Curtiss-Wright Corp. Morgan Stanley's 14th Annual Laguna Conference

Absolutely, and I first want to say thank you for inviting us to you, Justin Lang, and to Morgan Stanley. I also have a disclaimer statement that today's remarks may contain forward-looking statements. They come with risks, uncertainties, and they're outlined on our website. Now we've both done our exception statement. Again, I know there's many familiar faces here, but I also see a lot of new faces. 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 can look at our Q2 earnings material, some other presentations in our 2024 investor day that set out our three-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.

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.

Specialized aerospace components that really have differentiated IP and durability of revenue would be another place we would look. I think one of the things, as you pointed out, Curtiss-Wright has had M&A as 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. I think through our acquisitive history, we've really developed very good, strong processes. You can call it a playbook, whatever, for how we go about approaching diligence and vetting forecasts and such. With that, I think we do a really good job of bringing in companies that are going to meet financial targets within the company.

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, is 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. We continue to look and exercise our diligence process, and we will find things to acquire. I feel confident about it.

Sure. Maybe Chris can talk about the financial targets.

Sure. I think as you take a look across the business, it is 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 do not measure EBITDA. We do it on a raw 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 ROC targets, which, given some of the higher multiples that you are seeing in the market today, you may not be able to hit cost to capital by year 3, but these are long-term investments, so we will hit it by year 5. But we will be flexible.

I think you are not going to hit every KPI every single time. To me, as a finance guy, it is strategic fit, strategic fit, strategic fit, financials. But we do take a lot of time and care to make sure that that alignment is there.

I guess just hearkening back to the strategic fit, it is many things I imagine you can. We are looking to build out positions in our end markets. We are not looking to add a fourth leg to the company. We really want companies that own their intellectual property. There is 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. It is a lot of different things depending on which end mark you are looking at. As Chris said, we start there, and if they do not make the strategic fit, we do not go on to the financial fit. They have to pass both.