RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon Third Quarter 2019 Earnings Conference Call. My name is De Tamara, 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 DeBrien, Vice President of Investor Relations. Please proceed.

Thank you, De Tamara. Good morning, everyone. Thank you for joining us today on our third 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, and the proposed merger with UTC 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. And with respect to the proposed merger and related matters, in the definitive merger proxy statement filed with us, with the SEC on September 10th, 2019. With that, I'll turn the call over to Tom.

Thank you, Kelsey. Good morning, everyone. Raytheon was, again, delivered strong performance in the third quarter. We achieved record sales of $7.4 billion, up 9.4%, and our bookings, sales, operating income, EPS, and operating cash flow all exceeded our expectations. We continue to see strong global demand for innovative solutions, Book the bill in the third quarter was a healthy 1.27. And for the second time this year, we achieved record backlog, which rose to $44.6 billion at the end of the quarter, an increase of $3 billion year over year. Given our continued strong bookings, and the opportunities we see in the fourth quarter, we are again increasing our bookings outlook for the year by another $1.5 billion. It is worth noting that since the beginning of this year, We have increased our bookings outlook by a total of $3 billion over our original expectation, and we expect a full-year book-to-bill ratio of greater than 1.1. We are pleased with our bookings performance this year, which positions us well for a strong growth in 2020. Additionally, we are also increasing our guidance for sales, operating income, and EPS. Toby will discuss additional details about our third quarter performance, along with our updates to guidance and initial color on our 2020 outlook in a few minutes. And let me update you on our proposed merger of equals with United Technologies Aerospace Businesses. Two weeks ago, at our special meeting, we reached an important milestone. Raytheon shareholders overwhelmingly approved the merger with 96% of the voted shares in favor of the merger. I am pleased that both our shareholders and the shareholders of UTC voted in favor of our powerful strategic combination. Shareholder approval reflects a significant step on our path to unite two world-class companies with complementary technologies, and it supports our view that this merger of equals will create additional growth opportunities while delivering benefits to our shareholders, customers, and employees. Integration planning for the merger is progressing well, and the merger remains on track to close in the first half of 2020. One of the strengths Raytheon will be bringing to the combined company is our diversified portfolio of advanced technologies that are well aligned with our customers' needs. So let me spend a few minutes discussing these innovative technologies and how we are able to turn them into compelling advanced solutions and franchises for our customers. The newest example of this is our clean sheet offering for the next generation air and missile defense radar competition. Last week, we were pleased to be selected by the U.S. Army to develop the lower tier air and missile defense sensor, which extends Raytheon's position as the world's premier air and missile defense radar capability provider for decades to come. We expect LTAMs to have a potential lifetime value around $20 billion from sales to domestic and international customers. LTAMs will operate on the Army's integrated air and missile defense network. Our winning LTAM solution is a 360-degree active electronically scanned array radar powered by Raytheon-manufactured gallium nitride, a substance that strengthens the radar signal and enhances its sensitivity. Over the years, we have invested significantly in AESA GAN technology and advanced manufacturing capability, positioning the company as the global leader in advanced AESA GAN technology and product development. Our innovative solution also showcased advanced capabilities and ease of maintenance and sustainment, for the end user, the soldier. Our Patriot franchise was also strengthened in August with the Kingdom of Bahrain signing an agreement to purchase our Patriot system. This letter of offer and acceptance allows the U.S. government to begin contract negotiations with our Patriot team. Bahrain will become the 17th nation to procure Patriot. With the U.S. Army's approval, all 17 of these Patriot partners will have the opportunity to add our AESA 360-degree capability LTAMS radar to each of their fire units. This will enhance the performance and extend the life of their systems for many decades. In addition, the capabilities of the LTAMS radar also opens up a market for stand-alone forward deployed applications. Our leadership in radars was also extended with the completion of the first system-level test of the Enterprise Air Surveillance Radar at Wallops Island Test Facility by the U.S. Navy and Raytheon in August. EACER is the newest sensor in the Navy's SPY-6 family of radars for aircraft carriers and frigates. It provides simultaneous anti-air and anti-surface warfare, electronic protection, and air traffic control capabilities. The radar has a highly scalable design, and the innovative technology allows it to deliver increased performance, higher reliability and sustainability, and lower total ownership costs. Upon completion of the system-level testing by the end of the year, EASER will shift to low-rate initial production. As a reminder, AMDR, our Navy radar franchise for the new DDG-51 destroyers, recently transitioned into low-rate initial production. Another area where we are using our innovative technology to meet the needs of our global customers is in the area of counter UAS. Recently, our Coyote Block II counter-drone unmanned aircraft system scored direct hits on multiple aerial targets in U.S. Army test flights. Coyote Block II is a new high-speed kinetic interceptor that will counter hostile drones. It is compatible with Raytheon's KUVN radio frequency system, or KURFS radar. The Block II system is on track to be full-rate production ready in 2020. In the area of hypersonics, We are also advancing technology to develop new capabilities for our customers. In September, we announced that Raytheon will build and deliver the control, actuation, and power conditioning sub-assemblies that control flight of the U.S. Army's new common hypersonic glide body missile. All of our businesses are at the forefront in developing new and updating existing technologies, and one in particular, SAS, has seen good advancements, both in terms of growth and in terms of innovative technology offerings. During the quarter, SAS had very strong performance, growing sales more than 14% year-over-year and exceeding margin expectations. Over the last few years, we have seen SAS capture a number of new franchise programs, and during the quarter, we made great progress on these new franchises. In the electronic warfare market this past August, SAS delivered the first next-generation jammer mid-band engineering and manufacturing development pod to the US Navy to begin ground and aircraft integration testing. And in October, we delivered the second pod. Raytheon will deliver a total of 15 EMD pods for mission systems testing and qualification, as well as 14 pods for airworthiness certification. Beyond the good growth we are seeing on our EW programs at SAS, we are also seeing strong growth in our space and ISR programs, such as the NextGen OPIR and recent classified franchise program wins. In July, SAS was selected as a radar supplier for the B-52 bomber radar modernization program, displacing the incumbent and extending our airborne radar franchise. Under the contract, Raytheon will design, develop, and produce and sustain AESA radar systems for the entire U.S. Air Force B-52 fleet. With improved navigation reliability, mapping and detection range, the advanced radar upgrade will ensure the aircraft remains... Finally, and as I think about my next few years, one of my key roles in the new Raytheon technologies will be to work with Greg Hayes to drive our combined innovative technologies into business solutions for our customers. My focus has always been to make sure we are taking our best technology, accelerating it to the businesses, and embedding it in our advanced products while making these innovative solutions relevant to our customers. A key priority for me at the future Raytheon Technologies will be to deliver technology synergies and drive technology improvements across all of our businesses and products. Before concluding, I would like to take a moment to briefly touch on the U.S. defense budget. As most of you know, we are again operating under a continuing resolution through November 21st, and our guidance has taken this into account. We encourage lawmakers to work swiftly to get the defense appropriations bill enacted and before the end of the calendar year. This is in the best interest of our customers and industry. Bottom line, the company's performance is strong. We're well aligned with the advanced technology needs of our customers, and we have the opportunity to shape the future of aerospace and defense with our proposed merger. I want to thank the Raytheon team worldwide for helping secure this strong position for our company, customers, and shareholders. And let me turn it over to Toby.