GlobeNewswire Inc | Jan 31, 2022 04:05PM EST

January 31, 2022

FORT COLLINS, Colo., Jan. 31, 2022 (GLOBE NEWSWIRE) -- Woodward, Inc. (NASDAQ:WWD) today reported financial results for its first quarter of fiscal year 2022. (All amounts are presented on an as reported (U.S. GAAP) basis unless otherwise indicated. All per share amounts are presented on a fully diluted basis. All comparisons are made to the same period of the prior year unless otherwise stated.)

First Quarter Overview

-- Net sales were $542 million, compared to $538 million, an increase of 1 percent. -- Net earnings were $30 million, or $0.47 per share, compared to net earnings of $42 million, or $0.64 per share. -- Adjusted net earnings1 were $36 million, or $0.56 per share. -- Net cash provided by operating activities was $39 million compared to $147 million. Free cash flow1 was $26 million compared to $139 million. Adjusted free cash flow1 was $27 million.

Although we saw positive signs of recovery in the quarter across most of our end markets, ongoing industry-wide COVID-19 related disruptions, including supply chain constraints and labor shortages, adversely impacted our operations and caused some customer-initiated shipment delays, said Thomas A. Gendron, Chairman and Chief Executive Officer. In Aerospace, passenger traffic continues to recover, while defense spending remained flat. Our Industrial segment benefitted from increased demand in marine transportation and power generation as well as a recovering oil and gas market, while the China natural gas truck market remains challenging. Although we expect an uneven market recovery, we are seeing green shoots throughout the business, and we remain confident in our ability to deliver on our previously issued fiscal 2022 outlook.

First Quarter Company Results

Net sales for the first quarter of fiscal 2022 were $542 million, compared to $538 million for the first quarter of last year, an increase of 1 percent. Sales for the first quarter were negatively impacted by approximately $70 million due to ongoing industry-wide COVID-19 related disruptions.

Net earnings were $30 million, or $0.47 per share, for the first quarter of 2022, compared to $42 million, or $0.64 per share, in the first quarter last year. Adjusted net earnings for the first quarter of 2022 were $36 million, or $0.56 per share. There were no adjustments made to net earnings in the prior year first quarter.

EBIT1 was $45 million for the first quarter of 2022, compared to $56 million for the first quarter of the prior year. Adjusted EBIT1 was $53 million for the first quarter of 2022. There were no adjustments to EBIT in the first quarter of the prior year.

The effective tax rate was 19.7 percent for the first quarter of 2022, compared to 12.6 percent for the prior year period. The adjusted effective tax rate1 for the first quarter of 2022 was 20.6 percent. There were no adjustments to the effective tax rate in the first quarter of the prior year.

Segment Results

Aerospace

Aerospace segment net sales for the first quarter of fiscal 2022 were $336 million, compared to $322 million for the first quarter a year ago, an increase of 5 percent.

Continued recovery in passenger traffic and increasing aircraft utilization drove significant growth in commercial OEM and aftermarket sales compared to the prior year quarter. Defense sales were down compared to the prior year quarter due to both continued weakness in guided weapons and lower defense aftermarket sales.

Segment earnings for the first quarter of 2022 were $51 million, compared to $46 million for the same period of the prior year. Segment earnings as a percent of segment net sales were 15.2 percent for the first quarter of 2022, compared to 14.4 percent in the same quarter of the prior year. The increase in segment earnings was primarily a result of the significantly higher commercial OEM and aftermarket volume.

Industrial

Industrial segment net sales for the first quarter of fiscal 2022 were $205 million, compared to $216 million for the first quarter of the prior year, a decrease of 5 percent. Industrial sales for the first quarter of 2022 declined primarily due to weakness in China natural gas engines, partially offset by higher marine sales.

Industrial segment earnings for the first quarter of 2022 were $24 million, or 11.5 percent of segment net sales, compared to $33 million, or 15.2 percent of segment net sales, for the prior year quarter. Industrial segment earnings decreased primarily as a result of lower sales volume, as well as product mix and net inflationary impacts.

Nonsegment

Nonsegment expenses were $29 million for the first quarter of fiscal 2022, compared to $23 million for the prior year. Adjusted nonsegment expenses1 were $21 million for the first quarter of 2022. There were no adjustments to nonsegment expenses in the prior year period. Adjusted nonsegment expenses for the first quarter of 2022 excludes costs related to business development activities and a charge associated with a non-recurring matter unrelated to the ongoing operations of the business.

Cash Flow and Financial Position

Net cash provided by operating activities for the first quarter of fiscal year 2022 was $39 million, compared to $147 million for the prior year. Payments for property, plant, and equipment for the first quarter of 2022 were $13 million, compared to $7 million for the first quarter of 2021.

Free cash flow for the first quarter of 2022 was $26 million compared to $139 million for the prior year. The decrease in free cash flow was primarily related to working capital increases to support this years anticipated growth. Adjusted free cash flow was $27 million. There were no adjustments to cash flow in the prior year first quarter.

During the first quarter of fiscal 2022, $37 million was returned to stockholders in the form of $10 million of dividends and $27 million of repurchased shares under a board authorized share repurchase program.

Total debt was $730 million at December 31, 2021, compared to $747 million at December 31, 2020. Debt-to-EBITDA1 leverage at December 31, 2021, was 1.7 times EBITDA, consistent with the prior year period.

Fiscal Year 2022 Outlook

COVID-19 related disruptions persisted in the quarter, although improvement is anticipated in the remainder of fiscal year 2022.

Total net sales for fiscal 2022 are expected to be between $2.45 and $2.65 billion. Aerospace and Industrial sales growth percentages are each expected to be in the low double digits to mid-teens.

Aerospace segment earnings as a percent of segment net sales are expected to increase over last fiscal year by approximately 200 to 300 basis points, primarily due to the increased sales volume in both commercial OEM and aftermarket, partially offset by lower guided weapon sales and the anticipated return of annual variable incentive compensation costs. Industrial segment earnings as a percent of segment net sales are expected to be approximately flat to up by 150 basis points over last fiscal year, primarily due to the increased sales volume, partially offset by the anticipated return of annual variable incentive compensation costs. Growth and profitability in both segments could be negatively affected if current COVID-19 and supply chain disruptions do not improve, or if the pace of inflation puts additional pressure on labor and material costs.

The adjusted effective tax rate is expected to be approximately 21 percent.

Adjusted free cash flow is expected to be approximately $315 million, generating an adjusted free cash flow conversion rate of greater than 100 percent. As the anticipated sales growth returns, we expect higher working capital requirements, primarily driven by accounts receivable. Also, capital expenditures are expected to increase over last fiscal year by approximately $30 million.

Adjusted earnings per share is expected to be between $3.55 and $3.95 based on approximately 66 million of fully diluted weighted average shares outstanding. The favorable impacts of sales growth and productivity improvements in both segments are being partially offset by the expected return of annual variable compensation costs, inflationary pressures, and a higher tax rate.

Conference Call

Woodward will hold an investor conference call at 4:30 p.m. EST, January 31, 2022, to provide an overview of the financial performance for the first quarter of fiscal year 2022, business highlights, and outlook for the remainder of fiscal 2022. You are invited to listen to the live webcast of our conference call, or a recording, and view or download accompanying presentation slides at our website, www.woodward.com2.

You may also listen to the call by dialing 1-877-231-2582 (domestic) or 1-478-219-0714 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 6258645. An audio replay will be available by telephone from 7:30 p.m. EST on January 31, 2022 until 11:59 p.m. EST on February 14, 2022. The telephone number to access the replay is 1-855-859-2056 (domestic) or 1-404-537-3406 (international), reference access code 6258645.

A webcast presentation will be available on the website by selecting Investors/Events & Presentations. The call and presentation will remain accessible on the website for 14 days.

About Woodward, Inc.

Woodward is the global leader in the design, manufacturing, and service of energy conversion and control solutions for the aerospace and industrial equipment markets. Together with our customers, we are enabling the path to a cleaner, decarbonized world. Our innovative fluid, combustion, electrical, propulsion and motion control systems perform in some of the worlds harshest environments. Woodward is a global company headquartered in Fort Collins, Colorado, USA. Visit our website at www.woodward.com.

Cautionary Statement

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding our business and financial outlook for fiscal 2022, including trends in our business, statements about the continued and expected or potential effects of the COVID-19 pandemic on our business and the management of our business, including supply chain constraints and labor shortages, the continued market volatility and expected uneven recovery in our markets, the ongoing challenges in the China natural gas truck market, the continued and expected uncertainty and volatility around the pace of recovery in our markets, the strength of our financial position and our ability to maintain our financial position, the anticipated return of annual variable incentive compensation, our ability to effectively deliver on our fiscal 2022 outlook, and expectations related to the performance of our segments and specific markets within those segments, and our future sales and the anticipated future sales growth, earnings, earnings per share and adjusted earnings per share, segment earnings as a percent of segment net sales, cash flows, free cash flows and adjusted free cash flows, working capital and the anticipated higher working capital requirements, expected increases in capital expenditures, and effective tax rate. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, the COVID-19 pandemic and related significant volatility in financial, product, service, commodities (including oil and gas) and other markets and industries (including the aviation industry); a decline in our customers business, or our business with, or financial distress of, Woodwards significant customers; global economic uncertainty and instability in the financial markets, including inflationary pressures; Woodwards ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; Woodwards long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodwards ability to implement and realize the intended effects of any restructuring efforts; Woodwards ability to successfully manage competitive factors, including prices, competitor product development, industry consolidation, and commodity and other input cost increases; Woodwards ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodwards suppliers to perform contractual obligations and to provide Woodward with materials of sufficient quality or quantity required to meet Woodwards production needs at favorable prices or at all; Woodwards ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long-term sales in certain aerospace markets; Woodwards debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodwards ability to manage additional tax expense and exposures; risks related to Woodwards U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases, delays or changes in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodwards continued access to a stable workforce and favorable labor relations with its employees; physical and other risks related to Woodwards operations and suppliers, including natural disasters and COVID-19 related impacts, which could disrupt production; Woodwards ability to successfully manage regulatory, tax, and legal matters; impacts of tariff regulations; risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation, such as diseases, epidemics, pandemics and natural disasters, and increasing emissions standards; any adverse effects on Woodwards operations due to cybersecurity breaches or other information technology system interruptions or intrusions; and other risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as well as its Quarterly Report on Form 10-Q for the first quarter ended December 31, 2021, which we expect to file shortly, and other risks described in Woodwards filings with the Securities and Exchange Commission.

Woodward, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(Unaudited - in thousands except per share amounts) Three-Months Ended December 31, 2021 2020 Net sales $ 541,586 $ 537,619 Costs and expenses: Cost of goods sold 419,151 401,640 Selling, general, and administrative expenses 62,306 56,111 Research and development costs 25,392 31,996 Interest expense 8,306 8,906 Interest income (641 ) (495 )Other (income) expense, net (10,674 ) (8,123 )Total costs and expenses 503,840 490,035 Earnings before income taxes 37,746 47,584 Income taxes 7,441 6,014 Net earnings $ 30,305 $ 41,570 Earnings per share amounts: Basic earnings per share $ 0.48 $ 0.66 Diluted earnings per share $ 0.47 $ 0.64 Weighted average common shares outstanding: Basic 63,094 62,812 Diluted 65,099 64,892 Cash dividends per share paid to Woodward $ 0.1625 $ 0.0813 common stockholders

Woodward, Inc. and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited - in thousands) December 31, September 30, 2021 2021 Assets Current assets: Cash and cash equivalents $ 426,982 $ 448,462 Accounts receivable 506,216 523,051 Inventories 451,834 419,971 Income taxes receivable 8,928 12,071 Other current assets 52,771 61,168 Total current assets 1,446,731 1,464,723 Property, plant, and equipment, net 934,403 950,569 Goodwill 800,022 805,333 Intangible assets, net 538,782 559,289 Deferred income tax assets 13,970 14,066 Other assets 301,332 297,024 Total assets $ 4,035,240 $ 4,091,004 Liabilities and stockholders? equity Current liabilities: Current portion of long-term debt $ 424 $ 728 Accounts payable 165,867 170,909 Income taxes payable 17,004 11,481 Accrued liabilities 146,213 183,139 Total current liabilities 329,508 366,257 Long-term debt, less current portion 729,826 734,122 Deferred income tax liabilities 156,169 157,936 Other liabilities 596,305 617,908 Total liabilities 1,811,808 1,876,223 Stockholders? equity 2,223,432 2,214,781 Total liabilities and stockholders? equity $ 4,035,240 $ 4,091,004

Woodward, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited - in thousands) Three-Months Ended December 31, 2021 2020 Net cash provided by operating activities $ 39,290 $ 146,725 Cash flows from investing activities: Payments for purchase of property, plant, (13,123 ) (7,263 )and equipmentProceeds from sale of assets 1 48 Payments for purchases of short-term - (2,740 )investmentsProceeds from sales of short-term 7 - investmentsNet cash used in investing activities (13,115 ) (9,955 ) Cash flows from financing activities: Cash dividends paid (10,247 ) (5,102 )Proceeds from sales of treasury stock 3,198 10,855 Purchase of treasury stock (39,258 ) - Borrowings on revolving lines of credit and - 74,400 short-term borrowingsPayments on revolving lines of credit and - (74,400 )short-term borrowingsPayments of long-term debt and finance lease (381 ) (100,395 )obligationsNet cash used in financing activities (46,688 ) (94,642 )Effect of exchange rate changes on cash and (967 ) 6,483 cash equivalentsNet change in cash and cash equivalents (21,480 ) 48,611 Cash and cash equivalents at beginning of 448,462 153,270 yearCash and cash equivalents at end of period $ 426,982 $ 201,881

Woodward, Inc. and SubsidiariesSEGMENT NET SALES AND EARNINGS(Unaudited - in thousands) Three-Months Ended December 31, 2021 2020 Net sales: Aerospace $ 336,435 $ 321,667 Industrial 205,151 215,952 Total consolidated net sales $ 541,586 $ 537,619 Segment earnings*: Aerospace $ 51,083 $ 46,466 As a percent of segment net sales 15.2 % 14.4 %Industrial 23,693 32,888 As a percent of segment net sales 11.5 % 15.2 %Total segment earnings 74,776 79,354 Nonsegment expenses (29,365 ) (23,359 )EBIT 45,411 55,995 Interest expense, net (7,665 ) (8,411 )Consolidated earnings before income taxes $ 37,746 $ 47,584 *This schedule reconciles segment earnings, which exclude certain costs, toconsolidated earnings before taxes. Payments for property, plant and equipment $ 13,123 $ 7,263 Depreciation expense $ 21,033 $ 22,608

Woodward, Inc. and SubsidiariesRECONCILIATION OF EARNINGS TO ADJUSTED EARNINGS^1(Unaudited - in thousands, except per share amounts) Three-Months Ended Three-Months Ended December 31, 2021 December 31, 2020 Per Before Net of Per Share, Before Net of Share, Income Income Tax Net of Income Income Net of Tax Income Tax Tax Tax Income TaxEarnings $ 37,746 $ 30,305 $ 0.47 $ 47,584 $ 41,570 $ 0.64(U.S. GAAP)Non-U.S. GAAP adjustments:Non-recurringmatterunrelated tothe 5,000 3,750 0.06 - - -ongoingoperations ofthe businessBusinessdevelopment 2,982 2,236 0.03 - - -activitiesTotalnon-U.S. GAAP 7,982 5,986 0.09 - - -adjustmentsAdjustedearnings $ 45,728 $ 36,291 $ 0.56 $ 47,584 $ 41,570 $ 0.64(Non-U.S.GAAP)

Woodward, Inc. and SubsidiariesRECONCILIATION OF NET EARNINGS TO EBIT^1 AND ADJUSTED EBIT^1(Unaudited - in thousands) Three-Months Ended December 31, 2021 2020 Net earnings (U.S. GAAP) $ 30,305 $ 41,570 Income taxes 7,441 6,014 Interest expense 8,306 8,906 Interest income (641 ) (495 )EBIT (Non-U.S. GAAP) 45,411 55,995 Non-U.S. GAAP adjustments* 7,982 - Adjusted EBIT (Non-U.S. GAAP) $ 53,393 $ 55,995 *See Reconciliation of Earnings to Adjusted Earnings^1 table above for the listof Non-U.S. GAAP adjustments made in the applicable periods. Woodward, Inc. and SubsidiariesRECONCILIATION OF NET EARNINGS TO EBITDA^1 AND ADJUSTED EBITDA^1(Unaudited - in thousands) Three-Months Ended December 31, 2021 2020 Net earnings (U.S. GAAP) $ 30,305 $ 41,570 Income taxes 7,441 6,014 Interest expense 8,306 8,906 Interest income (641 ) (495 )Amortization of intangible assets 9,688 10,469 Depreciation expense 21,033 22,608 EBITDA (Non-U.S. GAAP) 76,132 89,072 Non-U.S. GAAP adjustments* 7,982 - Adjusted EBITDA (Non-U.S. GAAP) $ 84,114 $ 89,072 *See Reconciliation of Earnings to Adjusted Earnings^1 table above for the listof Non-U.S. GAAP adjustments made in the applicable periods.

Woodward, Inc. and SubsidiariesRECONCILIATION OF NONSEGMENT EXPENSES TO ADJUSTED NONSEGMENT EXPENSES^1(Unaudited - in thousands) Three-Months Ended December 31, 2021 2020 Nonsegment expenses (U.S. GAAP) $ 29,365 $ 23,359 Non-recurring matter unrelated to the ongoing (5,000 ) - operations of the businessBusiness development activities (2,982 ) - Adjusted nonsegment expenses (Non-U.S. GAAP) $ 21,383 $ 23,359

Woodward, Inc. and SubsidiariesRECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES TO FREE CASH FLOW^1 ANDADJUSTED FREE CASH FLOW^1(Unaudited - in thousands, except per share amounts) Three-Months Ended December 31, 2021 2020 Net cash provided by operating activities $ 39,290 $ 146,725 (U.S. GAAP)Payments for property, plant, and equipment (13,123 ) (7,263 )Free cash flow (Non-U.S. GAAP) 26,167 139,462 Cash paid for business development activities 770 - Cash paid for restructuring charges 505 - Adjusted free cash flow (Non-U.S. GAAP) $ 27,442 $ 139,462

1Adjusted and Non-U.S. GAAP Financial Measures Adjusted net earnings, adjusted earnings per share, adjusted EBIT, adjusted EBITDA, adjusted effective tax rate, and adjusted nonsegment expenses exclude, as applicable, (i) costs related to business development activities and (ii) a charge related to a non-recurring matter unrelated to the ongoing operations of the business. Woodward believes that these items are short-term costs or charges and are otherwise not related to the ongoing operations of the business. Therefore, Woodward uses them to illustrate more clearly how the underlying business of Woodward is performing. Adjusted free cash flow is free cash flow (defined below) plus the cash payments for costs related to business development activities and restructuring activities. Management believes these adjustments to free cash flow better portray Woodwards operating performance. Guidance with respect to non-U.S. GAAP measures as provided in this release excludes, as applicable, costs, charges and payments related to (i) business development activities, and (ii) restructuring activities.

EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), free cash flow, adjusted free cash flow, adjusted net earnings, adjusted earnings per share, adjusted EBIT, adjusted EBITDA, adjusted effective tax rate, and adjusted nonsegment expenses are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management uses EBIT and adjusted EBIT to evaluate Woodwards operating performance without the impacts of financing and tax related considerations. Management uses EBITDA and adjusted EBITDA in evaluating Woodwards operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management also uses free cash flow, which is derived from net cash provided by or used in operating activities less payments for property, plant, and equipment, as well as adjusted free cash flow (as described above), in reviewing the financial performance of Woodwards various business segments and evaluating cash generation levels. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of any of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Because EBIT, EBITDA, adjusted EBIT, and adjusted EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Managements calculations of EBIT, EBITDA, adjusted net earnings, adjusted earnings per share, adjusted EBIT, adjusted EBITDA, adjusted effective tax rate, adjusted nonsegment expenses, free cash flow, and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

2Website, Facebook, Twitter: Woodward has used, and intends to continue to use, its Investor Relations website, its Facebook page and its Twitter handle as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Dan ProvaznikContact: Director, Investor Relations 970-498-3849 Dan.Provaznik@woodward.com