RTX A/S

Good day and welcome to the RTX 3rd Quarter 2025 Earnings Conference Call. My name is Desiree and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer, Neil Mitchell, Chief Financial Officer, and Nathan Weir, Vice President of Investor Relations. This call is being webcast live on the internet and there is a presentation available for download for RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments, and net non-recurring and or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. RTX SEC filings including its forms 8K, 10Q, and 10K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate. To ask a question, you will need to press star 1 on your telephone. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Calhoun.

Thank you and good morning, everyone. we delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system, and the durable demand for our products. On the top line, sales were up 13% organically year over year, with double-digit growth in each of commercial OE, commercial aftermarket, and defense. Adjusted segment operating profit was up 19% year over year, with growth and margin expansion across all three segments. and free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services. In commercial aerospace, passenger air travel has remained resilient, with global RPKs on track for approximately 5% growth this year. We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter, as well as at Pratt, which saw a 6% growth in large commercial engine deliveries. Commercial aftermarket also remained strong, supported by our large and growing installed base, including over $100 billion of out-of-warranty content at Collins and heavier shop visit content across our MRO activities. Aircraft retirements have remained low, with only 1.5% of the V2500 fleet retired so far this year. In Pratt, Canada, with nearly 70,000 engines in service, has seen over 15% growth year-to-date in commercial aftermarket. On the defense side, we continue to be exceptionally well-positioned to meet the growing needs of our U.S. and international customers, in particular with respect to munitions and integrated air and missile defense, both core capabilities of our company. On the orders front, our book to bill in the quarter was 1.63, resulting in a backlog of $251 billion. up 13% year over year. The activity in the quarter included $37 billion of new awards, with $23 billion of defense, and $14 billion of commercial orders. On the commercial side, through Q3, our book to bill this year is 1.71, and our backlog has grown 18% since the end of 2024, showing the exceptional demand for our products and technologies at both Collins and Pratt. At Raytheon, we booked over $8 billion of orders for munitions, including approximately $2.5 billion for GEMT to support multiple international customers, and $2.1 billion for AMRAAM, the largest order in the 30-year history of that program. Raytheon was also awarded a significant counter-drone contract for coyote production from the U.S. Army. Coyote has proven to be extremely effective in the field, and we've recently developed a lower-cost, non-kinetic coyote payload to combat drone swarms. And Pratt was awarded over $3 billion to support the F-135 engine, including the Lot 18 production contract. So overall, our end markets and operational performance remain strong as we enter the fourth quarter. Based on this, we're raising our full year outlook for adjusted sales in EPS and maintaining our free cash flow outlook of $7 to $7.5 billion. Neil will take you through the details in a few minutes, but before that, Let me provide an update on our strategic priorities on slide four. Starting with executing on our commitments, our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping headcount flat across the organization. This has been a key enabler in driving six consecutive quarters of year over year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track. PW 1100 MRO output was up 9% in the quarter and is up 21% year to date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output. In Q3, we saw another quarter of solid progress with growth in isothermal forgings up 16% and structural castings up 29% year over year. Exiting the third quarter, this material flow has supported a record high number of PW1100 gate three starts, which is where we reassemble engines during a shop visit, putting Pratt in a position to deliver about 30% MRO output growth for the year. And across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over 600 million this year in expansion projects. For example, Raytheon is on track to invest 300 million in capacity expansion to deliver the growing backlog. This includes the Redstone Missile Integration Facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the standard missile franchise. Shifting to innovating for future growth, PRAC Canada was selected by the EU's Clean Aviation Program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft. This system integrates a 250 kilowatt electric motor and advanced propeller technology from Collins and is expected to improve fuel efficiency by approximately 20%. Additionally, Collins is nearing final certification of its next generation braking system for the A321XLR aircraft. The design incorporates proprietary carbon technology and is expected to extend brake life and drive improved profitability in our maintenance support portfolio. And Raytheon recently demonstrated two significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from a fifth generation fighter, And the Stormbreaker team, in just 50 days, designed, developed, and tested a new ground-launch demonstrator version of this air-launched effector, which will expand the capabilities and future applications for this product. And finally, we remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision-making in our business. We're strategically using these tools to support the highest impact opportunities across the company, including increasing munitions and OE production rates, growing GTF MRO output, and improving sales and inventory planning and management. For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework, which has contributed to output more than doubling year-to-date through Q3 on the program. These examples highlight the progress that we continue to make across our strategic priorities, and I'm pleased with the results they are yielding throughout the company. With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year.

Neil? All right, Chris. Thanks. I'm on slide five. In the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically. As Chris mentioned, this was a very strong result in the quarter, with commercial aftermarket up 18% and commercial OE and defense both up 10%. Adjusted segment operating profit of $2.8 billion was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all three segments. Adjusted earnings per share of $1.70 was up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12. These items more than offset a $0.04 headwind from the recently enacted tax legislation. On a GAAP basis, EPS from continuing operations was $1.41 and included 29 cents of acquisition accounting adjustments. Free cash flow was very strong at $4 billion, driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4. Cash flow for the quarter also included approximately $275 million for powder metal-related compensation and $220 million of tariff-related impacts. With respect to capital allocation, we returned over $900 million to shareholders through dividends in the quarter, and with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter. And finally, during the quarter, we completed the sale of the actuation business, And earlier this month, we also completed the sale of Collins Simmons Precision Products business for $765 million. Okay, turning to slide six, let me provide a few details on our updated outlook for the full year. As you've seen with our third quarter results, execution and momentum across all three segments continues to be strong. Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full-year adjusted sales outlook to a range of $86.5 billion to $87 billion, up from our prior range of $84.75 billion to $85.5 billion. This now translates to between 8% and 9% organic sales growth for the year, up from our prior range of 6% to 7%. Buy channel at the RTX level and adjusting for divestitures we now expect commercial aftermarket sales to grow mid-teens year over year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt. On the commercial OE side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year over year. And on defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all three segments, we are increasing adjusted earnings per share 30 cents on the low end of our range and 25 cents on the high end. At the midpoint, the increase is primarily driven by approximately 20 cents of improved segment operating profit, with the rest coming from a few below the line items. And within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year, up from our prior range of $5.80 to $5.95. Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10% year-over-year, excluding the impact of tariffs and recent divestitures at Collins. Below the line, the Q3 12-cent tax benefit I mentioned will not repeat. We expect a higher effective tax rate in the fourth quarter. On free cash flow, we are on track to achieve our outlook of between $7 and $7.5 billion for the year. The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter, segment operating profit growth and working capital improvement. And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued top line growth, margin expansion, and solid free cash flow conversion. And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. So with that, let me hand it over to Nathan to take you through the segment results for the third quarter.