RTX Corporation

Good day, ladies and gentlemen. Welcome to the Raytheon First Quarter 2019 Earnings Conference Call. My name is Shannon, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Kelsey DeBrian, Vice President from Investor Relations. Please proceed.

Thank you, Shannon. Good morning, everyone. Thank you for joining us today on our first quarter conference call. The results that we announced this morning, the audio feed of this call, and the slides that we'll reference are available on our website at Raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available in the investor relations section of our website. With me today are Tom Kennedy. our Chairman and Chief Executive Officer, and Toby O'Brien, our Chief Financial Officer. We'll start with some brief remarks by Tom and Toby and then move on to questions. Before I turn the call over to Tom, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings. With that, I'll turn the call over to Tom.

Thank you, Kelsey. Good morning, everyone. Raytheon delivered strong operating performance in the first quarter. Sales increased 7.4% in our bookings, sales, EPS, and operating cash flow were all better than expected. We had backlog of over $41 billion, which is up almost $3 billion versus the same period last year. Our trailing four-quarter book-to-bill ratio is strong at 1.13, and our growth strategy continues to be well aligned with the needs of our global customers. Overall, I was pleased with our results in the first quarter, including strong performance at IIS and SAS, which more than offset missiles performance, which was below our expectations. Toby will review additional details about the quarter in a few minutes. Given the constantly evolving threat environment, I'd like to take a few minutes to discuss some of the innovative solutions we are developing. Consistent with Raytheon's long history of pushing the bounds of what is possible, today we are at the forefront providing advanced technology solutions for our customers' most complex challenges. and we are seeing strong future opportunities in our core capabilities, such as in radars and missiles. In a great accomplishment for the company and our customer, for the first time in March, the U.S. Missile Defense Agency, in partnership with the industry team, launched two Raytheon exo-atmospheric kill vehicles in back-to-back test. One EKV successfully destroyed a complex threat representative intercontinental ballistic missile outside of the Earth's atmosphere, while the other EKV gathering test data in what is now known as a two-shot salvo engagement. This was a critical milestone for the ground-based mid-course defense system, and it also relied on Raytheon's advanced sensing capabilities, such as the sea-based X-band radar, TIFI-2 radar, and multispectral targeting system on unmanned aerial vehicles to provide the EKV with tracking and targeting data of the ICBM. Next, as we have discussed on prior calls, Raytheon is a leader in providing the next generation of GAN-based naval radars. Our air and missile defense radar and our enterprise air surveillance radar for the U.S. Navy and international customers will form the backbone of radar capabilities for U.S. and allied surface fleets of the future. AMBR provides integrated air and missile defense capabilities with greater range, increased accuracy, and higher demonstrated sensitivity, allowing it to counter large and complex raids. The Acer is the Navy's next generation radar for aircraft carriers and amphibious warfare ships that provide simultaneous anti-air and anti-surface warfare, electronic protection, and air traffic control capabilities. Understanding our customer's need for performance at the speed of relevance, we are making considerable progress on these advanced capabilities. During the first quarter, AMDR completed its latest and most complex test and has exceeded all performance requirements. The radar is currently in low-rate initial production and on schedule for delivery to the Navy's first modernized DDG-51 Flight 3-class ship in 2020. And in March, we booked over $400 million for the next award of three AMDR LRIP units. As for EASER, in April, the radar was moved to Wallace Island in Virginia to begin its next phase of system-level testing. We expect EASER to shift from the engineering and manufacturing development phase to the production phase at the end of 2019. And earlier this week, we received the first of two critical contracts from the Missile Defense Agency valued at approximately $400 million for our TIPI-2 radars, as part of the Kingdom of Saudi Arabia's purchase of the Terminal High Altitude Area Defense, or THAAD, air and missile defense system. We continue to see the total Raytheon opportunity on this program to be around $3 billion. In the area of missiles, Raytheon is continuing our leadership as a provider of numerous advanced and innovative solutions to our customers. During the quarter, Raytheon and the U.S. Army completed a successful preliminary design review for Deep Strike, Raytheon's solution to meet the Army's precision strike missile or PRISM requirement. This moves the missile down the development path toward its first flight tests planned for later this year. The new missile's range and speed will enable Army combat units to engage targets over vast geographic areas in high-threat environments and will fly farther, faster, and pack more punch than the current missile. And our franchise win of the Naval Strike Missile for the U.S. Navy last year continues to show opportunities for growth. The missile is offered by Raytheon in partnership with Consberg. And recently, we entered into an agreement that expands the franchise further by integrating NSM into U.S. Marines' existing force structure to support the National Defense Strategy and modernization efforts. And in April, we saw further extension of the NSM franchise with an approved international sale to integrate NSM onto rotary wing aircraft. We are also developing both offensive and defensive hypersonic systems and providing our nation's military with the advanced tools they need to stay ahead of the escalating threat. In March, Raytheon was awarded a DARPA contract to further develop the Tactical Boost Glide hypersonic weapons program. This joint DARPA and U.S. Air Force effort includes a critical design review, a key step to fielding this technology. In addition, We are working on advanced interceptors for missile defense. During a quarter, Raytheon successfully completed more than 1,700 rigorous wind tunnel tests on the newest extended range variant of the combat-proven AMRAAM air-to-air missile. Testing is a major step in the missile's qualification for integration with the NASAM's ground-based air defense system. The AMRAAM-ER missile will intercept targets at longer distances and higher altitudes. thus enhancing system performance for our customers worldwide. While we are pleased with the growth MISLS has achieved and we remain confident about their future opportunities, we recognize there is more work to be done to meet our expectations on performance. The fundamental is that MISLS remains very strong and we are implementing action plans to improve program execution. In the meantime, as I previously mentioned, we are pleased with the strength in the rest of our portfolio, especially at IIF and SAS, which offset missiles performance. In addition to the strong performance at IIS earlier this year, an IIS team demonstrated a land-based expeditionary version of its Joint Precision Approach and Landing System, or JPALs, for the first time to the U.S. Air Force, Navy, and Marine Corps officials. The Precision Landing System is currently used on ships to guide F-35Bs in all types of weather. JPALs has the potential to help any fixed or rotary-wing aircraft land in rugged, low-visibility environments at austere bases worldwide. I would like to highlight one more of our many innovative solutions, this one at SAS. Last year, we were selected as one of two companies to complete for the opportunity to provide the mission payload for the Next Generation Overhead Persistent Infrared Program. NextGen OPR-IR is a new missile warning satellite system for the US Air Force aimed at countering emerging global threats. During the first quarter, we were awarded a proposal update. And in April, we successfully completed the payload system design review on schedule. We are in an era of rapid technological change. And as a result, it is becoming clear that the solutions our customers will need in the future relative to escalating threats will most likely be complex systems integrating multiple technologies including radars, missiles, missile defense, and cybersecurity. This is an area of strength for Raytheon. With our deep portfolio of capabilities and leading franchises across all of our segments, we are well positioned to be a key partner for our customers. The initial development of our advanced capabilities is often through our classified work, which, as we have discussed on past calls, funds next generation technology development that is integral to the long term growth of our future franchises and production awards. And our classified business was once again strong in the first quarter, with classified bookings up 37% and classified sales up 22% versus the same period last year. Turning to DC, we were pleased to see the increase in the base budget and modernization levels in the 2020 Department of Defense budget request that was released in March. Raytheon programs fared well in the request with notable increases from weapons, radars, and C5ISR programs. The budget request was clearly driven by the priorities of the National Defense Strategy, with the research and development accounts increasing substantially to develop high-end capabilities to counter peer threats. and the NDS aligns well with our other innovative solutions that address our customers' most complex challenges. We will continue to work to ensure robust funding for our programs, which are of critical need for our customers. In closing, the Raytheon team remains focused on driving strong execution and future growth, backed by a workforce of over 67,000 employees and a corporate culture grounded in our company's values. These values, trust, respect, collaboration, innovation, and accountability guide the way we engage with colleagues, customers, investors, and other stakeholders. Now let me turn the call over to Toby.