacement of an existing facility?

No, they will continue a build-out of new power generation in Georgia.

I think what's important to note when you're thinking about the U.S. market and what we've seen change more recently is that as the U.S. has stated their desire to kind of regain their commercial nuclear dominance, there's been monies put aside through the infrastructure bills, through the Inflation Reduction Act, through the ARDP program to advance these technologies going forward because it will be critical for the carbon-free footprint going forward. But then not just the development of the new technologies but support for the existing operating reactor fleet. And we've got a nuclear aftermarket business, it's roughly $250 million, that has been fighting headwinds from plant shutdowns events like Fukushima. So it has been over the past 10 years, a relative stagnation or even headwind that we've been climbing up against to grow that business at a low single-digit rate over that time frame. Now with the money that's being put back into the existing nuclear reactor fleet through these funding mechanisms, through these tax breaks, we believe that these plants stopping the shutdown is a good thing for us. Now we can let our true growth rate and the volume and quality of work that we're taking over will be reflected within our growth rate. But then beyond just supporting the fleet, it's now how do we extend the plant lives of these plants from 60 to 80, and we have a lot of good work that goes in from that perspective as well. So I think it's about the advancement of these new technologies, whether that's Gen 3 Plus, Gen 4, but also the stabilization or even opportunity that now exists within the aftermarket based.

Right, right. Okay. Well, I'll know it's real when it comes to my home state of California.

California is even the [indiscernible].

They've extended it.

They said they're not going to shut it down. So that was -- it's funny you say that because we said, wow, when you get California to shift gears, then California [indiscernible].

Yes. No, and that's why I raised that topic because the -- yes, we did extend out. I don't remember how many years.

Probably the 60- to 80-year life extension, which is what everybody...

How many?

60 to 80. So most of the planes were licensed through 60 years. They're coming up on that window and that sense when they're closing and now those are being extended an additional 20 years.

20. Okay. Got it. Right. Yes, I live on the -- in the northern part of the state where [indiscernible] further south, but it was definitely in the headlines in Northern California as well. So let's say, sticking with these opportunities. On the commercial aerospace side, this question at this point for you all about production rate increases and kind of tracking what's going on at Boeing and Airbus. Is that the simplest way to think about it? Is there much in the way of aftermarket exposure that you have at this point that we should be minding as well?

Let's say a clear driver is the production rate increases, which we've said that from the way we framed anticipating our business when we did our 2021 Investor Day, it's really the only market segment that's recovered a bit slower than we had anticipated, both the narrow-body and wide-body that pushed out about a year from what we had anticipated at that time. So -- but they are recovering, and that's very much good business for us. But there's other -- on top of those businesses, we announced earlier this year that we had a nice win with Airbus for some electromechanical actuation, which is not something -- we've not had that type of content with Airbus in the past, and they're very much looking to attract new suppliers. And so that's really a new frontier for us to be able to provide that type of equipment into Airbus, and we're determined to execute well on that program and use it as a launch to win more significant systems across Airbus. So there's those things. And another thing that we do that doesn't get quite the headlines that is a ramping portion of our aerospace business is some of the surface treatments we do into some of the newer engines that allow them to run at higher temperatures. So they can have a more efficient fuel footprint while we're still not having all electric aircraft. And so a couple of different growth vectors. Chris, I'm going to turn it over to you to talk about the aftermarket.

Sure. So as Lynn had mentioned, we are seeing those healthy growth rates existing within the OEM side of the business. I think our expectations are that it's not going to recover quite as quickly as we had thought. And a lot of that has to do with just the A350 and the 787 production rates pre-pandemic were fantastic. So -- but it's still a very healthy and growing market for us. And I think as you look at the aftermarket business, what we have isn't really aligned well to revenue passenger miles and typical aircraft maintenance that you see from increased flights. Our aftermarket business is a little bit more focused on the service bulletin side of things. So when there's an opportunity to kind of bring in planes for modifications that they need to make that are mandated. So that's a little bit slower for us this year, and we are facing some FX headwinds because we did do a lot of our aerospace business and work out of our Christchurch facility in the U.K., which is kind of a manufacturing center of excellence. So facing a little bit of a headwind, but it's still a healthy 5% to 7% growth rate in that market this year. And as Lynn had mentioned, we're continuing to invest in the future. So it's not just about thinking about, okay, what happens when everybody recovers back in 2025, '26, what's next and where we're going to be after that. I mean I've been working in commercial aerospace for many, many years, and there's, since I've started, been talk about EM actuation taking hold and replacing hydroelectric and mechanical -- hydromechanical actuation, and it's starting to take hold. So I think with the vision for decarbonization going forward, whether it's aircraft, vehicles, power generation, I think we've got a good footprint, and we're aligned to those growth factors.

Yes. And I'm intrigued by the comment you made about some of the content at Airbus. Is -- has that been driven largely by the difficulties that all -- everybody has seen in the supply chain and then wanting to look for a second source? How did you come about getting...

We're knocking on their door for a long time, asking for an opportunity to do it. And truthfully, I don't want to talk about another supplier's performance. But clearly, we did a lot of work to prove our capability, a lot of audits with Airbus to get to the right and using the spearhead opportunity to definitely prove we're capable of, and we're definitely talking to them about other opportunities already to be able to provide content to them. So it's going to be good.

Yes. And as we think of -- the big debate in the investment community at this point is kind of when does Boeing introduce a new aircraft and that probably spurs a competitive response by Airbus. And at this point, everybody is kind of looking into the mid-part of next decade for an introduction of an aircraft, but we'll probably back up some number of years to -- they start to do the design and start selecting suppliers and that kind of thing. And sticking maybe a little bit with the competitive environment. So you're thinking about new narrow-body aircraft potentially in the next -- I don't know it's going to be inside this decade when this gets announced and they probably start selecting suppliers, I think. Is this going to be a big opportunity for you all from a content perspective? You're feeling like you've got more to gain than you have to lose in this next aircraft relative to what you have today?

We're definitely focused on some new product introductions in that area, which, honestly, we have been fairly slow in if you turn the clock back a couple of years. And so very selective areas where we can really bring our intellectual property to bear in the market and command price points that are going to be good for Curtiss-Wright. So we'll definitely pursue business, and I think it can be a growth vector. But there's also a lot of price pressures in those end markets. And so we'll be selective on where we look for business that we can really bring something unique to the market and command the margins that we want to drive.

So that's you on record, you're not going to buy business?

No.

Okay. Good.

It was a more direct way of saying what I said.

Yes, yes, understood. And I want to go back to the comment that you made, Chris, earlier about AUK. We had the shipbuilders here -- we had shipbuilders here this week -- you're talking about the submarine, I'm guessing.

Yes, the AUKUS.

Yes, perfect. So we had no shipbuilders here this week. And they're just taking a complete wait-and-see approach on how this all plays out from an industrial base perspective. They're not really kind of committing to anything at this point. But it sounds like it's an opportunity for you all no matter how this all plays out from an industrial base perspective. Is that kind of the way I'm hearing this?

So I would say they have left it open-ended whether they're going to make it a variant of an Astute or a variant of a Virginia. It's a win-win for us in either case. Obviously, a much bigger win if it's a Virginia class significantly here and I think there's a lot of -- the conventional thinking is that will be the case. But there is questions. And I will say that there's not a lot of chatter around the community beyond how this is going to play out, but they are committed to making an announcement in March of this year, which we've heard they're going to stick to, to roll out their plans for how they're going to go about this. The one thing that I can talk about is, we've had engagements directly with the Australian Navy and they've been in some of our facilities, seen the capability of what we do for the Virginia and strongly indicated that's not something they would look to replicate or bring back to Australia because, obviously, they want to do things in Australia and drive jobs in Australia on all these programs. So I mean we feel that's a good indicator of the growth it's going to provide to Curtiss-Wright. But again, we could be surprised by the announcement. So we'll wait until they roll out the plans, but we're optimistic.

Yes. And what does the competitive landscape look like for that? Would you be competing against anybody?

Not really. I mean it's -- we never treat our business as sole source, but we have a pretty unique capability that we've been doing for 60 years and are a world-class supplier in that space. So we feel good about our position.

Right, right. Good. And the word price has come up a few times in the conversation, at the beginning when you were talking about some of the things that you've been able to do to offset inflation and then not wanting to chase price down. So I don't want to -- certainly, I don't want you to rehash anything that you went through yesterday on your earnings call, but I am kind of intrigued on how you are handling inflation because I've been here this week listening to the aerospace and defense companies, particularly on the defense side. I think they're all -- nobody is projecting margin expansion this year. They're all dealing with -- particularly on firm fixed price programs that have been signed. Prior to inflation really ramping, they're all kind of struggling with their margins because they don't have the opportunity to reprice their firm fixed price contracts and get relief. So I'm just kind of curious, the approach that you have, what enables you to begin passing on price? Is there a limit to how much you can do that? Just kind of just talk philosophically about how you're approaching all this.

So I'll maybe tag team this with Chris, but to start out, we are projecting margin expansion next year.

That's why I brought it up, you are. The others that have been here this week, particularly on the defense side, they're all forecasting margin compression this year because these inflationary...

Back in early '21, we really -- we did a complete training across the company with anyone who had any hands on with negotiating contracts to really put forth best practices about being prepared to negotiate through an inflationary environment with those contracts. And that was just very fortuitous given what has come there to be the reality of the world we live in. So there's a combination of really getting ahead of our contracts. There is a combination of working with our supply chain. There's -- we've had very, very purposeful programs where we track which portions of our business we have been able to adjust the sales price to absorb the cost increases in the supply base and labor cost increases, right? It's not just inflation on the materials. We work aggressively to ensure we're paying our staffing and keep a secure workforce. But there are also some dynamics about how we in some of our long lead in firm fixed price contracts, that have put material under order. And I know it's something Chris can speak to.

Sure. I'll try to expand upon that. So Curtiss-Wright has a long rich history and operating excellence. And I think if you back up probably back to the 2009, 2010 time frame, a long time ago, 9.5% organization. And Lynn and I have been through the transformation and the deployment of that commercial excellence to the organization to get us all the way up to 16%, 16.5%. And today, we're targeting 17.4% to 17.6%. So building upon that foundation of operational excellence when we came in as CEO, a critical component of our -- to growth strategy is the operational growth platform, which takes that operational excellence but then also blends in commercial excellence. So Lynn had talked about the training that had taken place within the organization. And it's really about helping people who are out there in the field understand the economic value proposition and what they're offering to the customers and then having the confidence to be able to go and grab that value. Beyond that, we started establishing early warning systems throughout the organization so that the supply chain was talking faster to the contract people in the organization so that whether it's freight increases or whether it's material costs, that information is flowing more quickly to the hands of the people who are ultimately in charge of the negotiations. So true, in the government contracting environment, I think there's a benefit in that and that you lock into your material prices at the beginning of the contract. So you're really not subject to the same inflationary pressures. But hopefully, you've done a good job, like I think we have. You have escalation provisions. So you got built-in pricing that takes place there. But on the commercial side of the business, when you talked about commercial aerospace, there might be long-term agreements. There might be opportunities to rebid more frequently because it's a shorter cycle business. And those are really the places where we seized the greatest opportunity, stepped in, had some very difficult discussions to get this done. But I think the team has done an excellent job. And I think as we look back at what happened this last year in '22, probably about 1% of our sales growth was associated with some of those activities, mainly on the commercial side of the business, which we're really saying is new and about 10 basis points of margin expansion. And as we head into this year, again, we're targeting something similar. So I think the program has been very successful. The timing was absolutely perfect here because the inflation really started to hit us until we had a quarter or 2 after this new program was deployed, but been pleased with the results to date.

Yes. [indiscernible] or better lucky than good, I guess, right?

Yes. there's truth in that.

You've talked about quite a few growth vectors that you have here in front of you. I suspect that research and development, new product introductions have got to come along with that. Maybe you can highlight a couple 3 R&D projects, new products that you think you're going to be highlighting to the investment community here over the next couple of years. And then Chris, a question to you will be she's got the idea of how are you going to pay for it all.

So the area -- we have really shifted our thinking to think of our total engineering spend. So both the -- what we're investing ourselves to build products to bring to market but also how we deploy our engineers -- customer-funded engineering projects. And we have continued to increase that. It was fairly flat '21 to '22, but up very much from all the prior years, and we're continuing to drive that up probably another $20 million in '23, included in our margin expansion. So it shows really the operational excellence with inside the company. So when I think of some of the IRAD projects, things that we're proactively building, we spend most of our IRAD money in our Defense Electronics segment. And we started back really about 3 years ago, the government put out new mandates about new open standard equipment that would be very favorably weighed into awarding contracts, the most and the social standards that maybe -- would ring a bell to some people. And we very heavily have been investing in building out our product offering in that area to ensure we've got the right slate of products to take into that market. And we put a couple of press releases out over the past 18 months, where we could of wins we had with that content. So that's been a big focus area for us and very exciting. An area we're ramping up on this year, again, something that doesn't make the headlines quite as much is we've been working on some very large subsea pumping projects for the oil and gas industry for deployment across the drilling fields. And those projects are going to probably come to conclusion in the '23, '24 time frame. And we've talked about our partnership with Shell and Saipan publicly. And each of those 2 opportunities stand the chance to drive $100 million-plus of business each to Curtiss-Wright in the back half of this decade. So those -- that's another big, exciting kind of a new market for us. So we're really excited taking that technology that was developed for one end market and reading it across to another market is something we're very excited. And just to put one example across each of the 3 segments, we've announced our partnership with Dynetics to bring our electromechanical actuation products into the defense area. So capability very much generated largely for aerospace, which we're using our footprint with customers into the defense markets to take that technology. And Dynetics is one that we can talk about publicly for their Enduring Shield product. And so just 3 different examples, but there's -- you can keep me up here for an hour talking about that stuff. But I see the clock ticking. So Chris can talk about how we're going to pay for it.

In 40 seconds or less.

Yes.

So I think Lynn said it well. I mean, number one, profitable growth is the CFO's best friend. And we are investing strategically to support all these growth vectors that Lynn had talked about. We're very thoughtful and calculated when we look at our R&D investments. We've got process internally to ensure that monies are being put to the highest and best use. And I think you're starting to see that translate into our financial results. Our organic growth is starting to take off. Our margins are continuing to expand as we're putting all of this increased investment back into the business, and we're not just managing the business for today. We're managing the business for the long term and, really excited about where we're heading.

Yes. Okay. Great. We've gotten 7 seconds over now. So [indiscernible] it's going to going -- exactly. I'd like to graciously thank both of you for investing the time to come down to Miami. I know it's not that far for you, but...

Our pleasure.

Yes, it's been a pleasure having both of you here.

Thank you for the opportunity.

Yes, absolutely. Okay. With that, thank you, everybody.

Yes. Thanks, everybody.