RTX Corporation

Good day, ladies and gentlemen, and welcome to the RCX Fourth Quarter 2025 Earnings Conference Call. My name is Livia and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer, Neil Mitchell, Chief Finance 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, and judgments, 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 card subject to risk and uncertainties. RTX SEC filings, including its forms 8K, 10Q, and 10K, provide details on points factors that could cause actual results to differ materially from those anticipated 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 touch-tone telephone. You may ask for the questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Calio.

Thank you and good morning, everyone. We delivered strong sales, adjusted EPS, and free cash flow in the fourth quarter, underscoring our momentum and focus on execution across RTX. For the full year, adjusted sales were $88.6 billion, up $9 billion year-over-year, or 11% organically, driven by 10% growth in commercial OE, 18% growth in commercial aftermarket, and 8% growth in defense. Adjusted EPS of $6.29 was up 10% year-over-year on drop-through from higher sales. and free cash flow was a robust $7.9 billion, up $3.4 billion year over year. Our performance continues to be driven by the durable demand for our products and services and operational improvements enabled by our core operating system. On the orders front, we ended 2025 with a full-year book-to-bill of 1.56, resulting in another record backlog of $268 billion, up 23% year over year, with roughly 161 billion of commercial orders and 107 billion of defense awards. On the commercial side of the business, our backlog is up 29% year over year, driven by growing aircraft production rates and resilient passenger air travel. Orders and commitments during the year included over 1,500 GTF engines and over 2,400 Pratt Canada engines. On the defense side, Our book to build for the year was a very strong 1.31 and included several significant fourth quarter awards. For example, Raytheon booked $1.2 billion to supply Spain with additional Patriot air and missile defense systems. It was also awarded a $1.2 billion contract for Tamir missile production, with work to be executed in our recently completed Camden, Arkansas facility. Raytheon booked $40 billion of awards in the year, and their international backlog mix is now 47%. up three points from the end of 2024. At Pratt, the military business booked $2.2 billion in sustainment contracts to support multiple engines, including the F-135 and the F-119. And at Collins in the fourth quarter, the business was awarded a $438 million contract from the FAA to deliver radar systems for the broader Radar System Replacement Program, which will help modernize the U.S. Air Traffic Control System. So overall, a very strong year of orders across the company, highlighting the growing demand of our products and services and setting us up very well heading into 2026. We will walk you through the details of the fourth quarter and our 2026 outlook in a few minutes. But first, let me briefly comment on the operating environment that we see today. Demand remains strong, which combined with our existing backlog and focus on execution positions us well for another year of top-line growth. Commercial air travel is expected to grow again. The global RPK is projected to increase around 5% this year, on top of the 5% we saw in 2025. On the commercial OE front, given the substantial airframe or backlogs, we expect OEM production rates to increase again this year, particularly on the A320neo, 737 MAX, and 787 platforms, as well as on business jet and general aviation aircraft, all platforms where we have significant content. and commercial aftermarket, our growing installed base, which now includes about $105 billion of out-of-warranty aircraft content at Collins and expanding fleet of engines at Pratt, positions us well for sustained commercial aftermarket growth. On defense, there's a heightened need for munitions and integrated air and missile defense as the U.S. and partner countries work to replenish inventories, modernize existing systems, and invest in new capabilities. We understand that our products are critical to maintaining security around the world, and we fully support the Department of War's transformation objectives to significantly increase capacity and accelerate production over a sustained period. And given the commercial expertise in our business, we are very well positioned to bring a commercial approach to the Department's transformation initiatives. On the international side, NATO allies, which today spend around 2% of GDP on defense, have committed to increasing their core defense spending to approximately 3.5% of GDP by 2035. And across the Asia Pacific and Middle East regions, defense budgets are projected to grow at an average of 3-4% annually over the next five years, with several countries at record levels. Altogether, these growing global demand signals support another strong financial outlook for RTX. For 2026, we expect adjusted sales to be between $92 billion and $93 billion, with 5% to 6% organic growth year over year. Increased volume, along with pricing and our continued focus on productivity and our cost structure, will support another year of consolidated segment margin expansion. We expect adjusted EPS to be between $6.60 and $6.80, with between $8.25 billion and $8.75 billion of free cash flow for the year. Consisting with 2025, our performance will be underpinned by our strategic priorities and a relentless focus on operational execution. Moving to slide four, let me highlight how we continue to drive execution, improve productivity, and increase output utilizing our core operating system and digital solutions. At Raytheon, the team leveraged core to significantly increase munitions output across the business in 2025. Notably, we saw output increase by 20% across a number of our critical programs. including GEMT for the Patriot Air and Missile Defense System, AMRAAM, which is the premier air-to-air combat proven effector, and Coyote to support counter UAS capabilities. In 2026, we expect to significantly increase output again on these programs, as well as on other critical munitions, including SM-6 and Tomahawk. We're also continuing to deploy our proprietary data analytics and AI tools across our factories to monitor daily key performance indicators, identify bottlenecks to reduce work and process, and track equipment health and performance, all to enable more informed decisions, reduce costs, and improve output. Across RTX, we've now connected factories that represent over 50% of our annual manufacturing hours to our digital platform, and we're seeing the benefits. For example, Pratt has reduced aged inventory by about 45% at its Lansing, Michigan facility, which manufactures GTF fan blades. And within Raytheon's Andover, Massachusetts facility, we've reduced circuit card production cycle times by about 35%. In 2026, we'll continue to see these benefits as we connect more equipment and expand coverage across our footprint. On the GTF fleet management plan, our financial and technical outlooks remain on track. As planned, PW1100 AOGs declined in the fourth quarter, and we expect this trend to continue as we move throughout the year. MRO output was up 39% in the fourth quarter and up 26% for the full year, even as heavier shop visits increased 40% in 2025. We also announced the addition of two new MRO shops with the UAE Sanad Group and Spain's ITP Aero joining the GTS MRO network. We expect this momentum to continue in 2026 with year-over-year growth in PW1100 MRO output in line with what we saw in 2025. To support our operational growth, we continue to make significant investments in capacity and technology. In 2025, we invested over $10 billion in CapEx and company- and customer-funded research and development, with a concentration on expanding our production capacity and factory automation, bringing new products to the market and our cross-company technology roadmaps. On the CapEx front, we invested $2.6 billion last year. This included significant capacity expansion at Raytheon in areas such as Tucson, Arizona for Tomahawk and classified programs, and Huntsville, Alabama to increase output for the standard missile family. We also made investments to increase production in other key facilities across the company, such as Spokane, Washington to support Collins' carbon break production, and Asheville, North Carolina to expand Pratt's turbine airflow machining and coating capacity to the GTF and F-135. In the fourth quarter, We received the EU certification of the GTF Advantage engine and expect aircraft certification soon. We have begun production cut-in of the Advantage engine and expect entry into service later this year along with certification and first installations of the associated hot section plus upgrade package for MRO customers. We're also progressing on our strategic partnerships. In 2025, we made $85 million in investments across 19 companies through RTX Ventures in areas such as autonomy, advanced manufacturing, space and propulsion. This included a successful demonstration of Raytheon's DeepStrike autonomous mobile launcher vehicle in collaboration with multiple RTX Ventures portfolio companies. In 2026, we plan to invest another 10.5 billion in CapEx in company and customer funded research and development, including another 3.1 billion in CapEx on top of the 2.6 billion I just highlighted for last year. Specifically, Raytheon will continue capacity investments in areas such as Tucson and Andover, building on projects completed last year and creating additional capacity for munitions and sensors, including the Standard Missile Family, AMRAAM, Tomahawk, Patriot, and LTAMs. Collins will increase capacity this year to support growing commercial and defense platforms, including the expansion of the Richardson, Texas facility, the Survivable Airborne Operations Center, and the E-130J programs. And Pratt will continue to invest in capacity across multiple sites, including Columbus, Georgia, to increase forging production, and Asheville to establish a foundry to produce turbine airfoil castings. We've got great momentum heading into 2026 and feel very good about how our company is positioned to drive another year of strong growth in organic sales, segment margin expansion, and free cash flow generation. With that, let me turn it over to Neil to take you through the fourth quarter results and more details on our 2026 outlook.

Neil? All right, Chris. Thanks. I'm on slide five. As you saw, we had very strong financial performance to finish the year. In the fourth quarter, adjusted sales of $24.2 billion were up 12% on an adjusted basis and 14% organically. By channel, organic growth was driven by commercial OE, which was up 18%, commercial aftermarket, which was up 17%, and defense, which was up 10%. adjusted segment operating profit of $2.9 billion was up 9% year-over-year, and adjusted earnings per share of $1.55 was up 1% from prior year, as strong segment operating profit growth was partially offset by expected higher corporate expenses and a higher effective tax rate in the quarter. On a gap basis, EPS from continuing operations was $1.19 and included $0.31 of acquisition accounting adjustments, and $0.05 of restructuring and all other non-recurring items. This included a $0.15 settlement charge associated with a pension transaction we completed in the quarter. Free cash flow for the quarter was very strong at $3.2 billion, bringing our full-year free cash flow to $7.9 billion, as Chris said. This included approximately $1 billion of powder metal-related compensation and approximately $600 million of tariff-related impacts. Lastly, in the quarter, we paid down $1.1 billion of debt and completed the divestiture of the Collins-Simmons business. Okay, with that, let me hand it over to Nathan to take you through the segment results, and then I'll come back and share some details on our 2026 outlook.