RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies First Quarter 2020 Earnings Conference Call. My name is Ashley, and I'll 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 of Investor Relations. Please proceed.

Good morning, and welcome to the Raytheon Technologies First Quarter 2020 Earnings Conference Call. With me on the call today are Greg Hayes, our Chief Executive Officer, Toby O'Brien, our Chief Financial Officer, and Neil Mitchell, Corporate Vice President, Financial Planning and Analysis and Investor Relations. This call is being carried live on the Internet, and there is a presentation available for download from Raytheon Technologies' website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring costs and other significant items of a non-recurring and or non-operational nature, often referred to by management as other significant items. Before we get started, just a few comments on the structure of the business and our leadership team. Concurrent with the merger, we realigned the segments to create four industry-leading businesses, Raytheon Intelligence and Space, led by Roy Azevedo, is a combination of the legacy Raytheon intelligence information and services and space and airborne system segments. The second, Raytheon Missiles and Defense, led by Wes Kramer, is the combination of the legacy Raytheon missile systems and integrated defense systems. Third is our Collins Aerospace business, which is now led by Steve Timm. And finally, Pratt & Whitney, which is led by Chris Calio. When we speak to Raytheon Technologies' overall results for the first quarter, we will be referring to United Technologies standalone, including Carrier and Otis, while speaking to Raytheon Company's company-level results separately. At the legacy Raytheon Company business unit level, we will be speaking to each segment on a pro forma basis as the go-forward Raytheon Technologies businesses. 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. RTC's SEC filings, including its 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. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Greg.

Okay, thanks, Kelsey, and good morning, everyone. So just a few things going on, and I recognize this is a It's a little bit confusing, but before we get started, let me just – one logistical item to cover here. So everybody knows we completed the spins of Carrier and Otis on the 3rd of April concurrent with the merger with Raytheon, which created Raytheon Technologies. But since the transaction occurred right after the close of the first quarter, the Carrier and Otis results are, of course, included in our numbers for Q1. However, we're not going to discuss that today because they're going to be holding their own earnings calls later today and then again tomorrow morning for Carrier. So our commentary today is going to only cover the new Raytheon Technologies, which of course is simply a focused A&D company. So with that, if you turn to slide two in the webcast, let me just begin my remarks by talking about the COVID-19 pandemic and what we're doing to fight or help in the war on the pandemic. First, let me just thank our team, and particularly those on the production lines who are supporting our customers worldwide. I also hope that you and your families are safe. To put this in perspective, we have about 195,000 employees at Raytheon Technologies. Roughly 95,000 of those folks are working from home today, and the other 100,000 are coming to either the office or to the factories to support our customers. And again, I think just to keep in mind, our top priority is to ensure the health welfare, and safety of all of our employees. And so we're focused on making sure we're doing everything we can and to implement best practices. We're, of course, deep cleaning our facilities daily between shifts. We're temperature scanning our employees upon entry. We're rotating shifts for social distancing and providing appropriate personal protective equipment for employees that can't work from home. Preliminary cost of that is going to be about 8 to 10 cents for the year. Most of those costs will be incurred throughout the rest of the year. It's a necessary expense, however, to ensure the safety of our folks. Maintaining business continuity is also essential in order to support our commercial and defense customers during this time, as we always do. We'll continue to serve our customers with mission-critical products and services in the U.S. and internationally, and importantly, help them rebound when this is over. To support the frontline workers, we have donated nearly 1.5 million pieces of PPE to healthcare professionals and first responders globally. We're also using our 3D printing capabilities to manufacture 20,000 face shields per month, and we're working with suppliers to provide parts to support production of ventilators. In fact, our business in the UK and our business in Canada have actually come up with designs of ventilators, and we're working with local governments to begin manufacturing. Supply chain stability, of course, is also top of mind. We've engaged with thousands of our small business suppliers to support them, including disseminating relevant COVID-19 information and working with them to enhance and make processes more efficient. In terms of the impact on the business, the pandemic has led to unprecedented economic uncertainty and, of course, a huge slowdown in commercial aerospace. While both standalone UTC and Raytheon began the year with a strong start, it's clear the rest of the year is going to be under significant pressure as a result of the pandemic. Notwithstanding those challenges, however, we expect the rest of the year Raytheon Technologies continues to be well positioned to deliver value over the long term. At the same time, we're going to take immediate and necessary actions to reduce cost and to ensure we maintain a position of financial strength and market leadership so that we can emerge from this crisis stronger. To that end, we're taking about $2 billion of cost reduction actions and about $4 billion of cash conservation actions on the commercial aerospace side. And we'll discuss this in further detail in the next few slides. Okay, turning to slide three. I want to underline why this merger is even more important given the environment we face. As the world's most advanced A&D systems provider, our portfolio is balanced and diversified against commercial aerospace and defense, as well as across geographies. This enables us to be resilient across business and economic cycles, evidenced by strong Q1 defense bookings and a record defense backlog of over $70 billion at a time when commercial aerospace is facing severe headwinds. Interestingly, Raytheon had a great first quarter, booked a bill 1.44, and came into the merger with $50 billion of backlog. The legacy UTC aero businesses had about $20 billion of defense backlog, so stronger together, clearly. Our key defense franchises are also well-funded. Most importantly, we're well aligned with the National Defense Strategy, which is expected to shape future DoD budgets. And when the aviation market and passenger traffic rebound, and they will, we will be even better positioned to deliver solid growth. Additionally, the scale and complementary nature of our combined businesses allows us to continue to invest for breakthrough technologies for our customers. as well as identify opportunities for technology revenue synergies. With that, just a few highlights from our four industry leading segments. Let me start with Collins Aerospace. So Collins saw continued capture of synergies in the first quarter with nearly $60 million, and that's on top of the $300 million we realized last year. Collins remains on track to achieve about $600 million of cost synergies. That's from the UTC's acquisition of Rockwell Collins in late 2018. Collins is particularly well-suited with its air management interiors business to also provide solutions to the airline industry to further enhance passenger health and safety. At Pratt, the GTF engine program achieved two significant milestones, as the first in-service GTF engine exceeded 10,000 service hours, and more importantly, the program reached 5 million revenue flight hours across the combined GTF-powered fleet. Importantly, also at Pratt, the Joint Strike Fighter Program delivered the 500th production aircraft. We're just getting started with both of these programs. Great future. At Raytheon Intelligence and Space during the quarter, the U.S. Air Force awarded RIS the Force Element Terminal Development Program. That's expanding our family of advanced beyond-light-of-sight terminal, or FABT, franchise to modernize and secure communication terminals on both the B-52 and the RC-135 aircraft. Finally, our missiles and defense business put over $2 billion on the standard missile 3-1B multi-year during the quarter. Shortly after the quarter closed, RMD was also selected by the U.S. Air Force to develop the long-range standoff weapon, a strategic weapon that will replace the service's legacy air-launched cruise missile. That's a great, great achievement for the company. This franchise will be worth approximately $10 billion over its lifetime. I think the most important takeaway, though, is each of these businesses is a leader in their respective markets and are all well-positioned to generate significant value over the long term by combining technologies to generate revenue synergies across all of our businesses. Okay, slide four. Fundamental to our success is the strength of our financial profile. And let me be clear, the balance sheet is strong and our liquidity position is solid. Following the merger, we had about $8.5 billion of cash. net debt of about $25 billion, and a solid investment-grade credit rating. Combine these with a $5 billion revolver and a new $2 billion revolving credit facility, and we have plenty of financial flexibility. That's before an additional $2 billion or so of proceeds from the previously announced divestitures, the majority of which are anticipated in the second half of the year. And as I mentioned earlier, we're taking immediate actions to reduce costs by $2 billion and preserve liquidity with $4 billion of cash actions. We're reducing capital expenditures and investments. We've deferred merit increases across the commercial businesses, and we're cutting discretionary spending, just to name a few. While many of these measures have been difficult, it is the right thing to do for the business. We're also on track to deliver the billion dollars in gross cost synergies that we committed to when we announced the merger last June. We've got a strong execution track record and an excellent playbook from Rockwell Collins and Goodrich Acquisitions. And after months of integration plannings, our teams are working seamlessly as one company, and we're already executing on the detailed work plans to drive our synergy commitments. Regarding shareowner returns, as you might expect, we will not be repurchasing shares this year given the current environment. However, we do remain committed to return significant capital to shareholders. As a result, the return of the $18 to $20 billion that we outlined last June will more likely take place over a four-year versus a three-year time frame. We also remain committed to the dividend, which our board approved last week, and we have sufficient cash and liquidity to maintain a competitive dividend even in this very difficult environment. Finally, before I turn it over to Toby to take you through the results, let me make a comment on how we're thinking about our outlook. Given all the uncertainty in our commercial aero business, we're not going to provide a Raytheon Technologies outlook at this time for 2020. Toby will give you some important information on how we're thinking about the business, and we'll be back later in the year to provide more color as the situation continues to evolve. With that, let me turn it over to Toby to take you through the first quarter results.