RTX Corporation

Good day, ladies and gentlemen, and welcome to the RTX First Quarter 2025 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 Chris Calio, President and Chief Executive Officer, Neal Mitchell, Chief Financial Officer, and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the internet and there is a presentation available for download from RTX 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. RTX 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 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. Caglio.

Thank you and good morning, everyone. We're clearly in the middle of a highly dynamic operating environment right now, and we'll, of course, talk about that today. But first, I want to highlight the strong financial and operational performance we delivered in the first quarter. Starting with the top line, we generated 8% organic sales growth. We also drove 120 basis points of segment margin expansion, which included strong contributions from each business segment. And we generated strong free cash flow, an improvement of more than $900 million versus the prior year. On an organic basis, commercial aftermarket sales were up 21%, commercial OE sales were up 3% on a difficult prior year compare, and defense sales were up 4%. Underlying these results is our continued focus on execution and the deployment of our core operating system. Starting with the GTF program, PW1100 MRO output was up 35% year-over-year and 14% sequentially. and we remain on track for over a 30% improvement for the full year. This output is a key enabler for reducing AOGs, which we continue to expect to trend down in the back half of the year. Isothermal forging output also continued to be strong in the quarter after record output last year, up over 10% versus prior year. And our outlook for the fleet management plans remains consistent with our prior comments. Our focus on supply chain also continues to yield results. At Collins, Overdue line items across all suppliers were down over 20% versus the prior year. And at Raytheon, material receipts were up again, marking eight consecutive quarters of year-over-year growth. Also in the quarter, we made significant progress on two future franchises in our innovation pipeline. Pratt received FAA certification for the GTF Advantage, an important milestone for the program. The Advantage incorporates all of the learnings from the first 10 years of the GTF engine and service. We expect it to provide up to two times the time on wing compared to the current engine, and it will enter service with full life LOPs. We remain on track for initial deliveries to Airbus later this year. We're also certifying an upgrade package to incorporate roughly 90 to 95% the GTF Advantage durability improvements into the existing fleet during MRO visits. We're targeting next year to have this package available for customers. And at Raytheon, we have completed the prototyping and development phase of the Lower Tier Air and Missile Defense Sensor, or LTAMS program. LTAMS brings advanced 360-degree performance to the market and more than twice the tracking range compared to the existing Patriot radar system, enhancing protection against complex threat scenarios, including large quantities of unmanned aircraft systems and hypersonic weapons. LTAMS can be integrated with battle-tested, industry-leading capabilities of Patriot, which is the backbone of air and missile defense for 19 partner countries around the world. LSAMS will now transition into the production and deployment phase with continued deliveries to the U.S. this year and next, followed by deliveries to European customers. So overall, we've made good progress in the quarter on multiple fronts, and we're pleased with our performance. Okay, let me turn to the operating environment and our current thinking on tariffs. which we have outlined in terms of potential direct impacts on slide four. Generally speaking, the aerospace and defense sector has operated a duty-free environment, and that has been instrumental to the industry maintaining one of the largest trade surpluses across American manufacturing industries for decades. Our industrial base is largely located in the US, including about 70% of our employees and the majority of our total labor manufacturing hours. And on the supply chain side, About 65% of our product spend is with U.S. suppliers. We also continue to invest in our U.S. industrial base. Over the last five years, we've invested nearly $10 billion to enhance our domestic manufacturing footprint and capabilities. And this year, we're planning another $2 billion of investment to further increase our U.S. capacity. For example, in the first quarter, Raytheon completed a $60 million expansion project in Tucson, Arizona which will significantly increase capacity to support growing effector demand. And this year, Pratt has kicked off a $285 million investment to expand our foundry in Asheville, North Carolina. This is part of our broader turbine airfoil production strategy to support growing demand and to maintain a competitive cost structure. Combined, this industrial base and significant investment supports our position as a net exporter of goods out of the U.S. with exports exceeding imports by over $12 billion last year. But like many companies in the industry, our supply chain and customer base are global, and we import raw materials, parts, and modules from around the world. In light of this, we would be impacted if the current environment were to stay in place because not all regulatory and operational mitigations would address our tariff exposure. But the situation remains fluid And it's difficult to assess the impact of multiple variables from a change in the duration and size of the current tariffs to countermeasures taken by other countries to the potential secondary effects of customer reactions and supply chain and operational disruptions. As a result, we have not included the potential tariff impacts in our outlook for the year at this time. That said, we believe it is prudent and helpful to at least share some estimates of the direct impact of the current tariffs on our outlook. assuming they were to stay in effect throughout the year. Now, these estimates don't include secondary tariff-related impacts, such as changes to customer demand. So let me turn it over to Neil to take you through our assessment of the impacts.

Neil? Okay, thanks, Chris. Let me take you through the various categories of incremental direct tariff exposure and the level of pre-tax operating profit impacts, net of available mitigations we have currently assessed for each category. Starting with Canada and Mexico, Assuming the USMCA agreement continues, we estimate there would be a cost impact of around $250 million, assuming current tariff rates remain in place for the rest of the year. With respect to China, at current US and China tariff rates, we estimate there would also be a cost impact of around $250 million. Again, assuming the tariffs remain in place through year end. Keep in mind, Our business in China primarily serves local customers and China accounts for only about 2% of our global imports. As it relates to the rest of the world, we estimate there would be a cost impact of around 300 million at the 10% tariff rate currently in place. And finally, on steel and aluminum, we estimate the cost would be around 50 million for the year. For all of these scenarios, we would expect to see most of the impact in the back half of the year, as inventory is liquidated. And from a cash perspective, we assume there would be a bit larger drag due to the timing of inventory consumption and duty drawback recovery. And this impact would be evenly spread over the rest of the year. Going forward, we expect the landscape to continue to evolve and we'll update our assessment accordingly. Now, let me turn it back over to Chris.