Honeywell Aerospace Inc.

Thank you for standing by and welcome to the Honeywell Aerospace Second Quarter 2026 Earning Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's call is being recorded. I'll now turn the call over to Sean Mecham, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Honeywell Aerospace's second quarter 2026 earnings call. On the call with me today are Chief Executive Officer Jim Currier and Chief Financial Officer Josh Jepson. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our investor relations website. Our forward-looking statements are based on our best view of the world and our business as we see it today and subject to risks and uncertainties, including the ones described in our SEC filings. This afternoon, we will review our financial results for the second quarter, provide an update on full year 2026, and then open it up for questions. Now I'll turn the call over to our CEO, Jim Currier.

Thanks, Sean. Good afternoon, everyone. And thank you for joining us. We'll begin our presentation on slide three. 18 months ago, Honeywell announced its intention to separate its aerospace business into a standalone public company. Nine months ago, the Honeywell board chose me to be CEO. And today I have the honor of leading our first dedicated earnings call since we completed our spinoff on June 29th. I could not be more energized for the road ahead of us. We've assembled a great management team, blended together decades of experience at Honeywell Aerospace with a healthy dose of outside industry perspective as exemplified by Josh here right beside me. We have a purpose-built board dedicated to the aerospace and defense industry. From top to bottom, this organization is now singularly focused and incentivized to innovate and grow to better serve our customers, shareholders, and all stakeholders. Today, we'll walk through our performance in the quarter, progress against our value creation strategy, and outlook for the remainder of the year. In the final quarter, as part of HoneyWalk, We continue to see extraordinary demand across our entire business, driven by our compelling technologies and alignment to secular growing end markets. Orders increased by 8% over the past year, and we recently secured the largest selectable win in company history, bringing the lifetime value of year-to-date customer wins to $15 billion. Against this backdrop of increasing demand, however, our supply base has not been able to ramp in the manner we were expecting earlier this year. After a few years of double-digit output growth, we faced supply chain constraints in the first quarter that resulted in factory volume growth below expectations. At the time we guided you to expect a steady ramp in our output through the first half, accelerating into the back half. While we are seeing progress, the ramp has not come through at the pace we had initially laid out. Frankly, I underestimated how long it would take to implement and see traction from the corrective measures we had taken and are taking. Importantly, the issues remain contained to a handful of material and supplier bottlenecks. Critical and constrained suppliers represent roughly 2% of our supply base and the vast majority of our thousands of suppliers are delivering as expected. The issue is not reflective of an underlying health of our operations and while we have more to do, we have invested over a billion dollars in recent years and will continue to invest to increase our resiliency. Equally important, we are moving with tremendous urgency to address near-term bottlenecks. While we didn't see traction as quickly as expected earlier this year, we are making real, tangible progress. We will walk through the specific actions we are taking in more detail later in the presentation. One of my top priorities as CEO is to ensure we execute on our promises to investors. Obviously, today is a far cry from this standard. Going forward, We want to ensure we deliver on our promises and we are issuing a revised outlook with that in mind. Despite near-term supply chain disruptions, we have a portfolio of truly market-leading technologies that provide us unprecedented visibility into future sales that will enable us to scale our business to multiples of historical levels. We are making the necessary process improvements to deliver incremental production capacity. And as our supply chain constraints resolve, we will unlock our ability to service significant pent-up demand leading to accelerating sales and profit growth in 2027. With this in mind, we are reiterating our 2030 targets. We remain incredibly excited about the long-term outlook for Honeywell Aerospace and confident in our future financial performance. Josh will provide additional details on our outlook later in the presentation and we'll spend more time on our supply chain strategy in a moment. But first, let's turn to slide four and I'll discuss how we're delivering on our strategic priorities. Our strategy is centered on three pillars. We have embedded them across our organization and they guide our decision-making process, including how we allocate capital. First, expand leadership and attractive end markets. We are going to grow where there is increasing profit opportunity and where we have a strong right to win because of our differentiated technology and deeply embedded positions. Our defense and space business is helping customers around the world who are seeking to ensure national security. Much of the worldwide defense fleet and stockpiles have suffered under underinvestment for several decades and are now being called upon more often because of changing global realities. These dynamics require investments in modernizing for today's combat environment and sustaining operational readiness. We are upgrading our solutions on marquee platforms where we have substantial content, such as the F-35. At the same time, we are supporting non-traditional defense primes, introducing new solutions with our ability to manufacture at scale and our proven commercial technologies, including navigation and electronic warfare. Second, invest in differentiated technology platforms. We are advancing our innovation leadership with R&D spending of roughly 10% of our sales, the majority of which is being funded by our customers for collaborative development efforts. Our DevelopOnce Deploy Everywhere approach to innovation where we focus on technologies that are scalable across platforms and end markets means that we maximize the returns on that spending. Our next generation Anthem avionics perfectly exemplifies our innovation strategy. This fully integrated flight deck was built using modular architecture so that it can scale all the way from smaller unmanned aircraft to large commercial air transport platforms. It offers increased safety and efficiency by capturing real-time data through a connected software-defined and AI-capable platform. This greatly reduces pilot workload, which is a significant step on the path towards greater autonomy. During the second quarter, Anthem advanced formal qualification on major subsystems, taking it one step closer to commercialization and demonstrating leadership on forward-fit platforms. Third, strengthen operational capabilities to unlock further growth. Converting the strong, highly visible demand for our solutions into sales requires supply resiliency, factory throughput, planning discipline, and service capacity. Our Honeywell Aerospace operating system, with a framework designed specifically for our industry, operationalizes the strategy across the organization and drives clear priorities, actions, and outcomes, as well as accountability. As an example of investment priority, we are growing our own manufacturing capacity with new production lines at our existing facilities. Recently, a new line in Arizona delivered initial operational test units for Assure, our advanced electromechanical actuation system. We are also progressing expansion at our Minnesota facility for critical inertial sensing components for our leading navigational systems. Now let's move to slide 5 to dive into our supply chain transformation a bit further. As an independent company, we are deploying an aerospace-specific operating system rooted in continuous improvement, operational excellence, and disciplined execution. It will drive standardized planning, decision-making, and improved long-term performance. As perhaps the most significant benefit of our separation, we now have additional management focus, capital flexibility, and organizational agility to use this framework to strategically transform how we operate from our factory floor through our supply chain. Our actions thus far just have not been good enough. They have not led to the output inflection that I expected only a few months ago. As we work urgently to address near-term bottlenecks and return to robust output growth as quickly as possible, we believe the strategic actions underway will create a foundation for greater visibility and performance in 2027 and beyond. First, we are improving our own planning processes. Our senior leaders have been working closely with our suppliers to provide them with better visibility into our future demand. I've met personally with several suppliers in recent weeks and months, and the response has been remarkably positive to the increased transparency and management attention. We are also better tying our inventory planning to our delivery schedules, which has increased customer confidence in our ability to meet our timing commitments. Second, we're getting better control over our supply base to increase the inflow of components. In the first half of the year, We added new sources for over 50 constrained parts, and we plan to add another 50 in the second half of 2026, increasing the number of multi-source components by 15% this year alone. The additional sources will enable capacity expansion for specific critical materials and position the company for strong output growth in 2027. At the same time, We've embedded resources at critical suppliers with labor bottlenecks, which, as an example, led to a 20% quarter-over-quarter output increase at one key supplier. Third, we're very focused on increased factory throughput. We introduced a new schedule attainment system as part of our operating framework, which has begun to show operational gains with attainment percentages doubling year-over-year. and repair and overhaul turnaround times decreasing materially. In the second half, we're aggressively targeting additional improvement with increased ability to track progress. And finally, We're integrating our overall approach to operate as one system. Throughout our largest global facilities, we're staffed dedicated lean experts to support site-level adoption. They're filling in any capability gaps compared to our system-wide standards by utilizing standardized methods and problem-solving tools. Josh, why don't you add a few comments given you're newer to the organization?