Thank you for standing by. Welcome to the Woodward, Inc. third quarter fiscal year 2022 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session. Joining us today from the company are Mr. Chip Blankenship, Chairman and Chief Executive Officer, Mr. Mark Hartman, Chief Financial Officer, and Mr. Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Mr. Provaznik. Thank you, operator. We would like to welcome all of you to Woodward's third quarter fiscal year 2022 earnings call. In today's call, Chip will comment on some of his initial observations after joining Woodward, as well as our markets and related strategies. Mark will then discuss our financial results as outlined in our earnings release. At the end of the 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've 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 through August 15th, 2022, or on our website. The phone number for the audio replay is on the press release announcing this call, as well as on our website, and will be repeated by the operator at the end of the call. I would like to refer to and highlight our cautionary statement as shown on slide three. As always, elements of this presentation are forward-looking or based on our current outlook and assumptions for the global economy and our businesses more specifically, including the expected and potential effects of the ongoing supply chain and labor disruptions and net inflationary pressures. Those elements can and do frequently change. Please consider our comments in light of the risks and uncertainty surrounding those elements, including the risks we identify in our filings. In addition, Woodward is providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures, which are included in today's slide presentation and our earnings release and related schedules. We believe this additional financial information will help in understanding our results. Also, all comparisons made during this call are to the same period of the prior year, unless otherwise stated. Turning to our results for the third quarter. Net sales for the third quarter of fiscal 2022 were $614 million compared to $557 million, an increase of 10%. Net earnings were $39 million or $0.64 per share compared to $49 million or $0.74 per share. Net cash provided by operating activities for the first nine months of fiscal 2022 was $86 million compared to $318 million. Free cash flow for the first nine months of fiscal 2022 was $49 million compared to $297 million. Adjusted free cash flow was $52 million. Now, I will turn the call over to Chip to comment on his observations as well as further commentary on our results, strategies, and markets. Thank you, Dan, and good afternoon, everyone. Before we discuss the quarter, I wanted to share some observations from my first few months as CEO. During this time, I met with customers, visited many of our production facilities, and engaged with team members. I'm impressed by what I've seen so far. I'm energized by the role that Woodward has played in helping solve our customers' fuel and motion control challenges, resulting in improved fuel efficiency and reduced emissions in both aerospace and industrial applications. Woodward has and will continue to develop new technologies to reduce fuel consumption and associated emissions. In addition, our newest R&D efforts, executed alongside our customers, are enabling a wide variety of clean fuels to power the engines of tomorrow. These efforts are enabling multiple paths to a cleaner, decarbonized world, and I'm excited about the opportunities ahead of us. Drawing on my industry leadership experience, I'm focused on four main areas, customers, products, operations, and our members. Woodward has deep, long-standing customer relationships that allow us to collaborate at component or systems levels and help customers solve some of their most challenging problems. I'm impressed by our engineering expertise, our technology portfolio, and our product roadmaps. Over the last decade, we've executed aggressive growth strategies to win significant ship set content on some of the most successful platforms in the aerospace and industrial markets. Several years ago, Woodward introduced the Woodward Production System, our company's approach to the lean enterprise journey. We have some showcase facilities, and our talented members are engaged in continuous improvement. As a result of our approach, significant value has been delivered to customers and returned to shareholders. My assessment so far, we still have a fair amount of variation site to site, and our sites are at different levels of maturity on their lean journeys. This is an area of opportunity for us across the board for safety, quality, delivery, and cost improvements. Enhancement in these areas will benefit our customers, shareholders, and members. Woodward also has substantial machining capabilities and a history of producing complex precision-engineered components and systems. We can further leverage this capability to improve quality, delivery, and cost in the near future. We have the opportunity to selectively dual source critical components and relieve capacity constraints in our supply chain, which should reduce lead times and solve some of the challenges we face today. While we largely have the equipment in place, this approach puts more pressure on hiring, training, and retaining talent, but we believe it will set us up for long-term sustainable success. We are already increasing investment in our members to enable superior performance and have ramped up our recruiting and hiring efforts. We continue to prioritize developing our members and helping them build a career at Woodward. Turning to the third quarter, the team delivered double-digit sales growth in a challenging operating environment. Orders are up in nearly all market segments and our backlog has grown, but we have not been successful at reducing our past due commitments to customers. This is due to a combination of part shortages from suppliers and inefficiencies associated with newly hired production workers. This is one of the most complex operating environments that we have seen. Our continued investments in the next generation of machinists and technician will be a key element in resolving these complex challenges and improving on-time delivery, increasing pre-production velocity, and lowering cost of goods sold. Profitability was negatively impacted by ongoing global supply chain and labor disruptions, increased material and labor inflation, and foreign currency exchange rates, all of which had a larger than expected impact during the quarter. We don't expect these issues to improve substantially during our fourth quarter, and as a result, we are reducing our fiscal year outlook. However, demand is robust in nearly all market segments. Orders are not lost and our sole source positions are intact. Our long-term outlook remains strong. Mark will provide more details on the financials in a few minutes. Moving to our markets. Rising global passenger traffic is driving increased utilization of commercial aircraft fleets. U.S. and European domestic passenger traffic is nearly at pre-COVID levels, and China domestic passenger traffic is now rebounding. International travel continues to improve as well. In the defense market, we expect U.S. procurement to increase slightly in the near term, and geopolitical tensions may lead to increased international defense spending. In power generation, demand for industrial turbomachinery is driven by strong growth in Asia. Global aftermarket activity continues to increase, and demand for backup power at data centers remains strong. In transportation, the global marine market is strong, with increasing ship build rates, higher utilization, and elevated transport pricing, all of which drive current and future market activity. Demand in China for natural gas trucks remains at depressed levels. The oil and gas market is favorable as prices and equipment utilization remain elevated, both of which are driving higher rig counts and should result in additional capital investment and increased aftermarket demand. In summary, we believe our markets will remain strong. Increased demand signals for fiscal year 2022 and 2023 continue to be received from our customers. We are focused on improving operations to mitigate the challenges we face related to supply chain disruptions. We remain committed to delivering value to our customers and shareholders and positioning Woodward to capitalize on future market opportunities. I'm excited to be here, and I'm energized by the bright future ahead for the company. I will now turn the call over to Mark to review our quarterly results and our revised fiscal year outlook. Thank you, Chip. Our Q3 sales and earnings continue to be negatively impacted by the supply chain and labor disruptions, as well as labor inefficiencies. We anticipated these disruptions and inefficiencies would improve during the quarter, but they did not. They have persisted longer than anticipated and have had a more significant impact than expected. We anticipate these headwinds to last into 2023. Net sales for the third quarter of fiscal 2022 were $614 million, an increase of 10%. Sales for the quarter were again negatively impacted by approximately $100 million due to ongoing global supply chain and labor disruptions. Sales were also impacted by approximately $18 million from unfavorable foreign currency exchange rates. Aerospace segment sales for the third quarter of fiscal 2022 were $402 million, an increase of 18%. Commercial aftermarket and OEM sales were up 44% and 37% respectively, driven by continued recovery in both domestic and international passenger traffic and increasing aircraft utilization as well as higher OEM build rates. The increase in segment sales was partially offset by delayed shipments of approximately $55 million caused by global supply chain and labor disruptions. Defense OEM sales were down 2%. Defense aftermarket sales were down 12%, primarily due to global supply chain and labor disruptions. Aerospace segment earnings for the third quarter of 2022 were $57 million or 14.1% of segment sales compared to $53 million or 15.6% of segment sales. The increase in segment earnings was a result of higher sales. Segment earnings, including as a percent of segment net sales, were negatively impacted by net inflationary impacts, including material and labor cost increases, as well as increases in manufacturing costs related to the supply chain disruptions and inefficiencies related to training new hires. We are taking pricing actions to address inflationary pressures. However, timing can be delayed due to certain contractual arrangements. Turning to industrial. Industrial segment sales for the third quarter of fiscal 2022 were $213 million compared to $216 million, a decrease of 1%. Unfavorable foreign currency rates negatively impacted segment sales in the third quarter by approximately $16 million. In addition, segment sales were negatively impacted by weakness in China natural gas engines and global supply chain and labor disruptions delayed shipments of approximately $45 million. The negative sales impacts were partially offset by increased marine sales, driven by higher utilization of the in-service fleet, as well as greater industrial turbomachinery sales supporting increasing demand for power generation in process industries. Industrial segment earnings for the third quarter of 2022 were $21 million or 9.9% of segment sales compared to $27 million or 12.6% of segment sales. Industrial segment earnings decreased primarily as a result of net inflationary impacts, including material and labor cost increases, as well as increases in manufacturing costs related to supply chain and labor disruptions and inefficiencies related to training recent hires. Similar to our aerospace business, we are taking pricing actions to address inflationary pressures. However, timing can be delayed due to certain contractual arrangements. Non-segment expenses were $19 million for the third quarter of 2022 compared to $14 million. At the Woodward level, R&D costs for the third quarter of 2022 were $32 million or 5.2% of sales compared to $30 million or 5.3% of sales. SG&A expenses for the third quarter of 2022 were $46 million compared to $48 million. The effective tax rate was 21.6% for the third quarter of 2022 compared to 16.8%. Looking at cash flows. Net cash provided by operating activities for the first nine months of fiscal year 2022 was $86 million compared to $318 million. Capital expenditures were $37 million for the first nine months of 2022 compared to $21 million. The free cash flow was $49 million for the first nine months of fiscal 2022 compared to free cash flow of $297 million. Adjusted free cash flow was $52 million for the first nine months of 2022. Adjustments to free cash flow for the first nine months of this year included payments related to business development activities and restructuring activities. There were no adjustments to free cash flow in the prior year period. The decrease in free cash flow and adjusted free cash flow was primarily related to working capital increases, with inventory increases as a result of production delays due to supply chain and labor disruptions, as well as higher sales driving increased accounts receivable. Leverage was 2.0x EBITDA at the end of the third quarter. During the first nine months of fiscal 2022, $462 million was returned to stockholders in the form of $34 million in dividends and $428 million of repurchased shares. Lastly, turning to our fiscal 2022 outlook. In light of the continuing global supply chain and labor disruptions and net inflationary impacts, we are revising our FY 2022 guidance as follows. Total net sales for 2022 are now expected to be between $2.35 billion and $2.40 billion. Aerospace sales growth is expected to be between 8% and 10%. Industrial sales are now expected to be approximately flat. Aerospace segment earnings as a percent of segment net sales are now expected to be approximately 15%. Industrial segment earnings as a percent of segment net sales are now expected to be between 9% and 10%. The adjusted effective tax rate is now expected to be approximately 17%. Adjusted free cash flow is now expected to be approximately $100 million - $120 million. Capital expenditures are still expected to be approximately $60 million. Adjusted earnings per share is now expected to be between $2.55 and $2.75 based on approximately 63 million fully diluted weighted average shares outstanding. This concludes our comments on the business and results for the third quarter of 2022. Operator, we are now ready to open the call to questions. Thank you. The question-and-answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your push button phone. Should you wish to withdraw your question, again, press star one. Your question will be taken in the order it is received. Please stand by for your first question, sir. Our first question comes from the line of Robert Spingarn with Melius Research. Your line is open. Good afternoon. Good afternoon, Rob. Hello, Robert. You know, Chip, question about commercial aftermarket. You know, it was up 44% in the quarter, but it was flattish from the March quarter to the June quarter if I have our numbers right. If you could talk a little bit about what happened there. Would have expected a sequential increase. You know, Rob, I'm not sure where to start with that one, since I wasn't around for the March quarter. There is some seasonality in the way, you know, we see that business flow in with, you know, heavier removals driven in the summertime, which flows into our later in the year. Yeah. In addition to that, Rob, you know, the other side of this, and we've been talking about this for a little while now, is really around the deferred maintenance that's been out there. You know, the airlines did a really good job during the pandemic and coming out of the pandemic to deferring maintenance as long as they could. You did see good growth in our second fiscal quarter, and so we were seeing some of that coming through. It's still coming through, you know, based on the utilization of the aircraft. Some of the timing may be a little different than what you'd anticipate from quarter to quarter just based on when the airlines decide to do some of that deferred maintenance. Okay. All right. Chip, if I could ask a follow-up and perhaps, you know, focus on your extensive background in the engine business. Airbus has some aggressive production targets out there. Obviously, Boeing is doing what it can to get narrow body up, and Boeing 787's gonna come back here. Based on your experience at GE and Arconic after that, is it realistic to expect the engine OEMs to be able to meet these longer-term production targets? I'm talking about, you know, 75 on the Airbus A320, that kind of thing. Is that gonna happen by mid-decade? I'd be speculating at best, Rob, on that. You know, these OEMs are very experienced and have a really good command of what their capacity is. Given time, investment, and confidence, it's just a matter of the will to put the capacity in place to serve that. A lot of discussion in the marketplace about if the rates go that high, can they be sustained? Is there enough demand to sustain them at that level for long enough to justify the investment? I think that, you know, really is a dialogue for the airframers and the engine OEMs to come to some conclusion and also, you know, look at the pinch points in the supply base and talk to folks like us and investment casting and other places where, you know, the investment is substantial to increase capacity. If everyone gets their head around that there's a demand out there that's long enough to justify a capacity increase, then, you know, there's a good return on that investment. But if people are worried that it's a bubble or something that would be shorter lived, then I think there'd be a lot of discussion about flattening that out. Just, you mentioned capacity and investment. Just on a shorter term basis, is the issue that we see today, and particularly on the engine side, one of capacity or is it labor shortage? In other words, the capacity's there at least to get to the near term rates this year, next year. The problem is labor or do they really need to invest more or is that to the. Are you talking about investment to get to the 25 rates? I don't know enough about, you know, where the engine OEMs are on their internals right now. Looking at us and looking at upstream into our supply chain, what I see is a combination of labor and material, and not too much equipment in the way and not too much tooling in the way. What I you know say sometimes is that, you know, one company's material shortage is another company's labor shortage if you look one tier, you know, in front of that one. I think most of what we're seeing, experiencing at Woodward is people shortage by and large somewhere in the supply chain, whether it's from the China all the way back to a China lockdown where nobody can go to work or it's just, you know, more of a domestic source that's having trouble, getting staffing ahead of attrition. Okay. I think that distinction is really important. Thank you. Yep. Your next question is from the line of Pete Skibitski with Alembic Global Advisors. Your line is open. Hey, good afternoon, guys. Guys, can we drill down deeper into aerospace earnings this quarter? It was, you know, you saw some benefit from volume, and we're talking about labor here, but, you know, you've been through a CapEx cycle. You have, I think, some of the more modern facilities and automation in the industry. How come we're not seeing that benefit of automation yet at aerospace? You know, Pete, one of the things we've had in our prepared remarks is really around both the inflation impact and, you know, the labor inefficiency impact. You know, we've mentioned back in the February timeframe that we are gonna be, you know, needing to hire 100 new direct labor members, you know, a month for the remainder of the year, and getting those members in and trained, you know, would have an impact kind of on our earnings, and we're continuing to see that. You know, as Chip just said, related to our capital, and I appreciate your comment, and you know, anybody that's seen our facilities knows that, you know, we have a very automated facility and we would be able to get product out at, you know, at rates that we're talking about. It does come down to having trained, you know, members and having trained machinists specifically, and being able to get them in, you know, get them hired, get them up the learning curve. You know, we have seen attrition. You've probably heard me talk previously about, you know, the number of retirements that we've had. We are still seeing that retirement and the attrition. As we're trying to get those members in and on the lines and productive on the lines, that's the impact we're seeing here in the short term. You know, we Okay. We actually have some site-to-site variability in terms of how much is automated on the machining. If you go to a place like Rock Cut, you'll see a lot of automation. If you go to a place like Santa Clarita, you might see a lot more, you know, manual participation in the machining process. Having trained labor ability to facilitate and efficiently get through making a quality part the first time, and the target build rate for the shift is, you know, something that we're gonna continue to put a focus on. When you guys talk about net inflation, you know, it seems like we've talked about that for at least a couple of quarters now. Should we assume, or are you assuming that within a couple more quarters, you know, your pricing actions should start to take hold, so by, I don't know, second quarter of fiscal 2023, we should see some net inflation improvements hopefully? Yeah. Pete, thanks for the question. You know, that is a good story for us, you know, overall. We've talked about, you know, we are able to realize price, but the timing may be delayed. Generally, let me break it into two buckets. The first being on our OEM side of our business, typically it's contractual based, industry based, and during the calendar year, increases that we get. What we saw on January 1st of 2022, we did see a price increase, but that only had the, you know, 2021 inflation impacts. Now what we'll see in January of 2023 is the industry based pricing increases that we will get based on the 2022 inflation, which I think where everyone is aware has been, you know, significantly higher than any preceding year in any, you know, last few decades. That's one price realization that we will see. In addition to that, you know, we do have, you know, catalog pricing increases that we put in for our aftermarket, and that, you know, is both on parts and labor. We have put that pricing increases in. However, you know, some of it takes some time to flow through. For example, if we have purchase orders from our customers, we don't reprice them. Although we did start to see some price realization here during our third quarter, we would anticipate that price realization to grow as we go forward. Okay. Thanks for the call, guys. You're welcome, Pete. Thank you. Your next question is from the line of Matt Akers with Wells Fargo. Your line is open. Hey, good afternoon, guys. Thanks for the question. I wanted to ask if you have any early thoughts on next fiscal year and, you know, given kind of the slower narrow-body ramp up we heard from Boeing and Airbus, you know, on the other hand, I guess maybe you guys have some catch-up work from this year. If you have any thoughts on just how it could stack up relative to, you know, some of the long-term targets you gave at the Investor Day. Well, you know, maybe those are a couple different questions. I think it's too early to really have any specific remarks about 2023 other than saying that the demand is strong and our customers. You know, saying in a note to all members this week, I said I've met two kinds of customers on the road as I've traveled around. You know, one kind that's upset because we're past due on deliveries, and the other kind is worried that we're not expanding capacity fast enough to meet the 2023 demand, but we haven't impacted them yet on being past due. I think the trend for 2023 on the demand side is quite strong, and we're very bullish about that. The challenge is it's such an unstable supply chain environment that we're focused on really getting our arms around that and making sure we understand that well enough before making any statements about what 2023 looks like. I'll let Mark comment on anything from Investor Day. Yeah. You know, Matt, as we'd discussed in Investor Day, you know, we have the overall Woodward sales CAGR over the next five years at 9% and, you know, generally consistent across both segments. You know, as Chip just mentioned, you know, we do see demand is strong, and you know, that wouldn't be anything that we would be changing today, and we'll look forward to, you know, having that discussion, you know, at in early calendar 2023 at the Investor Day. Great. Thanks. I guess if I could ask a little bit more detail on some of the supply chain disruptions that I think chips was one that you highlighted at the Investor Day as I think it was kind of the long pole in the tent. Has that gotten any better, or is labor kind of the bigger focus now? Or just if you could kind of touch on some of the individual components there. Sure. On the computer chips that go on the printed circuit board assemblies that go into our different kinds of LRUs or equipment that we ship to our customers, a number of those supplier problems that we encountered have gotten better, some by doing things like screening industrial grade or military grade chip requirements against commercial grade chips. We've been doing some different kind of, you know, substitution of components that meet the requirements on when we had shortages of the ones that were on our bill of material. We've also worked through brokers and things like that to find enough supply. The main activity though has been redesigning our PCBAs to accept the higher volume chips that are being produced for automotive, you know, in the current generation. As we look at long-term, how do we stay ahead and be proactive? We're looking at a different cadence on our product management life cycle as far as that goes. Maybe a quicker turn time there on redesigns for supporting high volume chips. We've had a number of issues with suppliers that have labor shortages. We've been responding to those in a variety of ways, some of which has been to, you know, insource or dual source ourselves if it's machining operations. We've had quite a lot of activity on that. We've retired, you know, on the order of 20 different supplier risks since the last conference call. New ones have cropped up, and you know, it's just that's the nature of the current supply chain. We had one in the raw material category that impacted our Rock Cut plant. That was something that resulted from the China lockdown and labor shortage there. Their inability to ship some ceramic insert parts to one of the mills that we get aluminum ingots poured, then that's shipped to a forging supplier of ours. It's like three tiers away from us that labor problem was encountered. We've been working through alternate sources there to make sure we can recover production for the rest of the year on that one. I guess to summarize, some of the earlier problems that were highlighted a quarter ago have been solved, but new ones have shown up and we're deploying our resources further into the material stream and working hard to control our destiny by bringing a little bit more in-house. Okay, great. Thank you. Yep. Your next question is from the line of David Strauss with Barclays. Your line is open. Thanks. Good afternoon. Welcome, Chip. Hey, good afternoon. How are you, Dave? Good. Wanted to ask about the defense side of the business. It looks like, you know, I know it was down still year-over-year, but looks like from a sequential standpoint that the business actually grew. Have we hit bottom there on the defense side? Mainly talking about the OEM side. Yeah, on the defense OEM side, you know, David, as we've been talking about for some time now, right, the softening on the guided weapons, specifically the JDAM product line, you know, we weren't able to completely offset that with the rest of the guided weapon programs, you know, Small Diameter Bomb and AIM-9X. You know, actually, as we've looked forward here, you know, it is starting to stabilize. However, we do still anticipate some of the, you know, JDAM softness to continue as we go forward. You know, we do anticipate, and I think you've heard us talk about that. You know, we do anticipate that the defense OEM side of our business would, excluding the JDAM impact, expect to grow. You know, obviously with the war in Ukraine and what some of our NATO allies may do, we anticipate that that would be an opportunity for us as we go forward. Okay. Mark, you know, any sense or indication of when the JDAM portion actually bottoms out or hits zero for you guys? Yeah, I well, I wouldn't say bottoms out, hits zero. You know, one thing that we have a little bit longer visibility to is the DOD orders for that. But as we've talked, you know, over the last few periods, the one thing that always can, you know, I don't wanna say drop in like it's next month or anything, but we do get Foreign Military Sales orders on that program, and they can be, you know, not necessarily as long of a lead item, you know, a visibility to us. So that's always the opportunity for us, you know, based on what the foreign military partners might do over the next, you know, couple years. You know, you can see in the DOD budgets that you know, there is still some softening there with the current ordering pattern that's out there. Okay. On free cash flow, it looks like your guidance doesn't imply any sort of, you know, working capital reversal in the fourth quarter. I think, you know, year to date you seem like $120 million or so increase in working capital. How would you expect that to unwind from here? You know, in terms of the Investor Day guidance, Mark, is the $2 billion over five years for free cash flow, is that still good? Let me take the shorter term one. You're right. Obviously, the investment in working capital has primarily been inventory. We've increased that significantly since the beginning of the supply chain disruption that's impacted us, you know, well over $100 million I think. You know, what we'd anticipate for the rest of this year, as you say, we don't see much improvement, you know, with kind of the sales that we have in Q4. You know, we do anticipate receivables would increase based on the timing of those sales. We may get, you know, a slight decrease in inventory as we ship that product out. You know, generally, working capital would be pretty constant from where we sit at June 30th. You know, as we look out to the future, you know, one of the things we've talked about is, you know, a lot of these, you know, as Chip even mentioned, you know, our demand is strong. You know, these sales are not lost based on the positions that we're in, so, you know, it's just a timing of cash flow. You know, what we're looking at as we move over the next, you know, four-plus years is, you know, that approximate $2 billion that we talked about at Investor Day would still hold, and it's just a timing, you know, initiative as we go forward. You know, we'll look forward to, again, you know, kind of giving our thoughts or along the five-year plan when we have our Investor Day in early calendar 2023. All right. Thank you very much. You're welcome. Your next question is from the line of Chris Howe with Barrington Research. Your line is open. Good afternoon, Chip and Mark. Hey, Chris. Just wanted to follow up. Hey. Just wanted to follow up on some of your comments or wording used for the China region. As it pertains to aerospace, you mentioned you see some rebounding. You also mentioned some positives in the industrial area, but can you just put China into further context, amidst the constant level of uncertainty that seems to overlay that region, and how we should anticipate kind of China coming back as we get to more normal aerospace margin? In other words, how much is China taking away from where you would like aerospace segment earnings to be? Well, I think it's fair to say that we weren't very positive on China, or we didn't mean to come across as very, very positive on China. It's very hard to predict. As you know, it's not really market driven. It's driven by the government at the top, and so hard to predict using first economic principles. You know, our positive statement was really around Asia power gen, and that's not really China. I think that's ex-China is what we're looking at there. You know, we don't have a good visibility to improvements in the natural gas truck market, so we're not calling any forecast for improvement there. We just have to wait and see. As far as the commercial aircraft, commercial airline traffic, you know, we're seeing the start of that recovery. What we're counting on is the government not to get in the way of that. You know, for us, the opportunity there if the Boeing 737 MAX starts flying again and carrying revenue passengers, we'll look to opportunities for initial provisioning with airlines that take deliveries of the Boeing 737 MAX going forward. That's really where our opportunity is, generating cycles there for the aftermarket, new aircraft being delivered there and initial provisioning for those airline customers that, you know, get a certain critical mass of planes in their fleet. That's perfect. One quick follow-up as I think about fiscal year 2023, to the extent to which you can comment. Do you still anticipate kind of getting back to historical levels on a run rate basis, maybe not so much in the early part of 2023, but as we get to the latter portion of 2023 to return to pre-COVID levels? What you mentioned is exactly what we talked about at Investor Day. You know, obviously, with the demand that we're seeing out there, you know, we were anticipating that, you know, in Q4, we'd be returning to, you know, pre-COVID levels. You know, I would say with the demand that we're still seeing, we would still anticipate that. Okay. Thanks for taking my questions. You bet. You're welcome. Your next question is from the line of Gautam Khanna with Cowen. Your line is open. Hey, guys. I'm curious just on the sales reduction and what it looks like it's implying, like, 50% incremental margins. Is that right? The arrears of $100 million, what is the guidance in that for the fourth quarter, and when do you expect to have those caught up? Will we see a quarter or two of kind of above normal shipments, if so, when? To answer the first question on kind of the volume decline and the impacts thereof, it you know does come down to, you know, a fairly you know I'll believe your math, 50% is you know in the ballpark definitely. But really a lot of that's off the back of both you know the inflation impact on material and labor and also the labor inefficiencies, as I was mentioning earlier, related to you know the new hire training and the impact that you know that has related to training them and then putting them on the line and then trying to get those members up and productive. You know, the other impact in the quarter that we had is primarily the euro, but it was the FX impact. You know, that's really just a translation impact. I call it a translation impact. It's just translating our euro-based business that has revenue and costs in euros. You know, that has an impact when you translate those over to dollars when the dollar's almost at par with the euro, which it hasn't been in almost 20 years. You know, so that's definitely the impact within the quarter that we had. Related to the supply chain disruption, you know, what we mentioned is we do plan on that continuing into 2023. You know, as Chip mentioned, obviously, we have a lot of activity. We've redeployed a lot of resources. We have a lot of suppliers that are in our escalation program that we're working with on a daily and weekly basis. You know, we don't plan for that to abate until 2023. Got it. Just to be clear, we should not think of adding $150 million to, or whatever the variance is from the original guidance to next year. It will still be a gradual workout. Okay. Yeah, Gautam, I think the fact of the matter is that there's not enough capacity to just sort of shoot out all that past due. It's gonna have to be burned down over the year 2023. I think it's still maybe even potentially aggressive to say we get everything out next year, just due to the fact that I think we'll be managing supply chain disruption externally and internally through 2023. We'll be doing our best to burn that down, and we will burn it down. How much, I don't know. But I think you can count on the fact that it won't be a slug output in a single quarter. Thank you, guys. Yep. Welcome. Your next question is from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Hi. Good afternoon, guys. Thank you, and welcome, Chip. Chip, since this is your first quarter. Thanks, Sheila. Kind of a tough one for you. I think we could all agree that Woodward has done a good job in terms of organic growth and increasing EPS over the years, but the quarterly volatility is, you know, fun for us, but not for the stock price. You know, what are your observations in terms of how you could maybe improve forecasting if you have any yet? Well, I'm not sure about forecasting yet, Sheila, but one of the things that I think drives some variation quarter to quarter is operational performance. At least that's the thing I've seen in my brief, less than 90-day tenure as a thing to work on. You know, I really think that's an area to focus to develop excellence internally as well as maybe add a few resources to the team in the lean continuous improvement arena. I think that's really the focus there is to get a very predictable delivery and quality performance, and that will help us, you know, have a lot of confidence around the financial numbers that we put forth. Okay. Thanks for that. Then on just the aerospace margins, when we look year-over-year, revenues are up almost 20%. Sequentially, they're up 10%, but yet your EBIT dollar is flat with the prior year and almost the prior quarter. Like, so what sort of drove that, you know, margin in the quarter? 'Cause we've talked about, you said labor since February, supply chain for several quarters now. What kind of got worse in the quarter? Yeah. Like you mentioned, we've been talking about, you know, the impacts on both labor and material inflation. You know, even if you go back to early in the year, we talked about that, you know, we wouldn't be able to get productivity to offset, you know, the labor and the material inflation. Obviously, with the acceleration of the inflation even here, during our Q3, you know, that had an impact on us, you know, in the earnings on a year-over-year comparative basis. You know, that did impact us. You know, the continuing of hiring of new members and getting them in and trained, Sheila. You'll recall we talked about, you know, needing to have 100 hired, you know, on average kind of per month over the remainder of the year. You know, that our attrition has picked up a little bit, so we are hiring. You know, we're a little behind on hiring to that rate. And also then being able to get those people online, getting them through our, you know, our offline training and putting some online and making them efficient. The third one really on the aerospace side of the business, you know, Chip mentioned earlier, you know, we were talking about the impact of the billet, you know, all the way back to the kind of China shutdown is kind of the root cause of that. You know, that does have an impact on, you know, our production and our flow capability. You know, obviously that volume output when it slows and it's not moving smoothly and efficiently, that has an impact on overall earnings also. Okay. That makes sense. Last question for you, Mark. When we think about your contracts in aerospace again, where are you falling behind inflation when we think about commercial aero, defense, you know, helicopters, biz jets, and on the OEM aftermarket side, and where are you ahead? Yeah. The biggest impact in the short term has definitely been on the commercial OEM side. You know, I mentioned earlier on the call, you know, that that's generally the contracts are industry-based increases on a calendar year. You know, as the first half of this calendar year, the inflation has been significant. We have not been able to reprice those at this point. Again, it's just a timing difference. We will be able to realize those prices and you know, we will realize them in the January timeframe, but that's definitely the largest impact that we're seeing. Okay. Awesome. Thank you. Welcome. Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open. Hey. Good evening, Chip, Mark. Thanks for taking the questions. I guess just, you know, if we went back to last quarter, it sounded like, you know, the guidance didn't assume any recovery, you know, in the supply chain, you know. Obviously, the outlook got significantly worse, and I guess even in industrial, you know, the revenue down significantly. Did the China natural gas, I thought I was under the impression that was kind of baseline. I guess, what significantly got worse on the industrial side of the business to drive this drastic of a change on the revenue equation? I'll take kind of the top level, and then I'll double-click into the industrial side. You know, our range previously at the low end assumed that, you know, things weren't gonna get any better, generally in the supply chain disruption. You know, what we're calling out now with only one quarter to go is, yeah, they're not getting better. You know, obviously you heard from Chip talking about kind of the things that we're seeing out there. You know, what really that impact has is, you know, related to, you know, a lot of inefficiencies, the continuation of, you know, higher inflation impact, you know, the supplier disruption, you know, cost impact. You know, we have, you know, as Chip mentioned, you know, 20+ suppliers in the highest escalation supplier escalation process that we're in, you know, where we have people on site. So, you know, we're redeploying people, redeploying engineering resources for redesign, et cetera, et cetera. There's a lot of costs that are impacting that. Related to industrial specifically, I would say the largest individual impact is really the currency impact. You know, a lot of our. It's not China. I mean, you're right, Michael. You know, we talked about, you know, the word we used last time was the OE market had evaporated. You know, we kind of anticipated that would remain that way for the remainder of this fiscal year, and that definitely transpired. It wasn't China that was, you know, the OE business specifically. It was really the, you know, primarily the euro impact. You know, generally, you remember our L'Orange business that we acquired in 2018. You know, it's a euro-denominated business. Unfortunately, the currency rate of the euro to dollar, you know, that impact is offsetting all of the growth in all of the other markets in industrial that we're seeing, and that's in essence why we're ending up flat for this year. Got it. That's helpful. Then maybe just one other one. Back to Gautam. I think it was Gautam who was asking this question about, you know, picking up this $100 million. What would be the biggest governor on capacity? I mean, pre-COVID, you know, in aerospace, you guys did $1.9 billion, and, you know, we're doing quarterly revenue close to $500 million. Is it labor? Would that be the biggest choke point in capacity? I mean, obviously, you just mentioned other suppliers and material. But certainly, you've done $500 million revenue quarters before, so what would be the biggest holdup to getting there and getting more product out the door? It's labor, Michael. I mean, it's you know, our labor and our suppliers' labor is really the biggest, to use your word, governor on the ability to increase throughput. We're putting you know, new strategies in place on developing pipelines and bringing people on board that are you know, somewhat qualified and we'll train the rest of the way as far as machinists go and assembly technicians. You know, the rest, there's additional labor categories like programmers for CNC machines and things like that you know, when you think about how to get high mix low volume through some of the lines, you need some of these talents as well. That's with you know, both us and our supply base. We're gonna work to, you know, attack that part of the problem, but that's really the biggest constraint. That's helpful. Just the last one. As we look to maybe, you know, the January kind of 2023 price increase environment, do you guys expect that you can get sort of a real price increase there? You know, or is this gonna be price increases that are just gonna offset the headwinds from inflation and maybe wouldn't be that accretive to margins? Yeah. How I would speak to that one. Really the January one is just the contractual based on industry, which, you know, in essence is just offsetting the cost increases that we're seeing that are coming through during calendar 2022. You know You're familiar enough with our business, you know that, you know, the price realization on the aftermarket side, based on kind of our sole source position, our, you know, high intellectual property, you know, we're on the hot part of the engine, you know, on part of our aerospace business, so, you know, that's where we would have more opportunity for price realization, you know, ahead of just cost. Perfect. Thanks, guys. Welcome. Your next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Hey, hey, good afternoon, everybody. Hello, Noah. Afternoon, Noah. Think of the revenue CAGRs that you've laid out for the segments applying to next year or does that look, you know, more back-end loaded in the multiyear period, given some of the headwinds? Yeah. I'd say it's a five-year CAGR. I mean, you know, obviously the math works over the five years. You know, obviously our 2022 revenue based on both the supply chain disruption impact and the currency impact you know, kind of gets you to a different base in the first year. You know, it's definitely over the five years and you know, as Chip mentioned, we see strong demand across you know, most of our markets and that's what's driving that CAGR. I guess I'm still not understanding the aerospace margin down sequentially and year-over-year when the revenue is up sequentially and year-over-year. I understand, you know, the items you're talking about in terms of supply chain and labor and cost inflation. You know, you had those last quarter and to some extent a year ago. Is it really incremental cost to solve those issues? I'm struggling a bit there still. Yeah. It's a couple things. One is, you know, I'll start with the one you mentioned, the incremental costs to resolve some of these issues. You know, Chip mentioned that the investment that we're looking to make, you know, we've dual sourced through insourcing. You know, we've redeployed significant amounts of people. We've redeployed engineers to help on redesigns, to help on you know, transitions from you know, bringing on another external source or moving capability internally and all of that has cost and that's definitely impacted us. You know, also sequentially, if you think about the inflation impact that we're all seeing, you know, through the April, May, June timeframe, right? I think we were all, especially in June, anticipating that it had peaked and would be coming down, and then sure enough, June comes in and it's even, you know, higher than what it had been prior to that. You know, we're definitely seeing that also. I would say generally that's the two impacts that we see, you know, the investments that we're making to you know, help with the supply chain disruptions so that we can get you know, improvements starting to move forward and also the continued high inflationary period that we saw during our fiscal Q3. How long do you anticipate making these incremental investments and expenditures? You know, I think we're gonna be experiencing the supply chain disruption problem well into 2023. As we bring more operations in-house, as we realign our supply chain with those that are performing and not having disruptions, I believe we will see lower costs, you know, later into the year and be able to burn down that past due backlog. You know, just to give you an idea of the type of activity we're already engaged in, you know, we've moved 500 + parts this year already, and there's another, you know, 2x that in process and being identified for, you know, from two kinds of planning processes. Our part transfer process is, you know, taking a lot of resources right now, but it's the right way to deploy our resources because we wanna serve customers, we wanna restore our profitability. We're just gonna have to work through this over the next year and get where we wanna be from a more a simpler supply chain and a more robust supply chain that's also resilient and that we play a larger role. Frankly, we do a better job of how we engage with our suppliers and transmit our demand, you know, get their read back that that demand is received and they can meet it. These kinds of things that may sound simple, but when you're running this complex of an operation, sometimes, you know, those things aren't as clear as they need to be. You know, I think this is gonna be with us for a bit, but we'll be stronger on the other side of it. Okay. You've had guidance to recover the aerospace segment from pre-pandemic to 20%+, you know, while exiting fiscal 2023. Is that still, you know, in the scenario analysis, or should we push that out a bit, you know, just given these, you know, new items? Yeah, I'm not really ready to confirm any forward-looking guidance on profitability, Noah. I can tell you that, you know, I'll be smarter and we'll understand more in November when we talk about 2023. You know, the same in late February when we have an investor conference, and we'll be able to, I think, paint that picture with a little bit more clarity for you. Okay. Yeah, that's fair. Okay, appreciate it. Thanks so much. Thanks. Yep, you bet. There are no further questions at this time. 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 at, today at 7:30 P.M. Eastern Daylight Time by dialing 1-800-770-2030 for a US call or 1-647-362-9199 for a non-U.S. call and by entering the access code 427-8216. 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