RTX Corporation

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies first quarter 2023 earnings conference call. My name is Lateef, 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, Chris Calio, President and Chief Operating Officer, Neal Mitchell, Chief Financial Officer, and Jennifer Reed, Vice President of Investor Relations. This call is being webcast 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 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. Raytheon Technologies 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 four 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 1-1 on your telephone. 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, Lateef, and good morning, everyone. I trust everyone's had a chance to see the press release. It was clearly a good start to the year for RTX, and demand remains strong for both our commercial aerospace and our defense businesses. And I think importantly, we're seeing some stabilization in the supply chain. Before we get to the highlights for the quarter, let me just spend a Domestic revenue passenger miles are now back to pre-pandemic levels, 2019 levels, as we exit March. This is led by a very strong rebound in China following their zero COVID policy reversal. On the international front, we have seen continued improvement in RPMs, reaching nearly 80% of 2019 levels. With strong consumer demand and record advanced booking, we expect total global air traffic to fully recover to 2019 levels as we exit the year. On the defense side, we're very encouraged by the President's most recent fiscal year 24 budget request of $886 billion. That's up about 3%. And that's on top of last year's nearly 10% top-line budget increase. The proposed budget includes broad-based support for many of our key programs, technologies, and capabilities, including a request to fund multi-year munitions purchases for AMRAAM. It also prioritizes HACM, that's the hypersonic attack cruise missile, as the future long-range hypersonic missile. And perhaps most importantly for us, the budget reflects the DoD's decision to move forward with the engine core upgrade for the F-135 engine. which we believe is a win for both the warfighter and the taxpayer. This program will solidify Pratt & Whitney's position on the F-35 and will provide additional thrust, range, and efficiency necessary to support the needs of the warfighter well into the next decade. Looking internationally, we're also seeing strong demand for defense capabilities as our allies prioritize additional defense spending. Poland recently announced plans to spend 4% of their GDP on defense this year. That's the highest level across all the NATO countries. And we continue to support Ukraine's ongoing needs, including the Pentagon's accelerated deployment of the Patriot missile defense system, adding another RTX capability to the Ukraine mission. Clearly, the demand environment remains strong across our end markets. And with that as a backdrop, let's turn to slide two for the Q1 highlights. Importantly, we exited the quarter with a record backlog of $180 billion. This included over $20 billion of new awards from some of our key franchises in the quarter. As an example, RMD received a $1.2 billion award for Patriot for Switzerland. That marks the 18th Patriot Partner Nation. RIS was awarded $1.9 billion in classified awards. We also delivered solid financial performance with strong year-over-year organic sales growth of 10% and adjusted EPS of $1.22. Regarding free cash flow, we started the year slowly due to some timing of higher working capital, which Neil will talk to you about in a bit. Importantly, though, we remained confident in our full-year outlook of about $4.8 billion of free cash flow. As expected, sales growth was led by commercial aerospace, with aftermarket up close to 20% and OEM shipments up close to 17% year over year. Additionally, in the quarter, we achieved an incremental $50 million of gross merger cost synergies, and we are quickly approaching the $1.5 billion target, with more opportunities still ahead. On the capital allocation front, we repurchased more than $560 million of our shares in the quarter, and we remain on track for $3 billion of share repurchases for 2023. And as you saw yesterday, we increased our dividend over 7% from $0.55 to $0.59 a share in line with our commitment to return at least $20 billion to shareholders in the four years following the merger. We've done all this while continuing to invest in R&D, additional capacity, automation, and the digitization of our production facilities in order to support our growing backlog. As you can see, we're extremely well positioned for growth this year and well into the future. Every day, we're furthering our integration to unlock the scale and breadth of RTX, all while driving additional technology synergies and a focus on operational performance. With that, let me turn it over to Mr. Caglio to talk about the progress we're making in regard to our business realignment, and I'll be back at the end for a wrap-up and Q&A. Chris?

Well, thank you, Greg, and good morning, everybody. I'm on slide three. As you know, we announced back in January our plan to realign our portfolio into three business units, Collins Aerospace, Raytheon, and Pratt & Whitney. And as we said, this realignment has three primary objectives. The first is to better align our market-leading franchises with our customers' priorities, ensuring more effective coordination and collaboration across our businesses. The second is to enhance our performance and capture additional synergies from both a product and technology standpoint. And third, to better leverage our resources to optimize our investments and cost structure. So let me update you on where we are in the process. After continued internal analysis and customer engagement, we've determined the major content shifts within our portfolio necessary to achieve these objectives. First, the multi-domain command and control solutions of RIS and R&D will transition to the Mission Systems Strategic Business Unit within Collins. This will create a more focused business to support connected battle space opportunities. Additionally, RIS's air traffic management business will be integrated into Collins' Connected Aviation Solutions strategic business unit, further consolidating what we call the connected ecosystem of flight data and management into one business. These two moves will put Collins at the center of our company-wide collaboration efforts. They will now be responsible for more than half of our revenue synergy projects. In parallel, we will move Collins' intelligence, surveillance, and reconnaissance business to the new Raytheon business unit, combining complementary sensing and imaging technologies to improve our offerings for multiple customer applications. And lastly, the new Raytheon business will merge the remaining RIS and RMD businesses into strategic business units aligned around specific customers, such as the Air Force, Army, Navy, Space, and Missile Defense. When this is complete, the top customer of each of these strategic business units will account for 70% or more of that business unit's sales. In addition, we'll establish a strategic business unit that will operate like a merchant supplier within the Raytheon business unit. We'll centralize components and subsystems that are sold internally, as well as to a broad array of government, commercial, and other prime customers, enabling us to sell more effectively into these channels. As part of this realignment, we're pleased to announce that the new Raytheon business unit will be led by Wes Kramer, currently the president of RMD. Wes has over 20 years of experience across multiple businesses and product lines within Raytheon, and is uniquely qualified to lead this business. We are now in the middle of the implementation phase, including our analysis and validation of targeted gross cost savings. We provide more details on the new design and the implementation status, including those savings, at our investor meeting at the Paris Airshow. So overall, good progress thus far, as we remain focused on our goal to operate under the new structure beginning in July. With that, let's move to slide four, and I'll provide an update on the current environment. In general, not a lot has changed since we spoke back in January, and demand remains strong across our end markets. On the event side, as Greg mentioned up front, some of the awards we received in the quarter in our record backlog. On the commercial side, we saw strong aftermarket growth in the quarter as airlines were preparing to support the busy summer travel season. With air traffic increasing and retirements remaining very low, we continue to see strength in parts, repair, provisioning, and maintenance across our end markets. Given this demand, Our focus remains on ensuring we have the capacity, supply chain performance, and operational excellence necessary to meet our commitments to customers. So let me start and provide some color on capacity. At RMD, we continue to invest in new test equipment, tooling, and automation at our Tucson, Andover, and Huntsville facilities to support the ramp-up on key programs such as AMRAAM, Stormbreaker, SM3, SM6, and Patriot GemTee. At Pratt's Asheville, North Carolina, turbine airfoil site, we now have 63% of machining production assets on site and are progressing towards first article inspection by the end of May. On our way to improving productivity and cost in support of the high-volume GTF and F-135 programs. While in Tucson, we recently completed a classified space conversion, bringing our total number of classified seats added over the past two years to almost 1,000 seats. with the expectation of an additional 900 more by the end of 23. This will create the classified lab capacity for RMD to execute on recent development wins such as HACM, HALO, and NGI. Furthermore, we are expanding our MRO network. This past quarter, two new facilities joined the GTF aftermarket network, a second MRO shop in Japan, and a 155,000 square foot shop at Delta Airlines TechOps in Atlanta. We, of course, also remain very focused on the health of the supply chain, which continues to be a challenge from a performance and cost perspective. Starting with performance, while we have experienced stabilization in certain areas, such as electronics, we continue to experience challenges in castings, forgings, raw materials, and machining. Now, you've heard us talk before about our in-person support embedded in our supplier sites, and that continues to increase. Today, we are present at more than 400 suppliers where they focus on high-impact locations. specific to defense we have significantly increased on-site support in the last quarter allowing us to help clear bottlenecks better execute engineering and quality initiatives and provide improved overall visibility and at rmd this helped yield a five percent improvement in material receipts year over year enabling increased flow through our factories additionally we held an rtx supplier conference just a few weeks ago where we engaged with about 70 key suppliers to review detailed action plans to ensure future capacity and to reduce current overdue positions. On the cost side, the overall inflation picture remains persistently high, and we are attacking those inflationary pressures from several angles. We have almost 2,000 cost reduction projects ongoing related to our supply chain, both product and non-product, including negotiating better contractual terms, transitioning work to lower-cost sources, and part redesigns to reduce costs. We're also going deeper into our supply chain to better understand their usage of constrained raw materials, such as aluminum, titanium, and nickel, so we can get a complete picture of our embedded spend and to leverage total raw material purchases, drive improved cost positions, and secure supply throughout our value stream. And lastly, we continue to leverage our core operating system to execute on our cost reduction initiatives, as well as footprint modernization. As we've previously talked about, we have thousands of ongoing projects, many of which are at the manufacturing line or cell level, to take costs out of our operations. These range from things like redesigning material and machining flow to reduce labor hours and cycle time, to implementing closed-door machining to enable the completion of a part in one continuous process without any operator intervention. But these are relatively small initiatives with short paybacks. They are part of a continuous commitment to improvement and efficiency. So before I turn it over to Neil to recap the financials, I do want to provide a brief update on the GTF program. As you know, since the GTF program went into service in 2015, we have continued to introduce upgrades and improvements to increase reliability and durability. Respect to reliability, we have met the target level for dispatch reliability. This is now at mature engine levels. Respect to durability, we have improved time on wing since program inception. Again, time on wing, meaning how long engines can be operated before needing to be removed for maintenance. But we are not yet at the level we and our customers expect. This has put stress on the operations of the fleet. We continue to develop upgrades to the current GTF configuration to improve durability. We are also expanding our MRO capacity and working to reduce shop visit turnaround times to improve service availability. It will take some time to realize these benefits, but we are continuing to invest in time on wing improvements, as we were able to do over the course of the V2500 program. And, of course, in parallel, we continue to execute on our GTF Advantage Development Program, our next generation GTF configuration. It will incorporate all of our experiences and technical learnings since entry into service. Okay, with that, let me turn it over to Neil to walk through our financial results.