RTX Corporation

Good day and welcome to the RTX Third Quarter 2026 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, Chairman and Chief Executive Officer, Neil Mitchill, 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 as 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 11 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. Calio.

Thank you and good morning, everyone. Our continued execution and operational focus enabled us to deliver another very strong quarter of results across RTX. On the top line, adjusted sales were $25 billion, up 12% organically with double-digit growth across commercial OE, commercial aftermarket, and defense. Adjusted EPS of $2.26 was up $0.56, or 33% year-over-year, including $0.25 from IEPA cost recovery. and Free Cashflow was again strong at 2.1 billion. So overall, we're very pleased with the continued momentum in our operational performance across the company in Q3. We also continue to see robust global demand for our products and services and are very well positioned to meet our growing customer needs across commercial aerospace and defense. RTX ended Q3 with another record backlog of 340 billion, up 36% year over year and 18% sequentially. On the defense side, we booked nearly $59 billion of awards with a book to bill of $4.57, driven by approximately $23 billion for Tomahawk and over $14 billion for AMRAAM as we converted those framework agreements into multi-year production contracts at Raytheon. And earlier this month, we also signed multi-year contracts for SM6 and SM31B. We're very pleased with our collaboration with the Department of War on these contracts. which reinforced the need for our highly capable and proven systems, and they will be a significant revenue driver for Raytheon over the next decade. Neil will provide some more details in a few minutes. On the commercial side, we received over $22 billion of new orders in the quarter, representing over 60% year-over-year growth across both OE and aftermarket. Most notably, Pratt announced significant GTF engine orders and commitments. including British Airways selection of the GTF to power up to 63 aircraft, adding another new GTF operator to its expanding fleet. So far this year, we've received over 800 GTF orders and commitments and have a backlog of over 8,000 engines. And commercial orders at Collins were up over 20% year over year, driven by the growing installed base and breadth of its content offerings. So another strong quarter of awards across the company. Okay, let me shift to the current operating environment as we look to close out the year. In commercial aerospace, we continue to see positive trends with increasing OE production rates on key platforms, which is growing our installed base. For example, Collins' commercial installed base and Pratt's narrowbody-powered fleet have grown mid-single digits year over year. In Q3, commercial aftermarket also remained resilient. with 16% organic growth despite global RPKs declining slightly year over year. Our MRO demand continued to be strong and engine retirements were in line with our expectations. Additionally, we continue to see strength across business aviation with global business jet departures up year to date. And as a reminder, about 60% of the Pratt Canada fleet has not yet seen a first shop visit. On the defense side, We remain exceptionally well positioned to meet growing demand given our proven capabilities, regional partnerships, and ability to produce at scale. In the U.S., we're encouraged by the broad support for defense spending, including the need to expand munitions depth and integrated air and missile defense capabilities. And our ongoing discussions with the Department of War give us further confidence that our key programs will remain funding priorities. Internationally, Demand is also rising with defense budgets expected to grow across the European, Asia Pacific, and MENA regions next year, including significant spending by Germany, Poland, and Japan. Across these regions, we have partnerships with local companies and suppliers that help support the production of key systems, including Patriot, GEMT, Standard Missile, Coyote, and military engines. In Europe, for example, We have over 130 different suppliers that support our production work in that region. And while the U.S. government is currently operating under a continuing resolution, our record backlog provides clear visibility to our sales expectations in the fourth quarter and throughout next year. So our focus remains squarely on execution. Overall, based on our performance to date, we're again raising our full year outlook for adjusted sales, EPS, and free cash flow. Neil will take you through the details of the third quarter and our updated outlook in a few minutes. But first, let me provide an update on our strategic priorities on slide four. I'll start with operational execution. We continue to leverage our core operating system to drive output and productivity across the company. At Pratt, we're making progress across key GTF initiatives. On the GTF fleet management plan, the financial and technical outlook remains on track. PW1100 MRO output was up over 35% year-over-year in the quarter and is up over 30% year-to-date. Sequentially, AOGs were relatively stable as this MRO output largely offset the expected engine removals from the seasonally high utilization of the fleet during the summer months. We continue to expect AOG reductions in Q4. We're also pleased that the first GTF Advantage-powered aircraft was delivered to United Airlines and entered into service earlier this month. As a reminder, the Advantage will double the time on wing performance, and we expect the production ramp to continue next year. We're also progressing certification of the Hot Section Plus upgrade package that will bring 90 to 95% of the Advantage time on wing benefit back to the installed base. And we will start incorporating this package into MRO visits early next year. Shifting to Collins, we're advancing structural cost actions to support further margin expansion. This includes consolidating operations, increasing manufacturing hours at best cost locations, and reducing overhead layers. Enabled by these actions, Collins has delivered double digit organic sales growth this year while reducing indirect labor headcount. And at Raytheon, we're increasing munitions output as we improve material flow across the supply chain and drive productivity in our operations. Year to date, output across our critical munitions is up over 90% year over year, with material receipts at Raytheon of double digits over the same period. Across RTX, we're also deploying AI and digital tools to improve speed and decision-making in our operations. For example, through a recent acquisition, Pratt is integrating AI-powered engine inspection software to accelerate borescope analytics. Already in use on legacy programs, this capability is being implemented across our MRO networks and has reduced overall inspection time by more than 30% where it's been deployed. Next is innovation and future growth. In Q3, we invested $2.8 billion in company and customer funded research and development and CapEx to advance our technology roadmap and expand capacity. On the technology front, we're innovating to meet our customers' evolving needs. We're continuing to develop products with AI and machine learning capabilities. For example, Collins is leveraging AI in certain products to assist air traffic controllers in making faster and smarter decisions. And Raytheon has sensors deployed in the field that are using AI to identify objects and classify threats. Also in the quarter, Collins completed altitude testing of its next generation enhanced power and cooling system known as EPACS. EPACS delivers a significant increase in cooling capacity across critical aircraft systems and is being offered to support technology upgrades on the F-35. It can also be used on other future defense and commercial aircraft platforms. And Raytheon is progressing its composable weapons strategy to address the evolving needs of our customers. This construct uses proven technologies from across our product portfolio as building blocks to develop new solutions that we can field at a faster scale. For example, were developing a new effector where we're taking the rocket motor and steering control from one production program and combining it with the seeker from another program to cost effectively meet a specific mission requirement on an accelerated timeline. On the capacity front, we continue to invest to support higher output levels. In the quarter, Raytheon completed a $50 million expansion of its manufacturing facility in Forest, Mississippi. This investment will support production ramps for the Next Generation Jammer program and other radar systems. And in connection with the munitions contracts that I mentioned earlier, we're making incremental investments in our supply chain and operations to ramp capacity and support significantly higher production rates. On the commercial side, Collins announced a new partnership with Etihad Engineering to expand MRO services in the Middle East. This agreement will double Collins' footprint for nacelle services in the region and support growing A350 and 787 fleets. And Pratt announced an expansion of precision parts manufacturing in Poland. This investment will increase capacity of complex component assembly for both commercial and military engines, including the GTF and F-135. And so we're pleased to see that our disciplined focus on our strategic priorities is delivering operational improvement and new capabilities for our customers. Finally, I want to acknowledge the leadership update we announced last month. As you saw, Shane Eddy has decided to retire from the company after more than 40 years in the aerospace and defense industry. Shane's been a great partner and teammate, and I want to thank him for his leadership at Pratt. We're fortunate to have a very strong bench and are excited that Jill Albertelli is taking over as the president of Pratt & Whitney. Jill is currently the president of Military Engines and brings over three decades of experience across Pratt. Okay, with that, I'll hand it over to Neil to take you through the third quarter results and our updated outlook in more detail.

Neil? All right. Thanks, Chris. I'm on slide five. In the third quarter, adjusted sales of $25 billion were up 11% year over year on an adjusted basis and 12% organically. This strong top line organic growth was driven by all three channels, with commercial OE up 10%, commercial aftermarket up 16%, and Defense up 10%. Adjusted segment operating profit of 3.9 billion was up 39% year over year, driven by drop through on higher sales volume across the company, improved productivity at Raytheon and IEPA cost recovery. Segment margins expanded 310 basis points year over year, including the benefit of approximately 160 basis points from IEPA. Adjusted earnings per share of $2.26 was up 33% from the prior year, driven by about 43 cents of operational segment profit growth and approximately 25 cents of IEPA recovery. This growth more than offset roughly 12 cents of below the line items, primarily from an expected higher tax rate and lower pension income. On a gap basis, earnings per share from continuing operations was $1.89, and included 26 cents of acquisition accounting adjustments and 11 cents of restructuring and all other non-recurring items. Free cash flow in the quarter was 2.1 billion and included approximately 165 million of powder metal related compensation and approximately 300 million of IEPA recovery. As Chris mentioned, we converted four munition framework agreements into undefinitized contracts. Over the next several years, Raytheon will be focused on ramping the supply chain, our operations, and capacity to meet the associated production requirements. As a reminder, these contracts include a funding approach that will essentially preserve upfront free cash flow. We'll be making CapEx and other investments on these contracts over the next two to three years, and we'll recognize revenue as costs are charged to the programs. Therefore, We expect to see sales and profit contributions over the next several years as we capacitize and then ramp to achieve full rate production over the multi-year terms of each contract. And over time, these contracts have the potential to support margin expansion at Raytheon as we scale production. So overall, we delivered strong financial performance across RTX and we're pleased with the significant growth in our backlog. Let's turn to slide six and I'll take you through our updated outlook for the full year. Given our performance to date, as well as the IEPA recovery, we are increasing our full year outlook. On the top line, we're raising our full year adjusted sales outlook by $2 billion on the low end and $1.5 billion on the high end to a new range of $97 to $97.5 billion, up from our prior range of $95 to $96 billion. The sales increase is driven by continued defense performance, commercial OE strength at Collins, and higher GTF aftermarket volume at Pratt. This translates to full year RTX organic sales growth of between 10 and 11%, up from our prior range of between 8 and 9%. By channel, we now expect commercial OE sales to grow high single digits, which is at the higher end of our prior expectation of mid to high single digits, driven by the production ramp at Collins. Within commercial aftermarket, we now expect sales to grow low double digits to low teens across the company, which is up from our prior expectation of low double digits driven by higher GTF aftermarket volume. And for defense sales, we now expect low double digit growth up from our prior range of high single digits, primarily driven by the performance at Raytheon. On the bottom line, we are increasing our outlook for adjusted earnings per share by 55 cents on the low end and 50 cents on the high end. We now see adjusted EPS to between $7.65 and $7.75 for the full year, up from our prior range of $7.10 to $7.25. At the midpoint of our updated outlook, this increase is primarily driven by approximately $0.28 of performance across the company and approximately $0.25 of IEPA recovery. We've included the updated outlook for the associated below the line items in the appendix of our webcast. Finally, we now expect free cash flow to be between $9 and $9.2 billion for the full year, up from our prior range of $8.5 to $8.75 billion, driven primarily by EPRA recovery. As we look beyond this year, based on the fundamentals of our company, our record backlog position, and operating momentum, we expect another year of top and bottom line growth, improving operational margins, and strong free cash flow generation. and as we do every year, we'll be back on our fourth quarter call in January with our detailed outlook for 2027. With that, I'll hand it over to Nathan to take you through the segments in more detail. Nathan.