Thank you for standing by. Welcome to the Woodward, Inc. third 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 listen-only mode. Following the presentation, you are invited to participate in a question-and-answer session. Joining us today from the company are Chip Blankenship, Chairman and Chief Executive Officer; Bill Lacey, Chief Financial Officer; and Dan Provaznik, Director of Investor Relations. I would now like to turn the call over to Dan Provaznik. Please go ahead. Thank you, operator. We'd like to welcome all of you to Woodward's third quarter fiscal year 2023 earnings call. In today's call, Chip will comment on our strategies and related markets. Bill will 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 again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through August 14th, 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 would like to refer to and highlight our cautionary statement as shown on slide three. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those 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. 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 to comment further on our results, strategies, and markets. Thank you, Dan. Good afternoon, everyone. We delivered strong sales growth in the third quarter, driven by robust demand and our improved ability to deliver products to our customers. We expanded margins through productivity improvements and price realization, partially offset by increased material and labor costs. We continue to make progress on our strategic initiatives, focused on enhancing the customer experience, simplifying operations, and increasing profitability through improved execution. Output is increasing, pricing actions are yielding results. We are seeing efficiency gains as our new members come up the learning curve and become more proficient in their jobs. We've seen improvement in our supply base performance. However, the environment remains challenging. We continue to actively manage and problem-solve with our suppliers. Our team has done a great job responding to the fluctuating delivery risk landscape. We remain focused on this work stream with significant resource allocation and a goal of identifying risks further upstream and launching countermeasures earlier in the process. Moving to our markets. In aerospace, commercial airline utilization rates continue to rise, with U.S., Europe, and China domestic passenger traffic now surpassing 2019 levels. In addition, international travel continues to improve, nearing 2019 levels. In defense, due to geopolitical developments and government spending proposals, we expect R&D and procurement to increase, which bodes well for Woodward's future opportunities. In industrial, demand for power generation remains strong, driven by growth in Asia, increases in aftermarket activity, and continued demand for backup power. In transportation, the global marine market remains healthy, with increased ship build rates and higher utilization driving current and future aftermarket activity. Marine customers continue to launch more projects that incorporate alternative fuel capability in their specification. This should drive expanded OEM and aftermarket opportunities as multi-fuel engines contain greater Woodward content. In addition, Chinese heavy-duty truck output increased significantly in February, as did the portion that is natural gas-powered. The natural gas-powered production rate has been relatively stable since February, but future demand remains uncertain. In oil and gas, global investment in LNG infrastructure development continues. Rig counts increased globally, though U.S. activity declined year-over-year. In summary, the market signals we are receiving indicate continued strong demand. We remain focused on operational excellence, developing talent, and innovating for the future, which we believe will drive long-term sustainable growth and deliver enhanced value for shareholders. Before we move on to our financial results, I'd like to introduce Bill Lacey, who took the helm as CFO in May. Bill has a distinguished track record in financial operations and business leadership. With three months in role, Bill is well integrated into Woodward, and he is already contributing to the team. Bill, welcome to your first Woodward earnings call. I'll now turn it over to you to share our financial results. Thank you, Chip. It's great to be here. Net sales for the third quarter of fiscal 2023 were $801 million, an increase of 30%. Aerospace segment sales for the third quarter of fiscal 2023 were $481 million compared to $402 million, an increase of 20%. Commercial OEM and aftermarket sales were up 41% and 28% respectively, driven by higher OEM production rates, continued recovery in both domestic and international passenger traffic, increasing aircraft utilization and price realization. Defense OEM sales were down 12% in the quarter, primarily due to lower sales of guided weapons. Defense aftermarket sales were up 17%. Aerospace segment earnings for the third quarter of 2023 were $83 million, or 17.3% of segment sales, compared to $57 million, or 14.1% of segment sales. The increase in segment earnings was primarily a result of price realization and higher commercial OEM and aftermarket volume, partially offset by higher annual incentive compensation. Turning to industrial. Industrial segment sales for the third quarter of fiscal 2023 were $320 million compared to $213 million, an increase of 51%. The increase was driven by higher volumes across all markets as well as price realization. Industrial segment earnings for the third quarter of 2023 were $58 million or 18.2% of segment sales, compared to $21 million or 9.9% of segment sales. Industrial segment earnings increased due to higher sales volume, price realization, and favorable product mix, partially offset by higher annual incentive compensation. Industrial sales and earnings benefited from significantly increased on-highway natural gas truck production in China, although future demand beyond the fourth quarter remains uncertain. Non-segment expenses were $24 million for the third quarter of 2023, compared to $19 million. At the Woodward level, R&D for the third quarter of 2023 was $35 million or 4.4% of sales, compared to $32 million or 5.2% of sales. SG&A for the third quarter of 2023 was $65 million, compared to $46 million, primarily due to higher annual incentive compensation. The effective tax rate was 20% for the third quarter of 2023, compared to 21.6%. Looking at cash flows. Net cash provided by operating activities for the first nine months of fiscal 2023 was $156 million, compared to $86 million. Capital expenditures were $57 million for the first nine months of 2023, compared to $37 million. Free cash flow was $98 million for the first nine months of fiscal 2023, compared to $49 million. Adjusted free cash flow was $103 million for the first nine months of fiscal 2023, compared to $52 million. The increase in free cash flow and adjusted free cash flow was primarily due to increased earnings, partially offset by higher capital expenditures. Leverage was 1.7x EBITDA at the end of the third quarter, compared to 2x EBITDA. During the first nine months of fiscal 2023, $64 million was returned to stockholders in the form of $38 million of dividends and $26 million of repurchased shares under a board-authorized share repurchase program. Lastly, turning to our fiscal 2023 outlook. We continue to expect year-over-year improvements in the fourth quarter of fiscal 2023. Due to the continued strong end market demand and our improved ability to deliver for our customers, we are raising certain aspects of our full year guidance. Total net sales for fiscal 2023 are now expected to be $2.85 billion-$2.9 billion. Aerospace sales growth is now expected to be between 16% and 18%. Industrial sales growth is now expected to be between 28% and 30%. We now expect the full year price realization to be approximately 7% of prior year sales. Aerospace segment earnings as a percent of segment net sales are still expected to increase approximately 150 to 200 basis points. Industrial segment earnings as a percent of segment net sales are now expected to increase approximately 340 to 440 basis points. The adjusted effective tax rate is now expected to be approximately 18%. We still expect adjusted free cash flow to be between $200 million and $250 million, and capital expenditures to be approximately $80 million. adjusted earnings per share is now expected to be between $4.05 and $4.25, based on approximately 61 million fully diluted weighted average shares outstanding. This concludes our comments on the business and results for the third 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're using a speakerphone, please pick up your 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, press the star one on your push button phone. Your question will be taken in the order that it is received. Please stand by for your first question, sir. Our first question comes from the line of Robert Spingarn of Melius Research. Please go ahead. Hey, everybody. Welcome, Bill. Thank you, Robert. Good afternoon, Rob. Chip, you know, first of all, very good numbers, clearly. I wanted to focus in on the industrial side, where some of these numbers are really higher than what we've seen before on a quarterly basis. Just to understand, is this a new normal? You know, was there some pent-up inventory that got sent out? Just if you could run us through, maybe through the major business lines within industrial and talk a little bit about where you are in terms of a new normal, or maybe it's benchmarked against the recovery versus 2019. I'm not sure what the right way to do it is, but especially because a quarter like this, you know, almost implies the fourth quarter in industrial would, you know, or for the company would be even flat to down. I just want to understand if you're being conservative, really how to, how to framework this entire thing. Sure, Rob. The... I mean, we don't really give out detailed numbers at the at the subunit product line levels, but I, I would like to say that the industrial performance has a very high mix of China on-highway shipments in it. As far as a new normal, we do not forecast this as, as a new normal, but we are, you know, enjoying quite a high demand from our customers in China for products that we had a significant amount of inventory for and were able to respond- Mm-hmm ... quickly last quarter. Our supply chain and, and, plants there in China performed very well serving the customer this quarter. It's a, it's a line of business that we've talked about in the past that's very hard to forecast. We have limited forward sight to orders. When the orders come in, our strategy has been to try and be in a very good inventory position with a flexible supply chain to respond, and that's the approach we're continuing to take. We do have some limited visibility through the fourth quarter, which, you know, gave us confidence to raise our guidance for the fourth quarter. As far as China on-highway volume, we, we don't have enough visibility beyond that to make any statements about about it. As far as the other lines of business, we did see sequential and year-over-year improvements in efficiency and amount of product delivered, sales for the other product lines. Our plants here in Fort Collins, as well as the Glatten facilities in Germany, have all been improving with our focus on, you know, the elements of lean manufacturing and the transformations we're trying to, you know, foster and put in place and lead. Good results by all parts of the industrial portfolio. However, I would not forecast this sort of margin level as a sustainable type of benchmark. Okay, if I could just follow up on that. Two quick things. One, is there a way to think about $320 million in industrials and to allocate that across the businesses or to rank order what's the biggest, what's the smallest? Then, Bill, for you, just curious, it sounds like there's, you know, some moving pieces and maybe a little bit of conservatism, but why no increase in the cash flow guide? Thank you. Yeah. First, on the, on giving a little more detail, as Chip said, we, we typically do not give sublevel sales below, below the segment. On, on cash, we continue to see good and good improvement there overall. We, we are holding our guide. We will see good delivery from earnings, and we, we will see our inventory continue to improve from an efficiency standpoint. We believe that the investment that's required for us to deal with the higher volumes are also baked in there, but we think we will deliver a good, strong cash number. Okay. Thank you both. Welcome. Thank you. Your next question comes from the line of Sheila Kahyaoglu of Jefferies. Please state your question. Thank you, welcome, Bill, and hi, Chip. Great quarter. On this industrial business, just obviously, we're, we're not industrial analysts, so what's your visibility? It looks like your backlog typically is a third of your revenues. What level of visibility do you have at the moment? How big is the China business? I think it used to be a $100 million run rate. Are you guys on an annualized basis higher than that? Like, like Bill and I said, Sheila, we're really not breaking out the business to those level of details underneath the industrial segment. I think it's fair to say that we, we enjoyed a strong quarter, and we don't have much visibility to China OE volumes post fourth quarter of this fiscal year. We sit back, and we look at some pretty lagging indicators to tell us how that overall market is behaving. We saw an uptick in February, both in terms of the number of heavy-duty trucks being manufactured in China, as well as the fraction of them that are natural gas-powered versus diesel. We can surmise a number of factors that might go into why that's happening post-COVID and with natural gas availability. Really, we're just, we're just speculating a, a little bit on that. You know, we, we have that backward-looking, explanation, but we don't have much forward visibility for, for China OE. Okay. Then maybe if I could ask one on price. I think you raised your price assumption for total company from 5% prior to 7%. What drove that across the segments, and where are you sort of in, you know, the cycle of pricing increases flowing through? On the price realization, we did, we did raise that, the forecast for the total year. We had, you know, good performance of the escalation indices that drive most of our OEM contracts, and we worked through the spare parts pricing catalogs and our general catalogs for those not on long-term contracts. We've been able to achieve those pricing targets that we laid down in the marketplace, and that, that result of that, that price realization, is delivering the 7% versus the 5%. Mostly aerospace then? I, I think they're both kind of in line with that top-level number. Okay, thank you. Your next question comes from the line of Christopher Glynn of Oppenheimer. Please state your question. Thanks. Good afternoon. Good afternoon, Chris. You know, hey, Chip, I think, you know, maybe another crack at industrial. I, I think the press release kind of isolated the upside to the NG business. I was wondering, versus your internal plan, did the natural gas China account for really all or the preponderance of the upside? While it was a, a large portion of the upside, like I was saying earlier with, with Sheila, that all of our other product lines, be it, the, you know, the liquid fuel diesel products from Woodward L'Orange in Europe to the natural gas and actuation types of business units here in Fort Collins, all of our plants had increased output, and we've improved efficiencies based on our supply chain performing better and having parts to the line on time, as well as our, our people just getting more proficient at their roles. We're also, you know, practicing continuous improvement processes that are delivering, you know, additional benefit in terms of both capacity and efficiency. It's really across the board. It's not the case of, you know, one segment performing really well and masking malaise or poor performance in others. It's just that it's a little bit of an outsized performance from the China OE, but all product lines improved this quarter. Okay, and, you know, last quarter, you commented that, you know, the industrial sort of turnaround, so to speak, you weren't out of the woods, and, you know, it's a impressive kind of top-to-bottom, look at all the operations and processes in industrial, so I appreciate that. What, what's the status update in terms of in the woods, out of the woods? I, I, I, I like the fact, and I've, you know, congratulated the team, that we've, we've turned the ship in the right direction in all the product lines, and we've made progress on the product rationalization that I talked about earlier. We continue to make progress on, on that. I'd, I'd say that, you know, our, our next areas for improvement are really driving the inventory down to serve, you know, the, the, the demand, and then as well as meet the customer demand. Right now, we're improving our capacity, and we're planning to our capacity, but the customer demand is even higher. In order to say we're, we're really out of the woods on the turnaround, I would have to see us meet the customer demand, which the team is working really hard on, as well as get our inventory, levels, down even further. Then I'd, I'd say I think we're, we're out of the woods and in great shape. Great. Appreciate that update. Last one for me. You talked about, you had a comment about defense, expecting R&D and procurement to increase in the macro sense, boding well for Woodward. I'm curious if you could elaborate on that. You know, what, what kind of a ramp curve do you envision? What, what sort of contours are you seeing, you know, reasonably take shape? Well, as you know, in most cases, in defense-related processes, the ramp is relatively modest. What we've been spending our time doing is investigating and responding to, you know, opportunities, which both there are more opportunities lately, and the urgency with which these opportunities are being handled is greater. So that's why the words, you know, one of the reasons that I think there's some confidence that opportunities will continue to evolve, but these are not near-term opportunities that will make an impact to sales anytime soon. Okay, thanks for that. Appreciate it. You bet. Your next question comes from the line of Matt Akers of Wells Fargo. Please state your question? Yeah. Hey, good afternoon, guys. thanks for the question. Yeah. I, I wanted to kind of take a step back, kind of on, just earnings visibility broadly, right? I mean, so, you know, this quarter, relative to consensus, you know, big positive surprise. I think last quarter was also a big positive surprise. Q1 was kind of a negative surprise. I guess, you know, you guys have been managing through supply chain uncertainty and, you know, uncertainty around China. I guess, you know, as we go forward, is there a point as we get into, you know, maybe it's next fiscal year, that that sort of settles down, and we get a little bit of visibility-- more visibility? just sort of how you think about the outlook there. I, I think the, the, the outlook I would, I would say on that is we're just getting much better about our visibility upstream to supply chain kinds of issues, and we're able to take these issues on with more mitigation to avoid, you know, having a line down stoppage or impacting a customer's shipment. I, I, I think our ability to, to forecast around our, our delivery models, is improving and will continue to improve as the supply base continues to perform better, and our, our factories also continue to, to perform better. As far as on the customer side, for something like China OE, where we have very limited visibility, I wouldn't predict that to get better. We just don't have the tools or visibility in our, our toolbox to help with that. As far as the supply chain, avenue, our visibility has improved quite a bit there. Yeah. Okay, thanks. I guess, yeah, just the latest thoughts on, on the share repurchase. I think the, you know, the plan at one point was to complete that authorization by January. Is that, is that still how you're thinking about it? We're still have an open plan, and we are evaluating opportunities for capital deployment with our, our board, and we'll continue to go forward and, and do what's prudent. Okay. Thank you. You bet. Your next question comes from the line of Pete Skibitski of Alembic Global. Please state your question. Yeah, Chip, pretty impressive quarter, to say the least. Thanks, Pete. ... was wondering if you could kind of update us, a little bit of a follow-up to Chris's questions, I think, but maybe you could update us on where you're at with your various initiatives. I'm thinking, you know, insourcing, is the insourcing push over now? You know, training the new employees, has that been completed? And you mentioned customer experience in your opening remarks, I think. I'm not sure what's going on with that. And then this whole, you had some thoughts about SKU rationalization as well. Just wondering what the status of that was. Thanks. Great. You're going to have to remind me about one or two of them there that you, you, you rattled off, but I'll, I'll, I'll hit what I can. As far as insourcing, we're continuing to do quite a few part transfers, both between suppliers as well as as insourcing, to make sure we've got enough flexibility to and sourcing options to serve the customer. Right now we have, like we did last quarter, they're not the same parts, some of them are different parts. We have over 1,000 parts in part transition, either between suppliers or insourcing. We've made 16,000 parts through the rapid response machining centers that we have set up. We've got all the equipment on the floor right now at, at those locations. That's very active, and that will continue probably for multiple years as we try to simplify our, our supply chain and also make it resilient by having multiple sources where required, and, but having fewer sources in, in total. Keeping with that thought process on SKU rationalization, we've continued to make progress getting, you know, right-sizing our product offering to what customers are really demanding, as well as, you know, allowing us to serve them efficiently. We have taken thousands of more offerings off the books this quarter. We intend to reduce the neighborhood of 10,000-15,000 SKUs this fiscal year, and we'll continue to evaluate that and become more efficient next year as well. That, that initiative will continue. Labor productivity, we continue to get better at this. Our drive to hire new employees and direct employees for manufacturing has reduced. We still have levels of attrition at some locations that require onboarding, training, and a little bit of support from experienced machinists and assembly technicians that, you know, I would say we're not completely out of the woods of that, and maybe the new normal is that we have a little bit higher attrition than we're used to in the past. We need to stay capable on that front. I see continued labor productivity, you know, going forward. The last one was customer experience. Part of the industrial reorganization and the aerospace reorganization was focused on serving these two segments with, like, one aerospace approach and one industrial approach, mostly centered around how we serve customers. We had multiple teams calling on some of the same OEMs and service providers, and, and we've, you know, worked hard to streamline that, that customer experience. You know, but maybe mostly from a customer experience standpoint, is delivering the right amount of orders on time with the right quality at the right price. That's that's something we're focused on as well. That's great. Very, very helpful. Then just I have to ask on, on the macro, you know, I, I, I know sometimes visibility is tough there, but you're in a lot of different industrial niches. Any sign that any of those niches are, are peaking or, you know, customer pull is kind of slowing down a little bit, cycles changing? The one that I mentioned a little bit was that, you know, the global oil rig count is up, but U.S. activity, including fracking, is not keeping pace, even declining. We're watching that, but it hasn't resulted in any order intake for us slowing down yet. We've got a kind of looking around the corner watch on that. That's the only one that really comes to mind that's a little bit, has some soft indications in the macro that we haven't seen, you know, in terms of what orders we're getting. Everything else is up and to the right, I mean, as far as revenue passenger miles, build rates at OEM, airframers, shop visit rates for engines coming in for overhaul. Everything that we see, on that is up and to the right in the current forecast. Okay. Appreciate the color. Yep. Thank you. Your next question comes from the line of Gautam Khanna of TD Cowen. Please state your question. Yeah, thanks. Good afternoon, guys. Afternoon. Afternoon. I had two questions. First, on the industrial side, I remember last quarter, the backlog did not go down, right? There was not a supply chain catch-up that drove a big recovery in shipments. Did that occur in this quarter just reported, the June quarter? Just to be clear, when you say backlog, it was our past dues didn't go down. Past dues. Yeah. Yeah. Again, that was the same thing this quarter. We're not capacitized at a level right this minute to both satisfy current customer demand and burn down past due. Industrial past dues stayed largely the same. Okay. To an earlier question on the, the mix impact from the natural gas business in China, it sounded like it was broad-based strength within industrial. Is there any way for us to isolate, you know, what, what piece of that might be non-recurring, if it is CNG, and if it is only here for a quarter or two? Is there any color you can give us on that, to where margins... No. ... would have been, but for CNG? Yeah, not much more than what we've already have provided. Okay. Have you guys provided anything on that, or did I miss it? It wasn't clear to me. No, we just don't break out our product lines at levels below the segment, Gautam. Okay, is, is CNG particularly rich mix? It's a very- Relative to the others. It's a healthy business for us. It's just, it's, it's healthy when it's, when it's high volume, and it's not healthy when it's low volume, and that's, that's why... Gotcha ... we keep using the word volatility, because it, it has some really good marginal delivery on high volumes. At low volumes, it doesn't look quite as good. Okay. In terms of the SKU rationalization, how far along are you in that journey? You know, how much of that was, you know, influential in the actual June quarter numbers? We haven't really seen the SKU rationalization hit the bottom line yet, in terms of just, like, moving the needle. What, what we think we'll see first is improvements in efficiencies in both the supply base as well as our, our plant operations, and that's mostly in, in Fort Collins. It'll, it'll show up, you know, alongside just general productivity. That's where it's gonna, that's where it's gonna help us in terms of realizing flow through the factory and more standardization. You know, we did some of the easy part really this, so far, this first, you know, 10,000-15,000 is a little bit easier than the next ones, where we have to work a lot more closely with customers to move them to the latest configuration of some product family member in order to eliminate an offering. I hope that makes sense. Yep. No, it does. Last one, perhaps I missed it, but the commercial aero aftermarket, on a sequential basis, looked up minimally. I didn't know, was there any, is that right? I think that's about right, but is that right? Any reason for the pause? 'Cause we're seeing pretty strong sequential aftermarket prints from some of the other companies in the space. Any way you can discern what trend is going on there? Yeah, we're, we're not showing up sequential, but we are showing, you know, healthy double digits, year-over-year. Uh, is there- Thank you. Your next question comes to the line of Michael Ciarmoli of Truist Securities. Please state your question. Hey, good evening, guys. Real nice results. Thanks for taking the questions. Maybe Chip, I know we've a lot of guys are trying here, but I, I, I guess if the visibility isn't great in the China on-highway, I mean, how are you guys actually planning for this? I mean, what do you have typical lead times? What, what are your turnaround times? I mean, I'm just trying to get a better understanding of how you're actually trying to run your facilities, you know, given kind of the, the lack of total visibility here. Yeah, right, right now, I mean, our strategy is to, like I said earlier, have enough inventory to be responsive to the customer if, if we have short lead time orders, which we have had. Also not carry too much inventory so that it's, you know, a big rock around our, our cash flow. We're trying to get that optimized. We're doing things like, you know, looking at what the rates have been in the over a longer period of time and try to plan for a low level that we can respond to, if, if it goes up. It's more of like the... protect the ability to get upside if we get orders, is kind of how we're thinking about it right now. I mean, Bill and I are both relatively new to this market, and we're relatively new to this, this business line. We're trying to make sure we don't miss the opportunity right now and get good cash flow and earnings for shareholders and, you know, figure out if there's a better way to understand and, and plan for it. Got it. Then, I mean, you're not, you're not gonna give us 2024 guidance here, but, yeah, I mean, trying to model this segment now and looking at the, the volatility, you know, just on the margins last quarter, you know, 13.4 over 18. I guess the fourth quarter's back down to 13 or so. How should we think about this? I mean, I, I think the Street has you for 11% in 2024. Is this more of a 13 to 14 business right now, and then, you know, the on-highway, depending on volumes, would, would drive those, those upside pops that we're seeing, like, in this quarter? Yeah, I'm sorry. We're just not ready to talk about 24. I know why you want to know the answers to all those questions. Mm-hmm. You know, we're working through all of our, our plans right now, trying to make sure we close out 2023 strong, and we have a, a really solid 2024 plan that will be compelling for investors and that we are sure we can achieve. Got it. Just last one, Aero. OEM looked like it was up 17% sequentially. Any, any material change or orders or, you know, just specific platforms, rates that you've, you've broken higher to? Any color on that? Well, we just, you know, no real change to rates and nothing really out of the ordinary, except for specific customers wanting more parts to support both OEM as well as, you know, inventories positions that they want to be in based on what they see in the future. Okay. Great. Thanks, guys. You bet. Thank you. Again, if you'd like to ask a question, press star one on your telephone keypad, and if you want to remove yourself from queue, simply press star one again. Your next question comes from the line of Louis Raffetto of Wolfe Research. Please state your question. Yeah. Hi, thank you. I just want to go back to the cash flow, because I think you've kind of talked about wanting to bring inventory down, but it looks like this is your best inventory turn quarter, you know, in, in years. Inventory is now, you know, sort of well below where it was in, you know, 2019. Just, are we gonna go lower or is it gonna go up in the fourth quarter? How's that translating to, you know, the impact on cash flow? 'Cause you've raised net income 20% plus the last couple quarters, and still no, no increase. Yeah. We still feel like we're carrying a substantial amount of inventory to support the sales level, and that, you know, world-class performance would have us at higher turns overall. That's what, you know, our lean folks, our operational leaders, our planners, everyone's striving to figure out how to do better than we are right now. It is our desire to, to improve that. Okay. Maybe, yeah, try to tackle this another different way. The, I think, fourth quarter industrial margin guidance is somewhere between 13%, 13.5% to, like, 16%, which I assume that's kind of bounding some variability around China natural gas. Is that right? That, that's a good way to think about it. I mean, we don't give quarterly guidance, but we're in this tight, and we changed guidance, this quarter, so the math is self-evident. Okay. I guess, at the low end of that, you know, it's kind of back, is that where the normalized margin rate is? If we're sort of excluding no China natural gas, at 13%, 13.5% margins is kind of run rate-ish? I, I think it's still early for us to give guidance on what our industrial, you know, go-forward margin rate is gonna be. We're, you know, we're very happy with the improvement that we've had in the base business, and we're gonna continue to work on that. I, I think when we're ready to give FY 2024 guidance, that we'll be able to put a, you know, a, a nice bracket around that, as well as, you know, give even more forward look at the Investor Day in December. Maybe just one more way to ask it. Last quarter, the back half guidance for industrial was 9%-10%, and that... what changed to give you 400, 300-400 basis points more, you know, in 4Q than what the implied guidance was before? Two, two things changed. One was we are turning the corner in the performance of our, our, our factories, our people, our material flow, our suppliers. Our operational improvement in the base business is improving. We were-- Our plan was to improve it, and now that we've started to deliver on those plans and show, you know, progress and milestones and, and achieving the targets, so that was the one-- that was one thing that changed, and the other thing was the, the sheer volume of the China on-highway natural gas business, and visibility for orders through the end of fourth quarter. All right. That's great. Thank you, Chip. You bet. Thank you. Your next question comes from the line of Noah Poponak of Goldman Sachs. Please state your question. Hi, everyone. Good afternoon, Noah. How you doing? Can you quantify how much China on-highway revenue you had in the quarter? No. No. Sorry, Noah. Okay. Did you have significantly more in this quarter than last quarter? Quarter and quarter-- sequentially, we did see, an uptick in our China on-highway business. Okay. Fundamentally, what, what is it that makes that volatile? What is it that makes it not have visibility, just, you know, in terms of what the customer is doing and thinking fundamentally when they're buying that product from you? Well, I think I, I try to stay out of trouble on this one, but I think one in one of our conference calls, I did say that it doesn't behave like other markets I'm used to, and some of our business team is used to, working through and, and, you know, garnering forecasts around. It appears to be government policy at play and, other factors that we don't have a full handle on. That makes it really difficult to, to, to forecast from where we sit. We do. As soon as we get orders, we kind of have a good level of confidence that that's how much the customer wants for that month. That's been our, our mode for, for a while. Okay. When you have revenue that comes out of existing inventory into China OE, is the margin, you know, nearly entirely, or is it, is it near a 100% incremental margin drop-through? Like, it becomes a multiple of the segment margin, or is it something where it's more like several hundred basis points better than the segment margin? Well, I guess the way I'll answer that, Noah, is that we carry full cost of our inventory, and it's largely. Our business is largely in China for China. That hardware and those systems that are, you know, we ship to our customer are largely coming from China and staying in China, and we carry that at cost. When we get an order, if we get pretty high volume, then the margin rates can be fairly high. If we have low volume, then we've got fixed costs to spread across that operation just like normal. The reason I'm saying all that is I'm just trying to tell you it's a normally functioning business, where there's quite a lot of productivity for volume. That makes sense. Lastly, for me, on the aerospace side, are you able to tell now, where your aftermarket unit stands versus pre-pandemic? What kind of pricing are you seeing in aerospace aftermarket relative to that, enterprise-wide number that you gave us? I got the, I got the first part of the question, but I, I didn't get the, the last part. As far as, you know, Woodward, units cycling through repair, we're, we're closing in on 2019 volumes that from a both, both a shop visit and a Woodward LRU standpoint, we're not quite there yet. The second part of that was pricing. How does the aerospace aftermarket annualized pricing you're seeing right now compare to the enterprise-wide level? Yeah, we do not go down pricing at that segment level, at that level below the segment. As we talked about, both segments are contributing to that, 7% guide that we gave to, total year price realization. Okay. Thanks for taking my question. Welcome. Your next question comes from the line of David Strauss of Barclays. Please state your question. Great, thanks for taking my question. aerospace, it looks like from a revenue standpoint, that you should be back to 2019 pre-pandemic levels next year or even higher. Back when you were at those revenue levels, aerospace did 20%- close to 21% margins. I know you don't want to give 2024 guidance, but how should we think about the puts and takes on aero margins next year relative to where you were at a similar revenue level a couple of years ago? Well, like, like you said, we're not prepared to give, 2024 guidance at this time. It is our intent to continuously improve our performance from an efficiency standpoint and ability to serve customers. We, we intend to improve from where we are today. You know, the fact that we were able to achieve better numbers before with good, with good volume, bodes well for us, able to do it in the future. I would think the revenue mix then is more favorable than what you saw in 19. It looks like you're gonna have more aftermarket revenue, maybe a little less aerospace OE and maybe less defense. I would assume that revenue mix is, is positive. I'm not sure I'd make that assumption just yet. We're still working through our plans and looking... This is why we're not talking about FY 2024, but, you know, right now, in the early planning stages, we're looking at what rates the airframers are planning to achieve and what sort of inventory levels they'd want before they do rate breaks. That propagates to engine manufacturers and then to us. You know, there may be quite a good amount of OE demand in 2024, which is not necessarily a bad thing at all, because that's creating the installed base for the future. It's good news, good news, I think, but it's too soon for us to say what we think the mix will be. Okay. Chip, where is your aerospace headcount today relative to what it was at prior, you know, back in 2019? That's a question that I don't, I don't have the answer to in front of me. Okay. It's. Yeah, I don't, I don't have it in front of me. Okay. I can follow up with [inaudible] on that. Thanks. Great. Yep, you bet. Your next question comes from the line of Robert Spingarn of Melius Research. Please state your question. Thanks. Chip, I just wanted to come back on aerospace and just ask you briefly, with regard to the LEAP and the GTF and some of the durability and time on wing issues, to what extent is that factoring or impacting your aftermarket? Are you shipping more because of these cycles being shorter? Then as a follow-up to that, how might we think about this latest issue at RTX with the GTF and how that might impact, you know, with all the inspections, you know, maybe taking shop time and so forth, how might that impact Woodward as that plays out over the next year or so? Yeah, I think it's early to say on how that inspection and, you know, potential replacement program for the GTF would affect us. You know, there's a number of, like you were referring to, you know, earlier shop visits, hospital shop visits, quick turn kind of activities to support, you know, infant issues with the fleet. Most of these have little effect on Woodward because our LRUs can stay on, stay on the engine typically. Now, we might get some check and repair kinds of, kinds of work out of those, but for, for us, it, it doesn't have that, that big of an effect. The, the one thing that it, that it might the effect that it might have is, you know, the spare engine count that's required to support the overall fleet. It would show up in our regular OE versus service numbers, that, that will normalize itself over time. Mm. I think as far as we're concerned, it's, it's minimal impact for us from a. Okay ... controls, from a controls standpoint. We do have some other hardware that, there are some design changes, on, that we are supporting, you know, our customers on, on those parts. Okay, thank you. Yep. Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you. All right. Well, thank you very much, operator, and thanks for all the folks online and all your questions today. Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it would be available today at 7:30 P.M. Eastern Time by dialing 1-800-770-2030 for a U.S. call, or 1-647-362-9199 for a non-U.S. call, and 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 in today's conference call, and we ask that you please disconnect your lines.