Woodward Inc (WWD) 2016 Q4 法說會逐字稿

Thank you for standing by. Welcome to the Woodward, Incorporated fourth-quarter and FY16 earnings call. At this time I would like to inform you that this call is being recorded for rebroadcast.

(Operator Instructions)

Joining us today from the Company are Mr. Tom Gendron, Chairman and Chief Executive Officer; Mr. Bob Weber, Vice Chairman, Chief Financial Officer and Treasurer; and Mr. Don Guzzardo, Director of Investor Relations and Treasury. I would now like to turn the call over to Mr. Guzzardo.

Thank you, operator. We would like to welcome all of you to Woodward's fourth-quarter and FY16 earnings call. During today's call Tom will comment on our markets and our related strategies and then Bob will discuss our financial results. At the end of our presentation we will take questions.

For those who have not seen today's earnings release you can find it on our website at woodward.com. We have again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through November 28, 2016. The phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call.

Before we begin, I would like to refer to and highlight our cautionary statement as shown on slide 3. As always, elements of this presentation are forward-looking or based on our outlook and assumptions for the global economy, our markets and our businesses more specifically. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainties surrounding those elements.

We also direct your attention to the reconciliations of certain non-US GAAP measures included in today's slide presentation, in our earnings release and related schedules. Management uses these non-US GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment.

Turning to our results for the fourth quarter. Net sales for FY16 fourth quarter were $591 million, an increase of 5% compared to $563 million in the fourth quarter of the prior year. Earnings per share were $0.99 for the fourth quarter of FY16, a 29% increase compared to $0.77 for the fourth quarter of FY15. And for the full-year, net sales for FY16 were $2.02 billion, a decrease of 1% compared to $2.04 billion in FY15. On a constant currency rate basis, sales would have been consistent with the prior year.

Earnings per share were $2.85 for the fiscal year, an increase of 4% compared to $2.75 for the prior fiscal year. Free cash flow was $260 million, compared to $9 million in FY15. Excluding the after-tax proceeds from the formation of the joint venture with GE, free cash flow was $105 million. FY16 capital expenditures were $176 million, $111 million lower than the prior year. Now I will turn the call over to Tom to comment further on our results, strategies and markets.

Thank you, Don, and good afternoon to those joining us today. Overall, we delivered solid results in line with our expectations. Aerospace outperformed and Industrial Markets were more challenging than expected at the start of the year.

With the narrow-body programs now launching, we expect continued growth in Aerospace. From the Industrial's perspective, we feel that we are at the bottom of the cycle but uncertainty remains in the timing of recovery. All three of our new facilities are now up and running and our Lean value stream designs are beginning to deliver the anticipated productivity improvements. 2016 marks a transition from our heavy investment cycle, strong cash generation with the reduction of more than $100 million in capital expenditures putting us on track to achieve our long-term free cash flow targets.

Moving to our market segments in more detail, starting with our Aerospace segment, our investments in R&D and capital are translating into meaningful sales growth and expanding margins. The commercial market continues to be robust with order backlogs remaining at record levels. Significant, key new platforms have moved into production and initial provisioning is underway.

The A320neo powered by the PurePower engine continues to ramp up and the CFM LEAP engine for the A320neo entered service last quarter. The Boeing 737 MAX also powered by the CFM LEAP is scheduled to enter service on March, 2017. Commercial Aftermarket remained strong driven by higher utilization and growth in global passenger travel and cargo miles as well as initial provisioning for the new platforms being launched.

Our Defense business continues to be strong. OEM sales have been boosted by [variable] US budgets and global unrest, particularly in the Middle East which has driven a significant increase in sales of smart weapons. Military Aftermarket sales remain healthy, fueled by heavy maintenance needs, upgrades and overhauls of various platforms. We expect Military Aftermarket activity to remain strong in 2017 but to moderate somewhat from the high volume in 2016.

Rotorcraft and Business Jet markets remained weak and we currently do not see any signs of recovery. Overall, the aerospace market remains robust and our Aerospace segment share gains will continue to produce strong top line growth and we're on track to achieve our long-term segment margin targets.

Turning now to our Industrial segment, despite the challenging macroeconomic headwinds we have faced within the Industrial segment we remain confident that the long-term secular trend, such as growing demand for electric power fueled by a rising global middle class, greater use of natural gas and more stringent emission regulations will be key drivers for this business going forward. The depressed CNG truck market in China, the impact of oil and gas pricing and reduced demand for commodities coupled with overall economic uncertainty have negatively impacted our Industrial business.

Throughout 2016, we took definitive action to align the business with current market conditions and strategically position the business for future growth and profitability. Power generation-related markets continued to see strong aftermarket sales, with softness in the OEM side of the market. As anticipated, OEM sales did pick up in the fourth quarter, however we're still being impacted by the lack of investments in large capital projects resulting from continued economic uncertainty.

Within Transportation, although the natural gas truck market remains soft, we're seeing initial signs that there may be improvement as incentives start to take hold. Within Oil and Gas new investments and prices remain weak, however equipment utilization is supporting aftermarket sales activity.

In summary as we look out to FY17, we expect ongoing positive momentum in Aerospace and expect the Industrial segment to stabilize if not show slight improvement. We have taken decisive action to bring our cost structure more in line with current demand and will continue to manage our cost aggressively while maintaining the flexibility to respond when end markets improve.

We remain confident in our long term strategy and believe Woodward is well-positioned to deliver significant value to our customers and investors in the years ahead. Now let me turn it over to Bob to discuss the financials in more detail.

Thank you, Tom. As Tom mentioned, our results for the fiscal fourth quarter and full year 2016 reflected solid growth in the Aerospace segment and ongoing weakness in the Industrial segment, largely due to the challenging global macroeconomic environment. We finished strong with each succeeding quarter of the year showing improved earnings before tax leading up to a record fourth quarter.

In Aerospace, sales increased 9% this quarter, fueled by strong performance in Commercial Aftermarket and Defense OEM and Aftermarket. Aerospace segment margins expanded 22% in the fourth-quarter and we're up 260 basis points to 18.8% for the full-year. The improvement was largely driven by the higher sales and aftermarket volume.

Related to our aftermarket volume, I'd like to clarify the impact of our joint venture with GE, which is formally named Convergence Fuel Systems in light of some confusion regarding our total aftermarket sales volume. As we have indicated in the past, the JV currently procures all fuel system products related to GE large aircraft engines from Woodward, including aftermarket parts and service. These aftermarket products are then sold through the JV to various customers.

For comparability purposes we will refer to Combined Commercial Aftermarket sales as those Aftermarket sales made directly by Woodward, which are reported in our results, combined with Aftermarket Products provided by Woodward and sold through the JV, which are not included in our reported sales. We believe the combined Aftermarket sales describes a more complete picture of the total aftermarket demand for products provided by Woodward as compared to the Commercial Aftermarket growth rate for the industry as a whole.

Based on this approach, Combined Commercial Aftermarket sales were up 11% in the fourth-quarter compared to the prior year. Commercial Aftermarket sales reported only in Woodward sales increased 1% in the fourth quarter compared to last year, which was prior to the formation of the JV. For the full FY16, Combined Commercial Aftermarket sales were up 16% compared to the prior year.

Commercial Aftermarket sales reported only in Woodward sales increased 6% for 2016 compared to the prior year. Please see the Commercial Aftermarket growth table included on slide 11 in the presentation materials provided for this call and refer to the footnotes in the related 8-K, quarterly 10-Qs and annual 10-K for FY16 to be filed shortly for more details of the joint venture.

Turning now to Industrial, sales for the quarter were comparable to the same period of the prior year. We continued to face an extremely challenging environment during the year, however we did see sequential top line improvement over each of the last three quarters. Fourth quarter Industrial segment earnings as a percent of sales were 8.5% compared to 13% in the prior year period. Segment earnings were negatively impacted by expenses related to aligning the business with the soft market conditions and costs that were anticipated for the new facility in Colorado.

At the Woodward level, gross margin percentage for the fourth quarter of 2016 was 28% compared to 28.4% for the prior year period. Gross margin for FY16 was 27.1% compared to 28.7% for the prior fiscal year. The reduced margin percentage for the full-year was primarily the result of the $16 million special charge recorded in the first quarter and the higher costs associated with the new facilities.

Research and development expenses for the fourth quarter of 2016 decreased to 5.6% of sales from 6.5% of sales in the prior year quarter. For FY16, research and development expense was 6.2% of sales compared to 6.6% for FY15. For FY17, we expect our R&D expense as a percent of sales to be approximately 6%.

The effective tax rate for the fourth quarter of 2016 was 21.8%, compared to 27.2% for the fourth quarter of 2015. For FY16, the effective tax rate was 20.2% compared to 24.7% for FY15. The reduction in tax rate was mainly due to the reinstatement of the R&E credit and accounting changes with respect of the tax treatment of stock compensation. For FY17 we expect our effective tax rate to be approximately 25%.

Looking at cash flows, operating cash flow was $435 million for FY16. Free cash flow for 2016 was $260 million. Excluding the after-tax joint venture proceeds, free cash flow was $105 million for 2016 compared to $9 million for 2015.

Capital expenditures were significantly reduced to $176 million for 2016, down from $287 million for 2015. For 2017, we anticipate capital expenditures to be approximately $110 million and free cash flow to be approximately $200 million. In FY16 we returned $152 million to shareholders in the form of dividends and share repurchases.

Lastly, turning to our FY17 outlook. We anticipate continued strength in our Aerospace segment. Both commercial volumes and aftermarket should remain solid. We will benefit from the continuing ramp up of both the Airbus A320neo and the Boeing 737 MAX.

We expect strong Smart Weapons demand to continue and Defense overall to remain solid. Therefore we anticipate our Aerospace sales to be up approximately 6%. We saw a significant margin expansion in 2016 and we believe we will maintain or improve those healthy margins in 2017.

In our Industrial segment, due to the significant uncertainty we previously mentioned, we are projecting Industrial segment sales to be flat to slightly up and margins to be up 100 to 200 basis points compared to FY16. As a result, at the Woodward level, we anticipate FY17 sales to be up approximately 4% to 6% compared to 2016.

We anticipate diluted earnings per share to be in the range of $2.95 to $3.25. This assumes approximately 63 million fully diluted shares outstanding. The lower end of this range assumes further degradation in Industrial sales as a result of continuing economic weakness. The upper end of the range assumes some Industrial markets improvement.

I'd like to remind everyone that historically our fiscal first quarter is sequentially lower due to normal business trends and fewer working days as a result of the holiday schedule and plant shutdowns. For 2017, we anticipate a somewhat more challenging first quarter than our historical pattern would suggest due to order volume timing. This concludes our comments on the business and results for the fourth quarter and FY16.

Operator, we are now ready to open the call to questions.

Thank you.

(Operator instructions)

Robert Spingarn, Credit Suisse.

Hi. Good morning. This is actually -- good afternoon. This is Joe on for Rob. Within the industrial end market, can you just talk a little bit about the flat to slightly up and the various puts and takes? And you mentioned the low-end of the guidance assumes some deterioration in the high-end, some improvement, where within the industrial business, where do you see things shaking out?

A little bit what we're seeing right now as you can see from the sequential quarters is that we really do think we are at the bottom, very close if not fully at the bottom. We're starting to see some indications of some improvements in the CNG truck market, some improvement in aftermarket utilization. So we are starting to see the signs of things turning. But it's very uncertain at what rate the recovery's going to take place.

So we see we're on the recovery side but it's a little hard to tell with very good accuracy what the rate of recovery will be in 2017. So that's the reason we had a little wider range there. But we are seeing signs of improvement.

That's helpful and if I could follow up. Is it -- do you have any sense this early on from the outcome of the election what impact that might have on the energy business whether -- as it relates to both renewables and non-renewables? And the impact on your business, or is it too early to tell?

It's a little too early to tell but more of what we call all of the above energy policy would probably be a positive to Woodward.

Understood. Thank you.

Thank you. Sheila Kahyaoglu, Jefferies.

Hi. Good afternoon, guys. I just wondered, could you elaborate a little bit about the order trends in terms of Q1 and what you're seeing there?

Well, I think what -- just on the order trends, we have good confidence in the full-year. We just happened to see some of the activities from various customers that's a little soft in first quarter. I don't want to over-react to any of that, it's just kind of normal activity but we just wanted to call out that we expect a soft first quarter in our planning followed by a much stronger second through fourth quarter

I'm assuming it's more on the Industrial side than it is on Aero?

Yes. But there is some impact on the Aero side as well

And in terms of the aerospace strength in the quarter, the margins were really good. Was that more driven by the Military Aftermarket or was that some of the Commercial OE pick up?

If you could talk about that and just the outlook? The guidance is -- just the moving pieces there.

Yes, it was actually both. We did have strong Military. We started to see some initial provisioning for the narrow-body programs, as anticipated. Those would start to come in.

So we had good across-the-board activity in segments minus the bizjet market. But the rest were all healthy and a lot of the work we've been doing on our margins has been coming through. So, a strong, healthy quarter.

Just last one on the aftermarket. How should we think about the ramp-up on the LEAP and -- on the GTF and the impact to the aftermarket? Is it a one-for-one or is it one-for-five for every airline that takes it?

I think you're -- the ramp that you're referring to the initial provisioning, right?

Yes.

Yes. On the initial provisioning, it's little more complex than just a ratio of how many aircraft are out there. The initial provisioning is usually tied to the number of new operators, the number of routes those operators are doing, the location of the routes. So we have good formula that we use to estimate initial provisioning sales and then we work it hard with the airline customers so there's a number of factors that go in.

But, definitely, that they are starting and as they produce more per year that's going to translate to more operators, more new routes and that will be a positive for initial provisioning. As I said earlier, it has started and as we move into 2017 and 2018, that will continue to grow.

Thank you.

Thank you. Pete Skibitski, Drexel Hamilton.

Good afternoon, guys. Nice aerospace. Hey, guys. Maybe, Bob, can you quantify, were there any one-time charges in the quarter in Industrial because it was your high revenue quarter for the year but your low-margin rate and I just was wondering if something surprised you there mix-wise or something else?

No surprises. I would not call them one-time charges. I would made the comment that through the year, we were taking actions. There were some of those in the quarter.

They weren't significant enough to call out separately but there was also costs related, predominantly, the costs were related to the start up associated with the new Fort Collins industrial facility. So the combination of those two things. Both were planned and so no surprises but they did bring down the earnings little more then you saw. If you would put those back we were pretty much on the full-year rate.

Okay. Okay. Got it. And then I guess maybe one for Tom. Tom, I'm curious as to how the three revenue areas within Industrial, how they performed in 2016? Transportation, Power Gen and Oil and Gas, and your expectation for 2017 in those areas?

Yes. Well, as we saw, Oil and Gas was down vary significantly.

Transportation, which we lump in with CNG, and you also have Rail and Marine, was down again fairly substantially. Our Renewables business was up, flat and Power Gen -- [did I say something] about Power Jet? No. Power Gen was also down but was improving as we hit the fourth quarter.

Okay. Understood.

As you saw overall, the last two years have been tough on the top line for our Industrial segment.

And I want to ask also, is there any change to your relationship with the Westport Weichai JV. I know they are going through a merger there and [Weichai] has gotten hit there pretty hard and I wonder if there's any change to your business arrangement?

No. It really hasn't impacted us.

Okay. Okay. Thanks very much.

Thank you. Gautam Khanna, Cowen and Company.

Hello?

And Gautam, if your phone is on mute, please un-mute.

(Operator Instructions)

Rudy Hokanson, Barrington.

Thank you. My question has to do with your business in China. And I was wondering if you could tell us if you're seeing any kind of signs a pickup there? If there's any kind of relief from regulation?

Some of the numbers that are coming out from the larger growth in China, the last couple of months have been showing some positive trends and I was wondering if you could maybe explain what you're seeing for Woodward right now?

We are still seeing some slight improvement. And in terms -- one of our larger activities in China is the CNG truck market. There has been a number of quarters, improvement in the spread between diesel and natural gas. That seems to be taking hold. We're seeing some initial signs and some order volume going in the right direction.

We're not sure how fast that will ramp but that has -- it looks like -- it looks promising that, that could be turning the corner. A lot of our Other Equipment sales are still fairly flat. We are seeing some aftermarket, so utilization is going on.

So we always looked at if equipment is being utilized after a period of time they start buying new as well. So we're seeing utilization, aftermarket sales but we're still not seeing large improvements in the sales outlook at this time.

Thank you. And then going back to an earlier question. I wanted to know if I understand. In the Aerospace market and the strong aftermarket sales that you're seeing, is there something unusual there as far as the proportion goes? Or would you just view this as a matter of timing on OEM sales, maybe lagging, and therefore Aftermarket as a percentage of sales would appear higher?

No. That would not be the case. What I would say -- we've try to highlight this for a while and hopefully you can see with the numbers that we put in the slide deck. We have very good fleet dynamics or if you want to say the demographic of our fleet is quite good.

In terms of the installed base and the maintenance cycles that are going on, in particular around the A320, 777 and some of the other legacy products. The second part of that is, I would say, is our aircraft turbine system group, and when you're on the engine that's a very good aftermarket part of the markets. Meaning it generates a lot more demand for maintenance.

So the good fleet dynamics, the high intellectual property, proprietary products we have on the turbine side and the shop-visit rates that are going on, that's all activity we anticipated. It's strong. And as we launch these new platforms, including the small wide-bodies that are going out still in volume today, as well as the narrow-bodies, both those with initial provisioning, those dynamics is very good and we could see that continuing and we have a strong, healthy aftermarket.

Okay. Thank you very much. Those are my questions.

Thank you.

Thank you. Pete Skibitski, Drexel Hamilton. If your phone is on mute, please un-mute.

Sorry about that. On Aerospace margin guidance for 2017 you guys were talking about flattish, you're talking about 6% growth. You're not getting a lot of volume leverage it looks like. Is there is there some sort of mix issue that's getting in the way of that leverage for 2017?

No. I think we've said for some time that the 20% was our long-term target. We happened to achieve that here this year and we had an extremely strong fourth quarter. And so I think some normal volatility.

And saying -- what we did say is we would either maintain those healthy margins or grow them slightly. So I don't think there's anything new underlying any of that. We continue to see very strong Aftermarket. That will continue to grow and it's really nothing more than that.

Okay. Okay. And a couple housekeeping.

I guess, Bob, on the first quarter that you guys talked about, I think last year's first quarter adjusted with $0.56. Are you thinking that fiscal -- that first quarter 2017 will be down from that, just given some of the timing issues that you referenced?

Could be. Yes. That's what we're -- in terms of order volumes, you never know until you get through the quarter but the way it looks at the moment we could be down a little bit.

Okay. Okay. And did you have the 2017 tax rate? I would love to get that.

Yes. 25% on average.

25%. Okay. Great. Thanks again, guys.

Sure.

Thank you. Sheila Kahyaoglu, Jefferies

Thanks, guys. I basically had Pete's question. For Q1, it's hard to see it really be down year over year off that $0.56 considering a very low tax rate in Q1 of 2016. What would really change? I guess I'm having a hard time matching that up.

Well, and I think if I recall, Pete was going back to 2015 because, perhaps, of the charge that we had in 2016. So it would not be lower than the reported amount. But when you look, $0.66 a year ago in 2015 and it was $0.40 this quarter because of the charge and we had an extremely low tax rate in the first quarter this year as well, because of the R&E credit.

Got it. And over the adjusted number which was $0.56 in Q1 2016, how would it work off of that? Ex the $50 million charge.

It's too early to tell. I don't believe it would be significantly lower than that. All we're targeting is that current order volumes are showing a little bit different pattern that we saw last year this time.

Sorry. I missed that. I thought it was off of Q1 2016. And then just a quick one. Can you update us on the HA turbine and where you are with that?

The [H] (multiple speakers) -- the H is continuing to track the sales and orders that GE has announced and we're tracking with them. It's progressing well.

Okay. Thanks.

Thank you. Garo Norian, Palisade Capital Management.

I was just wondering, a little bit of a longer term look, the next several years. It looked like in the past you guys were targeting growth in the high single digit, maybe double digit for the Aerospace business and we've done the 6% to 7% for the last couple years and that's the guide for 2017. So, is it right to still think that, that's going to accelerate at some point in the next few years?

Yes. We definitely see it moving up as these new narrow-body programs start to ramp. So if you look at the Airbus volume ramp rates that starts to -- as you get into 2018, 2019, FY18 FY19, you're going to start seeing those ramp up and that starts to help with that growth rate number.

Okay. I just wanted to make sure that. Thanks so much.

Thank you. Jim Foung, Gabelli & Company.

Hi, good afternoon, guys. Just wondering with a potential $1 trillion infrastructure build -- coming in 2017, how could that positive impact your Industrial business?

Well, if the infrastructure investments take hold, that would be a positive if you go through where our control systems end up. That's like our end Construction Equipment, Mining, Transportation, Power, Oil and Gas, all those have the potential to be markets that will benefit from the new administration's policies.

At this point we haven't taken a stance or an opinion on the growth rate associated with those but there's no doubt that those are favorable to our industrial segment and we're going to wait and see the policies and then once we know that we may have a better idea of the growth that could come from that.

So you don't have any of that factor in your 2017 guidance?

No. None.

Okay. So that could be a potential upside to you then, right? Yes. And then maybe just talk about how the ramp on the LEAP engine is coming along? I understand from other suppliers there's a lot of pressure to ramp up quickly. And I was just wondering if out there are you seeing any issues ramping up or in the supply chain to meet the production demand?

I really can't comment on the rest of the supply chain. That I don't know, but for Woodward we've had -- the narrow-body programs have an aggressive ramp rate. They have had from the very beginning.

We've been working very closely with the engine customers as well as the airframers on ensuring that we are well positioned to deliver on those ramp rates. And I'd say this is the best I've seen in my career of our customers working on production readiness, ramp rates, and making sure the supply chain is going to deliver. So, I would give them kudos for that.

We are tracking well and we're confident that we can meet all the production rates that they are asking for. So, I think we're in good shape. We just need all the supply chain to be in good shape and the rates will track.

Great. Thank you. That's all I have. Thanks.

Thank you. Bill Ledley, Cowen and Company.

Thanks for getting me in. I'm on for [Gotham] tonight. I had a couple quick questions for you. I was hoping you could expand a little bit more on the underlying margins of the JV and how the sales for the JV compare to the margins that you're reporting in Q4?

Yes. From a standpoint of the JV itself, I'm not really able to report much on the point venture. In terms of the structure, there are three programs, two of which are active and one of which is in development. The GE90, the GEnx, which powers the 787 and the 747-8, and then the GE9X, which will be in the 777X. That one is in development.

The structure is such that those three -- two programs that are active flow through joint ventures so we sell to the joint venture, joint venture sells to GE and to other aftermarket customers. And then we share development on the GE9X engine and that flows through the joint venture as well. So in the fourth-quarter you see the impact of, largely, the aftermarket sales offset by the development cost in that line on our reported results called the earnings from the JV.

Okay. Thank you. And, then, I had a follow-up to Sheila's question on the HA turbine. Just trying to square a couple of your comments.

So, Q4 Industrial revenue was down about 1% on a down 8% comp and you're guiding Q1 down sequentially more than you see historically but GE is talking a pretty aggressive ramp of gas turbine shipments in Q4. Just trying to get a sense of how I square these two items, given your few month lead-time. I guess, why wasn't Power Gen up more in FY16, given GE's ramp on the H-class turbine, which you have more content on?

Right. The item you have to look (inaudible) at is -- we are on the H machine. It's got good content for us and GE is ramping up. So that's a positive to us.

But we also play across the entire industrial turbo-machinery market and a lot of the other [suppliers] in other parts of the market, are soft. So, it's an offsetting one. So there is no misalignment between our sales and our outlook and GE's. It just happens to be the rest of the market is soft.

So when we talk about Power Gen, we're talking not only about gas turbines, about steam turbine powered generation, as well as reciprocating engine power generation. So, we go across the whole portfolio. In total power was soft but the H class is a bright spot in that market.

Okay. And to that point, would you expect Q1 sales to be down year over year in industrial?

Year over year would be -- as you can look at our quarterly flow for this year, first quarter was down quite a bit. As we've indicated, we really don't know how this recovery will pan out in terms of timing. So, it's very difficult to tell whether it will be slightly down to flat to slightly up from the first quarter of this year.

Okay. Thank you very much.

Sure.

Thank you. Pete Skibitski, Drexel Hamilton.

Quick clarification, guys. On the $110 million CapEx guidance for FY17, previously you talked about a $90 million run rate for maintenance CapEx. Is there just like $20 million in capital projects coming over from FY16 or is $110 million more so the new maintenance CapEx run rate.

No. We will continue to come down from that level as well. So, yes, there's still a little hangover on capital projects related to all the new facilities and so forth. So we will continue to decline in 2018 and beyond.

Okay. Great. Thank you.

Thank you. And, Mr. Gendron, there are no further questions at this time. I would now like to turn the conference back to you.

Okay. Thank you again for everybody joining us today. And for many of you, I know we will see you at our investor conference here later in December and I look forward to seeing you and talking to you at the time. So, thanks for joining us today.

Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it will be available today at 7.30 PM Eastern Standard Time by dialing 1-888-266-2081, for a US call, or 1-703-925-2533 for a non-US call, and by entering the access code 1675522.

A rebroadcast will be available at the Company's website, www.woodward.com, for 14 days. We thank you for your participation on today's conference call and ask that you please disconnect your line.