RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Third Quarter 2021 Earnings Conference Call. My name is Misty, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer, Neil Mitchell, Chief Financial Officer, and Jennifer Reed, Vice President of 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, including acquisition accounting adjustments and net non-recurring and or significant items, often referred to by management as other significant items. 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 risk and uncertainties. RTC's SEC filings, including its forms 8K, 10Q, and 10K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statement. 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. To ask a question, you will need to press star one on your telephone. To remove yourself from the queue, press the pound key. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Hayes.

Well, thank you, Misty, and good morning, everyone. As you saw from our press release this morning, we delivered another solid quarter. A few comments before I turn to the highlights. We continue to feel good about the long-term fundamentals of our business and our ability to drive growth and margin expansion over the next several years. During the quarter, we made great progress on cost reduction, driving operational excellence through our businesses, and achieved some notable milestones, which we'll touch on in just a moment. From a market perspective, commercial air traffic continued to recover, despite some regional impacts from the COVID variants. Global ASMs, or available seat miles, estimated to have grown about 30% sequentially in Q3. And here in the U.S., passenger traffic through TSA checkpoints averaged about 1.9 million travelers per day in Q3. That's up from about 1.6 million per day in Q2. International borders, as we know, are starting to reopen, and that's another positive. And on the defense side, the fiscal year 22 budget request was in line with our expectations. And as we've said, defense spending is nonpartisan, and we're encouraged to see Congress supporting plus-ups to the president's budget that are also aligned to our business and our investments in new technologies. Overall, we continue to be cautiously optimistic on both the commercial and defense trends that we're seeing. Okay, let's move to slide two, some highlights from the quarter. Adjusted EPS exceeded our expectations. Free cash flow was in line with what we expected. And we delivered another quarter of top and bottom line growth on both a year-over-year and a sequential basis. As we capitalized on the commercial aftermarket recovery, and our defense portfolio continues to grow. Based on our strong performance year-to-date, we're again increasing and tightening our adjusted EPS outlook for the year to $4.10 to $4.20 a share. That's up from our prior outlook of $3.85 to $4.00. Neil Mitchell will get you into the details on sales and free cash flow, where we're also tightening our outlook in both areas. On the capital allocation front, we repurchased about $1 billion of RTX shares during the quarter, bringing our total for the year to $2 billion, which was our commitment that we talked about back in Q2. Before I turn it over to Neil, Couple more details on our results. Let me cover some strategic and operational highlights for the quarter where we continue to execute on our key programs. Starting with strategic highlights, we denounced the acquisition of FlightAware, which will become a significant accelerator for Collins connected ecosystem strategy and enhances our capabilities and growth areas like aviation network services, digital solutions and airspace modernization. And we're organizing our business around optimizing these capabilities within Collins Aerospace. We also announced the acquisition of Seeker Engineering, a leading provider of advanced space electronic solutions. Seeker strengthens our offerings to solve our customers' most complex problems by expanding our space-based capabilities. With the integration of Blue Canyon, this also enhances RIS's competitiveness and reliability of satellite bus hardware and customized space electronics. At the same time, we continue to divest non-core businesses. During the quarter, we announced an agreement to divest of our global training and services business, which is part of RIS. On the operational side, the Missiles and Defense Team and their industry partners successfully completed the first test of a scramjet-powered hypersonic air-breathing weapon concept, or HAWC, for DARPA and the U.S. Air Force. The HAWC successfully sustained hypersonic speeds, offering faster time on target and greater maneuverability. The successful test puts us on track to deliver a prototype system to the U.S. Department of Defense. And lastly, at Pratt, the Columbus forge disk business continues to integrate critical operations to drive further quality, performance, and cost reduction. Utilizing our core operating system tools, the team in Columbus reduced the lead time of forgings by up to 35 days and reduced both cost and inventory. As you can see, driving operational excellence through our organization is a key to our success over the long term. With that, let me turn it over to Neil to take you through the quarter in detail.

Neil? Thanks, Greg. I'm on slide three. So I'm pleased with our performance in the quarter, where we saw strong year-over-year sales growth, adjusted earnings growth, and free cash flow. Sales of $16.2 billion were up 10% organically versus prior year on an adjusted basis. Our performance was driven by the continued recovery of domestic and short-haul international air travel and continued growth in defense. That was partially offset by some supply chain pressures and lower 787 OE volume. And while we expect these headwinds to continue in the near term, we only see this as a timing issue. Nonetheless, we remain focused on our cost actions and program execution to drive continued earnings and cash flow growth. Adjusted earnings per share of $1.26 was ahead of our expectations, primarily driven by Collins, Pratt, and some corporate items. On a GAAP basis, EPS from continuing operations was 93 cents per share and included 33 cents of acquisition accounting adjustments and net significant and or non-recurring items. It's worth noting that both GAAP and adjusted earnings per share benefited from about 16 cents of lower tax expense related to previously disclosed actions we took to optimize the company's legal entity and operating structure in the quarter, as well as pension-related benefit that was worth about five cents. Free cash flow of $1.5 billion was in line with our expectations, keeping us on track for the full year. Before I hand it over to Jennifer, let me give you a little color on our synergy progress. During the quarter, we achieved about $165 million of incremental merger gross cost synergies. And given our strong performance, we are again increasing our 2021 target and now expect to achieve over 700 million of cost synergies this year. This will bring us to nearly $1 billion in cumulative gross cost synergies since the merger. And we're well on our way to meeting our $1.5 billion commitment. So with that, let me hand it over to Jennifer to take you through the segment results.