RTX Corporation

Good day, ladies and gentlemen. Welcome to the Raytheon Technologies First Quarter 2022 Earnings Conference Call. My name is Ludi, 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 the 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 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 forward-looking statements provided in this call are subject to risks 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 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. 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 now turn the call over to Mr. Hayes.

Thank you, Ludi, and good morning, everybody. Before I get into the results, I just want to spend a minute to address the Russian invasion of Ukraine. I know it's first and center on everybody's mind. It's obviously been devastating to see these tragic events unfold and our thoughts and prayers are with the Ukrainian people. We of course have ceased all of our business activities with Russia in line with global sanctions, and we were being committed to supporting our allies and ensuring the safety of our people around the world. This event more than any other demonstrates our unique responsibility as a global company entrusted with supporting our customers as they navigate a difficult and complex geopolitical landscape. And we remain focused on honoring that mission. All right, let me turn to the first quarter. As you saw from the press release, we're off to a good start for the year. On the commercial aerospace side, we remain optimistic on the market recovery, despite a slower than expected start to the year due to the impact of Omicron and increased geopolitical tensions. That said, air traffic is rebounding again in many markets around the world. In the U.S., passenger traffic through TSA checkpoints remained steady versus Q4 at about 1.8 million passengers per day in the quarter. But importantly, it averaged over 2 million passengers per day in March, a significant increase last year, and that's nearly 90% of what we saw in 2019. So recovery is in sight. On the defense side, we're very pleased with the enacted 22 DOD budget, and we're encouraged by the President's most recent fiscal 23 budget request of $773 billion. The proposed budget includes broad-based support across our key programs and technology investments in cyber, space, missiles, missile defense systems, and others. And we expect the enacted budget could be even higher to account for inflation and the many unfunded priorities identified by the services. Looking internationally, our allies are also increasingly prioritizing defense spending with a focus on defensive systems, which we are uniquely positioned to support. Resilient commercial air traffic coupled with growing global defense budgets and our strong backlog continue to support our long-term outlook for our businesses and gives us confidence in our ability to drive top-line growth and margin expansion over the next several years. All right, turning to slide two, some highlights for the quarter. As I said, it was a good start to the year despite the impact of Omicron and continued supply chain constraints. Commercial aftermarket remained strong in the quarter, growing 38% from Q1 of last year. We delivered solid financial performance in the quarter where we exceeded our expectations on both adjusted EPS and free cash flow. That said, as a result of ceasing business activities in Russia, we are going to reduce our full-year sales outlook by $750 million to a new range of $67.75 billion to $68.75 billion. However, we are going to hold our adjusted EPS range of $4.60 to $4.80, and we continue to expect free cash flow of about $6 billion for the year. Neil will give you a little more color on this in just a minute. Our defense backlog remained very strong at $62 billion exiting the quarter, and total company backlog was $154 billion. Notable defense awards in the quarter included about $1.2 billion of classified bookings at RMD, including a significant competitive award, as well as $650 million for the SPY-6 full-rate production contract, and RIS booked about $1.1 billion of classified awards. On the capital allocation front, we repurchased $743 million of RTX shares during the quarter, and we remain on track to repurchase at least $2.5 billion of share for the year. Yesterday, of course, you saw we increased our quarterly dividend by nearly 8% from $0.51 per share to $0.55, continuing our long history of growing and paying a dividend. Since completing the merger, we have returned nearly $9 billion to RTX shareholders, And by the end of this year, by the end of 2022, that will be in excess of $13 billion. And, of course, we remain committed to returning at least $20 billion to shareholders in the first four years following the merger. That shouldn't be an issue at all. On the program execution front, we recently delivered the first LTAMS unit into the U.S. Army Test Program. It's an important milestone for what will be a franchise program for RMD. And finally, we launched RTX Ventures to accelerate our pipeline of innovative technologies to drive future growth and seed an ecosystem of groundbreaking technology companies. With that, let me turn it over to Neil, and I'll be back for the wrap-up and Q&A.

Neil? Well, thanks, Greg. I'm on slide three. As Greg noted, we delivered adjusted earnings per share and free cash flow that exceeded our expectations for the quarter. sales of $15.7 billion were in line with our expectations and up 4% organically versus the prior year. Our performance in the quarter was primarily driven by the continued recovery of domestic and short-haul international air travel that was partially offset by continued supply chain constraints across our businesses. Adjusted earnings per share of $1.15 was up 28% year over year and ahead of our expectations, primarily driven by commercial aftermarket at Collins, four cents of commercial OE timing at Pratt, and other corporate items, including lower tax expense, which more than offset the supply chain constraints. On a gap basis, EPS from continuing operations was 74 cents per share and included 41 cents of acquisition accounting adjustments and net significant and or non-recurring items, which included 14 cents of charges associated with the impact of global sanctions on Russia. And free cash flow of $37 million was better than our expectations of an outflow of $500 million, driven primarily by working capital, most notably the timing of collections during the quarter. And finally, let me give you an update on our synergy progress. During the quarter, we achieved incremental gross cost synergies of about $90 million, putting us on track to achieve $335 million of incremental cost synergies for the full year. 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 the rest of 2022. Jennifer?