Curtiss-Wright Corp (CW) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Curtiss-Wright First Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Jim Ryan, Senior Director of Investor Relations. Sir, you me begin.

Thank you, Scarlet, and good morning, everyone. Welcome to Curtiss-Wright's First Quarter 2017 Earnings Conference Call. Joining me on the call today are Dave Adams, our Chairman and Chief Executive Officer; and Glenn Tynan, our Vice President and Chief Financial Officer. Our call today is being webcast, and the press release as well as the copy of today's financial presentation are available for download through the Investor Relations section of our company website at www.curtisswright.com. A replay of this call also can be found on the website.

Please note, today's discussion will include certain projections and statements that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC.

In addition, certain non-GAAP financial measures will be discussed on the call today. A reconciliation is available in the earnings release and at the end of this presentation. Our discussions today are current and future results, except for cash flow, are on a continuing operations basis, which excludes all previously announced divestitures. In addition, any references to organic growth exclude the effects of foreign currency translation, acquisitions and divestitures, unless otherwise noted.

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

Thanks, Jim. Good morning, everyone. For our agenda today, I'll begin with the key highlights for the first quarter 2017 followed by Glenn, who'll provide a more thorough review of our quarterly financial performance, along with updates to our 2017 guidance. Then I'll return to wrap up our prepared remarks before we move on to Q&A.

We're off to a great start in 2017. Our reported EPS for the first quarter was $0.73, which was ahead of expectations. In spite of the expected purchase accounting costs associated with the acquisition, we produced a solid first quarter. Along with the great start for EPS, I'm also very excited about the solid 3% organic growth generated in the first quarter, which our team achieved despite continued softness in our Energy and Nuclear Aftermarket businesses. Our positive momentum was led by improved demand within several of our industrial markets as well as higher AP1000 revenues as we continue to ramp up on the recent China Direct contract. This is a testament to the breath of our diversified portfolio of businesses, which allows us to mitigate those commercial market headwinds.

Included in our first quarter results is the sales contribution of $10 million from the recent acquisition of Teletronics Technology Corporation or TTC. We remain excited about the future opportunities we see with TTC as part of the Curtiss-Wright family. Excluding the TTC purchase accounting, organic operating margin was nearly 11%.

Moving forward, we expect sequential quarterly improvement and profitability, which will position us to deliver another solid performance this year with continued organic sales growth and operating margin expansion. We also experienced increased orders in the first quarter, most notably for our helicopter handling system in the Defense segment and naval pumps supporting the ramp up on the CVN-80 aircraft carrier in the Power segment. As a result, book-to-bill was solid at 1.23 in the first quarter.

Now I'd like to turn the call over to Glenn, to provide a more thorough review of our first quarter performance and updates to our 2017 financial outlook. Glenn?

Thank you, Dave, and good morning, everyone. I will begin with a review of our first quarter end-market sales.

Overall, we experienced a 5% increase in sales to our defense markets and a 3% increase in sales to our commercial markets, both of which included solid organic growth. In the defense markets, our results reflect a $10 million contribution from TTC, primarily for flight test instrumentation equipment for the aerospace defense markets. Elsewhere, aerospace defense improved demand from embedded computing products supporting UAVs was offset by lower sales on several helicopter programs due to production timing.

And in Ground Defense, our results reflect higher sales of turret drive stabilization systems to our international customers. And finally, naval defense higher development revenues on the new Columbia-class submarine program were more than offset by reduced production on Virginia-class submarines due to timing. We also experienced lower CVN-79 aircraft carrier revenues as production continues to advance towards program completion.

Moving on to the commercial markets, I will begin in commercial aerospace, where sales were down slightly due to lower sales of actuation equipment in surface treatment services. In Power Generation, sales were up 6% as higher AP1000 revenues on the 2015 China Direct order were partially offset by lower demand in the Nuclear Aftermarket business.

And finally, in the General Industrial market, sales increased 7% overall, led by better-than-expected performance in industrial vehicle and automation products. This was principally due to higher off-highway sales of medium-duty commercial vehicle products, particularly in China, where new emission regulations drove additional sales growth. Partially offsetting this performance was lower sales of our severe service industrial valves, principally to the oil and gas market, as expected.

Next, I will discuss the key drivers of our first quarter 2017 operating performance. Starting with the Commercial/Industrial segment, operating income was up 2% and operating margin was up 10 basis points to 11%. This performance was driven by higher sales and improved profitability on our Industrial Vehicle products and the benefit from our prior year margin improvement initiatives. However, those gains were partially offset by unfavorable mix as well as unfavorable overhead absorption due to lower industrial valve and surface treatment sales.

Next, in the Defense segment, operating income decreased 34%, and operating margin was down 630 basis points to 9.7%. As expected, these results reflect the initial purchase accounting targets at TTC, which reflect dilutive to first quarter margins. On an organic basis and as shown on the right side of the slide, operating income for the Defense segment improved 2% and operating margin was up 20 basis points to 16.2%, reflecting the benefit of our ongoing margin improvement initiatives despite unfavorable mix.

In the Power segment, our first quarter results were solid as operating income improved 13% and operating margin was up 80 basis points to 12.7%. The strong improvement in operating income and margin is due primarily to higher production volumes on the China Direct AP1000 contract. We also benefited from higher profitability in our Nuclear Aftermarket business despite lower sales due to previously implemented cost-containment initiatives. And corporate costs were up in the first quarter due primary to higher FX transactional losses.

In summary, overall first quarter operating income decreased 11%, which led to a 160 basis point decrease in margin to 9.8%. However, as shown on the right side of the slide, overall organic operating income would have only been down 1% while operating margin would only have been down 50 basis points to 10.9% excluding the 110 basis points in margin dilution from acquisitions.

Moving on to our 2017 end-market sales guidance. We continue to expect total Curtiss-Wright overall sales to grow between 3% and 5%. In the defense markets, overall sales are still expected to grow between 7% and 9%, reflecting the contribution from TTC and the favorable trends in defense spending. In addition, we made a few modifications within the aerospace, ground and naval defense market growth rates based on improved platform visibility.

Moving on to the commercial markets, where overall sales are still expected to be flat to up 2% and our end-market guidance remains unchanged. Regarding the General Industrial market, despite the solid first quarter performance, we remain conservative in our outlook. We continue to expect sales to decline between 1% and 3%, although there are some encouraging signs in this market. And if those trends continue, we may become more optimistic with our outlook later in the year. And finally, in the appendix of our presentation, you'll find the 2017 end-market sales waterfall chart.

Continuing with our 2017 outlook, where we are reaffirming our sales, operating income and operating margin guidance. Total Curtiss-Wright operating income is expected to grow 3% to 5%, while operating margin is expected to be flat to up 10 basis points to a range of 14.6% to 14.7%, including 50 basis points dilution from the TTC acquisition. This outlook reflects the benefit of the restructuring and facility consolidation initiatives implemented in 2016 along with ongoing cost mitigation actions and anticipated increases -- investments in R&D in 2017.

Next, I would like to provide some additional color on TTC. As expected, the inventory step-up amortization will be reflected in the first half of 2017 and will, therefore, be dilutive to operating margins and EPS during this period. Beginning in the second half of this year and continuing into the future, TTC will be accretive to both the Defense segment and overall CW margins and contribute solidly to our EPS.

While we continue to project TTC to be breakeven to operating income and EPS in our full year 2017 guidance, lower amortization estimates along with potential integration synergies could result in TTC being accretive to our overall full year results. However, since it's still early in the year, we have elected to maintain our overall Curtiss-Wright guidance as it pertains to the acquisition.

Continuing with our 2017 outlook. During the first quarter, we adopted the accounting standards update for share-based compensation, which resulted in a tax benefit of $4 million or $0.09 per share and drove the increase in our full year EPS guidance. As a result, our guidance for diluted earnings per share is now a range of $4.40 to $4.50, which represents EPS growth of 5% to 7% over 2016 results. In addition, we continue to forecast 44.9 million diluted shares which, as a reminder, includes our expectations for $50 million in share repurchases in 2017 to offset dilution from stock issuances. For your EPS modeling purposes, we anticipate each quarter increasing sequentially and the fourth quarter being our strongest as we have done historically.

Moving on to our free cash flow, which as expected declined year-over-year. As a reminder, the prior year included significantly higher advance payments on the AP1000 program and a $20 million onetime benefit from unwinding our interest rate swaps. We remain on track for solid free cash flow in 2017 ranging from $260 million to $280 million with an expected conversion rate of approximately 135%. Note that the revised conversion rate shown on this slide is solely the result of the $4 million increase in net income resulting from the accounting change previously discussed. Both of our cash flow metrics are in line with our long-term guidance, which includes maintaining an annual base free cash flow of at least $250 million and an average free cash flow conversion of at least 125%.

Now I'd like to turn the call back over to Dave to conclude our prepared remarks. Dave?

Thanks, Glenn. Before I wrap up and we move on to Q&A, I wanted to provide a few brief remarks on the AP1000 program and our reactor coolant pumps. Plant construction continues in China as they drop closer to the start-up of Sanmen 1, which is expected to be the first AP1000 reactor in operation in the world. Fuel load is anticipated to begin sometime this quarter with plant start-up expected by the end of 2017.

In addition, as you saw by our first quarter results, production revenues on the 2015 China Direct contract are continuing to ramp up. We expect to see strong revenue and margin contribution from this order over the next 3 years. I'll remind you that China is the largest potential market in the world for the AP1000 reactor. The successful commercial operation of the Sanmen and Haiyang plants in China should open the door for additional China interest in new AP1000 plants and Curtiss-Wright RCPs.

I also want to reiterate that for the 2015 contracts, our pumps are being sold directly to the Chinese for the 4 new AP1000 plants that are being constructed in China. As a result, we do not believe that the Westinghouse bankruptcy will have a direct impact on our ability to secure new orders from China to support future AP1000 plants.

Further, as it pertains to our 2008 U.S. contract and the remaining RCPs yet to be delivered, these are based on percentage of completion accounting, and we have already recognized approximately 95% of revenue in cash on this contract. So while there may be some near-term risk to the remainder of those contract dollars, the overall financial impact is not expected to be material to us. Regarding future non-China markets for AP1000, we're in a wait-and-see situation at this time, though the demand from countries like India and the U.K. remains very strong.

In summary, Curtiss-Wright is well positioned to deliver solid results in 2017. Although our industrial markets, many of which have been depressed for several years, are showing some signs of relief, we remain cautiously optimistic about those markets for the remainder of the year. Overall operating margin is expected to be up slightly despite the purchase accounting charges from the TTC acquisition. On an organic basis, we expect 50 to 60 basis points in margin expansion driven by our team's ongoing solid execution.

In addition, we are focused on continuing to generate strong free cash flow as evidenced by our performance over the past few years. We remain committed to maintaining a balanced capital allocation strategy between operational requirements, including increased investment in R&D, returning capital to our shareholders and acquisitions. We're dedicated to growing the top line, which we intend to accomplish through a combination of internal growth and strategic acquisitions.

As you saw with the TTC, we are taking a prudent approach to find suitable targets that closely align with our long-term financial objectives. We are fully committed to achieving and maintaining top quartile status compared to our peers for all of our key financial metrics, particularly operating margin and ROIC. We also look forward to continue to deliver on our strategy in producing solid financial results to drive long-term value for our stockholders.

At this time, I'd like to open up today's conference call for questions.

(Operator Instructions) And our first question comes from Ryan Cassil with Seaport Global.

I wanted to maybe start with the C&I segment, if I could. The growth was good in the quarter. Is there -- and you guys maintained the outlook. Is there anything in early in Q2 that's given you a little bit of a pause there that you want to see either pick up? Or is it just a little bit of conservatism as you called out?

We're not seeing anything different in the beginning of the second quarter. So it's really conservatism. It was a good quarter. We're excited about it. Orders were good as well, but we're going to get a little bit more of the trend going before we're going to make any adjustments at this point. But nothing else, no reason to pause.

Okay. And in that book-to-bill of 1.23x, maybe you could dissect that a little bit with respect to either the segments or I'm really trying to look at -- get a sense for what C&I contributed there on the order front.

Well, most of the -- C&I was up somewhat, but the 2 big ticket items in the quarter was a big order in the Defense segment for our helicopter landing systems for a project in Italy. And then also, obviously, we had TTC in the Defense segment as well. Then the other big ticket item was about $52 million CVN-80 pump order in the Power segment.

Okay. And any positive signs on the severe service valves side? Some of your competitors have noted some better trends there. I'm just curious if you're seeing that yet.

Well, excluding the navy pumps, I mean, right, I mean, the navy valves...

Yes.

Or the (inaudible) valves. Well, I will say I put the navy aside because it's lumpy and all that stuff. But on the commercial side, the first quarter was another good quarter month for them. And I think it's probably the highest in the last 5 quarters. So it's encouraging, but again not enough to really make us -- to move the needle and make us change our guidance at this point. But that's another area where we are -- in the first quarter order intake was pretty good.

Okay, great. And then just looking at the AP1000, continue to get a lot of questions there. Could you give us an update on the 2008 order? How are you here? Tests are progressing there. I know there was kind of rumblings or rumors of vibrations or some issues that may have arisen there. Can you give us an update on what you're hearing there?

No. I haven't heard of any vibration issues on that order. So I'm unfamiliar with that one, Ryan. As far as the technology and the operational attributes of the pumps that we've supplied, everything is a go and very positive from what the experience has been. As you know, we went through hot functional testing, and that was very successful. So they continue on and particularly in China, with the process of going to possibly -- or by the end of '17, everything is talking about right now that go into live production of energy. So fuel upload by middle of the year and -- but other than that, everything is just very positive on that.

Okay. So still largely on track from what we were hearing 3 to 6 months ago, sounds like?

Oh yes. Yes. No change from what we've been saying.

And our next question comes from Sam Pearlstein with Wells Fargo.

Can you talk a little bit more about TTC? I know, you said it's $65 million in revenues this year. But how does that look year-over-year, if we were to compare last year, obviously, we don't have the numbers, but just the trajectory this -- last year, this year and then into next year?

Well, I don't have the exact number from last year, but it's up slightly. I won't say it's big, but it is up from the prior year. And I don't have next year, nor will we probably talk about 2018 at this point. But 2017 is up from 2016 that I do now.

I'd just add a little note to that, Sam. Generally, what made TTC so interesting to us was, obviously, the performance in historical and margin performance and then platform applications and so forth. But another was the absolute fit within Curtiss-Wright, and they share with Curtiss-Wright the traditional lower front half and higher second half in terms of revenue and so forth. So I mean there are so many different ways that this company fit into our portfolio that it's uncanny. So you're going to see a little bit of that.

Okay. And then when you do your sales waterfall, it look like there was a little bit of uptick in percentages from the valves and a little bit decline in the vehicles. Can you just talk about what shifted around there?

On the waterfall -- say that again, Sam?

I guess, I looked at sort of the industrial valves. It looks like it's up a couple percent and vehicles is down about the same. So I just wasn't sure, if there was anything that I can read into that in terms of the percentages.

No.

No. It is nothing. Really it's probably we did some internal reallocations not in the industrial. We have TTC gave you some relocations as well. But that's all really, and it really doesn't -- nothing fundamentally has changed.

And the last question is just how do you think about with the Westinghouse bankruptcy what it means to your long-term growth opportunity for the AP1000? Does it change your view of that opportunity?

We, obviously, watched this very closely for a period of time, certainly since March 29. We don't really think that it does. And there are couple of reasons for that. One, let's talk domestic for a moment. We've got Southern and SCANA building those plants at the moment, and they do utilize AP1000 RCPs. And they're considering their options right now. They'll make a determination here shortly whether they continue with those and proceed. With regard to other opportunities in the United States, they've been slow for a long time. And they're not -- it has never been for us really the real opportunity for growth. The real opportunity exists as we've talked in China, and we have a China Direct contract, as you know, that was not through Westinghouse whatsoever.

And so it's completely autonomous from the Westinghouse situation. We feel that the India opportunity that we've talked about remains, as a matter of fact, in recent discussions I've had with our folks, they instructed me or informed me that the ongoing discussions between Westinghouse and India continue with a high degree of optimism that there will be a way to make things work. They have to get over 2 hurdles. One is what occurred in last year in June, and that was to get over the liabilities side of India's liability laws, and that was supposed to -- and it's supposed to actually be addressed here midyear this year. And then sometime after that, we don't know when, if they got their liabilities laws fixed and made it something that would be compelling for U.S. domestic suppliers like ourselves, then we would all be able to enter into contracts with them. And I think that it has been -- from the press, it's been very clear that the interest remains extremely strong. There are 5 regions in India that have been designated to be new areas for nuclear power plants, and we are among those 5 with the AP1000 design. Westinghouse is looking for a partner for the construction. I believe that they'll find one, and there are plenty of suiters out there that could take that on both domestic and foreign.

And so they remain engaged in that process. And through that, we find a high degree of optimism for ourselves in terms of that second largest opportunity for future growth. So the outlook is, China needs roughly 72 RCPs over the next, let's call it, 8 to 10 years for their new reactors that they plan on which have been committed and funding has been committed. So that's a great opportunity for us. And then India being the next one with roughly 26 that we would be involved with. And then Moorside in the U.K., which are -- they're very -- they're looking very positive. They got their approvals, and it's the same situation there. Westinghouse folks are talking to people about someone who could do the construction. And Westinghouse made it clear that they want to remain in the aftermarket ongoing support business along with the design aspect of AP1000. So overall, we're still very excited about the opportunities here.

And our next question comes from Myles Walton with Deutsche Bank.

This is actually Lou Raffetto on for Myles. Just -- you guys called out the lower actuation systems in commercial aero. Just curious if you can add some more color is that sort of the -- some of the wide bodies coming down, narrow bodies not quite ramping up yet? Or is there another dynamic going on there?

It is a combination of the both. I mean narrow bodies are expected to increase, and it could be just the pace at this point in the first quarter. And a wide body is coming down. We also did some work in the prior year on an FAA directive on a 767 [ring gear] program, which is kind of like a one-off thing. It was a really good one-off thing. But that's the only other thing that might be in the mix besides the mix of the wide body and narrow body.

And our next question comes from Kristine Liwag with Bank of America.

I was wondering, in your release you mentioned lower sales on the Boeing 737 and 787 programs. From my understanding, if the 737 production should increase by end of 2Q and 787 register flat, can you discuss what's driving the difference in what you're seeing this quarter?

Well, I know on the 787 program, we had some lower work on our -- we have our EVO operation, and that does fluctuate. So it's a matter of timing on that. 737, again, last year, we did have an FAA directive on the 737 program, albeit smaller than the 767. But that was in last year and not in this year. So -- but for the full year, maybe 737, of course, is going to be up and so would 787 then.

Great, that's helpful. And Dave, on the AP1000 in India, how should we think about possible margins for these contracts? Would there be a difference in your expected profit if you sell through Westinghouse versus a direct contract with India?

It's probably -- certainly something that I can't talk about openly with regard to margin. But I wouldn't see a big change frankly between China and India. Remains to be seen how that all shakes out and comes in and the quantities and so forth. But just right of the top, I wouldn't necessarily see a big change in that.

Great. And then, Glenn, may be a housekeeping question. Can you just discuss what your purchase accounting adjustment was in 1Q '17? And can you walk us through the cadence for the rest of the year, if you can have some specific figures?

Yes. No, I don't have the specific figures, but I will tell you the big ticket item is the inventory step-up, which is the highest in the first quarter and somewhat moderate -- somewhat lower in the second quarter and then goes away in the third and fourth quarter. We expect sequential improvement in TTC, typical of our Defense business anyway in 2017. But the fourth quarter being (inaudible), yes.

And our next question comes from Jim Foung with Gabelli & Company.

Yes. Just a follow-up on the nuclear business. Is there an opportunity to sell directly to India, like you did with the China 2015 contract?

Well, I'd suppose that there would be an opportunity there. I'm not sure that it would gain us much. We have been working with Westinghouse on this as it has been their program. And they are the ones that are leading the sale there unlike the Chinese. And Chinese wanted to go autonomous, and they had -- continue on with theirs. But there's nothing to say that it could not happen. I think with Westinghouse's continued design aspect and the maintenance side of those plants, I would think that they would certainly keep in there, and we would work through Westinghouse with them into India.

So with the Westinghouse bankruptcy, there hasn't been a real slow down at all. I mean, I presume the shipment of Q1 was in the pipeline. So it's just hard to tell if there is going to be a foreseeable slowdown in, right?

You mean -- I didn't understand your question, Jim?

With the Westinghouse bankruptcy, you didn't see any slow down at all in your shipments to China?

No. No, none whatsoever. No. Actually, we think that -- we've completed the China original contract, and that's done. And then now we have the remnants that are going to the 2 domestic plants and they'll be ready to ship complete by the end of Q3. And then of course, in China Direct, new contract, continues on. So there's really been no stop and no slowdown in anything that we've been doing in that regard.

And you're still looking at $70 million of revenues this year from the China contract? That was kind of your number roughly from your Investor Day.

Yes. We're still in line with that. Yes.

On track. Okay. And then just lastly on the contracts, you mentioned earlier in your remarks that there could be a number of partners that would be willing to work with Westinghouse in the construction part. Who are some of these partners?

Well, we know that Westinghouse has spoken to the Chinese and the Koreans and I think some of these utilities have had the same kind of conversations as in other domestic ones. But it's really what I've been reading in the trade journals and what I've been hearing from our folks. So there's some very formidable people out there, companies, that can handle it. It's just a matter of the mass and the scale and who wants to do it. I think a lot gets proved out certainly by the operational aspects of the China plants: Sanmen and Haiyang. And that's going to come up here pretty soon. So they have to ferret that out. But it looks to be that they certainly want to stay in the design side of it. And there is being the first generation 3 at -- first generation 3 nuclear reactor in the world, there is a lot of demand for that because of the safety attributes of it. So like I said, we're really positive over it. And I think that someone's going to be out there and raise their hand to build these facilities.

Okay, okay. And then just one last question on the severe-service sales. So you saw kind of a little uptick in that business in Q1. How much were revenues down from the peak in this business for you?

From the peak? Well, not sure of the peak. It's probably a couple of years ago, Jim. I'm not sure. Year-over-year is one thing -- last year, for instance...

Okay. Let's just talk about last year. How much -- I guess, how much was it down last year maybe?

Last year, it was down 25%. This year, we're expecting it to be down 5%. So it's moving in the right direction. But beyond that, I don't know. I don't have in my (inaudible) notes here.

Our next question comes from Michael Ciarmoli with SunTrust.

Maybe Dave, just to stay on what Jim was just asking on the revenue cadence for the China Direct, even if the Westinghouse bankruptcy lingers here and while there are some big players out there, do you see any potential change to that revenue recognition? I guess, it was close to $70 million this year, moving, I guess, ballpark based on your slides from Investor Day into the $125 million range. I mean, could any of that change -- could your build rate or shipment schedule change depending on any of these scenarios or outcomes with Westinghouse?

No, I suppose that just if SCANA and Southern were not to take the -- were not to continue on with the completion of their facilities, then I could speculate that some of those units, if not all that we have ready by Q3, could begin to go to China. And that -- because they are the same units. So I think that's a possibility. But in terms of the cadence of the recognition and so forth, I don't think there's a change there.

Okay, okay. And then just the -- I know you were talking about India. Are there -- I think they were planning on having that order done by June? I mean, what's the -- clearly, there's still interest there. Clearly, they're going through the process of that liability. But just the timing of that order, and I know, we saw this with the China Order, it took some time to get the deal done. I mean, any expectations of does that get done in June? Does it slide a couple months? Or how are you guys viewing that sort of deal with India right now?

Well, we remember really thought that the order would come in June of '17. We knew that there would be a follow-up meeting that would hopefully resolve the liability issue. And that's what we've been watching closely. And they are seemingly on track. They've been talking since June to work out these angles. And as I understand it, I've heard recently that President Modi -- Prime Minister Modi might be visiting the U.S. to visit the new administration, again, once again sort of talk about the liability aspect of it. But we don't have any indication of when it would occur. We do know that there's a strong desire to make it happen on behalf of not only India but domestic at least the prior administration and certainly Westinghouse. So lot of impetus there behind making it work in a positive direction. Now as you know, what we live through with the orders from the Chinese, that took a while to happen. It did occur and we were absolutely thrilled when it happened. And like I've said in the past, we're going to be thrilled when the India order happens as well. It's just now we can't speculate on the time frame with which that would occur. But like I said, I think they're making very positive momentum, and it looks that way from what we're hearing. And if everything continues to work in the way it has so far, then it looks like it will be a positive outcome. When? I'm not sure. But it's going to be a nice one for us when it does happen.

Got it. That's helpful. And then just last one from me on the overall defense markets. We've got what looks to be a deal in place here to fund the Department of Defense for the remainder of the year. I know you talked about timing impacting some of your naval-related revenues. But how does your outlook -- has your outlook changed there, given what's happening with potential submarine build schedules? And do you see -- I know it looks like you bumped up your naval growth from the fourth quarter. But I don't know if that was more of a function of just TTC. I know you had it in there back in the fourth quarter. But anything really changing in your view with kind of the defense budget or naval ship building plans?

I don't think so. I mean it's all positive for us. It's not really going to impact this year, as you know. But I think going forward, it's going to be beneficial to us. So I think it's better than we would've thought before. So...

I just hope with our -- 2 of our VPs that really drive the defense market, yesterday afternoon just to get a late read on that, Mike, and the read I got from both of them was, just like Glenn said, it doesn't necessarily affect this year in certain ways from the long-term programs like the ship building side. However on the shorter term, the COTS build -- the commercial-off-the-shelf business that we have, that is very positive for them and certainly very positive for the long-term shipbuilding. But real positive for the platforms that we provide COTS product on across the board in that moving away from the historical we've had over the last several years of being budgetless, if you will. And with continuing resolutions and so forth, this opens the door for a more long-term approach that the primes can take now in making their decisions on where they're going to spend that money, how they're going to outsource, which will absolutely benefit us. So the folks that are COTS facilities are very excited over this and basically breathing a sigh of relief. This is a real great step forward to having added that money to the procurement cycle and, in particular, in the areas that we participate in. So we feel very good about that.

(Operator Instructions) And our next question comes from George Godfrey from CL King.

Just 2 questions. And I jumped on the call late, so I apologize if you covered this first topic. The first one, Commercial/Industrial organic revenue growth 3%, but in the press release and commentary, you called out that orders were a little bit soft there in that segment. Can you just provide any color on that disconnect for me?

Well, I think it's pieces. The general industrial piece, the vehicle piece, absolutely had a good quarter from a sales standpoint. And we did talk about that orders look pretty good there, but we're going to -- in the first quarter, but we got to kind of wait and see. The valves side of it, though, was down. So that's probably you know what products moderately down. It wasn't big, but those are probably 2 of the big drivers either way. more the general industrial vehicles and automation up and the valves down.

Got it. Okay. And then -- and I did hear the commentary on the AP1000 orders and the wins potentially in China and India. I imagine the competition for those bids is intense with the competitors of Westinghouse. So I'm just wondering if customers have expressed on Westinghouse, so you've heard indirectly or directly, that they might have concerns about Westinghouse being in bankruptcy competition for other just nuclear designs are flowing back to you you've heard anything there?

We haven't. It's been a more of the positive aspect of the Generation 3 that the AP1000 represents. And the design is good. It's robust. It's strong. It's just in the construction side. So from all appearances that we see and what he hear is that, there are certain countries like, let's take India for example. India, like -- you probably missed this. I indicated that there are 5 regions of the country that the prime minister and the parliament so far had agreed on that they would install the AP1000 in one of the regions and then the Russians have another region, and I believe the French have another and couple others out there as well. So the Indians are looking at having all -- essentially, all their areas represented by different type reactors. And then the AP1000 as far as we know was one of the first that was designated. So that's still positive.

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I'm still here.

Okay. We are too. I'll keep talking. It was -- it's been very positively received. They're going to go with the 5 different ones. And then the U.K. Moorside, like I was talking about earlier has designated the selective AP1000 because of the Generation 3 aspect. So it's -- we have not seen competitors rushing in from our vantage point, competitors rushing in to try to take these. And just a mere fact that Moorside designated AP1000 as their choice. And then the Indians the same thing. And then other ones like Bulgaria and few others aren't as far along. Brazil is a probably the last in line. And while they've expressed their interest, that will be some time to put that happen. So it did express interest in the AP1000 though.

Well, I'm going to assume that there are no other questions. And I thank you all for joining us today. We look forward to speaking with you again during our second quarter 2017 earnings call. Have a great day. Thank you.

Bye.