RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Fourth Quarter 2021 Earnings Conference Call. My name is Lisa, 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, Neal 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, excluding acquisition, accounting adjustments, and 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 the call are subject to risk and uncertainty. RTC's SEC filings, including its Form 8-K, 10-Q, and 10-K 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, please 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.

All right. Thank you, Lisa. Good morning, everybody. Happy Tuesday. Okay, 2021 was an important year for Raytheon Technologies as we laid out our strategy at the beginning of last year. And that strategy, of course, is to drive top-line growth, margin expansion, and robust free cash flows through 2025 and beyond, while at the same time continuing to invest in our businesses and returning significant capital to shareholders. Our continued focus on operational excellence and program execution, along with our industry-leading technologies, positions us well to continue to capitalize on the commercial aerospace recovery and to grow our defense franchises. As you saw from our press release this morning, we delivered another solid quarter with strong full-year financial results with both top and bottom line growth and $5 billion of free cash flow. That's more than double of what we delivered in 2020 on a pro forma basis. Our performance in 2021 gives us confidence in the long-term fundamentals of our businesses and and that we're on track to deliver to the 2025 targets that we outlined last May at our investor conference. Before I turn to the highlights, let me first provide some comments on the current market environment. During the quarter, commercial air traffic remained resilient despite the Omicron variant, with global available seat miles, ASMs, growing about 1% sequentially in Q4. That's reflecting a continued recovery in air traffic despite the typical seasonal trends. Here in the US, passenger traffic through TSA checkpoints also remained steady at about 1.9 million passengers per day. That's up almost 125% versus the fourth quarter of 2020, a remarkable recovery. On the defense side, we're pleased to see the president sign the bipartisan defense authorization bill into law at $740 billion. That's about $25 billion higher than the original presidential request. And given the global threat environment, we continue to see strong demand internationally for our products and services. Our focused aerospace and defense portfolio, along with our $156 billion backlog, gives us confidence in our ability to grow the business in 2022 and beyond. Okay, turning to slide two, some highlights from the fourth quarter. As I said, we delivered strong financial performance in 21. Organic sales grew 1%, which is in line with our expectations. While adjusted, EPS and free cash flow for the year were both above our initial expectations. And importantly, we saw margin expansion in all four of our businesses, with strong commercial aftermarket. Our defense backlog remained robust at over $63 billion, where RIS and RMD both ended the year with book-to-bills slightly above 1.0. In addition to several large awards earlier in the year, we also had several notable awards during the fourth quarter, including over $1.3 billion in classified bookings, plus over $670 million for the Electro-Optical-Infrared Awards at RIS, as well as $730 million in Standard Missile II Production Awards at RMD. We also remain focused on operational excellence and program execution to drive structural cost reduction and productivity in our operations. In 2021, we achieved about $760 million in incremental cost synergies from the RTX merger, bringing us to over $1 billion since the completion of the merger in April of 2020. That meets our original merger cost synergy target two years ahead of schedule, and there's always, of course, more to come and more to do there. It's also worth noting that the Collins Aerospace team achieved over $600 million in total Rockwell Collins synergies since the acquisition in November of 2018. They're meeting their commitment a year ahead of schedule, despite the significant downturn in our commercial aerospace business. We also continue to fine-tune our portfolio during the year. As you know, we completed the acquisition of Seeker Engineering and FlightAware, which will expand and enhance our capabilities in key growth areas. And we completed the divestitures of Forcepointe, And in December, we completed the sale of RIS's global training and services business. On the capital allocation front, we returned $5.3 billion to shareholders in 21 for a total of $7.4 billion since we closed down the merger, well on track to the $20 billion plus that we've committed to in the first four years after the merger. As you saw in December, our board of directors also authorized a $6 billion share repurchase program positioning us to continue returning significant capital to shareholders, including at least $2.5 billion of repurchases that we expect to complete in 2022. In addition to our strong financial performance during the year, we also achieved several notable strategic and operational milestones that I'd like to highlight. Let me start with Collins Aerospace. The business completed more than 750 lean events in 2021. By utilizing our best practices from our core operating system, the team was able to reduce labor content on the F-18 heat exchanger by over 30%, reducing cost and, importantly, creating capacity to support increased demand. At Pratt, the team introduced the GTF Advantage engine, which reduces fuel consumption and CO2 emissions by a total of 17% compared to the prior generation engines. It extends the GTS lead as the most efficient power plant for the A320neo family. The engine will also be compatible with 100% sustainable aviation fuels, supporting the aviation industry's goal to significantly reduce emissions in the coming decades. At both RIS and RMD, they achieved significant program milestones in the quarter, ahead of schedule. Through strong program execution at RIS, the Joint Precision Approach and Landing System Program completed delivery on the first LRIP units 60 days ahead of schedule. This achievement has given the Navy the confidence to certify J-PALs on the CVN carrier and two amphibious ship classes. Our MD team also successfully completed the initial integration of the SPY-6 radar and the USS Jack Lucas in the quarter. This was the first time power was simultaneously applied to the entire radar system, completing a critical milestone for integration of the ship, its combat system, and the SPY-6 radar. So with that, let me turn it over to Neil, and then I'll come back at the end for a wrap-up and Q&A.

Neil? Thanks, Greg. I'm on slide three. I'm pleased with how we finished the year, as well as our performance in the quarter, where we continue to see solid growth in organic sales, adjusted earnings per share, and free cash flow. Sales of $17 billion were in line with our expectations and were up 4% organically versus prior year on an adjusted basis. Our performance was primarily driven by the continued recovery of domestic short-haul and international air travel, partially offset by continued supply chain pressures and lower 787 OE volume. It's worth noting that the global training and services divestiture at RIS closed in early December, resulting in a sales headwind of about $100 million versus our prior outlook. Adjusted earnings per share of $1.08 was ahead of our expectations, primarily driven by commercial aftermarket strength at both Collins and Pratt, as well as favorability in our effective tax rate. On a GAAP basis, EPS from continuing operations was 46 cents per share and included 62 cents of acquisition accounting adjustments and net significant and or non-recurring items. And finally, free cash flow of $2.2 billion was in line with our expectations and resulted in full-year free cash flow of $5 billion, which was $500 million better than our expectations at the beginning of the year, primarily driven by higher net income and lower CapEx. With that, Let me hand it over to Jennifer to take you through the segment results, and I'll come back and share our thoughts on 2022. Jennifer?