RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon's fourth 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 go ahead.

Thank you, De Tamara. Good morning, everyone. Thank you for joining us today on our fourth 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 had a very successful year in 2019, and our global growth strategy is delivering record results for our shareholders and customers. We had many highlights and set many company records. So let me start by touching on some of our financial results. In 2019, we continue to see strong global demand for innovative solutions, illustrated by our book-to-bill ratio of 1.54 in the fourth quarter and 1.25 for the full year. And for the third time in 2019, we achieved record backlog, which rose to almost $49 billion at the end of the year. This drove an increase in backlog of more than $6 billion year over year. We're up 15%, and it positions us well for the future. Sales are up 6.5% in the fourth quarter and 7.8% for the full year. And in 2019, we accelerated our sales growth for the fifth time since 2015. This year in a new company record for annual sales of $29 billion. EPF exceeded our expectations for the quarter and for the year. Cash flow was better than we expected. And we achieved a new company record for operating cash flow for the full year. Toby will review additional details about the fourth quarter and our 2020 outlook in a few minutes. Now, with all of our successes in 2019, I wanted to share what I see as some of Raytheon's key milestones during the year, successes from across the company that will drive future growth. First, let me highlight the strength of both our classified business and our international business. In 2019, we achieved record classified bookings for the full year of almost $8 billion, and we saw strong classified bookings across the businesses. including $2.8 billion at both missiles and IIS and $2.1 billion at SAS. Raytheon also had record classified sales, which grew 15% versus 2018 and represented 20% of company sales. Our strength in classified is driven in a large part by the need of our domestic customers to address advanced threats as outlined in the National Defense Strategy. As we've said before, Classified Business is crucial for Raytheon's growth and success. It funds next-generation technology development that is integral to the long-term growth of our future franchises and production awards. We also achieved company records in our international business, with both international bookings and sales at record levels for the year. International sales were $8.6 billion for the year, and year over year international sales have now increased for 16 consecutive years. Turning to our franchises, we further strengthen many of them in 2019 to be long term value generators for years and decades to come. The newest example of this is our clean sheet offering for the US Army's next generation air and missile defense radar. In October, we were pleased to be selected 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 of over $20 billion from sales to domestic and international customers. LTAMs will operate on the Army's integrated air and missile defense network. Our Patriot franchise continued its momentum with the Kingdom of Bahrain signing an agreement in August to purchase Patriot. This letter of offer and acceptance allows the US government to begin contract negotiations with our Patriot team. Bahrain is the 17th nation to procure Patriot. With the US approval, all 17 of these Patriot partners will have the opportunity to add the LTAM's capability 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 LTN's radar also opens up a market for standalone forward deployed applications. Our Patriot system fires multiple interceptors, including our guidance enhanced missiles or Gen T's. And during the fourth quarter, we booked over $700 million on a direct commercial contract to provide Gen T missiles for an international customer. Demand for integrated air and missile defense solutions is also furthering growth in our NASAMS franchise, a mid-range solution jointly manufactured by Raytheon and Collinsburg. In 2019, we added two new countries to the NASAMS family. In May, we booked over $500 million to provide NASAMS for Australia. And in July, we received a $1.8 billion award to provide Qatar with NASAMS. Qatar is the 11th country to procure NASAMS, which uses a Raytheon radar and will be capable of firing multiple interceptors, including our AMRAAM, extended range, and AIM-9X missiles. As a result, NASAMS helps support the growth of additional franchises, AMRAAM and AIM-9X. For AMRAAM, Raytheon is continuing the development of AMRAAM-ER and expanding its capability to support land-based applications. This significantly extends both the range of AMRAAM and the market of the NASAM system. Qatar will be the launch customer of AMRAAM-ER. As part of its procurement of the NASAM system, we expect a foreign military sales contract award from Qatar for AMRAAM-ER in 2021. Our airborne radar franchise was extended in July with our selection as a radar supplier for the B-52 radar modernization program, displacing the incumbent. Under the contract, Raytheon will design, develop, 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 mission-ready through 2050 and beyond. And we continue to see strength across our standard missile franchise, including a multi-year award for SM-6, and then the bundle award for SM3 Block 2A, both of which were booked in December for a total award value of around $3 billion. We still expect a multi-year contract award for another SM3 variant, SM3 Block 1B, worth about $2 billion in the first half of 2020. The endo-atmospheric SM6 delivers a proven, over-the-horizon offensive and defensive capability, and it supports anti-air warfare, anti-surface warfare, and sea-based terminal ballistic missile defense in one solution. And the next generation SM-3 Block IIA interceptor defeats missile threats outside the Earth's atmosphere and is produced in cooperation with Japan. With the recent and expected awards for our standard missile product lines, we have production visibility until at least 2026. Both the SM-3 Block IIA N1B are integral to MDA's position in missile defense. This month, after the quarter closed, IIS was selected by the U.S. Air Force to develop the Future Operationally Resilient Ground Evolution Program, also known as FORGE. This newly developed open framework will be capable of processing overhead persistent infrared satellite data from both the U.S. Air Force's evolving SIBRS constellation and the future next gen OPIR constellation for missile warning. Also in January, we were awarded the force element terminal by the US Air Force, which extends our protected communications franchise at SAS. Finally, one of our most notable highlights of 2019 was announcing our transformational merger of equals with United Technologies. These two industry leading companies will create one of the best position aerospace and defense companies. Raytheon Technologies will have a diversified, platform-agnostic suite of offerings that are balanced across end markets, which is a key differentiator through business cycles. A combined company will also have a vast global footprint. By combining our complementary technologies, we can go after and win an increased number of new franchises. We expect the revenue synergy opportunities from our combined technologies to continue to be value generators for decades to come. positioning the company to increase market share and outgrow the aerospace and defense markets. Migration planning for the merger is progressing well, and the merger is targeted to close early in the second quarter of 2020. As we start the new year, we feel optimistic about the future and our ability to continue to grow both domestically and internationally. We are pleased with the fiscal year 20 appropriations bill enacted in December, with our Raytheon programs faring well and the DoD modernization account up versus fiscal year 19. The fiscal year 21 Budget Control Act caps were increased last year, so we have top line certainty and includes a modest increase in the DoD base budget. Perhaps best of all, fiscal year 21 is the last year of the BCA. Bottom line, we have a strong foundation for the future. And this was recognized last week in Fortune Magazine's annual survey. Raytheon was ranked the number one company in the aerospace and defense industry in the 2020 study of the world's most admired companies. And this included number one rankings in key attribute categories, such as innovation, financial soundness, global competitiveness, and social responsibility. Let me close by thanking all the members of the Raytheon team worldwide. When I think about our many successes in 2019, I do so with deep appreciation for my dedicated colleagues who made it possible. They are the ones helping the company grow and meet its commitments, the ones creating value for our shareholders, and the ones providing the trusted, innovative solutions our customers depend upon. Given the expected timing of the merger's close, this could well be the last earnings call for me and for the Raytheon Company. For nearly 100 years, this company has provided mission-critical technologies to our customers, supported a diverse and engaged workforce, and has been a good corporate citizen. That legacy, built on a foundation of trust, respect, collaboration, innovation, and accountability, will continue. And we are excited to redefine the future of the aerospace and defense industry as Raytheon Technologies. With that, let me turn the call over to Tony.