Thank you for standing by. Welcome to the Woodward, Inc. first quarter fiscal year 2023 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'd like to welcome all of you to Woodward's first quarter fiscal year 2023 earnings call. In today's call, Chip will comment on our strategies and related markets. 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 have included some presentation materials to go along with today's calls that are also accessible on our website. An audio replay of this call will be available by phone or on our website through February 13, 2023. 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'd 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 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 inflationary pressures. These elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. 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. Now, I will turn the call over to Chip. Thank you, Dan. Good afternoon, everyone. Our first quarter earnings were in line with our expectations, although our Industrial segment had a challenging quarter. We continue to see strong demand from our end markets. The ongoing industry-wide challenges from supply chain and labor disruptions and inflation impacted profitability in the quarter as we anticipated and negatively affected our cash flow. These supply chain and labor disruptions are anticipated to begin to subside in the second half of the fiscal year as our strategic investments and mitigation actions translate into improved financial results. Our past due commitments to customers remain elevated as a result of the supply chain and labor challenges, but also because of sustained strong demand. We continue to focus our efforts on improving our supply chain by securing additional capacity with trusted suppliers, making strategic investments into the creation of rapid response centers, and maximizing our current machining capabilities to increase deliveries to customers. In addition, we continue to focus on developing and retaining talent. I'd like to recognize our Woodward members who are working hard to serve customers better and improve our company's results. During the quarter, we announced streamlined Aerospace and Industrial organization structures with leadership designed to enhance the sales experience for customers, simplify operations, and increase profitability through improved execution. Within the Aerospace segment, this new structure enables advancement of our missiles and space programs. In December, Randy Hobbs joined Woodward as President of our Industrial segment. Randy is an accomplished executive with significant global leadership and lean manufacturing, lean enterprise management expertise. Randy and I are working closely to transform Woodward's Industrial segment as significant change is required. He is already driving multiple initiatives to improve our operational execution. We have three priorities in addition to accelerating operational recovery. First is right-sizing the business and improving our cost structure. We are already well on that path with the announced consolidation of engine systems and turbine systems business units inside the Industrial segment. Second is pricing. We are executing multiple work streams to capture prices that reflect the value we deliver. Third is product portfolio rationalization, which will reduce complexity and maximize profitability over the longer term. I'm confident in Randy's ability to lead this segment and improve near-term operational results, as well as improve long-term returns for shareholders. I look forward to discussing our progress on these priorities during our next call. On a somewhat related note, we are moving the date of our June 2023 Investor Day to later in the calendar year. Our internal strategy work related to the transformation of the Industrial segment is ongoing. We want to demonstrate progress and establish a firm foundation before we present our long-term targets for Industrial and the rest of the company. As we indicated on the last call, but were unable to name names, we are proud to announce that Woodward was selected to work with Airbus to provide the fuel cell balance of plant solution for the ZEROe demonstrator. This project leverages our leading fuel control technologies to enable a more sustainable form of air travel based on hydrogen propulsion. This Airbus demonstrator program aims to support zero-emission aircraft development for entry into service by 2035. This project goes hand-in-hand with multiple carbon emissions reduction projects already underway at Woodward for aerospace and industrial end markets. Moving to our markets. In aerospace, utilization rates for the commercial airline fleet continue to rise, driven by increasing global passenger traffic. U.S. and European domestic passenger traffic has returned to near 2019 levels. International travel continues to improve. Passenger traffic in China is increasing, and we are pleased to see that the Boeing 737 MAX is beginning to fly in China again. In the defense market, we're seeing U.S. procurement increase while rising geopolitical tensions may lead to increased international defense spending. In industrial markets, robust demand for power generation continues to be driven by strong growth in Asia, increases in global aftermarket activity, and consistent demand for backup power at data centers. In transportation, the global marine market remains healthy with increased ship build rates, higher utilization, and elevated freight prices, all of which drive increases in current and future aftermarket activity. Ferry and cruise activity is near 2019 levels, which should result in increased spare parts demand. In addition, the global marine market continues to show increasing interest in alternative fuels as more projects are announced and under development. Woodward content is greater on multi-fuel engines, which should enhance OEM and aftermarket activity in the future. On the other hand, demand in China for natural gas trucks remains at depressed levels. In the oil and gas market, elevated commodity prices continue to drive higher equipment utilization, which should, in turn, result in increased aftermarket demand. In summary, we anticipate continued market strength as heightened demand signals point to growth and opportunity for Woodward. We are committed to improving operational execution across the company, developing and retaining talent and innovation, all of which will position Woodward for long-term success and value creation for our shareholders. I will now turn over the call to Mark to review our quarterly results. Thank you, Chip. Net sales for the first quarter of fiscal 2023 were $619 million, an increase of 14%. Sales growth for the quarter was driven by increased volume and price realization, negatively impacted by approximately $95 million due to the ongoing global supply chain and labor disruptions. Sales were also impacted by approximately $19 million due to unfavorable foreign currency exchange rates. Net earnings were $30 million, or $0.49 per share for the first quarter of 2023. For the first quarter of 2022, net earnings were $30 million or $0.47 per share, adjusted net earnings were $36 million or $0.56 per share. Aerospace segment sales for the first quarter of fiscal 2023 were $396 million, an increase of 18%. Commercial OEM and aftermarket sales were up 32% and 47% respectively, driven by continued recovery in both domestic and international passenger traffic and increasing aircraft utilization. Segment sales were negatively impacted by $35 million in delayed shipments caused by global supply chain and labor disruptions. Defense OEM sales were down 15% in the quarter, primarily due to lower sales of guided weapons. Defense aftermarket sales were flat. Aerospace segment earnings for the first quarter of 2023 were $55 million, or 14.0% of segment sales, compared to $51 million, or 15.2% of segment sales. The increase in segment earnings was primarily a result of price realization and higher commercial OEM and aftermarket volume. Segment earnings, including as a% of segment sales, were negatively impacted by inflationary impacts on material and labor costs, increases in costs related to supply chain disruptions, inefficiencies related to training new hires, and the return of the annual incentive compensation. Turning to Industrial. Industrial sales for the first quarter of fiscal 2023 were $223 million, compared to $205 million, an increase of 9%. The increase was primarily driven by higher marine sales from continued utilization of the in-service fleet and strong industrial turbomachinery sales supporting the increased demand for power generation and process industries. Segment sales were negatively impacted by approximately $60 million in delayed shipments caused by global supply chain and labor disruptions, as well as unfavorable foreign currency exchange rate impacts of approximately $17 million. Industrial segment earnings for the first quarter of 2023 were $11 million, or 5.1% of segment sales, compared to $24 million, or 11.5% of segment sales. The decrease in segment earnings was primarily as a result of inflationary impacts on material and labor costs, increase in costs related to supply chain disruptions, inefficiencies related to training new hires, unfavorable foreign currency effects, and the return of annual incentive compensation, all partially offset by higher sales volume and price realization. Non-segment expenses were $24 million for the first quarter of 2023. For the first quarter of 2022, non-segment expenses were $29 million, and adjusted non-segment expenses were $21 million. At the Woodward level, R&D for the first quarter of 2023 was $29 million, or 4.6% of sales, compared to $25 million, or 4.7% of sales. SG&A for the first quarter of 2023 was $63 million compared to $62 million. The effective tax rate was 6.7% for the first quarter of 2023. For the first quarter of 2022, the effective tax rate was 19.7%, and the adjusted effective tax rate was 20.6%. Looking at cash flows. Net cash provided by operating activities for the first quarter of fiscal 2023 was $5 million compared to net cash provided by operating activities of $39 million. Capital expenditures were $24 million for the first quarter of 2023 compared to $13 million. Free cash flow was negative $19 million for the first quarter of fiscal 2023. The first quarter of fiscal 2022, free cash flow was $26 million, and adjusted free cash flow was $27 million. The decrease in free cash flow was primarily related to the inventory increases due to supply chain and labor disruption impacts, increased capital expenditures, and timing of tax payments. Leverage was 2.3x EBITDA at the end of the first quarter. During the first quarter of fiscal 2023, $37 million was returned to stockholders in the form of $11 million of dividends and $26 million of repurchased shares under a board-authorized share repurchase program. Turning to our fiscal 2023 outlook. Woodward's previously stated fiscal 2023 outlook remains unchanged. We anticipate total net sales for FY23 to be between $2.60 billion and $2.75 billion. Aerospace sales growth is expected to be between 14% and 19%, and industrial sales growth is expected to be flat to up 5%. Aerospace segment earnings as a percent of segment sales are expected to increase by approximately 150 to 200 basis points. Industrial segment earnings as a percent of segment sales are expected to be flat year-over-year. The effective tax rate is expected to be approximately 19%. Free cash flow is expected to be between $200 million to $250 million. CapEx are expected to be approximately $80 million. Earnings per share is expected to be between $3.15 and $3.60 based on approximately 61 million of fully diluted weighted average shares outstanding. Our fiscal 2023 outlook assumes improving operational and financial performance while continuing to navigate a challenging industry-wide environment. The supply chain and labor disruptions are anticipated to begin to subside during the second half of the fiscal year. The timing of improvement is uncertain and results could negatively be impacted if supply chain and labor disruptions do not improve as expected. A few reminders to assist you with your modeling. As a result of our strategic investments and mitigation actions, we anticipate the supply chain and labor disruptions will begin to subside in the second half of the fiscal year. We expect the full year price realization to be in the range of 5% of sales. EBIT for the full year is expected to include approximately $60 million of annual variable incentive compensation costs, an increase of approximately $50 million over the prior year. $12 million of variable incentive compensation was recorded in the first quarter of fiscal 2023. We anticipate our interest expense will increase by approximately $10 million, primarily due to rising interest rates. As we reduce our past dues in the second half of the year, we expect to generate free cash flow in the same period. This concludes our comments on the business and results for the first quarter of 2023. 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 withdraw your question, again, press the 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 now open. Hey, good afternoon. Good afternoon, Rob. I'm not sure who wants to take this, but it's about margins, and I just wanna understand what deteriorated from last quarter to this quarter or what pressures got worse. I understand comp went up, but it would seem the other things would have been relieved by, like, you know, you mentioned higher volumes and the fact that these margins are lower both quarter-over-quarter and year-over-year, you know, perhaps you can offer some clarity on that. Yeah. Let me take a stab at that and just for clarity, but let's first start with the sequential, because I think that, Rob, that's where your question started. Yeah. If you actually look at sequentially, the volumes are actually down, which is what we had anticipated just based on the lower number of working days that we were talking about in the November call. In addition to that, we also had the variable compensation increase that we also discussed at the November call. The one other headwind on the earnings side was really on the industrial side of the business, was the currency related impacts, which, you know, of course, we can't forecast what the currency rates are gonna do, and that's primarily driven by the euro and just translating the euros to US dollars. Sequentially, that was really the drivers around the sequential earnings decline both in dollars and in rate. You know, without going through all the math, if you didn't have the fewer working days and the currency, would, at least on the aerospace side, would sequential revenues have been up just given that those businesses are recovering and ramping? The normal seasonality, I would think, shouldn't apply. I mean, we always have a little bit of normal seasonality in our fiscal Q1 quarter just based on it's a lot of our customers' year-end, you know, their Q4. Our Q1 is always a little lighter, and some of it's just how they're managing their inventories, and then the other is just the number of working days around the holidays. You know, this isn't, you know, our sequential decline in revenue is not related to demand at all. It is truly just a matter of output and, you know, how our customers are pulling product from us. Okay. I assume it's not inventory, you know, in the channel. That sounds like that's not an issue. That's correct. Okay. Just Chip, for you just higher level, you've talked both last quarter and touched on it this quarter about improving the business, bringing more machining in-house and just solving problems. Yep. Does the business need more help, looking at it today than you thought 3 months ago, as you get more time to dig into it and see what's really going on? Well, we are making some progress, Rob, in terms of the number of parts that we're moving to better performing suppliers and the ones that we're bringing in-house. You know, we've graduated over 30 suppliers from the, you know, watch list, the elevated watch list. You know, we still have more than 20 on it, but we've gotten 32 folks to improve, and we've gotten some of our machining centers to improve. I see us making progress, but having that make it all the way through the supply chain to affect the daily build rates of assembly and test and shipping to our customers is the piece of the puzzle that we're working on, you know, this quarter. In terms of needing more help, we're always, you know, on the hunt for talent. We're, you know, we've brought some, you know, very talented folks onto the team, like Randy Hobbs. Whenever somebody new comes in and looks at a business, they'll find things that we're asking them to do a full, you know, detailed look and roll up in terms of capability of our operations as well as, you know, how we're running the business. He and I are partnering with the places that need more action and more attention. Mm-hmm ... I'd say that we are seeing a little bit more in the industrial space attention needed, but most of those were things I thought needed attention, you know, three months ago. We're just confirming it. You are still in discovery mode, if I hear what you're saying. I would say we're in confirmation mode. I really had most of those thoughts on my mind already in terms, especially the product portfolio actions that we need to really scrub through from a product, a good old-fashioned product lifecycle management approach. We're on it. Okay. Thanks so much. Sure. Your next question comes from the line of Pete Skibitski with Alembic Global. Your line is now open. Hey, good afternoon, guys. maybe Chip, kind of a macro question for you. Obviously, you know, Industrial revenue this quarter was pretty solid. Can you give us a sense of how order flow was through the quarter in Industrial? You know, are you guys seeing any signs at all of kind of macro weakness out there, like, you know, some of the strategists are indicating could happen? we're seeing no signs from our customer demand signal remains strong and increasing. we were under A lot of pressure at the end of Q4 from our major OEM customers to serve their increasing rates on their lines and preparations for taking their lines up in 2023. That was just a lot of pressure we were getting to prime the pump for them to increase their build rates in 2023 coming out of 2022. As well from a service standpoint, restocking dealer shelves with remanufactured or new parts. We don't see any softening of demand at this point up to now. Okay. your, you know, your full year, outlook for Industrial flat to +5%, you feel that's, you know, on the conservative side perhaps? I feel like it's we're not metered by demand. We're metered by our ability to produce units. A lot of this demand is in some cases dropping in inside lead time, and we're trying to manage with our customers how to make promises and keep them, and they can count on our delivery forecast. Really a lot of the constraint is us as well as some FX headwind on the top line from a dollar standpoint. Right. Okay. That's, that's all. Last one for me, just on the $95 million in COVID disruption. When it's helpful to see kind of by segment here. It seems like for a year, Aerospace has gotten better, and you've had less issues there through this quarter, where Industrial has actually gotten worse. Could you, is there anything that you haven't touched on in Industrial that's kind of leading to that performance, you know, falling behind? You're right, Pete, that aerospace did get slightly better in the quarter and Industrial did get worse. You know, as Chip was just talking about, really the supply chain and labor disruption got worse on Industrial really related to the demand. You know, the customer order volume continues to be strong, and so that demand's still there. It's still, you know, we've talked previously that the electronics availability is still limiting our output capability on the Industrial side is one of the big drivers, and the other is the machine components. It's still both of those is what's driving that increase based on their availability. Okay. Components less so than labor? Well, there's a labor factor of this, you know, across the board in that $60 million, both from our supply chain labor availability and, you know, getting our, the labor that we brought in, trained and, you know, improving output on the line. Okay. Thanks, guys. You bet. Welcome. Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open. Hey, thanks. Good evening. wanted to ask about some of the incremental strength in industrial turbo machinery. Are there any positive inflections you're seeing more pronounced now, you know, relative to the past few quarters, you know, it may be certain process verticals stepping out, kind of, you know, investment mode? I don't know that we see all the way through to the exact, end-end market application that you're asking at the end of your question. But for us, we see just a definite step function in OEM demand for land-based gas turbine, you know, controls accessories that we provide. That's where the bulk of that increase is coming from for Woodward. You know, there's. Okay, great. We can postulate that it's this split between power generation and oil and gas process, but we're not sure. Okay, great. As you look at the supply chain and labor outlook to subset, you know, the issues to subside or to begin to subside in your back half, is there one where, you know, you have more certain visibility? You know, you've made some real investments, where are you starting to see the traction where you have more of a tighter timeline? I don't know about the tighter timeline, but traction and things that are within our control, the rapid complex machining centers that we're standing up at a few different locations, at Woodward plants, that equipment is starting to hit the floor next quarter and be in the installation and commissioning phase so that by third quarter and our fourth fiscal quarter, for sure, we'll be producing quite a number of parts and controlling our own destiny and be able to offload some of our struggling suppliers in the machining category. That's something that we, you know, have a good line of sight to and are able to control the actions that will lead to that benefit. Does that lead to any sort of increment step up in the run rate as a proportion to your current base revenue outlook? It certainly will alleviate disruptions. You know, I believe that will translate into consistency, which will give an overall uplift to output. We are essentially gonna be trading planned capacity that's not producing to actual capacity that we can count on, if that makes sense. I think so. Thank you. Your next question comes from the line of Matt Akers with Wells Fargo. Your line is now open. Yeah. Hey, good afternoon, guys. Thanks for the question. I wanted to ask about guided weapons, and you said they're down. Are they down year-over-year, sort of on a tougher compare? Do they sort of slow down sequentially? Just help us understand kind of where we are. Is there more downside? I guess specifically, are you seeing any more demand there around either Ukraine, I know for a while we're talking about sending JDAM or just general kind of restocking of munitions that could maybe pick up a little bit. Yeah. I'll take the two questions, Matt. The JDAM decline on the guided weapons side continues to be soft. I mean, there is a year-over-year, but it isn't really the tough comp. You may recall from following us that, you know, we had a sizable step-down, you know, really in fiscal 2022 compared to fiscal 2021. We are still anticipating and talked about the, you know, another continued softness on the guided weapons side of our business. It's not as significant of a step-down as what we've seen in the prior year, but it's still there just based on, you know, the ordering volumes that they've had. Which then transitions into your second part of your question around, you know, have we seen any uptick in orders, you know, from anything in the Ukraine conflict. We haven't yet at this point. You know, you hear of a, you know, some opportunities that might be out there, which is, for us typically on Foreign Military Sales, you know, the ordering pattern, and I'll call it more of a drop-in type order that we don't have a lot of visibility to versus a lot of the, you know, on the DoD side of our business. You know, we have orders out for a couple of years typically. That would be the opportunity for us that, you know, some of that may come forward for us. At this point, we haven't seen any firm orders. Thank you. Welcome. Your next question comes from the line of David Strauss with Barclays. Your line is now open. Thanks. Good afternoon. Afternoon. Mark, could you just comment on the inventory levels you're carrying? It looks like, you know, the inventory balance is basically where it was pre going back to 2019, sales are 20% lower. I mean, how much excess inventory are you running today, and when do you expect some of this to reverse out? Yeah. We're significantly increased on the inventory and well above where we want to be. That is for sure. You know, really with the supply chain and the labor disruption, you know, our inventory has gone up. It continued to go up here in Q1. You know, it increased in fiscal 2022 and continued to go up here in Q1. You know, what we're focused on as a team is, you know, as we mentioned in our prepared remarks of, you know, to begin improving here in the second half of the year, both around output, and that would help with reducing inventory. At this point, you know, it's at, like you're mentioning, almost all-time highs from that perspective. It's something the team is very focused on making improvements. With the output increases that we're anticipating in the second half of the year, that would help reduce some of that inventory as we go forward. Okay. On the defense side, I mean, it looks like Aero, you know, the Aero One and aftermarket's coming back as would be expected. What is the right run rate to now think about for the defense business? I mean, it was a, you know, $750 million, you know, revenue a year business that, you know, now looks like it's $600 million. I mean, is that the right way to think about as a baseline for the business going forward? Is there something that's gonna fill in the, you know, I guess the gap that JDAM has left? On the defense side, you know, I would say that it's in the ballpark of what we're looking at based on the decline in the JDAM. Now, we have spoken about there is some increases both with the Small Diameter Bomb, SDB, and AIM-9X, which is the weapon of choice on, you know, the F-35. You know, the volumes aren't at what the volumes were of the JDAM back, you know, when it was the weapon of choice, you know, back in the last decade or so. On the defense aftermarket side, we do see strong demand there. A lot of our supply chain and labor disruption is impacting that defense aftermarket side of the business. You know, what we've talked about for fiscal 2023 is we anticipate defense to be, you know, stable, you know, throughout the year. Obviously some headwind, as I was just describing on the guided weapons side, offset by some, you know, improvement on the defense aftermarket side, based on, you know, output improvement that we've spoken about here in the second half of the year. You know, that's kinda in that, you know, stable world is kinda where we're at from a revenue perspective for FY 2023 compared to FY 2022. Okay. Last one for me. You know, you said your Q1 came in in line with your, I guess, internal plan. Obviously was, you know, a fair amount below what the sell side was looking for. Any help you wanna provide to calibrate us on Q2? We don't give quarterly guidance, as you know. You know, I'll go back to really a lot of the discussion that we had in November that I also had in my prepared remarks today. You know, this is a second half improvement recovery is kind of where we are starting to see. You know, that's where it'll begin to subside. If you look at Q2, you know, we will have the variable comp that I spoke about, right? The $50 million increase is what's anticipated for the year compared to FY 2022. We did book $12 million more in Q1 than we did the prior year. That will still be there. p was mentioning, for example, with the rapid complex machining improvements that we're making, again, that won't really be producing many parts here in Q2. It's more of a back half opportunity for us. So, you know, what we're really looking at is, you know, continuing to stabilize the business here in Q2. Make, you know, some improvements just based on some more working days. We don't have the holiday periods that we had in our Q1. We don't have the seasonality effect that we had in Q1 of our business. Really not at, you know, our full, well, not even full, not really improving much as we move through Q2, but really into the second half of the year is where we're gonna start seeing some of that disruption impact subside. All right. Thanks very much. You're welcome. Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open. Thanks. Good afternoon, guys. Yes. Good afternoon. Maybe just to follow up on slide 16 and the 5% price realization. Is that gross price or net price? What did you see in Q1, can you talk to us about, you know, the timing of the contracts, whether it's in industrial or aerospace, how it's gonna flow through? That's net price, Sheila. Okay. As far as timing goes, you know, our long-term agreements in both industrial and aerospace are, you know, come due when they come due. They're not sort of, in some cases, annual. It's just, it's the month that it expires. That plus catalogs, are spread out through the year. The annual sort of long-term agreements with OEMs that are under contract, like life program or things of that nature, do adjust on January 1. There's a bit of lumpiness on the, on the January 1, and then the rest of them are kind of spread out. What we're saying is that 5% is what we'll see through the year. Okay. Just maybe switching gears onto your commercial aftermarket. You know, I think it grew, like, double the peer average thus far, given limited numbers. What are you seeing in your aftermarket narrow body versus wide body initial provisioning? You also mentioned China in your script. How far below is your China business versus peak? Just to take it maybe 1 at a time, but I'm not sure I can remember all of those points. We have very strong inputs to all of our service shops right now, and our team is doing a pretty good job of turning those units and getting them back out the door. We have had some initial provisioning for narrow body, not exceedingly strong, but we've had some. China is pretty quiet for us. In most of the case, I can't really think of much China business that we did in the last quarter or 2. Kind of, you know, looking for that to take off for us in the coming years, hopefully, but not predicting that. We've got a good demand from our Europe and the Americas and Mid East right now. Great. Thank you so much. Yep. Your next question comes from the line of Gautam Khanna with Cowen. Your line is now open. Hey. Thank you. Good afternoon, guys. Afternoon, Gautam. I just wanted to ask two questions. One, on the guidance, how much of the $95 million supply chain related delinquencies do you anticipate catching up in the fiscal year? I have a follow-up. Yeah. When we went into the year, just to get everybody grounded again, we had $85 million at the end of September of 2022. You know, obviously the guidance range has a wide range to it, and there's varying points, you know, in that range based on both market demand and supply chain and labor disruption impact. You know, what we had said previously was, you know, we are anticipating as you get towards the higher end of our sales guidance range, you know, you would be seeing improvements, you know, from that $85 million that we started the year with. You know, kind of the middle, you would, you know, be kind of right in that range, and, you know, the low end maybe things would get a little worse. It's not, you know, a specific number that we're really focused on. Really that was a part of what we took into, you know, into account related to the range that we gave. Okay. Could you elaborate on what you're seeing? You know, what's changed quarter-to-quarter with respect to supply chain constraints? You know, what got better, what got worse? If there's any trend you can discern. I think overall, Gautam, I'd say that, you know, more suppliers are recovering. That's a general statement, but we've taken, you know, more off the. The elevated attention list than we have put on, that's a good sign in terms of things getting better. We've had better output in some of our value streams and in the front ends of some of our lines, including machining, that's also we're feeling like, you know, we're starting to get more of our newer machinists and operators up to speed. I think sequentially that's a good thing. We're doing less hiring because people are staying and more people are staying. I think those are the three maybe good trends that we're seeing. You know, we were having this discussion earlier, whether two points is a trend or we need three quarters to say we're feeling better about those three items. Right. Makes sense. Last one, if I may. You know, what are your preliminary thoughts on the industrial portfolio? Is it... Are you thinking like just SKU management? Is it where you make stuff? Is it markets you participate in? Like what's your initial impression, Chip, of where you could actually do better? I think the initial impression is kind of where you went first with the SKU rationalization, is what I would use as an old term from another company. The product portfolio is vast in the Industrial segment. You know, not all our children are, you know, top of the class in performance. We've got some work to do that we need to work with our supply base, our make strategy, as well as our customers to try to rationalize and take good action on things in the latter stages of the product life cycle that need to be managed differently in conjunction with supporting our customers, as well as things that we have that are actually upgrades to some of the older things that we sell that we could, you know, standardize upon. There are a number of different moves we could make with that portfolio that are sort of, you know, well-known, tried and true ways to improve our results and reduce our complexity. That's the really the main focus of it. Thank you very much, guys. Good luck. Thank you. Welcome. Your next question comes from the line of Louis Raffetto with Wolfe Research. Your line is now open. Good evening, guys. Evening. Good evening. A little bit of deja vu here from, you know, a year ago, we were kind of same spot, tough first quarter and looking at a second half recovery, and, you know, we kind of know how that story played out. If I look at just Industrial now, I think your guide's kind of implying 11% margins in that business the rest of the year on average. I mean, is that realistic? We are taking action to achieve that. I mean, Like I said, our three focuses in addition to recovering our operations are on right-sizing the business. That's a key action. Price realization, we've got some opportunities to do a little better there, and we need to, we need to push that through and get the value that we're looking for for our products. Then, you know, the product portfolio rationalization that I was talking to. None of these are easy things, and each of these things take some time, which is why it moves it to the back half. It's things that we were in many cases planning to execute on this year, but we knew it would take time to start to see the benefits of them. All right, thank you. Just can you tell me what you guys are seeing on the OE side from aerospace, whereabouts you are, 737, 787, A320? Any pull from the OEs? We're seeing the same sort of schedules. I mean, there are a lot of, you know, I would say small changes and reschedules going on out there, but there's nothing that's changing our overall build rate or rate break plans from last year. We're, we're in tune with the engine and airframe folks and following their lead and trying to make sure we support them. All right. Just last thing, just on the variable comp. I guess most of that's flowing through the cost of goods. There was, you know, SG&A was pretty much flat year-over-year. It goes across all three lines on the P&L. Cost of goods sold, R&D, and SG&A. Okay. Thank you. You're welcome. Thank you. As a reminder, 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 now open. Hey, guys. Good evening. Thanks for taking the questions. Sure. Maybe, I don't know who wants this, Chip or Mark, just to go back to I think Rob's first question on aerospace. You know, you guys are one of the companies that help us out and disclose these operating income bridges. If I looked in the aerospace segment, you know, this quarter, I mean, was price mix and productivity, did that improve sequentially from the fourth quarter? Yes. We don't have sequential bridges, you know, as you know, Michael, in the, you know, 10-Q overall. You know, where really the price mix and, you know, productivity inflation impact is kind of the other side of it is in essence, you know, as we've. You know, achieve that 5% price realization, which we did, here in the quarter. You know, that's offsetting, you know, the inflation both on the material and the direct labor side that we're seeing. Okay. Okay. Then, I guess just back to the previous question, you know, this confidence level in the Industrial margins. I know you're not gonna give us second quarter guidance, but, I mean, should we expect, you know, are we gonna see a step function improvement in the second quarter? Or just it sounds like most of your, you know, new capacity comes online in second half. I mean, it really sets up for, you know, what's gonna look like, you know, I don't know, 13.5%-14% margins to kind of get to that flattish. Is that the right way to think about it, or should we expect maybe some more pronounced improvement in this second quarter here off of this 5% level? Yeah. I'll say consistent with our prepared remarks, as you mentioned, you know, this is a second half, you know, story here. You know, as Chip was mentioning earlier on the call, a lot of, you know, the activities that we're, as he mentioned, confirming and then working towards, are, you know, they take time. That's why we are talking about this as really a second half improvement. Okay. Is a stable supply chain good enough to get you there for the second half? I mean, most of the peers that are reporting, you know, are seemingly calling for a stabilized environment. You know, you guys unfortunately strike your fiscal quarter, you know, for September, which kind of puts you in a little bit of a bind there too. I mean, is stable enough to get you there for the second half? Stable is enough because we have a lot of inventory, as you can see, and we have a lot of assembly and test and shipping capacity. We need some stabilization and not missing those final 1 or 2 parts that hold us up. We've got some good plans around rapid response centers and shift balancing to get us that capacity and capability to deliver in the second half. Got it. Perfect. it. Perfect. Thanks, Chip. Welcome. You're good. You're welcome. Your next question comes from the line of Noah Poponak with Goldman Sachs. Your line is now open. Hey, good evening. Good evening. Hello. This is going to be a little repetitive, but I guess I'm just struggling to piece together all the margin inputs because, you know, you... I just heard you saying stable is enough. Your, you know, description to the question prior sounded like supply chain was stable, if not a little better. You've got, better pricing, it sounds like, and then just general, you know, cost input inflation, supply chain disruption we've been dealing with. I guess I'm trying to better understand why the margins were worse in the quarter. You know, putting the back half ramp aside for a moment, just still struggling to square. I guess it's hard to really answer without showing me the line by line cost inputs. It's hard to understand why the margins are worse when it seems like some of the inputs you've had were stable and some of the inputs you've had were better. Noah, I was pointing to some of the improvements that we've seen, but there's in no way would I term our supply chain stable right now. what. Okay What we're trying to do internally, there are two places where the costs show up right now from our labor and training. People who are in training are not even applying their labor to making a part. Once they graduate from a step of training and are on a machine making a part, they're making fewer parts than the standard or a proficient operator would make. Those are two places where costs are accumulating and impacting our margins. Mm. By the time we get to the second half, we're planning to have, you know, more people be proficient, by that time. That's. Mm that's an internal stability factor. Externally, we have, even though we've graduated more than 30 suppliers off that watch list, we've got, you know, more than 20 on it right now. As you know, you need all the parts to make the unit. The fact that in some cases we're not getting good signals, and we're not getting the parts we need on time, we end up very much suboptimizing our internal factories. That's sort of a double whammy on cost, where we're not getting the output and we're resequencing or doing work out of, you know, having traveled work or having to resequence it. Okay. That helps. I just want to be clear that this is not stable right now. I just want to be clear about that. Okay. No, that's helpful. On the, on the product rationalization piece or the, or the SKU review, is that all industrial? Is there any aerospace? What are the characteristics? Is it, you know, too much OE, not enough aftermarket, too much competition? What, what are the disruptors in those things? Well, I mean, the simple answer is too many part numbers. you know, it's just if I showed you all the things we made here, I think you'd be surprised. A number of them we don't make very often, and when we do, it's very disruptive to the value stream we insert it into. There's hidden costs associated with that as well that show up, you know, on the maybe a manufacturing overhead or a period cost that isn't trapped in Cost of Goods Sold just because of what it takes to actually bring that product to life that quarter. you know, getting Okay ... better alignment with an understanding of what we should make and what we should offer and how we should price it, these things are, you know, you might say basic product management, but that's the tool we're gonna use to improve our ability to serve customers and generate higher margins. What% of the SKUs are under review? All of them. Roughly? All of them. Okay. Well, all of them, really. I mean, we'll do it, we'll do it in groups. It's, there are some logical groupings. Last one for me, Mark, just on the free cash plan, understanding it's a back half loaded year, just, you know, the ramp from 1Q to 4Q implied is pretty steep compared to history and especially with the elevated capital plan this year. Anything you can add to that on how you do that, if it's working capital related or something else? A couple comments there. You hit the last or the most impactful one first. It really is that working capital improvement I mentioned earlier on the call as to, you know, we are significantly higher on inventory that we have initiatives that we'll be working and, you know, that improvement in the second half of the year, you know, will be what will help drive that cash flow. We have had, I'll say, cash flow seasonality in the past. If you do go back and look at, you know, Q3 and Q4 free cash flow generation, that has, historically, been consistently strong for us. You know, obviously with where we're at today and where our inventory balance is today, you know, will be, you know, a back half story, like we're kind of implying with the reduction in past dues, the getting the inventory out and then getting the collection from the customers that, you know, that working capital piece will be important. You know, your CapEx note there, you know, we guided to $80 million. You know, we did spend more than just, you know, the $20 million here in Q1, so it was. Mm-hmm ... you know, first half loaded. You know, the other one was the timing of tax payments. You know, that's gonna, you know, we talked back in November, we will have higher cash tax payments, primarily related to the, you know, R&D, the U.S. tax law change for R&D deduction here. That, you know, that has an impact too. Really, I mean, the big one comes down to, you know, the production capability, getting the past due improved, which will allow us to reduce inventories and collect that cash. Okay. Thank you. Thank you. You're welcome. Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you. I'd like to thank you for your participation, and we look forward to seeing you next quarter. 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 Standard Time by dialing 1-800-770-2030 for a U.S. call, or 1-647-362-9199 for a non-U.S. call, by entering the access code 4278216. 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. Thank you.