Textron Inc.

Hello everyone and welcome to the Textron second quarter 2025 earnings call. My name is Emily and I'll be moderating your call today. After the prepared remarks, you will have the opportunity to ask any questions, which you can do so by pressing start followed by the number one on your telephone keypad. I will now hand over to Scott Hegstrom, vice president of investor relations and treasurer to begin. Please go ahead.

Thanks Emily and good morning everyone. Before we begin, I'd like to mention that 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 Donnelly, Textron's chairman and CEO, and David Rosenberg, our chief financial officer. Our earnings call presentation can be found in the investor relations section of our website. Revenues in the quarter were 3.7 billion, up .4% or 189 million from last year's second quarter. Second profit in the quarter was 346 million, up 3 million from the second quarter of 2024. Injusted income from continuing operations was $1.55 per share compared to $1.54 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled 336 million in the quarter compared to 320 million in last year's second quarter. With that, I'll turn the call over to Scott.

Thanks Scott. And good morning everyone. Second quarter was a good quarter for Textron with revenue growth in both our commercial aircraft and helicopter businesses, as well as in Bell's flower program, which is now known as the MV75. Aviation had segment revenues of 1.5 billion, up .8% from the second quarter of 2024, reflecting higher sales for both aircraft and aftermarket. And the factory operations continue to improve as we ramp production. We delivered 49 jets and 34 commercial turbo props compared to 42 jets, and 44 commercial props in last year's second quarter. Aviation continue to see solid demand across all products with backlog and in the quarter at 7.85 billion. In the quarter, aviation announced the purchase agreement with a customer in Mexico for four citation jets and an option for eight additional jets with deliveries expected to begin in 2026. Also during the quarter, the skycare hit a number of important milestones, including the first delivery in South America, the first air medical order, which was also our first order in Africa. And as we marked our fifth anniversary of the first flight, on the new product front, we continue to make progress on certification for the M2 Gen2, sorry, M2 Gen2, CJ3 Gen2, and the Ascend, with deliveries of these aircraft expected to begin the second half of this year. The Bell revenues were up 222 million or 28% compared to last year's second quarter driven by growth in both the MV75 program and our commercial helicopter business. On the military side, the U S army announced its intention to accelerate the MV75 program and also announced that the 101st airborne will be the first division to operate the MV75. In the quarter, Bell delivered two MV75 virtual prototypes to the army, which are advanced simulators based on a digital twin of the MV75. These simulators will be used to support the training and development of tactics, techniques and procedures leveraging the tilt rotor, significant performance benefits in advance of fielding aircraft. We continue to have ongoing dialogue with the army on specifics related to the acceleration of the MV75 program. This includes acceleration of the development program, pull forward of initial over production and rapid fielding of units to the war fighter. Bell was recently down selected as a sole company for the next phase of DARPA speed and runway independent technologies, X plane program. During this next phase Bell will design, construct and perform ground testing of an X plane demonstrator. On the commercial side of the business revenues increased 73 million, primarily due to the mix of aircraft sold at Bell as Bell delivered 32 helicopters in both the second quarter of 25 and 24. During the quarter, Bell received an order for 12 Bell 412 EPXs from the Tunisian Air Force, with deliveries expected to begin in early 2027. In June, Bell signed a five year contract with United Auto Workers for its operations in Fort Worth, Texas. Moving to systems, revenues in the quarter were slightly lower as compared to last year, while segment profit margin was .5% up 170 basis points. Earlier this month, systems received a $354 million contract modification from the U S Navy to add three ship to shore connector craft. In addition, the ship shore connector program received 300 million through the recently enacted reconciliation bill. During the quarter, the U S army announced approval milestone B for the XM 30 program and transitioned the program to the engineering and manufacturing development phase. Also in the second quarter, systems sold the first tsunami aircraft, tsunami craft, the U S Navy, the tsunami is an incredible rapidly deployable autonomous unmanned surface vehicle. Moving to industrial, we saw lower revenues in the quarter compared to last year's second quarter, reflecting the impact of the disposition of Tectron specialized vehicles, power sports business and lower volume. At Caltech we recently received a Pentatonic award from a leading European automotive OEM for battery electric vehicle, composite lower battery housing unit. This marks the second OEM platform for Pentatonic. And this wind secures a major foothold on what is anticipated to become one of the leading global B EV platforms. So your profit margin was .4% up 180 basis points. Aviation, the new V 300, a long range large capacity hybrid electric VTOL unmanned aircraft, continue to slice test program and made its debut at the Paris air show in June. With that, I'll turn the call over to David.

Thank you, Scott. And good morning, everyone. Let's review how each of the segments contributed starting with text on aviation. Revenues to text on aviation of 1.5 billion, we're up 42 million from the second quarter of 2024 reflecting a higher aircraft revenues of 35 million and higher aftermarket parts and service revenues of 7 million segment profit was 180 million in the second quarter, down 15 million from a year ago, primarily due to the mix of aircraft sold and higher warranty costs, partially offset by the favorable impact of manufacturing efficiencies and higher pricing net of inflation. Backlog in the segment ended the quarter at 7.85. Moving to bell revenues were 1 billion up 222 million from the second quarter of 2024. The revenue increase in the quarter was driven by higher military revenues of 149 million, primarily due to higher volume from envy 75 and higher commercial revenues of 73 million, primarily due to the mix of aircraft sold segment profit of 80 million was down 2 million from last year, second quarter, primarily reflecting higher research and development costs, partially offset by higher volume and mix. Backlog in the segment ended the quarter at 6.9 billion. At text on systems, revenues were 321 million, down 2 million from last year, second quarter, segment profit of 40 million was up 5 million compared with the second quarter of 2024, primarily due to lower selling and administrative expense. Backlog in the segment ended the quarter at 2.2 billion. Industrial revenues were 839 million, down 75 million from last year, second quarter, largely a text on specialized vehicles where revenues decreased 66 million, reflecting the impact from the disposition of the power sports business and lower volume, primarily engulfed products. Segment profit of 54 million was up 12 million from the second quarter of 2024, primarily reflecting the impact from the disposition of the power sports business and the benefit of cost reductions from restructuring activities, partially offset by lower volume and mix. Text on HeAviation segment revenues were 8 million in the second quarter of 2025 as compared to 9 million in last year's second quarter and segment loss was 16 million as compared with the segment loss of 18 billion in the second quarter of 2024. Finance segment revenues were 15 million, and profit was 8 million in the second quarter of 2025 as compared to segment revenues is 12 million in profit of 7 million in the second quarter of 2024. Moving below segment profit, corporate expenses were $36 million, net interest expense for the manufacturing group was $26 million, LIFO inventory provision was $38 million, and intangible asset amortization was $8 million. Net special charges were $4 million, and the non-service component of pension and post-retirement income were $67 million. Our adjusted effective tax rate for the second quarter of 2025 was 20%. During the quarter, we repurchased approximately 2.9 million shares, returning $214 million in cash to shareholders. -to-date, we have repurchased approximately 5.8 million shares, returning $429 million to shareholders. To wrap up with guidance, we are reiterating our expected full-year adjusted earnings to share to be in the range of $6 to $6.20. We are increasing our expected full-year manufacturing cash flow before pension contributions to be in the range of $900 million to $1 billion, up from our previous range of $800 million to $900 million. This reiterated adjusted EPS outlook, an increased cash outlook, incorporates the estimated impact associated with recently enacted tax legislation. The One Big Beautiful Bill Act that was signed into law includes several provisions that benefit cash flow and has some elements that impact our adjusted effective tax rate for the year. As a result, we now expect an adjusted effective tax rate in the range of 20% to 21% for the year. Our adjusted EPS outlook of $6 to $6.20 incorporates a higher adjusted effective tax rate. That concludes our prepared remarks, so operator, we can open the line for questions.

Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press start followed by two to withdraw yourself from the queue. Our first question today comes from David Strauss with Barclays. Please go ahead.

Morning. Morning. Scott, I wanted to ask you about the potential acceleration on MV 75. What that could look like, what that could mean for your numbers, and if you could remind us of the contract structure as you move into ALRIP.

Sure. So, David, this is very much a working process. I would say on the development side, we're already have very good visibility around that, I suppose, in agreement with the Army on how to proceed on accelerating EMD. That's partly why you're seeing the increased EMD revenue here in 2025, and certainly we will see an acceleration of that in 2026 as we try to get that first aircraft completed and turned over and ready for test. I think on the EMD front, it's pretty clear we know what we've got to go do, and both we and the Army are working to execute against that. In terms of the production acceleration, you may recall the ALRIP, which was eight aircraft, which was bid in the initial contract, production of that wouldn't have started until really triggering all Milestone C. So that was going to reflect probably about an 18-month or so gap between the last of the EMD-delivered aircraft and an ALRIP. We're now pulling that forward, and the intent is to basically be able to smoothly transition from that last EMD aircraft into the first of the ALRIP. So that'll probably pull in something on the order of 18 months. And then we're also working, talking about what does the ramp look like? So it's not just going to be those eight, but what do you think about in terms of the next lot and the next lot right behind that? And so those discussions are still ongoing with the Army. I think what you're seeing primarily in the FY26 budget ask is the increased dollars to support that acceleration of the EMD, and you would expect to see increase in additional production dollars in the FY27 budget ask to support what I just talked about, an acceleration of that first lot, but also lining up the second and the third lots of production.

Okay, thanks for that. And Dave, could you touch on maybe what some of the offsets were to the higher tax rate to hold the guidance? It seems like Bell's maybe coming in better than you expected.

So as we said right now, the biggest offset is

that the timing of our share repurchase this year has been a little ahead of what we originally planned. So from an average share account perspective, we should be better than where we started the year at. So that in essence gave us the ability to hold the guide while at the same time taking this 200 to 300 basis point increase in the effective tax rate. Okay,

thanks very much.

Thank you. Our next question comes from Peter Arment with Baird. Please go ahead, Peter.

Good morning, Scott and Dave. Thanks for the question. Thanks for the question, Scott. Next results. Hey, Scott, could you maybe give us a little your thoughts around just kind of the margins at aviation? I know that you had kind of talked to us about some of the pricing that was going to be lingering from last year flowing through. How do we think about that as we move forward in the second half?

Sure, Peter. Look, I think we're right on track with where we're expected to be on aviation as we guided to the beginning of the year with the recovery kind of coming off of the strike and some of those issues, as you mentioned, pricing of aircraft that moved into this year, we knew we would be a little more margin challenged in the first half and the second half. So I think we're right on track with that. I think the production ramp is going well. King Airs is probably the only one where we're even a little behind. That's a tougher line to get going and picking back up. The good news is I think that's now running well. So we certainly in line with what we expected, we'll see good jet deliveries in the back half of the year, but also much stronger turboprop deliveries in the back half of the year. So in all those dynamics that we were kind of factoring into our plan are playing out exactly as we expected. So we certainly expect to see nice volume increases here through Q3 and Q4 with that margin step ups that will put us right on our target for the full year.

I appreciate that, Scott. Maybe just as a follow up and saying with aviation, just talk about, I guess, the demand environment, we continue to have very good bookings and just what you're seeing in terms of customer interest in the new models.

Yeah, the demand has been strong. So we're seeing good order flow. I think customers are very excited about the Gen 2s of both the M2 and the CJ3 coming out. Ascend, also getting close to certification here and we have a good backlog on that as well. So I think the aircraft portfolio is doing really well in the market.

Appreciate it. I'll jump back in Q. Thanks, Scott.

Thank you. Our next question comes from Sheila Kayagulu with Jefferies. Please go

ahead. Good morning, Scott and David. Maybe let's stick to aviation. Scott, on that last point, are you seeing any changes given the tariffs on competitors and yourselves? How are you thinking about tariffs and what were the higher warranty costs you mentioned for the aviation margin?

So we haven't really seen an impact yet on the tariff front. I would say that there are certainly some customers and let's say particularly in some Latin American countries that are concerned. But we'll see how that plays out. I guess our view of these things at the moment is to sort of not panic and give it a little time to let things settle out. So we'll continue to kind of watch it and see. But we haven't certainly have not yet seen any kind of dramatic impact. And as you know, Sheila, the bulk of our deliveries are U.S. The bulk of our manufacturing is U.S. So I think in the grand scheme of things, while the tariff stuff can create some concerns and some noise, I think we're actually pretty well positioned with our large North American manufacturing base and our largely North American based delivery. So I think in that respect, we're in pretty good shape. But on the warranty, there's always a few things moving around in there. We have had an issue that we've been dealing with probably for a couple of years that we feel like some of the work we're doing in the shops is coming in a little higher than what we originally expected. And we felt it was appropriate at this point just to sort of true up the reserves on that to make sure we can cover the balance of work that needs to be done there.

Got it. And maybe if I could ask one on bell margins, they fell below 8% in the quarter. You called out R&D costs. How should we expect that to progress through the remainder of the year?

Well, I mean, I do think we saw the, as we talked about, much higher revenue that we originally had in there on the EMD side of FLARA, which is obviously a fantastic program for us, but a little more margin challenged. So I think we'll see the balance of the year up a little bit from where we are certainly this quarter, to be honest, given the fact that we're going to have probably higher than our revenue guide, largely driven by the EMD piece of FLARA. We'll have higher revenues, but we'll probably be towards the lower end of the bell range driven by that.

Thank you. Sure. Thank you. Our next question comes from Seth Seisman with JP Morgan. Please go ahead.

Thanks very much, and good morning. I wanted to ask about systems, and I think two of the competitions that you've been looking at for decisions this year, programs either canceled or under review, but there's maybe some other opportunities emerging that you talked about. So how are you thinking about the systems outlook and the opportunities for growth there?

Yeah, Seth, look, I think obviously we were surprised by the situation on RCV and FTUAS to see those programs be terminated. In both those cases, I don't think it's the end. I mean, certainly the Army is going to continue to invest in robotics, and we will look for ways to participate in those future activities. The same is true on FTUAS. While the program, the FTUAS itself program was terminated, the Army again is putting more money into a tactical UAS system. So it's going to be acquired a different way, different competition, and clearly we will compete with our products in those opportunities. So it certainly impacted us in terms of what we would have expected timing of those programs, which we kind of had in the win column, but there's other opportunities that we'll pursue in both those spaces. What is happening in the year is that we're seeing nice growth and a number of big wins in other portions of the systems portfolio that I think will effectively offset the terminations this year of RCV and FTUAS. So there's been a number of things, competitions that are already awarded. Obviously, the Shipped Shore Connector program continues to grow. The Sentinel program continues to grow. And I think we'll see some nice wins in other pieces of the portfolio as well as we go through the balance of the year.

Okay. Okay. And then this was the, I think this was probably the highest earnings quarter for industrial in a little while. Is there, you know, do you feel like there's potentially some upside there versus the initial outlook?

Well, look, it's, you know, we're probably not revising our guides at the time, but I think the industrial business, you know, as you know, we've done a fair bit on, you know, post-powersports, taking costs out of the business and restructuring. You know, this is a year where you have this cyclical low on the golf side. That's actually a very predictable cycle and totally consistent with our plan. But I think the team is executing well here post-powersports and we'll, you know, we're certainly feeling good about being in the range, you know, despite taking the revenue loss on the disposition of the business.

Okay. Great. Thanks very much.

Sure. Thank you. Our next question comes from Robert Stellard with Vertical Research. Please go ahead, Robert.

Thanks so much. Good morning. Good morning. Scott, first of all on Flarrow, which I should call MV75, with the acceleration plan, would this require Textron to put in more capital to enable this 18-month acceleration?

Yeah, Robert, I would say sure. I mean, we've always had a capital plan that ties in with, you know, the production program and ramping that. You know, so certainly in terms of how we were thinking about the long term, this would accelerate those plans, let's say, on the order of around 18 months. So, you know, we've always anticipated that this, you know, was coming, but it's a manageable number and it's something that we factor into our long-range plan. And that would be a fantastic outcome if we have to spend more capital sooner to ramp this program.

Right. Yeah. And secondly, on aviation, you've seen some of your peers signing up to new big fleet purchases. Is this something you'd be interested in doing more of going forward?

Look, I think we're only interested in fleet business if it's good business. I mean, our demand continues to be strong. Our retail demand is strong. So, you know, we're always happy to look at fleet deals. As you know, we do some fleet deals, but it needs to, you know, make economic sense for us to participate in those. You know, in the meantime, we're very happy with our retail business. The demand is there. The backlog is there. So, you know, we always look at every opportunity, whether it's a one-off aircraft or a fleet.

Okay. Thanks, George. Sure. Next

question. Thank you. Our next question comes from Miles Walton with Wolf Research. Please go ahead.

Thanks. Good morning. Scott, I was wondering, given your experience in the Group 3 UAS market, is there any interest given the attention of the administration and the SECDEF on the smaller drone market for higher levels of investment at Textron more broadly?

Well, okay, the Group 3 has obviously been our strong suit. So, you know, there are opportunities. There's R&D work going on, looking at some of the smaller classes or, frankly, places where we might participate in some of these programs, but nothing that we would announce or specifically comment on at this time, I guess.

Okay. Good enough. And then I guess from a perspective of the 525, is there any update you can offer on that certification that does seem like the FAA maybe is moving along with things and maybe there's more adjudication that's being done?

Well, like, I mean, it's hard for us to comment. I mean, obviously that's very much an FAA process at this stage of the game. I'd like to think we're in kind of the last stages here and obviously a lot of documentation going back and forth and trying to get through final test criteria, and we're just going to continue to work that with the FAA. All right. Thank you.

Thank you. Our next question comes from Ronald Epstein with Bank of America. Please go ahead.

Hi. Good morning. This is Samantha Stierow on For Ron Today. I just wanted to ask about capital deployment. You did about 200 million of share repurchases in the quarter. How are you thinking about that going forward and then M&A opportunities?

Thanks. Sure. Look, as we've said, I think our primary focus on capital deployment is opportunistic share buyback. Obviously, that's certainly what we did in the first half of the year, and I would expect we will continue that through the second half of the year. From an acquisition standpoint, if something made sense, I think we have plenty of capacity to be able to do something like that. So in the meantime, the most logical thing for us to do, and I think the best return for our shareholders in terms of where we are, is to continue to focus capital in redeployment via share buyback.

Hello.

Thank you. Our next question comes from Dog Hutnard with Bernstein. Please go ahead.

Good morning. Thank you. Going back to demand, you've talked about it looks strong. We've heard some of that from others. But when you consider your – could you describe your discussions with corporate customers? Because on one hand, they've got uncertainty in this environment, this tariff environment on when to make capital investments. On the other hand, you've got bonus depreciation. How do you see these different factors playing into those decisions at your corporate customers?

I think net of everything is positive. I think the corporate world is healthy right now. Sure, everybody is doing it. Obviously, depending on companies, have a lot of different exposures or not relative to the tariff situation. But the demand, the dialogues are good. Flying is very strong, which helps to drive aftermarket. So it's sure, it appears to us that the corporate world is flying and buying and managing their fleets, as you would expect, in pretty good times.

And then separately at Bell, you're increasing high R&D in the quarter. Where are you directing that? Is that connected at all to MV25 or is that on the commercial side? What are you looking at in terms of investment there?

So MV25 is primarily contracted now, right? So that's all under the EMD phase. The R&D spending, obviously it looked lighter in the quarter. A year ago, that was largely because of the termination of the FAR program and sort of close out of that contract and whatnot. But when you look at and think about the balance of our year, we will have higher R&D spending. And the R&D spending on the commercial side is largely focused around the 525 and completing that program. On the military side, it's really focused around the R&D programs that we need to execute to support the development of the high-speed VTOL program, especially now with having been selected for the DARPA Sprint program. So that's sort of, you know, I would expect R&D to be fairly flat on a quarter to quarter, certainly up over last year, again, largely because of the increased spend on R&D associated with the high-speed VTOL program.

Very good. Thank you.

Thank you. Our next question comes from Noah Popnack with Goldman Sachs. Please go ahead, Noah.

Hey, good morning, everyone. On MV75, when you put the pieces together of movement in timing of EMD and LRIP, does total program revenue grow each of the next few years, or does it decline at any point in the window as you're shifting from development to LRIP and before you make it to 4-8 production?

Well, we don't know the exact answer to that yet, Noah. I think we have to continue to work on what the production acceleration looks like. EMD clearly is up here in the next couple of years. The pull forward of LRIP volumes would obviously add to that. So, I mean, I guess I feel fairly confident saying it's going to continue to grow up the next couple of years, but we've got to get that, you know, I mean, from an army budgeting standpoint, this is very much a work in process, right, as they look at their 27, 28, you know, and on program budgets, certainly what the secretary and the chief would like to go do when they talk about the volumes and getting things delivered out to the 101st would drive incremental volume here for the next several years.

Okay. And Scott, the industry has had these other examples of programs that fixed the LRIP pricing at the time of the bid, where, you know, by the time you get to LRIP, there's been cost creeps, so your LRIPs are break even or loss making. Can you talk about where you see price cost right now on the LRIPs compared to when you bid?

Well, I'm not sure we go into that level of detail, Noah. I mean, we expect, and like you know, the LRIP, the eight LRIP aircraft were bid as a fixed price as part of the original contract. And so you wouldn't expect margins to be very good there. I think, you know, part of what you see in our in our margin rates is, you know, pretty conservative assumptions on our part. You know, to have the appropriate amount of MR to support, you know, those programs. But, you know, those haven't been definitive ties yet. Supplier pricing has been locked in. So, you know, I don't have specific numbers for you, but we would we would expect those and I always have expected those, you know, to be pretty challenging for those first aid aircraft.

Okay. And then just last one I was hoping to ask you about, Scott, just how you're thinking about setting supply and deliveries at Cessna for the rest of this year and into next year. Just we've had this window with, you know, the strike and supply chain. It's a little tricky to sort of have a sense for where you think supply should be, I guess, on a run rate basis from here.

Yeah, well, look, I mean, obviously, you know, as we got all the way back to the beginning of the year, you know, we certainly have a production plan that has a ramp going through the course of the year. So that's been well communicated to all of our suppliers, obviously. And, you know, as you know, we're probably a lot of our stuff is in that two year, you know, for some of that long cycle material. So certainly, you know, those suppliers are understanding with where we are on the ramp, you know, this year and even out through 2026 as well. So I think, you know, supplier communication and recognition of what that supply chain ramp needs to look like is pretty well understood. Not everybody is totally there, obviously, you know, the supply chain, I would say, is in much better condition than it was going back a couple of years ago. But you still have issues that pop up. And as we always say, it's good not to have too many supplier problems, but every supplier part is an important part, right? So it's I think, you know, it's not because of a lack of understanding of what the ramp needs to be. It's execution. And obviously, we work through it every day.

Should we should we still be thinking about the 2019 just over 200 units being recovered in the medium term?

I'm not sure we're prepared to give guidance for 2026 just yet.

OK, fair enough. Thank you very much. OK, OK.

Thank you. Our next question comes from Gautam Khanna with TD Cohen. Please go ahead.

Good morning. Thanks, guys.

Was

wondering if you could elaborate a little bit on commercial helicopter demand, how that's trending.

I'd say it's strong, actually, across all the models, everything from, you know, 412 all the way down to the 505. I think the commercial helicopter business is in good shape. You know, we had strong delivery on a year over year basis here in Q1, Q2. You know, Q3, Q4 was much stronger last year. I think we'll have, you know, more comparable comps on a year over year basis, but certainly for the for the total year helicopter deliveries are looking good and order activity is very good. So I think I think that business is in is in good shape.

And just stepping back broadly, would you say that you haven't really seen much demand erosion due to tariffs and all the trade policy uncertainty across the portfolio? Or have you? Not at this point.

No, we have not seen evidence of that yet. I'm not saying it can't happen, but, you know, I think most customers are, you know, are are sort of, you know, taking sort of a wait and see with some of these things or just assuming that things are going to get resolved. And again, if you look at, you know, a lot of our stuff, particularly the fixed wing world, business jets, we are largely North American anyway. A lot of our international helicopter things end up being either FMS or some, you know, military and I think that that activity, that order rate seems to be continuing, you know, despite a lot of the tariff dialogue.

Thank

you. Sure. Thank you. Our next question comes from Christine Lwag with Morgan Stanley. Please go ahead.

Hey, good morning, everyone. Scott, maybe on tariffs and aviation, I mean, tariffs are increasing the cost for your European and Brazilian competitors. As these things shake out and some of the tariffs stick, ultimately, they'll probably see an incremental higher cost for U.S. customers. So when we think about this shaking out in the next few years, do you see this as an opportunity to gain market share or is this an opportunity to get more price and also get more margin?

Well, look, Christine, I think again, we I think we need to give this time and see where all the tariff dialogues settle out. So I'm a little reluctant to think about a year, two years, three years, you know, down the road on these things. But I mean, there are certainly cases where we have foreign competition that just has a lower cost basis and tends to be more aggressive on price. And, you know, we we kind of hold the line in there and have tried to be focused on making sure we're running a profitable business and the business can afford to keep reinvesting in product lines. And we'll continue to do that. You know, does that do long term tariffs start to play a little more of a normalizing in terms of some of the cost and pricing that we see? I mean, that could be, but it's it's I'd say it's too early in the process to really know the answer to that question.

Thanks. So maybe switching gears to aviation, you know, earlier this year you had the Nuva V300 get its first flight. How's been the customer reception of this aircraft? And are you expecting this to enter into service this year? And should it enter into service this year? What kind of customer milestones or production rate are you thinking about for an aircraft like this?

So the flight test program continues, you know, so there's a lot of work going on. You know, we continue to fly, you know, regularly. It's it's obviously we've done a fair bit of hover flying. You know, we do need to go into conversion mode, you know, and like I think seen in terms of certifications of aircraft of this class, that's just something I don't see in the in the near term. I do think we see some interest on some military applications. I mean, given the range and the payload capability of this craft compared to others, I think we could have a real advantage there. And so but, you know, we're in early dialogues with those prospective customers as they start to see what this aircraft, you know, could really do from a performance standpoint. But right now, on a commercial basis, I see no pathway to, you know, how you certify these these kinds of aircraft. So I certainly wouldn't expect something that could happen anywhere near this year or next year.

Great. Thanks for the color.

Sure.

Thank you. Our next question comes from Gavin Parsons with UBS. Please go ahead.

Thanks. Morning. Morning. Morning. I guess it's been kind of four four quarters now that aviation margins have been pretty disrupted. Is the second half of this year pretty normal? So as we think about going beyond 25, is that a good baseline?

Well, I think our progression of margin through the course of the year is is playing out as we expected. And so, you know, I think the issues that we had around the, you know, the impacts of the strike and what that meant to our shift in our production to the right and a lot of the disruption and things of that nature are fairly well behind us. And so I think we're very much on plan to hit the guide numbers that we gave you guys. And so, you know, certainly with those disruptions behind us, you would expect to see, you know, good margins for the business as we go on into 2026. So we're not going to get yet. But obviously, you know, we you'll you guys will definitely see, you know, the kind of margins that we expected, you know, for the for the full year, you know, to come in, you know, you know, well within that that range that we guided. So, and look, I think considering all the disruptions and challenges from the strike and the holdover and ongoing supply chain issues to be, you know, posting real about 12 percent margins, it's the bank, the business is doing pretty well. Certainly, we expect that margin rate to expand over the course of the year.

Thanks. And then once you get through Denali, any categories receive the opportunity for a new aircraft and aviation?

Not that we are prepared to announce at this time.

Okay, thank you.

Thank you. Our next question comes from David Strauss with Barclays. Please go ahead.

Thanks. Thanks for taking the follow up. Scott, what's the what's the outlook for King Air? I mean, the volumes have come down a fair amount there. Where could that settle out for the year?

Sure, David. Look, I think the King Air line, as I kind of mentioned earlier, is is one of the more challenging lines. I mean, it's just an older product line in terms of tooling and documentation. I mean, it's always been a great product, but, you know, the it probably was impacted more than anything else in terms of just the challenges of going through the strike and all the covid turnovers and all that kind of stuff. I think that line has stabilized and is running much better, you know, than it was. And so, like, I think you'll will have strong deliveries in Q3 and Q4 on the on the King Air line. So, as I said, it's probably the last line to recover from a lot of disruptions. It is now flowing well. And like I say, I think it supports considerably higher deliveries in Q3 and Q4.

Okay. And Caltechs, was that was that flat or maybe just down a little bit in the quarter?

I was down a little bit in the quarter, which again is what we expected. You know, I think the global automotive markets are more or less behaving as had been expected. And, you know, that team continues to do a nice job in terms of managing cost and capital deployment and all that kind of stuff. So, you know, I'd say on the on the positive side there, you know, we've been investing, as you guys know, for a number of years around Pentatonix to make sure that we have a good play in the pure battery electric vehicle market. We do continue to see nice momentum shift in hybrid, which is an important piece of the of the tank business for us and not just the tank piece, but also the opportunity to participate in the in the battery portion of a hybrid vehicle and the wind this, you know, the last quarter with a major OEM on their EV platforms, I think is encouraging for the for the future of that business.

Okay. And then last one, Dave, on the on the tax rate step up, is that is there fairly rattleable Q3 Q4 or is there a big big catch up in Q3?

You're right, David, it's going to be a big

catch up in Q3, you know, reflecting the cumulative impact to date for the year or so. The the the it will be Q3 skewed.

But I think on the tax thing, guys, everybody I mean, I know there's a lot with a lot of companies, right? The tax bill is a very good thing, right? I mean, it's going to give us a significant impact on cash for the next several years. The bonus depreciation is clearly positive for our customers who buy our large capital assets. It's also good for us because we do deploy capital. So I think, you know, there's this is mostly good. We are going to take this near term perturbation of a tax rate increase, which, as David said, is probably two or three hundred basis points. That is it is what it is. But I think, you know, net of everything, the tax bill is a is a good thing for our company.

Sorry, on the back of that, I got to ask one more. So on on on section one, so before I thought the benefit might be larger than one hundred million that you took cash flow up by. Is there any offset to that running through the numbers? That's

where we see it right now, you know, where it's a relatively complicated bill. So we're continuing to evaluate it and we'll continue to try to drive additional opportunity. But that's how we see the impact, at least for this year at this point. But as Scott mentioned, overall, it's a it's a significant positive on cash flow as we go forward.

OK, thanks, guys. Appreciate it.

Thank you. Our next question comes from Pete Skibitsky with Alembic Global. Please go ahead.

Hey, good morning, guys. Scott, just one Scott, just one quick one for me in the second quarter, one of your engine suppliers, Williams International announced a pretty sizable. I think they're calling it a billion dollar expansion into Florida and in some of their other facilities as well. And obviously, they have other customers. But I was wondering if you give us any color at all in terms of what that might mean for citation and just the visibility to continue to grow maybe beyond the near term.

Well, I mean, I obviously I won't comment on their particular expansion, you know, works. But what Williams Williams is a very important supplier to us. They've been a very good supplier to us. They deliver a great product. It's, you know, has a history of delivering great performance and, you know, it's a good relationship and one that I expect to see to continue to grow into the future. Williams does a great job of supporting our new product programs and expect they'll continue to do so in the future as well.

Thank you. Thank you. At this time, we have no further questions. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.