Woodward Inc (WWD) 2017 Q3 法說會逐字稿

Thank you for standing by. Welcome to the Woodward, Inc., Third Quarter Fiscal Year 2017 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 very much. We would like to welcome all of you to Woodward's Third Quarter Fiscal Year 2017 Earnings Call.

In today's call, Tom will comment on our markets and related strategies and then Bob will discuss our financial results as outlined in our earnings release. 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 August 7, 2017. 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 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-U. S. GAAP measures included in today's slide presentation and our earnings release and related schedules. Management uses these non-U. S. GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment.

Turning to our results. Net sales for the third quarter of 2017 were $549 million compared to $508 million for the third quarter of last year, an increase of 8%. Net earnings for the third quarter of 2017 were $54 million or $0.85 per share compared to $51 million or $0.81 per share in the third quarter of 2016. Aerospace segment sales grew 15% and earnings increased 16%, while Industrial segment sales and earnings decreased 3% and 5%, respectively, as compared to the prior year quarter.

Net cash generated from operating activities for the first 9 months of 2017 was $184 million compared to $362 million for the prior year. Free cash flow was $119 million for the first 9 months of 2017 compared to $234 million for the same period of the prior year. The prior year included $202 million of after-tax proceeds from the formation of the joint venture.

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. Aerospace segment performance was very strong in the third quarter, offsetting weak but improving Industrial segment performance. As anticipated, our second half is shaping up to be significantly stronger than the first half.

Focusing on our markets in more detail. Commercial aerospace markets remain robust with both global passenger traffic growth and cargo market activity continuing to track above historical levels. Production rates on the Boeing 737 MAX and the Airbus A320neo continue to ramp up sharply. Woodward content on both programs has more than doubled from previous generations.

Building upon what are already historically strong backlog levels, Boeing and Airbus announced more than $100 billion in new aircraft orders during the Paris air show this past month. These aircraft, along with other aircraft and engine orders placed during the show, are expected to represent significant future Woodward sales over the life of the programs.

New launches and commercial growth -- growing traffic are contributing to both OEM and aftermarket sales growth. Defense OEM activity continued to be healthy, predominantly in the smart weapons area, fueled by rising domestic and international defense budgets. Defense aftermarket remains solid due to favorable maintenance budgets, aircraft service life extensions and major upgrade programs.

Turning to Industrial. While we are seeing improvement in many of our markets, we are still facing significant challenges in others. In power generation, the growing trend towards increasing use of natural gas continues. In the near term, the use of natural gas engines is increasing. However, OEM industrial gas turbine activity remains flat, and the gas turbine aftermarket is experiencing recent softness. With respect to wind, Woodward currently is being unfavorably impacted by regional wind turbine dynamics.

In transportation, consistent with increased global natural gas usage, we're now seeing considerable market recovery for natural gas-fueled vehicles in Asia. In oil and gas, increased gas gathering and processing as well as an expanded global supply chain are favorably impacting large reciprocating engines.

In summary, we expect aerospace markets to continue to gain momentum. On the industrial side, we are seeing economic recovery impacting many of our markets, but volatility and uncertainty do remain in others. We continue to proactively review our strategies in response to this dynamic environment.

Now let me turn it over to Bob to discuss our financials in more detail.

Thank you, Tom. At the Woodward level, the fiscal year is shaping up to be about where we expected. However, the mix has shifted somewhat. In Aerospace, sales increased 15% this quarter compared to the prior year quarter with strength across most of the segment. On the commercial side, our growth has -- was primarily driven by the ramp-up of next-generation aircraft programs, and we had a particularly strong quarter of aftermarket activity.

Combined commercial aftermarket sales for the quarter, which includes aftermarket sales made through the joint venture, were up 31% compared to the prior year quarter and up 14% year-to-date. Narrowbody initial provisioning, along with our increased content and strong traffic growth rates, are driving this strength. While aftermarket growth was exceptional this quarter, initial provisioning and other aftermarket activity can be volatile. Smart weapon sales contributed to strength in defense sales. Given continuing global unrest, we don't see this changing in the near term.

Aerospace segment earnings for the quarter were 18.9% of sales compared to 18.7% in the same period last year. We are successfully executing on our strategy of maintaining or improving our profitability during the significant production ramp of next-gen narrowbody programs. We anticipate Aerospace segment sales to remain strong and grow at approximately 8% for the full year. Segment earnings will also remain strong in the fourth quarter as we finish the year.

Turning to Industrial. Third quarter Industrial segment sales were down 3% compared to the third quarter of fiscal 2016, although sales were improved sequentially. Natural gas fuel systems used on trucks in Asia were up sharply this quarter as the Chinese government continues to encourage and incentivize natural gas usage. Additionally, sales related to large natural gas engines were up significantly due to increased use in distributed power and oil and gas applications. However, industrial gas turbine sales were weak again this quarter.

OEM sales have been soft for some time as demand has been tempered by macroeconomic activity and more efficient electrical usage. Aftermarket sales in this space tend to be volatile and are currently in a down cycle as a result of timing of upgrade programs and buying patterns. Wind turbine sales also remain soft.

In addition to slower growth in Europe compared to other regions of the world, we're experiencing platform transitions that are temporarily impacting Woodward sales. Our new customer penetration strategy is providing excellent opportunities for growth in the future. For example, we were recently awarded new business with 1 of the top 5 global wind turbine manufacturers.

Third quarter Industrial segment earnings were 10.8% of sales compared to 11% in the prior year period. Segment earnings were primarily impacted by the lower sales volume and negative impacts of foreign currency exchange rates, which were partially offset by the cost savings we have realized from strategic initiatives previously implemented.

Looking forward, while we anticipate our fourth quarter Industrial segment sales and earnings to improve sequentially, we expect sales to be down compared to the fourth quarter of last year. For the full year, we now expect segment sales to be approximately 5% lower and segment margins to be approximately flat to slightly up when compared to the prior year.

At the Woodward level, gross margin percentage for the third quarter of 2017 was 28.4% compared to 27% in the prior year period. Research and development costs were 6.3% of sales in the third quarter compared to 5.9% in the prior year period. On a year-to-date basis, R&D was 6.1% of sales this year compared to 6.5% for the prior year period. Selling, general and administrative expenses were 7.3% of sales in the third quarter compared to 7.2% of sales in the prior year period. The effective tax rate for the third quarter of 2017 was 21.9% compared to 19.5% for the third quarter of 2016. Our expectation for the full year effective tax rate is unchanged at approximately 22%.

Looking at cash flows. We generated $184 million of cash from operations for the first 9 months of fiscal 2017 compared to $362 million in the prior year period. Free cash flow for the first 9 months of 2017 was $119 million compared to $234 million in the prior year period. The prior year included $202 million in after-tax proceeds from the formation of the joint venture. Capital expenditures were $65 million for the first 9 months of 2017 compared to $129 million in the same period of the prior year. We still anticipate free cash flow to be approximately $200 million for the full year.

Let's now turn to our fiscal 2017 outlook. Considering all of the factors previously mentioned, our overall guidance is largely unchanged. We expect net sales to be approximately $2.1 billion and earnings per share to be between $3.05 per share and $3.15 per share.

This concludes our comments on the business and results for the third quarter of fiscal 2017. Operator, we are now ready to open the call to questions.

(Operator Instructions) Our first question comes from the line of Gautam Khanna of Cowen and Company.

Wanted to ask you about the Aerospace segment margins and the aftermarket so very strong growth, and I was wondering if you could maybe unpack the aftermarket growth between -- if what was direct versus via the JV. And then maybe was there any downward pressure on margins elsewhere? Because I would have expected a little bit more expansion given the amount of growth in the aftermarket in the quarter.

Yes. So first question with respect to the sales going through the joint venture, as you may recall, they are fairly similar in terms of with and without the joint venture on overall sales because we do sell to the joint venture. So the growth rate is similar. There can be and was this quarter a fair amount of quarterly volatility, obviously. The initial provisioning is growing and is contributing to that. I wouldn't say there was -- downward pressure, obviously, there is a lot of OEM going on as well, so that provides that downward pressure. I think if you recall probably the last couple years when we were talking about maintaining or improving, it was largely on the back of, yes, there would be lots of OEM but there would be a lot of initial provisioning as well. And those 2 would substantially offset, and that's really where we're finding ourselves today.

Okay. And just to follow that up. You mentioned that there's a bit of a slowdown now in the aftermarket. I was just wondering was there any sort of pull-forward into fiscal Q3. Or what are you seeing in fiscal Q4 in terms of aftermarket follow-through?

Are you referring to Aerospace or Industrial?

Aerospace. Commercial aerospace.

No, we don't...

I don't believe we mentioned a slowdown.

No.

I mean...

Okay. I apologize. Maybe I misheard it.

Yes, I think so. At 31%, I mean, obviously, that is a very high rate, and we do believe that with our increased content and favorable fleet dynamics, we anticipated it would be up. That high for extended periods would be extremely unusual.

I think the right thing to look at is the year-to-date on the aftermarket at 14%. We're doing really well, and we're not looking for it really to degrade going forward. So quarter-to-quarter variability is going to happen just in the aftermarket, but year-to-date is the number to look at.

Okay. And would you expect a similar number of 14% in Q4? Or do you think it's going to step down sharply because there's...

No, Q4 is going to -- we anticipate a good aftermarket quarter. We're not going to call out exact percentage, but we anticipate aftermarket continuing. As Bob highlighted in his -- in the prepared remarks, we got really great fleet dynamics. Our installed base is really robust. We've got the new programs coming on. And all that will come into play. Last year, fourth quarter of '16 was also a strong aftermarket, so there'd be a strong comp there. But overall, we're looking at good aftermarket.

Our next question comes from Robert Spingarn of Credit Suisse.

On the Industrial side, can you give us a little bit more color on the growth for the growing businesses versus the declines for the weak businesses, which netted out to, I guess, a 3% decline for the overall Industrial business for the quarter.

Go ahead, Bob.

Sure. We can give you a little bit of color maybe in an edited form. So we were up sharply in the CNG in Asia and large engine -- natural gas large engines. Those were up sharply in the quarter kind of in line with what we've been anticipating. We envision that, that will continue. On the Industrial's turbine side, as we mentioned, OEM has been down. It continues to be down but flatter. And the aftermarket is where we're seeing the weakness. And just because of relative sizes of those things, they are somewhat offsetting each other, ending up at the 3% down.

Bob, if you had to think about what percentage of Industrial revenue is growing versus declining, is there a way to answer that? And then just as my other question, I don't know if you mentioned this earlier, but Aerospace OE, how much did that grow? So 2 separate things there, just a follow-up to the Industrial question on the percentage of sales rising versus declining and then the Aerospace OE growth.

Yes, you're getting in a little more detail than we're normally comfortable with giving out. But on order of magnitude, you're probably talking 20% of the business on one side in terms of growing and probably a little bit slightly higher amount than that previously on the declining side. So that's what's kind of [giving] us the downward pressure. I would not want to specify the dollar amounts of those. We don't go down that level.

Are you saying, Bob, that a big chunk of the business is flat?

Yes, flat to slightly up. I mean, you have mix in the other areas. So we mentioned natural gas large engines. There's a very large diesel segment as well, and so that would be more in that flattish kind of group.

I see. And then on -- just the Aerospace OE.

Yes, we haven't really given that number out. So I don't have it readily available.

Well, I imagine you -- obviously, the content gains on the narrow...

Yes, yes.

On the narrowbodies, and I guess widebody, you've got the 777 pressure. I just wanted to figure out what's going there, if it's tracking...

The 787 has been doing well. So widebody overall has probably been an up as opposed to a down. 777, as you point out, being the exception to that.

Yes, we have to look at and -- understand your question, I would say, Woodward versus maybe some other suppliers, our OE sales are growing even in light of the widebody, and they're going to continue to grow nicely due to the content gains. So we are going to see ongoing increases in OE. Aftermarket is robust. So we feel real good that we're going to grow faster than the rest of the industry in the aerospace side.

Okay. Even with 777 -- with 787 rates flat?

Yes. You've got to remember, as these narrowbodies are coming online, we have a lot more content on those. And those...

No, no, I was thinking about -- I was just thinking about your comment on widebody. You got 777 down, 87 flat.

Right. 47 is down, A380 is down. So what we're really saying is narrowbodies and the regionals will overcome those down...

Okay. I misunderstood. I thought you were saying widebody was growing. Okay.

No, no, no, overall. Yes, no problem.

Our next question comes from Sheila Kahyaoglu of Jefferies.

So just sticking on Aerospace. The commercial aftermarket was really good. The military was really good. Is this sort of as good as it gets for margins until we really see a ramp-up on the GTF and LEAP? Or is there any way you could quantify sort of the OEM headwind?

Well, what I would highlight maybe on margins is we're -- and hopefully, you see from both the quarter and year-to-date performance, we're on track to hit our target of 20%-plus in 2019. And I think that's the best way to look at it. We're confident in the projections. The ramp, obviously, will help with that, but we're also -- our legacy aftermarket is strong, and we're adding the new programs on top of that. So I feel real good that we're tracking towards all of our margin goals and that we will achieve the 2019 targets.

Okay. And then just on the Industrial business. I guess, how are you guys planning for IGT? What sort of -- what's going on with mix and the HA turbine? And do you think you could see an inflection to organic growth in 2018?

What you have to -- maybe one way to describe on the industrial gas turbine market, especially when we're comparing to a strong 2016 that -- and I'm going to say it's calendar 2016 because we had a strong fiscal first quarter, which -- that was calendar -- fourth quarter calendar year. One way to look at it is, you kind of have flattish OEM rates going. And if you'd normalize the aftermarket, it'll be a little flattish, but there was a large -- at least for Woodward with our OEMs, there was a large upgrade activity that occurred in 2016, and that large upgrade activity hasn't moved forward at the same rate. So what we're seeing here is a market that's pretty flat -- that's obviously soft and flat, but we don't have that upgrade -- those upgrade sales, and that's really what's punishing us here. And we think that's going to continue for the next 2 quarters when you do year-over-year comparisons. However, as we look forward, if you had the normalized rate, we're going to start seeing that increase over the next year to 18 months, and the economic data supports that. Some of our customer order books support that. But we don't have that extra bubble on top of that which we had, and that's what's going to make the comps difficult for a couple quarters more.

Okay. And then just last question on Industrial. Does the China nat gas business have a higher -- carry a higher margin?

It's in the -- consistent with the rest of the business. So it's not a higher margin, but it's not -- I mean, it's right in the hunt with everything.

Our next question comes from Christopher Glynn of Oppenheimer.

On the Industrial margin, just wondering how that landed versus what you expected. I don't think the revenues were materially different. You were talking about softness incrementally last quarter. How are you tracking on timing of cost out or cost of new actions and facility ramp costs, things like that, versus maybe what you saw a few months ago?

As you point out, the sales were not significantly down from the prior year quarter. Earnings as a percent of sales were essentially flat, which is a good sign. We've talked about the fact that we've had some negative flow-through, if you will, when your sales get down at these levels. So that is the impact of some of the prior actions, cost savings coming out, that will continue to increase as we go forward. And so we're encouraged by the fact that at this point in time we're largely where we would expect to be given the sales leverage not coming through yet.

Okay. And then just on wind, there's been some customer and regional impacts. I think your visibility to that market turning back favorable for you might have a little bit more bedrock to it than when you contemplate the IGT markets. Could you speak to that observation?

Well, in the wind market, there really are 2 factors that we highlight, Bob mentioned, but I'm going to repeat them, though. One is where our customer base sells. It's primarily in Europe and India. And those markets have not been quite as strong as some other regions in the world. The second -- maybe there's a third one, the second part is the share our customers are winning. And the third one is, there's a number of their products that are transitioning. And the best way to look at it is we're needing the new models to come out to start the sales increase again. And that may move into -- later into fiscal year '18. So though the overall global wind market, as you're highlighting, is up, those dynamics are impacting our wind sales. And we're going to have some time before these product transitions occur. And then once they occur, we'll start seeing growth coming again.

Okay. Then just a bookkeeping item. The tax rate for the full year maintained, it implies, I think, a little over 30% in the fourth quarter, which doesn't have really a recent precedent. Is that right?

That's true, yes. If you recall, we had an extremely low first quarter rate, and there's frequently a lot of variability from a quarter standpoint, and we anticipate ours still being roughly the 22% for the full year. So you're right on the math.

Our next question comes from Pete Skibitski of Drexel Hamilton.

Tom, maybe to go further on Industrial, just want to tease a little bit more out. On the IGT weakness on the aftermarkets, it sounds like maybe you've got some timing issues on the Advanced Gas Path, but it doesn't sound like GE thinks that that's falling off a cliff or anything. And so that'll recover, like you said, in a couple of quarters. And reciprocating is pretty decent. Wind, I think you're always losing a little share, CNG strong. So I guess net-net, there's no reason to think that Industrial going into '18 is going to be any kind of disaster scenario like maybe fiscal '10 was, for instance.

No -- yes, no, hopefully, that's nothing that's coming out of our remarks. I think you have it right. We expect some tough comparables, but sequentially, we see improvement coming every quarter. Our cost initiatives are coming through on Industrial. The economic data is pointing in the right direction. I always talk about -- reasonably can do that as we do a lot of economic modeling, we watch fast-cycle businesses. Our fast cycle are the small engine, followed by our larger engine, followed by the Turbomachinery businesses. So we can kind of see the trends and the direction. So we have confidence that we're on the right path going forward, but we did have this -- that's why I want to highlight, we did have this extraordinary sales in '16 tied to gas turbine aftermarket that we're not sure if that's going to repeat anywhere close to that level. So we're going to come on that growth as we go forward. But overall, things are improving, and that's what we were trying to convey.

Okay. Great. Great. And then just -- I wanted to ask one about kind of Boeing's push into the aftermarket, not that they're targeting you guys, per se, but I noticed, I think they've taken on some actuation work and maybe think about your HRT business. So I'm just wondering if you guys are seeing maybe some secular issues there and if there's any kind of a -- it's driven any kind of a thought process to how you guys deal with that business longer term.

Yes. Well, one of the things that is happening in the commercial aerospace aftermarket, I'm going to use it generically because I think it applies to all the primes from regional to the Boeing and Airbus. They're making a push in aftermarket, and I think there's a couple reasons for that. One is, the customer, you want to say demographics are changing. A lot of their sales are going to customer base that traditionally didn't or doesn't do their own maintenance. The legacy carriers had big maintenance arms and did all that. All these LCCs, they don't have that. So they're looking for total care packages. And so in one hand, the primes are looking at how do I support the airlines that are asking for total care packages. So that's part of their push. The second part of their push is they want some more revenue and earnings from the aftermarket and the risk they take. So that is happening. From our standpoint, strong intellectual property, work -- good working relationships, looking how to make win-wins in those areas is how we're addressing it. And we see some of those things happening, but we also see that with their push is also opportunity, and we're trying to play both that -- work with them, look at the opportunities. And overall, I'm confident that we will hold our margins and be able to meet all our targets. But there is some changes coming mainly because the airlines buying the aircraft are changing, and they're requesting a different model.

Our next question comes from Drew Lipke of Stephens.

Back on Aerospace. So with the 15% increase in sales, would have expected a little bit more maybe on the incremental margin. Was there a large variance in mix between OE and aftermarket relative to what you guys usually see on an annual basis?

That contributed to it a little bit, and then there's kind of the proverbial timing of various things when they occur. R&D is up a little bit. So it's really more on variability, timing in the quarter than anything else.

Okay. So you'd expect R&D to normalize, I guess, going forward to more normal levels?

Yes, that's why we commented on the year-to-date number so you can kind of see that -- we've talked about that coming down over the coming years, and it is on an overall downward trend although up a bit this quarter.

Okay. And then what's your visibility with CNG in Asia? I mean, how do you feel looking out 3, 6, 9, 12 months visibility there?

Yes. 12 months, it gets murky. And here, I'd like to explain why. And then as you get closer in, there's more visibility. When we look at the CNG applications or the natural gas because it's CNG and LNG, the manufacturers of that produce -- it's basically the same engine as a diesel. And in their production, it may be a mix between gas and diesel. So they're not really ramping up engine production. They're switching between diesel and gas. And they can switch between diesel and gas very rapidly. So they have the production capacity. So for us, it's how their orders are flowing in, and their orders and maybe just their planning systems are developing versus maybe similar Western manufacturers. But orders in, particularly in China, are very volatile. So if the mix changes, which we're seeing right now as the mix is improving, more gas engines as a percent of the total than we've seen in the last couple years, they can drop those in very quickly. And so as we're looking, it makes it a little more difficult to forecast. You have to be a lot more nimble with your production systems, and we're responding very well. And we have seen, as Bob's highlighted, significant increases in that area. But to say 12 months from now, it's a little fuzzy because it could be a mix between diesel and gas. But right now, with the regulations, the incentives from the government, like we're looking at favorable percent of gas to the total production of engines. So it's on a good ramp right now, but unfortunately, we can't forecast 12, 18 months. It's very difficult. Hopefully, that helps understand it a little bit. That's the challenge.

Our next question comes from Michael Ciarmoli of SunTrust.

Maybe just a little bit more on the Industrial. I know you guys are kind of trying to read the tea leaves. It sounds like the macro is getting better. But in the last 3 months, it sounds like things got worse. And I'm just trying to get clarity in terms of how much visibility -- first, I guess, what was the sole factor just, I guess, further erosion in that IGT aftermarket? And as we look forward, how much visibility do you guys really have? And is there some incremental downside? And I guess thinking about how you guys are talking about getting better, it sounds like there'll be sequential improvement, but it seems like there's still some unknowns there, and this could kind of change pretty quickly as it did over the past 3 months. Is that fair?

It has come down. So the 2 areas where we had pressure in the quarter against where we thought it would be was gas turbine aftermarket and wind turbine. They were both a little lower than we were anticipating going into the quarter, not dramatic but a little bit lower. I was kind of highlighting on gas turbine. The OEM side of gas turbine is very visible, easy. You could see at all our customers the production rates for that. The aftermarket, if I would say we're really close to what I'm calling this normalized level of aftermarket, and we don't have this -- what were the upgrades, have come down for Woodward dramatically. And I say it that way because there's timing of shipments. There's inventory. There's orders and whether or not we're on the orders that are coming. That, we're not anticipating to see a strong recovery. And I think we had a very large 2016, and I'm not sure that's going to repeat. So what we're more likely to see on the turbine side is normalized growth with normalized aftermarket. And that's why we're saying sequentially we think things will be improving, but we're not going to see that jump -- that we're not forecasting that. If it comes, we'd be happy, but we're not forecasting or anticipating that.

Okay. And then I know the question came up earlier on the Aerospace kind of long-term margins, and I think you've got 16%-plus out there for Industrial, which certainly there's a lot of runway for expansion. How do you feel about that target? And should we think about that being predicated on -- do you need an uptick in this or a stronger aftermarket IGT end market? Or can you get to that 16%-plus under these normalized conditions?

Well, we're going to need some sales growth, but -- and I'm going to say sales growth in total. And just as a reminder, everybody, our OE to aftermarket margins on Industrial are not as wide as they are on Aerospace. So we do need some sales growth, but our productivity initiatives, our cost-out initiatives, those are all materializing, but we do need some sales. So to hit the 16% target on Industrial, we will need to start seeing some sales growth come in. But it's not large. It does not require this replacement of this large upgrade pool that we saw in '16. So we do need some sales growth. So that is true. Aerospace is on track. We got the ramp coming. The aftermarket looks strong going forward. So we're confident in that number.

Yes, and maybe just on -- I mean, aftermarket, I think you guided to mid-single digits this year. You're clearly going to do better than that. But when you're looking at the go-forward rate, I know that's very hard to predict. But would it seem like that mid-single-digit rate for commercial aero aftermarket seems to be sustainable given the trends out there?

Yes, I believe so.

(Operator Instructions) Our next question comes from the line of George Godfrey of CLK.

Just -- most of the questions have been answered. I just want to call out, you talk about the smart weapons momentum. Can you tell me what platforms or products exactly are in the smart weapons category?

Yes, our 3 major platforms in there are the JDAM, the small diameter bomb and the AIM9X.

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

Okay. Well, I want to thank everybody again for joining us today. We appreciate your questions. And hopefully, Bob and I were able to provide some clarity on those. We look forward to seeing you over the next quarter and for sure next time in person in December at our Investor Day. So thanks for joining us.

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 p.m. Eastern Daylight Time by dialing 1 (855) 859-2056 for a U.S. call or 1 (404) 537-3406 for a non-U. S. call and by entering access code 47791155. A rebroadcast will also 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.