Textron Inc.

listen only mode later we will conduct a question and answer session if you would like to ask a question please press 1 then 0 on your phone keypad should you require assistance please press star then 0 this conference is being recorded for digitized replay and will be available after 10 a.m. Eastern Time today through April 25th of 2025 you may access the replay by dialing 866 207 and enter the access code 8546032. I would now like to turn the conference over to David Rosenberg, Vice President, Investor Relations. Please go ahead.

Thanks, Leah, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donley, Textrun's chairman and CEO, and Frank Connor, our chief financial officer. Our earnings call presentation can be found in the investor relations section of our website. Revenue in the quarter were 3.1 billion, up from 3 billion in last year's first quarter. Segment profit in the quarter was 290 million, up 31 million from the first quarter of 2023. During this year's first quarter, adjusted income from continuing operations was $1.20 per share, compared to $1.05 per share in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $81 million in the quarter, compared to $104 million of cash provided in last year's first quarter. With that, I'll turn the call over to Scott.

Thanks, David, and good morning, everyone. In the first quarter, we saw a higher segment profit at Aviation, Bell, and Systems. At Aviation in the quarter, we delivered 36 jets, up from 35 last year, 20 commercial turboprops, down from 34 in last year's first quarter. Aviation continues to see strong demand across our product lines that resulted in backlog growth of $177 million, ending the first quarter at $7.3 billion. Textile and aviation fleet utilization remains strong in the quarter, contributing to aftermarket revenue growth of 6% as compared to last year's first quarter. Throughout Q1, we saw continued improvements in our supply chain and hours attained in the factory, supporting delivery growth throughout the remainder of the year. At Bell, revenues in the quarter were up, driven by higher military volume, reflecting the continued ramp of the FLORA program. On the FLORA program, we continue to progress through preliminary design reviews and expect to complete Milestone B, which allows for the entrance into the engineering and manufacturing development phase of the program later this summer. Also during the quarter, Bell received an award for the production and delivery to Nigeria of 12 AH-1Z helicopters. For V-22, the recently enacted FY24 budget includes five additional aircraft scheduled for delivery in 2027. On the commercial side of Bell, we delivered 18 helicopters down from 22 in last year's first quarter. During the quarter, we continued to progress toward FAA certification on the 525, expected later this year. Bell recently received its first order for 10 525 helicopters from Equinor, a Norwegian state energy company. Moving to Textron systems, revenue was flat and margin was up versus last year's first quarter. During the quarter, we received notification from our government customer of the termination of the shadow program. We're currently working with the Army on winding this program down. This decision reflects the Army's transition from shadow to the future tactical UAS system to fulfill the need of organic intelligence, surveillance, and reconnaissance. Earlier this month, we received notification that we were awarded options three and four of the FQAS program, and we remain one of two competitors for this next-generation program. Also in the quarter, Systems was down-selected with one other competitor to design, develop, and manufacture a 30-millimeter autocannon advanced reconnaissance vehicle prototype for the U.S. Marine Corps. This two-year effort will develop an innovative combat vehicle that provides mobile protective firepower for the Marines. In addition, the Army's FY25 budget request funds the design of the XM-30 ground combat vehicle in preparation for the prototype build and testing portion of phases three and four in the program's development. Moving to industrial, we saw lower revenues in the quarter, largely driven by lower volume in mixed and specialized vehicles. Caltech's revenues were flat in the quarter. We were encouraged by recent trends in the hybrid space, where industry is experiencing increased customer demand and new OEM investments in hybrid platforms. In aviation, Hemistral delivered 30 aircraft in the quarter, up from 13 in 2023. Also during the quarter, Pipistrel was granted an airworthiness exemption by the FAA for its Velus Electro Trainer, which will allow US flight schools to use this all-electric aircraft in their pilot training programs. With that, I'll turn the call over to Frank.

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.2 billion were up $39 million from the first quarter of 2023, reflecting higher pricing of $48 million and lower volume and mix of $9 million. Segment profit was $143 million in the first quarter, up $18 million from a year ago, reflecting a favorable impact from pricing, net of inflation of $14 million. Backlog in the segment ended the quarter at $7.3 billion. Moving to Bell, revenues were $727 million, up $106 million from last year's first quarter, reflecting higher military volume of $95 million, primarily related to the FLORA program, This was partially offset by lower volume on the V22 and H1 programs. Segment profit of $80 million was up $20 million from a year ago, primarily driven by a favorable impact from performance of $30 million, which includes $13 million of lower research and development costs. Backlog in the segment ended the quarter at $4.5 billion. At Textron Systems, revenues were $306 million, flat with last year's first quarter. Segment profit was $38 million, up $4 million from last year's first quarter. Backlog in the segment ended the quarter at $1.8 billion. Industrial revenues were $892 million, down $40 million from last year's first quarter, largely reflecting lower volume and mix of $51 million, principally in the specialized vehicles product line, partially offset by higher pricing of $16 million in the segment. Segment profit of $29 million was down $12 million from the first quarter of 2023, primarily due to lower volume and mix at specialized vehicles. Text on e-aviation segment revenues were $7 million, and segment loss was $18 million in the first quarter of 2024, compared with a segment loss of $9 million in the first quarter of 2023, primarily related to higher research and development costs. Finance segment revenues were $15 million, and profit was $18 million. Moving below segment profit, corporate expenses were $62 million, net interest expense was $15 million, LIFO inventory provision was $20 million, intangible asset amortization was $8 million, and the non-service component of pension and post-retirement income was $66 million. In the first quarter of 2024, we incurred $14 million in special charges under the 2023 restructuring plan. largely related to headcount reductions to improve the cost structures of the Textron systems and bell segments in light of the cancellations of the shadow and faro programs in the quarter. We expect to incur additional severance costs in the second quarter in the range of 25 to 30 million, largely related to headcount reductions in the industrial segment. As a result, Textron has expanded its 2023 restructuring plan from a previously announced range of 115 to 135 million in pre-tax special charges to a range of 165 to 170 million. In the quarter, we repurchased approximately 3.6 million shares, returning 317 million in cash to shareholders. To wrap up with guidance, we are reiterating our expected full-year adjusted earnings per share to be in a range of $6.20 to $6.40 per share. We also expect full-year manufacturing cash flow before pension contributions of $900 million to a billion. That concludes our prepared remarks. So Leah, we can open the line for questions.

Thank you. For those asking questions, we ask that you please take yourself off speakerphone for the best sound quality. And we'll start with David Strauss with Barclays. Please go ahead.

Thanks. Good morning, everyone. Scott, maybe if you could just dig in a little bit on the deliveries in the quarter. I think the mix was pretty strong, but relatively flat year over year, and you build a lot of inventory. So maybe just how the supply chain is doing. Did you want to deliver more airplanes than you ended up doing? And how do we think about how much deliveries could grow this year off of 168 last year? Thanks.

Sure. Look, I think that we certainly expect to see nice growth on a year-over-year basis. The supply chain does continue to improve. The number of hours that we're able to get in the factory in terms of labor hours that are productive hours, you know, post-training and whatnot does continue to improve. So I think we feel pretty good about how things progressed, you know, through the quarter. Look, we always have a few aircraft that we would like to have gotten delivered, and we definitely had some things that got late in the quarter or just didn't, you know, get to where they could transfer in time. But for sure, the trend in terms of productivity and efficiency and throughput in the factory improved as we worked our way through the quarter. So a little bit lighter than we probably would have liked, but not a big number. And I think, again, the momentum is good. And we certainly are still feeling very good about our guide in terms of a nice increase in volume on a year-over-year basis. Great. Thanks very much.

Next, we go to the line of Robert Stollard with Vertical Research. Please go ahead.

Thanks so much. Good morning. Scott, maybe we'll start with industrial. A bit of softness there in Q1. I know this is a tough division to forecast given its short cycle nature, but are we finally seeing the U.S. consumer rolling over here?

Well, look, I think we talked last year, Robert, towards the end of the year, and in our guide, you know, that we expected to see the sort of high-end consumer dollars, you know, sort of recreational, personal transportation, you know, stuff soften. And we're seeing that. It's probably even a little bit softer than we would have expected. I think the automotive segment is pretty stable, which is fine. There are certainly some pieces, you know, in the vehicle business that are doing fine, but those high-dollar... you know, discretionary items have certainly softened. As you know, those are often financed. Finance costs are certainly higher than they have been. So, you know, we expected it to be softer. Our PTV business, which has been a great business for us, was a little bit softer than we would have expected. And, you know, that's part of what we'll have to do, some additional restructuring on top of our initial plan to, you know, to dial that in and, you know, avoid a situation where we put too much inventory out in the field. Right.

And then maybe one for Frank. On the revised restructuring plan, how do you expect the cash impact of that to flow through, and do you expect the savings to be roughly equivalent to the restructuring charge?

Yeah, I think the savings will be ultimately in the area of $185 million or so, kind of on a run rate basis, and we'll realize a fair amount of that by the end of 2024, but that will roll into 2025 as well. The incremental cash is about $20 million in 24 for the additional restructuring, and we'll just absorb that into our cash guidance. And overall cash for the restructuring for 24 is in the area of 60 to 65 million, but additional 20 million versus where we had been.

Okay, that's great. Thanks, Frank.

Next, we move on to Shia Kayagu with Jefferies. Please go ahead.

Thank you. Good morning, Scott, Frank, and David. Can we start off with maybe Bell? Scott, if we look at margins, they expanded up 130 basis points at Bell to 11% despite maybe $180 million of flower contribution on the top line. So how do we think about the moving pieces to profitability for the year to get to 9.5% to 10.5%?

Well, I think we'll probably still end up in that range, Sheila. We had a strong... You know, Q1, obviously, you know, we did have, as we noted there, a settlement on an initial property-related lawsuit that gave us a little bit of a boost in the quarter. But I would say the team is performing well. You know, as you know, we did restructuring actions to try to deal with the loss of the FAR program. We were able, you know, in a number of cases to take some of the appropriate engineering talent and move that over to the FAR program, which helped us ramp that program up. But we also had to take some cost actions, you know, both as a result of the loss of the FAR program as well as some of the lower, you know, production quantities. Obviously, it will certainly help us as we start to see some, you know, flow of the Nigerian H1 where that gets that line back up and going again. The extra five on V22, which is above the original program record, is certainly a nice add, and we'll start to see some of that flow through in the latter part of the year. I think Bell had a strong quarter. We're continuing to focus very much on cost to deal with the mix issues there, but we'll clearly end up towards the high side of guidance on Bell. I think they're performing well.

Great. And then if I could ask one on aviation, orders held up pretty well, booked a bill above one time. Maybe if you could provide any color on what you're seeing from your customers, one of your competitors noted interest rates are potentially prohibiting orders. If you could just comment on that.

You know, Shell, we continue to see real good strength across pretty much all the product lines in the business. So we're feeling pretty good about the order flow. You know, again, a lot of these aircraft are going to deliver a couple years from now. So from a financing standpoint, I don't know. We don't, I guess, hear as much about that. But the order activity was staying pretty strong. Very positive.

Great. Thank you. Next we go to Miles Walton with Wolf Research. Please go ahead.

Thanks. Scott, I was wondering if you could touch on the supply chain within Bell. Obviously the 1Q seasonally light usually for the commercial kilos but down year on year. And then also the comment you made on the 525 certification at year end. I know that one of your business heads had been quoted as getting more confident on that into the year end. Could you also comment on your confidence level of that certification? Thanks.

Sure. Look, the Bell supply chain, you know, continues to, I would say, improve. We always have, you know, a number of parts that are sort of problem children, and we're continuing to work that. But, you know, in general, I think we are able to manage our way through that, and I don't think there's anything new or surprising that would in any way affect, you know, our guide as we think about Bell commercial volumes through the course of the year. We did have a very strong Q4, obviously, on the commercial deliveries and So, you know, a little lighter maybe than we expected Q1, but I think we're in good shape. And order activity there also remains, you know, very healthy. So I think Bell's in a good place. 525 flight test is going very well. The FAA flight testing, you know, portion, we're well into that. We have a few more, you know, performance flight tests, and then we go through sort of what they call FNR, which is about 150 hours of just durability, reliability flying. And obviously, as you guys know, we've been flying that aircraft for a long time. It's proven to be a very durable aircraft. You know, reliable aircraft, so I don't think we'll have any issues going through there. So we should wrap up flight testing here as we get to mid-year. And, you know, as you know, there's a fair bit of, you know, paperwork processing and, you know, final documents and all that kind of stuff that have to go before the final certification. But I'd say at this point we feel pretty good about where it is.

And if it were certified, what would be sort of the production rate that you'd target over the next few years?

Yeah, we haven't released a production rate on the 525. All right. Thank you. Sure.

And our next question comes from Peter Arment with Baird. Please go ahead.

Yeah, good morning, Scott and Frank. Morning, Peter. Hey, Scott. Nice results. Did you quantify what the settlement was in the bell that affected the margins this quarter?

No, we didn't. I mean, it's not a huge number, Peter, but it's enough that it helped the margin rate a little bit in the quarter.

Okay, okay. I just wanted to clarify that. And then just a quick one, Frank. We expected that you would have higher corporate expenses in Q1. Just wondering, just from a modeling perspective, calibrate the rest of the street. Are we thinking more evenly spread for the balance of the year for your $160 million target?

Yeah, as you know, that bounces around depending on where the share price is. But, you know, kind of we – We expect that it certainly will not be as volatile, you know, or may not be as volatile for the rest of the year. So we'll see. But, yeah, we're still sticking with the same, you know, target for the full year.

I appreciate it. Thanks, guys.

Next, we have a question from Kai Von Rummer with TD Cohen. Please go ahead.

Yes, so... Your competitors, Gulfstream and Embraer, basically had higher bizjet deliveries and were kind of closer to where they expected to be. And yet you guys continue to struggle. Is part of that related to geography, that you guys are in Wichita and you have to fight with spirit to get people because they're trying to ramp too, and that therefore this is going to be a longer slog than maybe others are going to see?

I don't know, Kai. I mean, I thought we feel pretty good about our deliveries. We always would like to get another couple jets here and there, but I think we're doing pretty good and feeling good about where we are on the labor front, where we expect it to be. So I don't see a problem with our labor situation in Wichita. I think everybody has been challenged by higher turnover rates just in terms of the amount of churn, and that's really been one of the biggest impacts to us on the you know, productivity efficiency side is the number of people that come in and rotate back out. But I think most companies in all industries, frankly, are seeing that. But no, I don't think we have a, we certainly don't feel like we have a macro unsolvable problem. It's improved significantly. The number of employees is where we needed to be. And I expect we'll, as I said, we'll continue to see a ramp on deliveries as we go through the year.

Great. And sort of maybe going back to Miles's question. So, You know, energy prices are up. 525 is clearly, you know, targeting that market. You've got an order for 10. Do deliveries start relatively early next year? So could we start to see, you know, some pretty good build on that program?

Well, we're already ramping up the production side of the program to start to meet deliveries, but I suspect those deliveries will be in the late 25s. you know, sort of timeframe. I think we're in a very good place in terms of the cycle, as you allude to. Obviously, Equinor is an energy company and, you know, those are for oil and gas offshore applications. And we have several other customers whom we're in, you know, I'd say positive ladder stage negotiations that are, you know, primarily aimed at the oil and gas market right now. So it's a, it's certainly a, a favorable time to be getting these things through certification, and I think it fits a nice place in that end market.

Terrific. Thank you.

Next, we go to Seth Seifman with J.P. Morgan.

Please go ahead. Thanks very much. Good morning, everyone. I guess, Scott, you called out the contribution to EVA growth from pricing at aviation, and we'll see you know, more about the other components in the queue. You know, it looks like the compares for pricing get somewhat tougher from here. Should we think about – I know you probably have some visibility into the backlog here. You know, should we think about the $14 million of year-on-year pricing, you know, being a relatively high level compared to what we're likely to see for the rest of the year, given that those compares get harder?

Yeah, I think it kind of is pretty stable through the course of the year. I mean, we do have obviously very good visibility to the pricing side of things because they're all in the backlog. Obviously, what's important to us is to maintain that spread of net pricing over inflation. And so that's really, you know, most of the work as we go through the course of the year is just managing, you know, the inflation numbers around, you know, supply base and things like that. So, but I would expect to see positive price over inflation, you know, through the course of the year.

Okay. Okay. Thanks. And then just to follow up, I think, you know, you talked earlier about potentially some upside at Bell. Talked about being in good shape at aviation. I mean, when we think about where industrial came in in the first quarter and where the guidance is, you know, it looks like they're going to probably have a tough time getting to that guidance and then maintaining the overall guidance for the company of aviation and Bell to fill in those gaps.

Yeah, I think the industrial business, we would anticipate the revenue being a little bit lower than probably our original guide. I think we'll probably hold in the margin range. But I think we have a sufficient upside in terms of the performance and how we're doing on the aviation and the bell front, which is why we're comfortable holding our guide for the overall company.

Great. Thank you very much.

Next, Leah.

Sorry about that. We will next go to the line of Noah Poppenack with Goldman Sachs. Please, one moment here. Please go ahead.

Hey, good morning, everyone. Morning, Noah. Hey Scott, Frank, just staying on that aviation margin. I mean, it's a, it's a pretty good incremental on the quarter. I think it was a little bit of an easier compare. You know, we kind of, we kind of have a sense of what units and price are doing. I think you had, you know, you've had cost input inflation, but you've also cited just kind of supply chain and some internal operating performance, you know, maybe that's been a hurdle. Is that behind you now? Is that no longer an issue as you move through 2024, and is that a tailwind year over year?

I think you'll still see some pressure in second quarter, no. Remember, a lot of these aircraft are inventoried. A lot of that cost is inventoried, so it usually takes the first half of the year to bleed out in the performance levels and productivity levels that we saw in the back half of the previous year in 2023 in this case. I still think we see some pressure for that, but let's say the good news is that when we look at the metrics in the factory and the efficiencies, productivity, and things of that nature, we are starting to see some of the benefits that we expect to see in a more stable production environment, less supplier disruption, fewer onboarding, so less impact on the training. There's a lot of things the business is doing to try to address some of those issues. So I do think that we'll have you know, margin rates that do continue to improve over the course of the year, but you're still going to have, you know, some drag of that inventory release, you know, particularly as you get through Q2.

Okay. That makes sense. And then I guess just to follow up on the bell margin, you know, I know that FLAR is still ramping and it'll kind of exit the year at a different revenue run rate than it achieved in the first quarter, but It's also ramped a decent amount, and I think this year you'll get pretty close to what the run rate is in the sort of medium term. And this bell margin just keeps outperforming. I mean, the amount of margin compression that was discussed out there in the market, I guess, in the medium term, is that kind of off the table? Or I guess, how do you see this bell margin hanging in 24, 5, 6, just in the medium term as you continue to ramp flour up?

Well, look, I mean, I think, yeah, the team is performing well. We're doing everything we can on the cost front, you know, to deal with the lower production levels. Things like the Nigerian order, the additional 5E22s, these things are all helpful. I guess I would also note, you know, and you may have seen if you look at the FY25 budget request, you know, one of the allocations of sort of the, you know, the elimination of FAR and where that money in the out years goes is, you know, there is over $200 million of FY25 money on FLORA above what was originally, you know, in the FIDAP. So I do think that, you know, we're going to, we're ramping quite nicely on FLORA. We'll actually probably see that increase in terms of the number of revenues on FLORA as we get into 2025 above what we might have originally expected on the FIDAP. So that's, you know, another couple hundred million dollar probably revenue step as we get into the next year. So, Look, we'll continue to stay very focused on the cost side and executing and performing, you know, against all these programs. And as I said, I think that will drive us to the higher side of the revenue guide or the – I'm sorry, the margin, you know, guide for this year. And we'll certainly get back to you on the FY25 guide sometime in January, February.

Okay. And, Frank, I guess – a decent amount or a lot of the items below segment manufacturing segment EBIT were pretty different in the quarter compared to what the full year implied on a quarterly run rate. If I look at what deviation did, finance did, tax rate, corporate interest even. Is it worth updating those on a full year basis or are they all just kind of still looking like they'll land in the range of what you have had originally embedded in the earnings guidance?

Well, I think that finance will be in the range of what we had thought. We talked about corporate expense was, you know, kind of significantly higher this first quarter due to share price performance, but we'll kind of stick with that type of range. I think interest expense relative to, I don't know what, we didn't really guide interest expense, but I guess we, you know, we're probably a little bit, better on interest expense, excuse me, relative to the 90, depending on what interest rates do for the year. You know, our investment in cash is a little better than we had thought, given the continuing higher interest rates. So there's probably benefit there. But the other stuff is kind of in the range of what we had talked about.

Okay. Thank you.

Next, we have a question from Doug Harned with Bernstein. Please go ahead.

Thank you. Good morning. I wanted to go back to your discussion around pricing at aviation. This has been a great story with continuing to be able to get pricing ahead of inflation. But when you look at this, and I'd say outside of what you have in the order book right now, when you try and plan longer term, is this something you can expect to continue? Or do you have to look at this as eventually pricing is going to come back and kind of converge with inflation rates?

You know, geez, I don't know. I mean, obviously, I would say at a macro level, generally speaking, over very long periods of time, price inflation probably end up pretty close. I think we certainly went through a number of years in this industry where the prices were where the products were way underpriced. I mean, it just doesn't make sense. So, I mean, we had a significant you know, catch up in price. I think got them back to, you know, much closer to where they should be. And obviously, you know, our expectation is you're going to continue to see inflation on a go-forward basis. And, you know, we expect to see, you know, pricing increasing on a go-forward basis. And we're seeing that. I mean, I think the pricing in the market is solid. And, you know, beyond that, I'm not sure, you know, how to forecast over, you know, a long period of time. But we still think demand is strong and the price environment is, you know, is also doing well. As I said, I think when we guided, we talked about the fact that you wouldn't see as significant a, you know, a price, absolute price increase as you saw in the last couple of years, but you also see, you know, some inflation starting to come down as well. So, you know, anyway, for us, what's important is that we net, you know, have pricing, you know, positive over inflation.

Okay, and then just switching over to Bell for a moment. Again, on margins, You've talked in the past and I think is one would expect initially FLORA is dilutive. But when you look at that trajectory now that you're moving forward, you're headed toward milestone B, I would expect long term this is a very accretive program once you're in full rate production. Can you give us a sense of how you expect kind of the timeline of FLORA's contribution to margins to proceed?

Well, I mean, I think that, you know, as you described it, that's kind of what you would nominally expect for any of these large, you know, defense contract programs. You know, FAR is a very big program, right? So the EMD phase of this thing, you know, goes out through, you know, into, you know, 2030. Now you'll start to see, I would suspect, you know, initial production lots. You know, we have LRIP deliveries that happen out in 2028, but you'll start to see some of the, you know, follow-on production lots. you know, be negotiated out in that timeframe. But, you know, certainly the next several years is very much dominated by the EMD program.

Okay, and that would be dilutive in that period.

Yes, correct.

Okay, very good. Thank you. Sure.

Next, we go to the line of Jason Gursky with Citigroup. Please go ahead.

Good morning, everybody. I was wondering if you could spend a little bit of time on EA Aviation. Maybe provide us a little bit of an update on how things are going in that business and the development that you've got going on there and what the next couple of years look like for you all on product development, revenue, and how EBIT's going to trend for us here over the next few years, given that backdrop.

Sure. So, look, I think there's, you know, there's obviously a couple of pieces that are in here, right? There's the Pipistrel business, which I think is doing well. We're seeing we saw a significant increase in number of deliveries, you know, here in Q1. I think demand for those products is strong. So we feel pretty good about where that is. As I mentioned, we did get, you know, an FAA report. exemption on the ability to do flight training on the Velos Electro, which is fundamentally a training aircraft. So I think that will help us pick up volume as we can now sell those and use those for training in the U.S. domestic market. It's already been accepted, and we've seen nice growth in the international markets. We have a couple of new products that are in that product line that I think will do well. So I think we feel very good about how the Pipistrel guys are doing and how that's performing. On the R&D, which is really the dominant piece of what's driving the financials in that segment, we have the Nexus program, which is progressing well. We're doing the full integration and testing of the first craft. We're already doing ground testing and evaluation already. We'll probably see flight tests later on this year on the Nexus front. That program is also, I'd say, progressing well. Most of the supplier selections are done. You know, parts are coming in. We're starting to build the first airframe, you know, with the expectations that we would probably fly that, you know, sometime next year. So that's really what drives the financial side. Now, I would say that, you know, the level of investment that we're making right now into those programs is probably – you know, going to level off. So we saw, you know, as we've guided, we saw a significant increase from 22 to 23 and now 23 to 24. And that level of spending is probably going to level out going forward. So we'll start to see some EBIT, you know, increased contribution on the pipistrelle product sales side. So, you know, I think that's, you know, clearly a segment that the investments are

in nexus and in the uh in the newer program are going to continue to have us in a lost position but it probably stabilizes going out the next few years and as you think about you know the size of the market that you're going after you're putting investment dollars against you know what you expect to be volumes and um so i'm just kind of curious you know what When do you expect the payback period to start on these investments that you're making?

Look, guys, I think this is very much an unknown. I mean, there's plenty of studies out there and a lot of other noise in this industry that when you look at the eVTOL side of things, that it's a mega market. The exact timing of that, I think, is still a little bit to be determined. There's still plenty of work to do on the technical front from our perspective, technical work, regulatory work, you know, to make sure that there's viable products to meet that mission. So, you know, again, I think there's plenty of independent third-party, you know, data out there that has perspectives about how huge that market could be. You know, keep in mind, guys, our spending here is, you know, relatively modest. I think we're taking advantage of a lot of cost and cost structure and talent and capability that we already have in the company. So, you know, If the market proves to be what third parties would say the market would prove to be, it's going to be a massive return on investment.

Okay, great. Thank you very much. Sure.

Next, we go to George Shapiro with Shapiro Research. Please go ahead.

Yes, good morning. Hi, George. Scott, the incremental margin in aviation, as people were talking about this, I mean, like 46%, and I recognize that revenue differences are small, so the numbers can get somewhat distorted. But given that you said inflation will probably pretty much be somewhat similar to the price benefit that you got this quarter, why won't those incrementals for the rest of the year run somewhat higher than kind of your objective of 20%?

Well, George, look, I mean, I think when we look at the, you know, the cost and, you know, what's going to come out of inventory and what the margin rates are going to look like, it's, I do think you're, you know, right. We did have a higher conversion on Q1, but that's certainly, I think, you know, certainly higher than we would expect in the course of the year. So I think at this point, as we look at it, you know, our expectations in terms of, you know, what inflation is going to look like, what plant performance is going to look like, which, as I said, is for sure improving through the course of the year. As we get towards the high side of guide there, it's that 20% kind of range, which is generally what we've guided as a long-term measurement for the business, and I think that's where we'll be.

Okay, and one quick one for you, Frank. You bought a lot of stock in the first quarter, like 1.8% of the outstanding. I guess it was pretty opportunistic, or do we expect that you might buy more than 5% for this year?

Well, we talked about kind of 5% was in our guidance, but we also talked about the fact that we have a strong liquidity position and we're going to return excess capital. So I think that, you know, kind of we did a fair amount in the first quarter. We'll continue to buy from here. We'll probably, you know, be on the higher side of that 5% for the year.

Okay. Thanks very much.

Next, we go to the line of Ron Epstein with Bank of America. Please go ahead.

Yeah. Good morning, guys. Just maybe circling back on the defense business and the supplemental that just got passed yesterday. Is there stuff in there for you guys? I mean, have you looked at it? Can you give us a sense of potentially what's in there for systems or Bell?

No, there's not. I mean, we really haven't been in the in the, in the, in the, in the guns and bullet, you know, business. So most of that stuff is, you know, not replenishments of, of things that, that we have. Um, I do think there's opportunities, you know, in Ukraine over time, when you look at, you know, things that are, are possibilities for balance, some other things in systems, but not something that's directly tied to these, uh, supplementals.

Got it. Got it. And then kind of back to, um, aviation, um, Broadly, how's the supply chain doing in that one of the things I've heard, oddly enough, is like window screens, you know, windshields for airplanes, there's a shortage of those. I mean, is there other stuff like that that's just kind of random stuff that's just kind of short in supply?

Well, look, Ron, as we said, the randomness is part of what drives us crazy, right? You know, and they change over time, but you're absolutely right. You know, windshields have been a problem now for several years, and it's, I say, probably getting better, but it's been a big problem. It's been a problem for us in terms of production builds, and frankly, it's been a big problem for us in terms of our customers. If somebody has a damaged windscreen, it's been an area of a lot of dissatisfaction in the industry, not just for the OEMs like us, but also for our ability to provide spares and service. It certainly has been and remains one of the top problem items, you know, by category.

Yeah, when I heard that, I was astonished, but yeah, I guess the current supplier shut down the other supplier, so whatever. All right, cool. Thanks, guys. Yeah, have a good one.

Bye. Next, we go to Christine Leweg with Morgan Stanley. Please go ahead.

Hey, Scott. Earlier, you mentioned on industrials how you're seeing incremental weakness in the high-end consumer. Can you talk about the customer profile of those buyers and if there are similarities to the customer profile for products like M2 or Pistons or King Airs and Aviation?

So I don't know exactly in terms of categorization of that customer per se, but I think that if you look at, you know, demand for, you know, all the way down to PISNA, right, Cessna 172s, the demand remains, you know, very strong. And, you know, we expect to have, you know, strong deliveries even over last year. But availability, you know, the demand environment is very strong for that kind of stuff. And, you know, M2s are strong. I mean, you know, these are products that we see, you know, strength in terms of demand across the product line. I don't. think they're the same customer maybe or the same consumer perhaps, but I think if you look, certainly what we're seeing and we look at other companies, if you're in the business of doing boats, RVs, recreational vehicles, PTVs, that consumer has clearly slowed down. They slowed down last year and we did make some adjustments based on that, but we've seen further slowing of that. I don't know how to categorize whether it's the same customer or not, but Certain of those product categories have slowed down, and, you know, everything from pistons up into light jets, you know, has not. And, of course, that's a much bigger, much more important business to us, which is good, I suppose.

Great. Thanks, Scott. I'll keep it to one.

Next, we go to Gavin Parsons with UBS. Please go ahead.

Thanks. Morning.

Morning.

Morning. I just want to confirm if I heard the restructuring savings are expected at 185, given I think the initial plan was 75, and just what's driving the better number there?

Yeah. You know, that's a full kind of run rate when we get through it all, and it's really driven by the addition of headcount reductions. You know, the unanticipated shadow, FARA, and then the additional actions at industrials. are really focused on headcount where the original restructuring had some asset impairment in it. And so we're getting a much bigger run rate savings as a result of those reductions to kind of right-size those activities.

Okay. What does the transition from shadow to FDUAS look like in terms of kind of revenue and margins over what time frame?

Well, look, I think that's still a little bit to be determined. When the Army canceled the shadow program, they did say they wanted to move more aggressively on FTUAS. You know, we have seen that in the awards now of option three and four, which is good. There aren't, I don't think, formally published dates, but the dates that we hear about in terms of when they'll put a RFP out on the street for the ultimate EMD production decisions, sounds like they're probably pulling that forward to where that RFP could come out as early as even late this year, which would lead to an early 25 calendar year award, which would be great. So the exact size and scope and therefore the revenue and the margin, we just don't have visibility to that at this point.

That's helpful. Thanks.

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