RTX - RTX Corporation

Operator: Good day and welcome to the RTX Third Quarter 2025 Earnings Conference Call. My name is [ Desiree ] 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 on 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 nonrecurring 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 risks and uncertainties. RTX SEC filings, including its Forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Christopher Calio: Thank you and good morning, everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system and the durable demand for our products. On the top line, sales were up 13% organically year-over-year with double-digit growth in each of commercial OE, commercial aftermarket and defense. Adjusted segment operating profit was up 19% year-over-year with growth and margin expansion across all 3 segments. And free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services. In commercial aerospace, passenger air travel has remained resilient with global RPKs on track for approximately 5% growth this year. We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter as well as at Pratt, which saw a 6% growth in large commercial engine deliveries. Commercial aftermarket also remains strong, supported by our large and growing installed base, including over $100 billion of out-of-warranty content at Collins and heavier shop visit content across our MRO activities. Aircraft retirements have remained low with only 1.5% of the V2500 fleet retired so far this year. And Pratt Canada, with nearly 70,000 engines in service has seen over 15% growth year-to-date in commercial aftermarket. On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers, in particular, with respect to munitions and integrated air and missile defense, both core capabilities of our company. On the orders front, our book-to-bill in the quarter was 1.63, resulting in a backlog of $251 billion, up 13% year-over-year. The activity in the quarter included $37 billion of new awards with $23 billion of defense and $14 billion of commercial orders. On the commercial side, through Q3, our book-to-bill this year was 1.71 and our backlog has grown 18% since the end of 2024, showing the exceptional demand for our products and technologies at both Collins and Pratt. At Raytheon, we booked over $8 billion of orders for munitions, including approximately $2.5 billion for GEM-T to support multiple international customers and $2.1 billion for AMRAAM, the largest order in the 30-year history of that program. Raytheon was also awarded a significant counter drone contract for Coyote production from the U.S. Army. Coyote has proven to be extremely effective in the field and we've recently developed a lower-cost, non-kinetic Coyote payload to combat drone swarms. And Pratt was awarded over $3 billion to support the F135 engine, including the Lot 18 production contract. So overall, our end markets and operational performance remained strong as we enter the fourth quarter. Based on this, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook of $7 billion to $7.5 billion. Neil will take you through the details in a few minutes. But before that, let me provide an update on our strategic priorities on Slide 4. Starting with executing on our commitments. Our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping headcount flat across the organization. This has been a key enabler in driving 6 consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track. PW1100 MRO output was up 9% in the quarter and is up 21% year-to-date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output. In Q3, we saw another quarter of solid progress with growth in isothermal forgings up 16% and structural castings up 29% year-over-year. Exiting the third quarter, this material flow has supported a record high number of PW1100 Gate 3 starts, which is where we reassemble engines during a shop visit, putting Pratt in a position to deliver about 30% MRO output growth for the year. And across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over $600 million this year in expansion projects. For example, Raytheon is on track to invest $300 million in capacity expansion to deliver the growing backlog. This includes the Redstone missile integration facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the standard missile franchise. Shifting to innovating for future growth. Pratt Canada was selected by the EU's Clean Aviation program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft. This system integrates a 250-kilowatt electric motor and advanced propeller technology from Collins and is expected to improve fuel efficiency by approximately 20%. Additionally, Collins is nearing final certification of its next-generation braking system for the A321XLR aircraft. The design incorporates proprietary carbon technology and is expected to extend brake life and drive improved profitability in our maintenance support portfolio. And Raytheon recently demonstrated 2 significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from a fifth-generation fighter. And the StormBreaker team in just 50 days, designed, developed and tested a new ground launch demonstrator version of this air-launched effector, which will expand the capabilities and future applications for this product. And finally, we remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision-making in our business. We're strategically using these tools to support the highest impact opportunities across the company, including increasing munitions and OE production rates, growing GTF MRO output and improving sales and inventory planning and management. For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework, which has contributed to output more than doubling year-to-date through Q3 on the program. These examples highlight the progress that we continue to make across our strategic priorities and I'm pleased with the results they are yielding throughout the company. With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year. Neil? Neil Mitchill: All right, Chris. Thanks. I'm on Slide 5. In the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically. As Chris mentioned, this was a very strong result in the quarter with commercial aftermarket up 18% and commercial OE and defense, both up 10%. Adjusted segment operating profit of $2.8 billion was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all 3 segments. Adjusted earnings per share of $1.70 was up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations, which impacted EPS by approximately $0.12. These items more than offset a $0.04 headwind from the recently enacted tax legislation. On a GAAP basis, EPS from continuing operations was $1.41 and included $0.29 of acquisition accounting adjustments. Free cash flow was very strong at $4 billion, driven by working capital improvement, including strong collections and some advance payments tied to contract awards in the quarter that were accelerated from Q4. Cash flow for the quarter also included approximately $275 million for powder metal-related compensation and $220 million of tariff-related impacts. With respect to capital allocation, we returned over $900 million to shareowners through dividends in the quarter. And with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter. And finally, during the quarter, we completed the sale of the actuation business. And earlier this month, we also completed the sale of Collins' Simmonds Precision Products business for $765 million. Okay. Turning to Slide 6. Let me provide a few details on our updated outlook for the full year. As you've seen with our third quarter results, execution and momentum across all 3 segments continues to be strong. Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full year adjusted sales outlook to a range of $86.5 billion to $87 billion, up from our prior range of $84.75 billion to $85.5 billion. This now translates to between 8% and 9% organic sales growth for the year, up from our prior range of 6% to 7%. By channel, at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow mid-teens year-over-year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt. On the commercial OE side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year-over-year. And on defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all 3 segments, we are increasing adjusted earnings per share $0.30 on the low end of our range and $0.25 on the high end. At the midpoint, the increase is primarily driven by approximately $0.20 of improved segment operating profit with the rest coming from a few below-the-line items. And within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year, up from our prior range of $5.80 to $5.95. Specific to Q4, we expect another quarter of strong operational performance at the segment level, with segment profit up around 10% year-over-year, excluding the impact of tariffs and recent divestitures at Collins. Below the line, the Q3 $0.12 tax benefit I mentioned will not repeat, we expect a higher effective tax rate in the fourth quarter. On free cash flow, we are on track to achieve our outlook of between $7 billion and $7.5 billion for the year. The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter, segment operating profit growth and working capital improvement. And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued top line growth, margin expansion and solid free cash flow conversion. And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026. So with that, let me hand it over to Nathan to take you through the segment results for the third quarter. Nathan Ware: All right. Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.6 billion in the quarter, up 8% on an adjusted basis and 11% organically, driven by strength across all 3 channels. Adjusting for divestitures by channel, commercial OE sales were up 16% versus prior year, driven primarily by higher volume on narrowbody platforms. Recall, last year included the impact of the Boeing work stoppage in the quarter. Commercial aftermarket sales were up 13%, driven by a 17% increase in mods and upgrades, a 13% increase in parts and repair and a 10% increase in provisioning. Defense sales were up 6% versus the prior year, driven by higher volume across multiple programs and platforms, including the Survivable Airborne Operations Center program. Adjusted operating profit of $1.2 billion was up $98 million versus the prior year as drop-through on higher commercial aftermarket, defense and commercial OE volume, along with lower R&D expense was partially offset by unfavorable commercial OE mix and the impact of higher tariffs across the business. Turning to Collins' full year outlook. We continue to expect sales to grow mid-single digits year-over-year on an adjusted basis and high single digits organically. And we now expect operating profit growth between $325 million and $375 million versus 2024, up from our prior expectation of between $275 million and $350 million, driven by drop-through on higher commercial aftermarket volume. Keep in mind, this updated profit range includes an approximately $60 million year-over-year headwind associated with the business divestitures completed this year. Shifting to Pratt & Whitney on Slide 8. Sales of $8.4 billion were up 16% on both an adjusted and organic basis, driven by strength across all channels. Commercial OE sales were up 5%, driven by increased volume in large commercial engines and favorable mix in Pratt Canada. Commercial aftermarket sales were up 23%, driven by higher volume in both large commercial engines and Pratt Canada. In military engines, sales were up 15% in the quarter, driven primarily by the F135 program, including higher volume associated with the Lot 18 contract award. Adjusted operating profit of $751 million was up $154 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume. This growth more than offset increased large commercial OE deliveries, higher SG&A expense and the impact of higher tariffs across the business. Turning to Pratt's full year outlook. We now expect sales to grow low to mid-teens on an adjusted and organic basis, an increase from our prior range of up low double digits, driven by strength in commercial aftermarket and favorable commercial OE mix. And we now expect operating profit growth between $350 million and $400 million versus 2024, up from our prior expectation of between $200 million and $275 million, driven by drop-through on higher commercial aftermarket volume and favorable commercial OE mix. Now turning to Raytheon on Slide 9. Sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including international Patriot and higher volume on naval programs, including multiple classified programs, SM-6 and the Evolved SeaSparrow Missile. Adjusted operating profit of $859 million was up $198 million versus the prior year, driven by favorable program mix, including international Patriot, improved net productivity and higher volume. Net productivity improved $57 million year-over-year. Recall, Q3 of last year included an unfavorable impact of $53 million related to a classified program. Bookings in the quarter were $15.9 billion, resulting in a book-to-bill of 2.27 and a record backlog of $72 billion. International backlog represented 44% of Raytheon's total at the end of the quarter and was up 18% on a dollar basis year-over-year. Other key awards in the quarter included $1.5 billion for LTAMDS production and over $500 million for Stinger production. These awards will support both domestic and international customers. And on a rolling 12-month basis, Raytheon's book-to-bill is 1.43. Turning to Raytheon's full year outlook. We continue to expect sales to grow low single digits year-over-year on an adjusted basis and mid-single digits organically. And we now expect operating profit growth between $400 million and $450 million versus 2024, up from our prior expectation of between $225 million and $300 million, driven by the favorable international program mix we saw during the third quarter. With that, I'll hand it back over to Chris. Christopher Calio: Okay. Thanks, Nathan. We have great momentum across RTX. We delivered strong top and bottom line growth this quarter and our end markets remain robust as seen by our recent customer wins and 1.63 book-to-bill in the quarter. Our backlog now stands at $251 billion and we remain focused on our strategic priorities across the company, giving us confidence in our ability to deliver strong growth in sales, earnings and free cash flow well beyond this year. With that, let's open it up for questions. Operator: [Operator Instructions] The first question will come from the line of Rob Stallard with Vertical Research. Robert Stallard: This is probably for Neil. You've raised the aerospace OEM guidance for the year. So I was wondering if you could dive into the details below that. And probably in conjunction -- for Chris, probably I suppose, how confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year? Neil Mitchill: Thanks, Rob. Let me start on the guidance and then I'll hand it over to Chris. Again, really strong quarter here in the third quarter. And what we've done with our outlook is we've dropped through that goodness for the full year. Also taking up the top line, if I kind of focus that around the midpoint at the top line at the RTX level, we'll see about $1.6 billion increase. Commercial aftermarket is a large portion of that. Commercial OE is about $200 million there. I'd say that $50 million of that is coming from Collins. The rest of it is at Pratt & Whitney. And what we're seeing there is continued delivery strength on the Collins side, particularly as we get into the last quarter of the year here on increased rates on 737 and 787. And on the Pratt side, I'd attribute that to the engine mix. On the aftermarket side, a lot of that sits at Pratt & Whitney, about $1.1 billion of the $1.6 billion that we're talking about on the increase sits inside of Pratt & Whitney with the majority of that in the aftermarket. We had a really strong third quarter. As you heard Chris talk about, the increase in MRO output is driving GTF aftermarket. We're also seeing strong V2500 mix and heavy shop visits there. So again, letting that drop through for the full year and you'll see that both on the top and the bottom line. And then finally, there's a couple of hundred million dollars at Raytheon on the defense side. We've got 10 consecutive quarters here of material receipt growth and we're continuing to get ready for the delivery of that large backlog and a backlog we expect to continue to grow. So those are the big moving pieces on the top line. Of course, dropping through on the bottom line, you see the profit there. We've had some favorability on below-the-line items as well and we're letting that kind of come through as we stare at just 90 days to go. Christopher Calio: Rob, I'll pick it up from there on the second part of your question on deliveries. I mean, overall, we feel pretty good about how we've executed this year and supported the production ramps for both the aircraft -- for all the aircraft OEMs. We're going to continue to work very closely with Airbus to make sure that they have what they need down the stretch of the year, while also continuing to balance the allocation of material as we've talked about before, because we've got to continue to support the fleet. So that's going to continue to be a focus. I'll remind folks that we're up over 50% versus our 2019 production levels. We've continued to ramp production pretty robustly. And again, going to work very closely with our airframe customers to make sure they have what they need so they can hit their deliveries for the end of the year. Operator: Our next question comes from the line of Myles Walton from Wolfe Research. Myles Walton: Neil, maybe just a clarification first and then maybe, Chris, a question on Raytheon segment. On the clarification, the 30% output for the full year, I just want to make sure that's 30% output for GTF and so a pretty steep 4Q MRO output improvement you're looking for there. And then, Chris, on the Raytheon outlook, could you just comment on the limitations to growth? It's clearly not a demand situation here that you're poor on and would expect that the Raytheon segment's revenue would start to accelerate pretty meaningfully. Obviously, we saw some of that here in the third quarter but didn't raise in the full year. And so maybe what are the limitations there? Christopher Calio: Yes. Thanks, Myles. Maybe your question on the GTF MRO output, I'll start there. And you're right, through the year-to-date, up about 20%. We need to get to that 30% level. MRO output, as I've said, pretty consistently, is the key to continuing to push down our AOG levels. And I think we're in a pretty good position to be able to hit that 30% for the full year. And there are several factors that kind of put us in that position. I mean, first, we exited September with the record number of [ gate ] restarts, as I said previously, that's the reassembly and then the testing process. So feel good how we've come out of the gate here, no pun intended. Material flow in the critical value streams was pretty strong. Isothermal forgings were up 16% year-over-year, as I mentioned, structural castings 29% year-over-year. Another piece here is our repair network, demonstrated some strong increase here in Q3, 30% year-over-year. That helps lessen the demand for new parts, which should again help the flow in Gate 2. We've continued to see progress with productivity in our shops. Again, exited Q3 and September with about 80% of our MRO completions on the GTF averaging 110-day turnaround time in the shop and that's on heavier work scopes. Those are the things that I think put us in a position to go drive here in the fourth quarter on MRO output, ultimately to support the fleet. On your questions on Raytheon and I'll invite Neil to come in as well if he wants to talk about some of the puts and takes in the quarter. But overall, the headline story here is just continued exceptionally strong demand, right? The book-to-bill in the quarter at 2.27, $16 billion of new orders. The demand is there and we're continuing to invest in capacity to ensure that, that demand can be met. You heard us talk about the $300 million this year. If you just think about since 2020, just at Raytheon alone, it's been about $1 billion on capacity expansions and automation. And then I'll tell you, for us, it's looking at the supply chain and making sure that it continues to be healthy. We're seeing our 10th consecutive quarter of material receipts growth, which is great. We've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics, rocket motors and the like. So while performance has stabilized and been good, we need to continue to see that accelerate '26 and beyond because the demand is there. Neil Mitchill: Chris, I'll just add to that a little bit. Myles, you alluded to it. The third quarter is seeing a very substantial 10% organic growth at Raytheon. If you look under the covers there, just a couple of kind of anecdotes. Our naval power business is in line with that level of growth but our land and air defense systems business is significantly higher than that. So that growth that you're talking about, we're seeing come through in that side of the business, in particular, as it relates to Patriot and GEM-T output. So the business is very diverse, as you know. And when you look at it at the Raytheon level, I still think we're going to see very strong aggregate organic growth going forward. But certainly, within the areas of munitions and air and defense systems, we're seeing growth that's well above what we're reporting at the Raytheon level. Operator: Next question comes from the line of Peter Arment from Baird. Peter Arment: Maybe just -- maybe we just stick with -- in Raytheon, it's not just been a top line story or the backlog, you've also had really good performance on the margin side of things and continue to show really good margin expansion. How should we think about that as this kind of continues to see growth accelerate but you've got higher international mix? Maybe just walk us through kind of your thinking around Raytheon's margins in the longer term. Christopher Calio: Yes. Peter, you're absolutely right. When we talk about the backlog at Raytheon, which is substantial, huge orders in the quarter and if you think about the international portion of that backlog, it now sits at about 44%. And our top 3 programs in that backlog are international. So that certainly provides a tailwind. I would also tell you, the team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to take cost down and to drive productivity. I can give you a number of examples this year where Phil and the team have used our core operating principles to drive increased production and to drive down cost. And if you just think about some of our top programs, we're going to have significant increases in production this year. Just think AMRAAM, you think GEM-T, Coyote, significant production ramps, again, enabled by more efficiency in our shops, which, again, drives down cost and provides some margin tailwind. Neil Mitchill: Peter, I'll add that during the third quarter, really pleased to see positive productivity on top of significant year-over-year productivity. Obviously, we had a onetime item last year. But year-to-date, it's about $75 million or so of productivity improvement. That's on top of $160 million last year. So the business is getting back to its formula of driving efficiencies and driving productivity. And clearly, the growing backlog creates more opportunities for us to do that. So now those are significant items here in the quarter. The mix was heavily international focused, particularly on the Patriot deliveries but we'll see that change a little bit in the fourth quarter. But long term, as Chris said, the mix of the backlog supports an expanding margin and we're happy to see the productivity continuing to develop in the business. Christopher Calio: The only thing I would add to that, Peter, just to build on Neil's comment is, it's not only the mix of international and domestic, it's the mix in terms of the products that you're seeing in there. In terms of the $16 billion in orders this particular quarter, $8 billion in effectors. Those are things directly in the core capabilities of Raytheon, where we've got mature processes, where we've been able to historically yield productivity. So another piece of good news on that front. Operator: Next question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: Neil, looks like Pratt commercial OE revenue was up 5% on 6% higher shipments. So was the GTF spare engine ratio down year-over-year this quarter? Or are these spare engines just being heavily discounted for the customers that are impacted by the powder metal issue? I'm just trying to understand. Neil Mitchill: Yes. I wouldn't say -- yes, thanks, Scott, for the question. I would not say that our spare engines are being heavily discounted. As you all know and as Chris has talked about earlier today, we're balancing the output of installs, spares and material to the MRO network. And we're doing the same thing here in the third quarter. I would not say there's any major difference in the level of mix between OE and spares that we saw in the quarter. And as we've talked about in the past, we expect that to continue. There's a lot of demand for all of these engines, whether they're going to Airbus, whether they're going directly to an airline customer or material heading into MRO network. So nothing unique there in the quarter. And as we look at the fourth quarter, we do expect continued OE step up there. On a year-over-year basis, there will be a little bit more headwind from the higher negative engine margin in the fourth quarter. But again, still expect reasonable balance of spares and the typical fourth quarter aftermarket performance from Pratt. Operator: Next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: Maybe touching base on the Boeing 737 MAX and 787. Can you level set us regarding the run rate you're currently producing and how we should think about incremental margins on these programs as volumes continue to ramp up? And ultimately, how does that expectation relate to your overall Collins margin expectations? Christopher Calio: Yes. Thanks, Kristine. As it relates to the Boeing ramp, first of all, really pleased to see the approval and ability to go to a higher rate on 737. I would say we are, at this point, aligned with Boeing on the rates that they're at now and where they want to go across Collins. And again, as we've said before, Collins has delivered at a higher rate in the past. So we've got this -- the capacity to support the volume ramp. And so feel good as this continues to go to higher rates that we're going to be prepared to support Boeing in their effort to do that. Again, it -- like everything else, it's going to come down to the continued health of the supply chain. We've been very, very transparent with kind of where we are with the supply chain and what we need. That's continued to bear fruit and feel like we're in a good position to continue to support Boeing as they move forward. Neil Mitchill: And if I just pick up there, obviously, when we set the outlook at the beginning of the year, we had a set of assumptions and we were delivering to that. There was a little bit of inventory in the channel. Right now that we're almost -- we're more than 3/4 of the way through the year, a lot of that is behind us. And so we're pretty synchronized with Boeing and their delivery schedule. Obviously, the mix of higher 787, as you all know, on the Collins side comes with some margin challenges. But longer term, as Chris alluded to here, these rates are increasing back to levels that we've capacitized for. We'll get better absorption and that will contribute to the continuation of margin expansion in the Collins business as it relates to the OE business. And of course, as you get more and more of these new aircraft out there, along with that comes provisioning and the aftermarket that goes along with all of that. So I think it's right on track. And of course, we'll be back January with a little bit more precise outlook for next year but we see growth ahead on the Collins front. Operator: Next question comes from the line of Gautam Khanna from TD Cowen. Gautam Khanna: Was wondering if you could just update us on your expectations through '26 on the GTF compensation payments. Has there been any change to the timing of when we get down to a much lower level of AOGs and the like? And is the provision still adequate? Neil Mitchill: Thanks, Gautam. I'll take that one. Today, we sit here and the financial outlook remains consistent with the outlook that we've had for now a couple of years. The team continues to be disciplined with our compensation payments to our customers. I'd say we're right on track with where we expected to be this year. We have some more to go, a little bit heavier fourth quarter payments. That was all planned and contemplated in our outlook. We said between $1.1 billion and $1.3 billion for the year. And so the residual falls into next year. I'd say right now, no change to that outlook. It seems on track. Operator: Next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: Can you speak a little bit to the margins in Collins? It seems like the incremental margins might have been a little bit weaker than what we were thinking. Is that tariff related? Or how should we think about that? Neil Mitchill: Yes, definitely tariff related. During the quarter, Collins saw about $90 million of headwind from year-over-year tariffs, actually same number that Pratt saw for the quarter. So I think if you put that aside, the team is doing a great job making that a smaller number as we move forward. A number of mitigations have been identified but that's really the key driver there in what's dragging down the margins. I think as we go forward, we continue to do a lot of work to continue to support our products and qualification for USMCA treatment or bonds as we reexport material outside of the United States. So -- and of course, pricing. So there's an opportunity there to continue to mitigate the headwinds but that's what you saw in the third quarter. And you'll see that again in the fourth quarter, obviously, for both Collins and Pratt, too. Operator: Next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe if I could just go back to Pratt. And if we could just talk about the moving pieces for the top line and also the bottom line. Just on commercial, you raised commercial OE revenue guidance by [ $150 million ] at Pratt pointing to mix. How do we think about -- is that just the GTF advantage coming in, so higher revenues per engine and the spares mix? And then how that factors into the bottom line with the negative engine margin headwind? Is it still $150 million to $200 million in '25? And how we think about the higher MRO output into the fourth quarter and into '26? Neil Mitchill: Sure. Let me take that, Sheila. As I said earlier on the call here, the Pratt uptick in the revenue outlook is about $1.1 billion at the midpoint of our guidance. About $150 million of that is on the OE side. And I would say it has nothing to do with the GTF advantage at this point. It's really just finalization of the year, the mix of spare engines versus install engines and the volumes that we see there. So that's what's driving the top line there, frankly. We're also seeing about $100 million on the defense side of Pratt & Whitney and we are happy to get the Lot 18 production contract executed in the third quarter. That drove most of the growth that Pratt saw on the military side in the third quarter. And so as we play that forward, the material receipts coming in, we expect a little bit of upside there. The rest sits in the aftermarket. And if you think about the third quarter and the fourth quarter MRO output that we just talked about, that comes with revenue. So there's a heavy mix of that towards the GTF. Obviously, that comes with some profit but not the same kind of profits that we see on the V2500. That said, on the V2500, I talked about 800 shop visits for the full year. I'd say we are right on track. It's been pretty linear throughout the first 3 quarters of the year. So we expect another quarter of about the same level of volume on the V2500. Those shop visits are getting a little bit heavier. And so that's what you're seeing in the top line. And of course, that's dropping to the bottom line. As it relates to full year negative engine margin, no change to the outlook from the beginning of the year, still within that [ 150 to 200 ] year-over-year headwind. I expect it's going to land somewhere in the middle of that at the end of the year. Operator: Next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: Wanted to ask just a quick clarification and question. Just following up on Sheila's question, at Pratt and GTF, given negative engine margin outlook is still the same, are we still thinking about 14% growth in GTF deliveries for the year and which implies a very, very strong Q4? And then as a question, I guess, as we think about where the company is going to exit this year, balance sheet should be getting into better shape. How do you think about capital deployment as we go forward and maybe balancing the ability to start returning some cash along with maybe some of the investment requirements that might be ahead, especially on the defense side? Neil Mitchill: Yes. Thanks. I appreciate the question there. As it relates to -- I'm sorry, the first question was on GTF engines. As it relates to that, when we started the year, I talked about growth that was similar to last year, didn't put an exact number on it. As I sit here today, I think we're going to end up in the high double -- high single-digit rather, growth rate. So think about 8% to 10% kind of range. So that -- you can do the math on the fourth quarter there. Broader -- thinking about capital return, we were really pleased with the level of debt paydown that we've made year-to-date. As you all know, we did some buyback a number of years ago. We took some debt out. We've been repaying that over the last couple of years. Continue to do that as we move into next year and get back to the levels that we enjoyed of debt before executing that transaction. I think as we step back, we're prioritizing the dividend as we always have and we expect that to continue to grow with earnings over the next couple of years. And then making sure that we're making the right investments in the business for the future, research and development, capital. We've got a healthy level of CapEx invested -- expected this year, $2.5 billion to $2.7 billion, similar amounts of company-funded R&D throughout the business this year and I expect that to continue as we look forward. Chris? Christopher Calio: Yes. No, just to emphasize something that Neil said there, which -- he's spot on. And that's -- as the need for investment in defense potentially continues to grow, those are things that historically, we've been able to do in addition to our capital deployment and allocation strategy. If you just look at our average investment, it's about $1.5 billion a year company-funded investment in defense, capacity, automation, R&D. So we've been able to continue to invest where the business cases make sense. And for us, Seth, it's really a conversation with the government around long-term demand signal. How do we build a business case around investing when we can have visibility into the long-term demand. When we've seen it and when we feel good about it, we've invested. But again, I think in terms of the capital deployment strategy, it's an and, not an or. We can do both. Operator: Next question comes from the line of Scott Mikus from Melius Research. Scott Mikus: Chris, you mentioned V2500 retirements have been low and that's a trend we've seen coming out of COVID. We're kind of at a point where ASKs, at least domestic ASKs are growing below the pre-COVID trend. Next year, Boeing and Airbus will probably deliver 1,300 narrowbodies and we'll have potentially hundreds of GTF-powered aircraft returning to service. So when you think about V2500 shop visit visibility into next year, are you requiring customers to put down deposits to reserve shop visits just to make them a little bit more sticky? Christopher Calio: Yes. Thanks for the question, Scott. So look and Neil said this upfront, the demand for the V2500 continues to be strong and that's separate and apart from what you just mentioned. And that's because, frankly, what's the dynamic of what's going on in the fleet, obviously. So people need to continue to use their Vs but it's also the characteristics of that fleet. It's still a relatively young fleet. Average age is 15 years. 15% haven't seen a first shop visit, 40% haven't seen a second shop visit. So there is just natural significant aftermarket runway ahead on that program. Customers love the application. And so we feel good about the demand on this going forward, frankly, above where we thought it would be 1 year, 2 years ago, continues to have runway. Operator: Next question comes from the line of Doug Harned with Bernstein. Douglas Harned: On Raytheon, you talked some about margins before. This quarter, you got over that 12% level that I know you've been looking at for some time. And when you talk about the opportunities here, higher volumes, more international, more mature fixed price work, are you kind of where you want to be already? Or can we see more upside from here on margins as you go forward over the next few years because it does set up well. Christopher Calio: Yes. Doug, we're really pleased, again, with where Raytheon is. I mentioned before, demand is the big headline. And if you think about the composition of that backlog, the growing piece that's international at 44%, that's up from 1 year ago. So feel really good about the mix and the tailwind that it can provide. I'll also remind folks that when you think about the $50 billion in reconciliation for munitions replenishment and Golden Dome for America, those things are not in our backlog today. So those are potentially additive to the backlog. Again, Doug, we're going to need to continue to see supply chain health to get to these levels. As you know, it's a very interconnected supply chain within defense. So if you want to raise production on a number of programs, you've got to make sure that you're deconflicting, again, some of those suppliers, making sure we're bringing new suppliers to bear, to be able to meet the ramp here. That's going to be the critical piece here in our ability to convert this into upside. It's not going to be the demand and it's not going to be the composition of the backlog. It's are we going to get the supply chain in a healthy enough place to be able to deliver at these higher rates. And I will tell you that, that's been a focus area for our -- of ours. Operator: Next question comes from the line of Ken Herbert with RBC. Kenneth Herbert: I wanted to see if you can talk about the up 13% in the Collins aftermarket and specifically the pieces within that and what you're seeing on the retrofit side. But then also, I wanted to see for both Collins and Pratt for sort of catalog pricing, have you -- are you getting similar levels on spare parts this year as you did last year? Or are you seeing any incremental pushback on the catalog pricing this year from customers? Christopher Calio: Yes. Thanks, Ken. So maybe just briefly on Collins and then Neil can add some additional color. Again, Collins, double-digit organic growth in all 3 of its aftermarket channels, parts and repair, provisioning, mods and upgrades. So feel very good about the strength we're seeing in the Collins aftermarket. As you know, it's got over $100 billion of out-of-warranty installed base. So an incredibly strong position to work from, from an aftermarket growth perspective. On the pricing for both Pratt and Collins, again, given what's going on in terms of tariffs and given the demand in the marketplace, I think both have been appropriately aggressive in pricing this year. And as we look towards next year, again, we got to see how things shake out on the tariff front. But again, we're going to be -- continue to be aggressive in terms of catalog pricing because of the value that we bring and because of the demand that's out there. Neil Mitchill: And to add some color on the quarter's aftermarket performance, I think what was notable was the parts and repair. We're seeing 13% organic growth there. And that's indicative of aircraft that are flying that need sort of the break/fix type of aftermarket that Collins has, which comes with very good margins. So I think that was encouraging to see, on the mods and upgrades up 17% organic. If you look a little bit into that, you're going to see that the interiors business was up significantly during the quarter. Top line growth really, really strong. Still working through some older contracts there. But I would tell you on the top line, delivering that backlog, positioned for continued growth as well as expanding margins on the interiors business, which is one of the items that will fuel next year's margin expansion for Collins. Operator: And our last question comes from the line of Gavin Parsons with UBS. Gavin Parsons: I guess I wanted to ask about 2026 free cash flow conversion. I think you made some recent comments and there's a little bit of market confusion or investor confusion around that. And then if you could bridge some of the major moving pieces as we go into 2026. And then why reiterate the 2025 free cash guide while raising everything else? Neil Mitchill: Thanks. Let me start with 2025. We set out the year with a goal of $7 billion to $7.5 billion of free cash flow. And as we sit here today, we're very comfortable with that for the full year. There's been some moving pieces. I'll remind you, back in the second quarter, we had some tariff headwind that we onboarded, about $600 million. We offset that with lower cash taxes for the year. So that's sort of neutralized. And as you kind of roll forward to where we sit today, obviously, we're getting stronger operating profit. And we're seeing a little bit of growth in the inventory, I'd say less reduction in the inventory. We were pleased to see inventory come down a couple of hundred million dollars sequentially. Q2 to Q3, things are moving in the right direction. And I think we'll see another few hundred million dollars of inventory reduction as we exit the year. But there's been some stocking there to prepare for this continued growth. And we're making sure that we balance our sales and inventory and ops planning using the CORE operating system to do that. But that was one of the things that sort of offset a little bit here in the fourth quarter. That said, really strong collections in the third quarter. We had catch-up from the Pratt & Whitney work stoppage in the second quarter that helped bolster the results. We also had some advances that the Raytheon [ business ] in particular, as well as the execution of the Lot 18 contract at Pratt brought some cash into the third quarter, things that were planned in the fourth quarter. So as we sit here and you look at the implied fourth quarter, very achievable, positioning us, I think, for a nice start to '26 as well. I'm not going to get into the specifics of '26 but if you look at '25 and you think about the $7.25 billion at the midpoint, you also think about the level of powder metal compensation embedded in that, you can see that our baseline free cash flow is in the $8 billion, $8.5 billion range. And so next year, as we look forward, obviously, we expect powder metal payments to come down. Working capital still remains an opportunity for us. We have very heavy levels but we have very heavy growth plans ahead of us. So we'll be balancing that as we move forward. I'll be back in January to provide a more detailed walk on that front. Christopher Calio: Yes. Maybe just to add to it, Gavin. I think long term, we think the 90% to 100% of free cash flow is where this business is positioned to sit. And if you just step back, you've got some momentum around that with some of the fundamental attributes in this business, a $251 billion backlog in place to drive growth. Commercial OE production is ramping. Air traffic has been resilient. And of course, we've got large installed base with Collins and Pratt, which have long aftermarket tails. And of course, we've talked a lot today about the growth in defense spending. So put all those things together and that's where we get to that longer-term 90% to 100% conversion. Operator: With that, there are no more analysts in the queue. So I will now turn the call back over to Nathan Ware. Nathan Ware: All right. Thank you, [ Desiree ]. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. So thank you all for joining us and have a good day. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX Second Quarter 2025 Earnings Conference Call. My name is Latif, 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 nonrecurring and/or [ second ] 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 risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Christopher Calio: Thank you, and good morning, everyone. We delivered very solid results in the second quarter as we continue to execute in a dynamic operating environment. On the top line, sales were up 9% organically year-over-year, including 16% commercial aftermarket growth, continuing the momentum from Q1. Segment operating profit was up 12% year-over-year, supported by growth across all 3 of our segments. And free cash flow for the quarter was approximately breakeven as we previously discussed, primarily related to the 4-week work stoppage at Pratt in May, which we expect to recover in the second half of this year. We also continue to see exceptionally strong demand for our products with a Q2 book-to-bill of 1.86 and our backlog now stands at $236 billion up 50% year-over-year and 9% sequentially, driven by several notable wins in the quarter. Pratt booked over 1,000 GTF engine orders, including up to 177 aircraft for Wizz Air and 91 aircraft for Frontier Airlines as they further expand their GTF-powered fleets. And Raytheon booked over $5 billion of integrated air and missile defense awards, including $1.1 billion for [ AM NYMEX ] effectors. This is the largest order in the history of the program, will benefit the U.S. and international customers. I'll now turn to the current operating environment. In commercial aerospace, OE production was strong and in line with our expectations for the first half of the year and we remain positive on the ramp continuing in the back half, supporting growing demand for our products. Global RPKs are also expected to continue to grow over 5% for the year, which supports low retirement levels and strong commercial aftermarket demand. For example, our V2500 powered aircraft fleet has seen a 1% retirement rate so far this year. On the defense side the growing need for air dominance is creating unprecedented demand for our core defense products across RTX. The U.S. budget reconciliation legislation that passed earlier this month contains over $150 billion for additional defense spending with about $50 billion of funding for Golden Dome and munitions, again, both core areas for RTX. In longer term, NATO allies have agreed to increase core defense spending to 3.5% of GDP over the next decade with an increased focus on integrated air and missile defense. To support the growing demand across Europe, we continue to expand our regional partnerships. For example, in the quarter, Raytheon entered into an industrial cooperation agreement with the Spanish Ministry of Defense that will support the production ramp for Patriot in the local region. So overall, demand remains strong across our [indiscernible] end markets and supports continued top line growth across the business. On the trade front, it continues to be fluid, but our outlook on the impact of tariffs has improved for the year as there have been some positive announcements to date such as the U.K. agreement, which provides exemptions for aerospace components. We also continue to improve our ability to mitigate tariff headwinds, including optimizing material flow or possible and through pricing actions. As a result of these developments and our strong first half performance, we're increasing our adjusted sales outlook for the full year. We're also revising our adjusted EPS outlook to incorporate drop-through on the higher sales, continued cost discipline across the business, and our current assessment of tariff impacts. And for free cash flow, we are maintaining our full year outlook. Neil will take you through these details in a few minutes. But before he does, let me provide an update on the progress we're making on our strategic priorities on Slide 4. First is executing on our commitments. On the GTF fleet management plan, our financial and technical outlook remains consistent with our prior comments. Isothermal forging output was up 12% versus the prior year and 10% sequentially, which supported a 22% year-over-year improvement in PW1100 MRO output this quarter despite the Pratt work stoppage. And we remain on track for over 30% MRO output improvement for the full year, which is a key enabler to reducing AOGs in the second half. And at Raytheon, the team is leveraging our core operating system to significantly increase production this year for multiple sectors, including GeM-T, Coyote and AMRAAM. In the quarter, both GMT and Coyote saw output more than double year-over-year. Next is innovating for future growth. Autonomy and AI are significant parts of our RTX cross-company technology road map. Earlier this month, we announced a new partnership with Shield AI to integrate AI-based sensor and target recognition capabilities and to select Raytheon products. This includes loitering munitions and our multispectral targeting system which is a battle-tested sensor package that provides long-range surveillance and target tracking for a variety of munitions. Also in the quarter, Raytheon announced the collaboration with Kongsberg to co-develop subassemblies of the GhostEye radar. The GhostEye system adapts the fundamental technology of LTAs into a smaller 360-degree solution for advanced medium-range tracking that will detect drones, cruise missiles and other airborne threats. This system builds on the battle-tested NASAM solution, which has 13 partner countries and over 1,000 intercepts over just the last few years, and it's another example of how we're expanding our regional partnerships in Europe. And lastly, we continue to leverage the breadth and scale of RTX. Across the company, we're implementing our proprietary data analytics and AI platform to accelerate our backlog and increase productivity across our operations. This platform is our digital backbone that connects our enterprise systems, thousands of shop for machines and millions of hours of product data to enable more efficient operations and smarter and faster decision-making. For example, and Collins Avionics business, our engineers are using this platform to reduce software development times by around 30%, allowing us to deliver faster and more frequent software upgrades to our customers. Shifting to the portfolio. In the quarter, we entered into an agreement to sell Collins, Siemens Precision Products business for $765 million. And yesterday, we completed the $1.8 billion sale of our actuation business. Both transactions highlight our efforts to focus and invest in our core capabilities with proceeds to be used to further strengthen our balance sheet. Lastly, we raised our dividend by 8% in the quarter, reflecting our confidence in executing our backlog and the long-term cash generation capability of our company. With this dividend increase, we now expect to deliver $37 billion of capital to shareowners from the date of the merger through the end of this year and we remain committed to a long-term capital return policy that includes growing our dividend and returning excess capital to shareowners. Overall, we continue to make steady progress on our key priorities, and I'm pleased with the performance and momentum through the first half of the year. With that, let me turn it over to Neil to take you through the results and our updated outlook for the full year. Neil? Neil Mitchill: All right, Chris. Thanks. I'm on Slide 5. In the second quarter, adjusted sales of $21.6 billion were up 9% on both an adjusted and organic basis. Growth was led by strength across all 3 channels with commercial aftermarket up 16%, commercial OE up 7% and Defense up 6%. Segment operating profit of $2.7 billion was up 12%, driven by drop-through on higher volume and improved defense mix, and we saw 30 basis points of consolidated segment margin expansion. Adjusted earnings per share of $1.56 was up 11% from the prior year, driven by segment operating profit growth and a lower effective tax rate. Earnings per share included approximately $0.06 of higher tariff costs. On a GAAP basis, EPS from continuing operations was $1.22 and included $0.28 of acquisition accounting adjustments and $0.06 of restructuring and other items. As expected, free cash flow was an outflow of $72 million. This included approximately $250 million for powder metal related compensation and $175 million related to tariff impacts. So overall, our first half results were strong, driven by end market demand and execution across all 3 segments. Now let's turn to Slide 6, and I'll take you through our outlook. Starting with the top line. Given our strong first half performance, we are increasing our full year adjusted sales outlook to a range of $84.75 billion to $85.5 billion up from our prior range of $83 billion to $84 billion. This translates to between 6% and 7% organic sales growth for the year, up from our prior range of 4% to 6%. Looking at it by channel at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow low teens, up from our prior outlook of around 10% growth. On the commercial OE side, sales are expected to grow high single digits year-over-year, up from our prior outlook of mid-single digits. And we continue to expect defense sales to grow mid-single digits across the company. On the bottom line, we continue to improve our ability to mitigate tariff headwinds, including expanding USMCA coverage, qualifying additional parts for military duty-free exemptions and maximizing the use of free trade zones in addition to the items that Chris mentioned. As a result, our current assessment of 2025 tariff costs, net of mitigation is around $500 million, with approximately $125 million already incurred in the first half of the year. In addition, we see the associated cash impact to be around $600 million for the full year, again, a notable improvement. We have incorporated these impacts into our updated full year outlook. With respect to taxes, we are pleased with several elements of the recently enacted legislation that restores the full expensing of research and development costs and maintain stability in the corporate tax rate and we continue to expect an effective tax rate of 19.5% for the full year. In addition, improved operating performance, including additional profit growth at Raytheon and volume drop-through at Pratt & Collins is providing $0.10 of EPS improvement, which partially offsets the $0.30 tariff headwind. All in, we now see adjusted EPS at a new range of $5.80 to $5.95 for the full year versus our prior range of $6 to $6.15. On free cash flow, we continue to expect between $7 billion and $7.5 billion for the full year as the headwind from tariffs will be offset by the benefit from improved cash taxes. The primary drivers of our second half cash flow growth will come from segment profit and working capital improvements, including the recovery from the work stoppage at Pratt. With that, let me hand it over to Nathan to take you through the segment results for the second quarter. Nathan Ware: Okay. Thanks, Neil. Starting with Collins on Slide 7. In Sales were $7.6 billion in the quarter, up 9% on both an adjusted and organic basis, driven by strength in commercial aftermarket and defense. Adjusting for divestitures, by channel, commercial aftermarket sales were up 13%, driven by a 20% increase in mods and upgrades, a 12% increase in parts and repair and a 9% increase in provisioning. Defense sales were up 11%, driven by higher volume across multiple programs and platforms, including the F-35 and the survivable airborne operations center programs. Commercial OE sales were up 1% versus the prior year as expected lower volume on the 737 MAX was more than offset by higher volume on other platforms, including the 787. Adjusted operating profit of $1.2 billion was up $104 million versus the prior year as drop-through on higher commercial aftermarket and defense volume, favorable defense mix and lower R&D expense more than offset unfavorable commercial OE mix and the impact of higher tariffs across the business. Turning to Colin's full year outlook. We now expect sales to grow mid-single digits on an adjusted basis and high single digits organically, up from our prior range of up low single digits on an adjusted basis and up mid-single digits organically, driven by strength in commercial aftermarket and defense. With respect to operating profit, we now expect growth between $275 million and $350 million versus 2024 compared to our prior expectation of up between $500 million and $600 million, driven by the expected impact of tariffs which was partially offset by increased volume drop-through. Shifting to Pratt & Whitney on Slide 8. Despite the impact of the 4-week work stoppage that occurred in the quarter, sales of $7.6 billion were up 12% on both an adjusted and organic basis, driven by strength in commercial aftermarket and commercial OE. Commercial aftermarket sales were up 19% and driven by higher volume in large commercial engines and favorable mix in Pratt Canada. Commercial OE sales were up 15%, driven by favorable mix in large commercial engines and higher Pratt Canada volume. In military engines, sales were flat, driven by F135 volume, including the impact of contract award timing. Adjusted operating profit of $608 million was up $71 million versus the prior year as favorable commercial OE mix, drop-through on higher commercial aftermarket volume and lower R&D expense more than offset unfavorable commercial aftermarket mix, the impact of higher tariffs across the business and the 4-week work stoppage. Turning to Pratt's full year outlook. We now expect sales to grow low double digits on an adjusted and organic basis an increase from our prior range of up high single digit driven by strength in commercial aftermarket and commercial OE mix. With respect to operating profit, we now expect growth between $200 million and $275 million versus 2024 compared to our prior expectation of up between $325 million and $400 million, driven by the expected impact of tariffs partially offset by increased volume drop-through. Now turning to Raytheon on Slide 9. Sales of $7 billion in the quarter were up 6% on both an adjusted and organic basis driven by higher volume on land and air defense systems, including international Patriot and NASAMs and higher volume on naval programs, including SPY-6 and Evolve Sea Sparrow Missile. This was partially offset by expected lower development program volume within air and space defense systems. Adjusted operating profit of $809 million was up $100 million versus the prior year, driven by favorable program mix including international Patriot and higher volume. Bookings in the quarter were $9.4 billion, resulting in a book-to-bill of $1.35 and a backlog of $63.5 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 1.49. Other key awards in the quarter included over $1.2 billion for SM3 production and approximately $650 million for SPY-6 production. Turning to Raytheon's full year outlook. We continue to expect sales to grow low single digits on an adjusted basis and mid-single digits organically with operating profit growth between $225 million and $300 million versus 2024, up from our prior expectation of between $150 million and $225 million, driven by favorable international program mix. With that, I'll hand it back over to Chris for some closing remarks. Christopher Calio: Okay. Thanks, Nathan. I'm on Slide 10. We have great momentum across RTX through the first half of the year. We delivered strong top and bottom line growth and our end markets remain robust as seen by our recent customer wins and 1.86 book-to-bill in the quarter, and our backlog now stands at $236 billion. Looking toward the second half of the year. We are focused on what we can control, executing our backlog, driving cost discipline and investing in innovation. With that, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Jason Gursky of Citi. Jason Gursky: Chris, wondering if you wouldn't spend a few minutes on Raytheon and maybe talk about out the multiyear outlook here. You had a really solid book-to-bill here over the trailing 12-months, as you just highlighted. And you guys highlighted, the upward pressure on budgets, both domestically and internationally, the partnerships that you're setting up in Europe for Patriot production, for example. So just kind of curious when you think, based on the feedback that you're getting from customers, we might begin to see some awards flowing on some of this outlook. And how quickly you think you can convert that into revenue once you begin seeing words, for example, on Golden Dome. And just kind of the opportunities and challenges that you have ahead of you to convert all of this pipeline and backlog into revenue. Just kind of what the multiyear outlook looks like here from a growth perspective. Christopher Calio: Yes. Well, thanks, Jason. And I think you sort of led off with how I would start the story, which is really on the demand profile. I mean, Raytheon did have another very strong quarter of demand, a 1.35 book-to-bill. If you look at their backlog since the end of 2023, it's up about 25%. And it's in those areas, Jason, that we've said before, are really core, right, integrated air and missile defense, effectors, sensing. You mentioned the international demand, which again, Europe, the 3.5%, that's going to play out over the next decade or so. We continue to see strong demand in MENA region in Asia Pacific, given the INDOPACOM threat. Maybe just think also just about reconciliation. You mentioned it, $25 billion for Golden Dome, another $25 billion for effectors. We think Golden Dome in particular, is really well aligned with our core capabilities and product portfolio. Again, battle tested and proven systems at each layer. Think Patriot, NASAMS, Coyote, additional levels of potential protection on the coast with our TPY-2 radar and the long-range SM3. And so really, demand across the board. And our focus this year has really been on ramping. We're going to see significant increases this year on a number of key programs, Gem-T and Coyote going to double in particular, AMRAAM. And so when we talk about ramping, it's about capacity, it's about the supply chain. We're investing about $250 million this year in capacity, Tucson, McKinney, Camden, and we're injecting people into the supply chain, which is, again, why you're seeing material growth for the ninth straight quarter at Raytheon. So the demand signal is, again, super strong. We continue to form key partnerships in Europe set up second sources, coal production, all the things that help drive this backlog and execute on this demand. I won't speculate on when some of this stuff like Golden Dome turns into sales and awards, but there's a significant opportunity there for us, and we are well positioned and highly engaged in that process. Operator: Our next question comes from the line of Robert Stallard of Vertical Research. Robert. Robert Stallard: But I was wondering if you could give us a bit more detail on some of the moving parts you've given in Q2 versus Q1. And whether you've factored in or seen any negative developments on the demand side, particularly from U.S. airlines? Christopher Calio: I'll start on the tariff front, Rob, give a little more color there. As we said upfront in the prepared remarks, our initial outlook was $850 million. We've now reduced that to $500 million. About half of that reduction comes from the reduced rates and the pausing. The other half comes from the improved mitigation actions that we've talked about. I think USMCA think some certain pricing actions, optimizing the flow of material around our network. So that's the tariff piece. And again, as an overall sort of macro look at tariffs, I think countries want to get deals done. I think there's going to continue to be some escalation in flare ups. That's sort of the nature of how these things work. But I think even with some of the more difficult negotiations that are out there, generally speaking, people want stability. They want predictability and we're confident that those deals will get done. We haven't seen it at this stage, bleed through into demand. If you just look at the commercial aftermarket here in the first half. Again, really strong 18% organic growth. We've seen increased shop visits in the platforms, both the V2500 and Pratt Canada. If you look at Collins, all their channels at book-to-bill over 1, some very strong demand on mods and upgrades. And again, on a more macro level, I would say the consumer sentiment index continues to rise, unemployment remains low think the airline commentary has been around a more stable environment, which provides a good platform for continued strength in the aftermarket so again, I think we've got our arms around tariffs as we see them today. and continue to see strength in the market. Neil Mitchill: And Rob, let me give you a little bit of color on the segments. So if you think about the $500 million, about $275 million pertains to Collins, and that's reflected in their revised outlook at about 225 relates to Pratt & Whitney. And if you think about the second quarter, so what's behind us, we got about $100 million or so behind us, $60 million of it is sitting inside of the Collins numbers in the second quarter and $40 million is sitting inside of the Pratt numbers. And I already mentioned how much cash we've incurred to date in terms of an outflow is about $175 million. So we got about $425 million to go for the rest of the year. Operator: Our next question comes from the line of Myles Walton of Wolf Research. Myles Walton: Maybe just one clarification first and then a question. So the clarification. In terms of the tariff assumptions, are you assuming that revert on August 1 back to the liberation day levels or the new levels or just they continue at pace where they are? And then the real question is on the reconciliation bill. If you can just put a finer point on the specific benefit you got from the R&D capitalization reversal and how that proceeds over the coming few years? Neil Mitchill: Sure. Thanks, Myles, for the question. Just to clarify on the tariff piece. So our $500 million contemplates the rates that are currently in effect today. So we haven't contemplated something going up on August 1 or anything that might transpire after that. However, I'll make a couple of comments on that. The first is -- should rates change go up, we'll probably see about a couple of months of that hit the income statement. The rest would sit in inventory at the end of the year. We think that between the way we're looking at the year in terms of our risk and opportunities as well as the range we provided in the earnings per share, we'd be able to absorb that. I would say the same thing on the free cash flow side. So that's why we've got a range around those particular metrics. And as we sit here today, there's still a lot to learn over the next couple of months, and we'll be monitoring that. And of course, as Chris just said, we're working our mitigations to continue to offset any additional headwind that might come. On the tax side, again, pleased to see the permanent restoration of R&D in particular. As you all know, the tax rules are very complicated. So we're dealing with a number of provisions that are embedded in that legislation. We do see a little bit of income statement headwind this year. We're offsetting that with some other operational tax items for the year. So no net impact there, keeping our effective tax rate at 19.5%. On the cash side, as you probably all know, this bill was effective as of the beginning of 2025. And so again, a lot of complexities there. We do expect a cash benefit to come this year. It's fairly moderate. It probably accounts for 25%, 30% of the offset to the tariff headwind that we're seeing this year. But we'll expect that to continue to be a benefit going forward in '26, '27 and '28 as we continue to work through the varying provisions of that bill, including the capitalization versus expensing of research and development and how we handle that and the interplay with some corporate alternative minimum taxes. So very complex, but big picture, it's favorable. Great to see the corporate tax rate maintained at I think that's really important for American companies to maintain our competitive global edge, and we're continuing to invest research development here in the United States as well as capital, and we get a bonus deduction for that as well from the provision. So all good, and you'll see that in the numbers as we get into next year. Operator: Our next question comes from the line of Scott Deuschle of Deutsche Bank. Scott Deuschle: P Sorry to ask another question on tariffs. But Neil, should we expect the net impact of tariffs to decline in 2026 relative to 2025, assuming these current rates hold? And then does that net impact decline more for cash than us for EBIT as you go into next year? Neil Mitchill: Scott, thanks for the question. I don't want to get too far ahead of us for '26. But what I will tell you is that we're continuing to aggressively work the mitigation strategies here. We've been very successful in identifying opportunities to qualify more of our imports under the USMCA provisions, military duty-free exemptions, putting bonds in place for goods that get re-exported. So I think we have a number of things, Chris alluded to, some of the pricing actions as well. Right now, I would say we've made good progress there. And I'm seeing good traction. Don't want to put a number on it today, but our intent here is to continue to aggressively mitigate these headwinds so that we don't see a larger year-over-year headwind coming into $26 million. Operator: Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Maybe we could talk about the core business because it performed very well at Pratt. So the guidance is now double-digit aftermarket growth for Pratt after 24% in H1 implies a steep deceleration. How are we thinking about aftermarket, whether it's spares, work scopes, the 22% MRO output on GTF despite the strike and I think you mentioned the V2500 retirements at 1% year-to-date. So maybe just based on GE commentary last week, they're extending their shop visit peak as well. How are you thinking about volume, profit drop-through on the 2 large commercial engine programs? Christopher Calio: Sheila. So I'll sort of pick up to kind of where you were going here. On the MRO output at Pratt, on the GTF1100. Again, we were pretty pleased, up 22% in Q2. You mentioned that's despite sort of the part supply impact from the 4-week work stoppage, also on heavier work scopes, so feel good about that output. And that's key, obviously, continuing to move the AOGs down here in the second half of the year. On the V2500 continue to see sort of strength in that program. We're obviously halfway through the year and feel really good about the 800 or so shop visits that we forecasted for the year. And I'll tell you, when you look a little bit longer term there, I think that program is going to continue to have strength, frankly, beyond where we thought it would 3, 4 years ago. That platform continues to perform exceptionally well. Demand is there. And even at shop visit potentially start to come down at some point, I think you'll start to see the content go up. So feel really good about GTF and the V2500. And then, of course, there's also Pratt Canada continued strength there in their shop visits and on their portfolio. So feel good about the Pratt commercial aftermarket story. Neil Mitchill: And maybe just to put a finer point on some of the changes in our outlook, Sheila. We talked about Pratt sales now being up low double digits for the year. Think about that as about $800 million of the $1.6 billion top line increase at the RTX level at the midpoint. About half of that is going to be aftermarket. So we now see the aftermarket up mid-teens. We've been working, as you know, to balance our deliveries between installs, spares and so again, we see good growth in the back half as well. The compares get more difficult, not just PAP but also at Collins. About $300 million of the $800 million increase is on the OE side. We continue to see good mix there, and the rest is sitting in the defense business. So just a little extra color on the Pratt business. Operator: Our next question comes from the line of Ron Epstein of Bank of America. Ronald Epstein: A little bit about what you're seeing in OE production rates. It does seem we're starting to see some stability and lift in the Boeing narrow-body rates and wide-body rates. And what are you seeing on your end? And then on the Airbus side, it seems like A350 is still kind of challenged and what's that mean for Collins and what's going on with A320. Neil Mitchill: Rod, let me start maybe a little bit and then Chris can pile on. At Collins, OE growth here in the second quarter. We expected the first half of the year to be a little bit lighter. The compares get a lot easier as we get into the second half of the year, particularly because we're overcoming the Boeing strike from last year. So at Collins, we're encouraged by the ramp that we're seeing there. We're expecting a little bit of mix headwind as the wide-bodies 787, in particular, as you all know the story there, ramps up in the second half. But I would say, just to put a little color on the Collins segment, I just did Pratt, see about $800 million of sales uplift in our outlook. About $200 million of that is on the OE side because of that strength that we're seeing on the ramp side. Another $250 million is in the aftermarket just to keep going here and the rest is in defense. We had a really strong year start to the year for the Columns Defense business. Chris, anything you want to add? Christopher Calio: I would just agree with the overall sentiment, on, which is I think we are seeing stability in the rates at Boeing, they continue to grow with the focus there on the production system. So that's great. And for Collins, it's just making sure that we stay out of their way and continue to deliver at the rates that they need, making sure that we've got the supply chain in place on some of the constrained material Again, as we've said before in the past, we've got capacity for a much higher rate. So this will just come down to making sure we've got the material where we need it, when we need it, but feel good about that. And then on the A320 again, continue to ramp there as well, Ron. We had the work stoppage, of course, which impacted a little bit here in the quarter. But again, I think we're going to make that up in the balance of the year. And on the engine side, it really is still about allocating material between MRO and production. And we work closely with Airbus in doing that because we've got to make sure that we balance the continued ramp there, especially as it relates to structural castings and isothermal forgings with what we need on the MRO side because, again, we got to continue to support that fleet and move the AOGs down here in the second half of the year, which is our plan. Operator: Our next question comes from the line of Seifman of JPMorgan. Seth Seifman: Chris, I was wondering, there's been some reports in the press about upgrades at the FAA and the role that RTX might play in that. I was wondering if you could help us out in terms of how to think about that opportunity. Christopher Calio: Yes. Absolutely, Seth. FAA modernization, I think, is something that's pretty critical. I think that's a bipartisan sort of agreement. We were pleased to see the funding that was in the reconciliation bill of $12.5 billion, which I think is a pretty good down payment on what you're going to need to overhaul the air traffic system. Again, we play in some very specific areas in there. We've got very strong market share on the radars that are installed and so there's an opportunity there. There's also opportunity on just the automation that goes into the towers and whatnot, where we have a very strong position. So again, working with the FAA on modernizing and upgrading those systems and then again, there's an opportunity, I think, on the aircraft equipage side. As you know, Collins has a number of packages there that help with ground control and other things that happen on the runway. So these are all opportunities, I think, that I put into the FAA modernization bucket. Again, a big opportunity for Collins. Operator: Our next question comes from the line of Peter Arment with Baird. Peter. Peter Arment: Neil. Chris, maybe circling back the big picture questions on sort of where we're going, what kind of related [indiscernible] and missile defense activities. There's I was say in the most recent budget request, we kept up for [indiscernible] I was just thinking about the knock-on effects for LTAMS. How do we think about the longer-term production output there as we see a big ramp or are there any impact? Christopher Calio: Peter, it was a little bit choppy. I think you were asking me about effector production on Patriot, is that where you were going? Peter Arment: If there's any change in level related to that? Christopher Calio: Yes, sure. Well, look, as it relates to just gold and Dom, I think Patriot, we believe, is going to be a very important part of that. especially if you want to make a significant impact over the next 2 to 3 years, I think there are opportunities to take Patriots that are potentially in inventory today, deploy those as part of the Golden ville architecture, of course we'd have to go and then backfill those. And you're seeing Patriot demand all across Europe as well. There's been some recent reporting there. And again, I think that presents an opportunity for Raytheon. And then on LTAMS, again, we're really pleased to achieve milestone [indiscernible] earlier this year, initiating the production phase there. We delivered about 6 to the U.S. government and the Army has plans to procure any more over the next decade or so. And I think the critical thing there about LTAM is the integration potential it has with Patriot. You've got 19 Patriot countries out there today, leveraging their investment, leveraging the upgrade that they've made by integrating LTAMS with Patriot, I think it could be pretty powerful. Operator: Our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine. Kristine Liwag: Chris, Neil and Nathan. Maybe on long-term free cash flow. It sounds like the company's end markets have significant multiyear tailwinds. You've talked about commercial aerospace OE improving. Aftermarket is still strong. Defense bookings up and your supply chain investment should accelerate earnings in the next few years. So if we think about 90% to 100% free cash flow conversion to net income reversal of some of the working capital you've invested and the end of the GTF cash outflows from the powdered metal issue, should $10 billion be the minimum free cash flow in 2027 and beyond. Neil Mitchill: Kristine, let me start. Thanks for the question. I know there's a lot of interest in our free cash flow. First of all, I want to emphasize the fact that we're confident in our $7 billion to $7.5 billion for this year. Obviously, there's work to do in the second half. There's a few things that are going to drive that. Just to remind everyone, we'll see a recovery from the Pratt strike, which is what impacted us here in the second quarter. And that's about $1 billion. So we expect most of that to recover in the third quarter. We've got a number of delivery milestones that are attached to cash receipts as well, particularly in the Raytheon business. There's some international advances, those can be lumpy, but certainly feel confident those are within the year. And then you'll notice when you get to look at our balance sheet, the receivables are a little higher. So we expect to collect that naturally here in the third quarter. And then we haven't talked about it, but the contract award timing for Pratt with respect to lots '18 and '19 on the F135 is expected to come into play here in the third quarter, and that will drive some upside in both sales and cash. So starting with this year. Of course, longer term, if you just look at the guidance we provided this year, there's about, call it, $1.2 billion of powdered metal related compensation in the full year. And if you add that back, you get to about $8.5 billion of what I'd call operational free cash flow that's well over 100% of adjusted net income. And for all the reasons you articulated, continued growth on the OE side, strength in the aftermarket with RPKs continuing to grow in the 3% to 5% range, for example, strong, strong defense backlog, a lot of it sitting in our backlog today. Certainly, I'm not going to put an exact number on it today, but we expect free cash flow over the next several years. And I would add to that, the benefits that I just talked about a little earlier with respect to the tax legislation. So feeling really confident in the free cash flow generation of the company, and we're starting to see that be more regular occurrence through the quarterly cadence. Operator: Our next question comes from the line of Doug Harned of Bernstein. Douglas Harned: This quarter was a very good quarter for Raytheon margins. And some time back, you had a goal of getting those margins up to 12-plus percent, and this was close. Can you talk about how you see this trajectory going forward, given that one of the issues had been on performance on some fixed price development programs, which we were hoping to see get wrapped up. And then the other side of this, you've got a lot more international demand, mature fixed price programs ahead of you. How should we think about getting to that 12% plus number now? Neil Mitchill: Doug, let me start here. You've pointed out a number of the positives here, and we agree. We're really happy with the performance in the second quarter. I would attribute that a lot to what I call the base margin on the mix. Once you have a chance to kind of look at the composition of our sales, you'll see that on a year-over-year basis, our FMS and DCS sales are up almost $500 million. So we're seeing the mix that we've been talking about come out of our backlog and come through the income statement with the margins that we would expect. We also saw -- we'll continue to see balance, if you will, on the productivity. So about $15 million year-over-year productivity year-to-date, starting to turn the quarter there. But I think what's most important is seeing in the base margins of the programs that we're adding to the backlog. The other important point is in our backlog, you'll note that the foreign composition is up 2 points year-over-year. So again, with the new orders that we're adding, we're seeing it come in with higher margins. So I'd say those bids are being put out there, contemplating the current cost structure for products that are right in our wheelhouse, and we know how to execute on and the supply chain continues to improve. So all of those create tailwind and will get us on that journey well on that journey to the 12-plus percent margins that we see Raytheon at. Operator: Our next question comes from the line of Gautam Khanna of TD Cowen. Gautam Khanna: I wanted to ask on the GFTA, if you could just give us an update on how that gets spiraled in both for OE and aftermarket. And if you could also just update us broadly on supply chain. Christopher Calio: Sure. So on the GTF advantage, production has already begun. We've got deliveries planned for the -- later in this year towards the end of this end of this year. The cut over, the [ Spiral in, ] as you called it, it's going to happen over a couple of years, and that's to appropriately manage the risk, ensure the production maturity and supply chain stability. And then as you noted, there is the hot section sort of plus package that we're putting together, which is the 35 or so parts of the GTF advantage that we're going to that we're going to kit. These comprise the majority -- overwhelming majority, almost 90% of the durability improvements from the GTF advantage, and those are going to start to enter into MRO next year. Supply chain overall, I would say, continue to see improvements. I mentioned the structural casting is up over 20% at Pratt. I also mentioned the 9 consecutive growth at Raytheon. And then at Collins, Again, it's got a huge supply chain network, and we've seen reduced overdue line items about the tune of about 25% so far this year. All really good signs for us. And I would tell you that this is one of the main areas of our core operating system, sitting side by side with our suppliers, making sure they understand our demand, making sure that if there are producibility changes that we can make, is our specification changes that we can make, whatever we can do to sort of help drive throughput in our supply chain are things that core has been really instrumental in helping us get to this level of stability. Again, more to do. We continue to have ramp up, as I said before, on GTF MRO in the back half of the year. You heard Neil talk about some of the OE growth that we're seeing. So again, not taking our foot by any measure off the pedal. There's a lot to do there. We feel good about the progress so far in the first half of the year. Operator: Our next question comes from the line of David Strauss of Barclays. David. David Strauss: Chris, you've highlighted a number of times the -- your forecast for GTF AOGs to come down in the second half of the year. Any sort of quantification of what that might look like in terms of how much we should expect AOGs to come down in the second half of the year? And then just a quick one, if you could touch on some of the nonrecurring items in the quarter, the customer bankruptcy at Pratt and then the extent of the restructuring you're doing at Collins. Christopher Calio: On the AOGs, David, I'll just say they stabilized, and we're expecting them to come down meaningfully here in the second half. And that's going to again be on the back of continued growth in MRO output. As I said, to Sheila's question, we were pleased with the 22% increase in Q2, especially given the strike, especially given the work scopes. We've seen improvement in our in-shop turnaround time. So that's continued to trend positively. But again, we need to continue to see that ramp happen in that 30% increase range as we move through the year. That's going to be the instrumental piece of this. Neil Mitchill: Yes. Let me pick up on the nonrecurring items. First of all, you saw we had a charge at Pratt & Whitney. We did have an airline customer that filed for bankruptcy, unfortunately. However, we are continuing to work with that customer, as you'd expect. And over time, I believe that they will continue to utilize our assets and that in the long term, we will likely realize some recovery there. But as a matter of practice we reserve for that when that occurs. So that's that. With respect to Collins, you probably saw in the first quarter, we had a fairly sizable restructuring charge. We're continuing our actions there. There's a broader effort at Collins to undergo some significant transformation. As you know, we brought a lot of companies together to create Collins, and we've done a lot of work, but there's still more to do. and that work gets harder and harder and more invasive as it relates to footprint and the like. But rightsizing the business, rightsizing the back office reducing our footprint, increasing our automation, those are all projects that Collins is aggressively undertaking right now. And so you saw the first part of the restructuring, which was largely headcount-related and as we continue to work through that, I suspect there'll be some others, too, but I'm not going to get ahead of the team there, but pleased to see what they're focused on right now. Operator: Our next question comes from the line of Scott Mikus of Melius Research. Scott Mikus: Neil, Chris, very nice results. I wanted to ask about Pratt and the GTF hot section plus offering. Given that 80% of the GTF fleet is on powered by the hour maintenance agreements, if the customer wants to retrofit to the GTF hot section plus, is that cost being covered by the customer or by RTX and then as you do those retrofits, should we expect favorable EAC adjustments at Pratt from time on wing benefits? Or are those benefits already baked in your margin booking rates there? Christopher Calio: Yes. Thanks, Scott. On the hot section plus, again, that will be a customer-by-customer determination. I mean, to be very frank, we've invested heavily in the GTF advantage and, of course, heavily in the hot section plus and so our intention is to get value for those investments as we offer them into MRO. But again, we will look customer by customer, contract by contract and sort of take the right position based on those contracts and on the customer situation. But again, our overall posture is we should be getting value for that investment. And yes, it is going to have a significant time on wing benefit. As we said, the advantage itself was going to be kind of a 2x time on wing improvement and the hot sections is going to get 90% to 95% of that time on wing benefit. So do expect it to be a significant shot in the arm for the program and for the fleet. Neil Mitchill: And with respect to the margins, I've talked about the fact that the GTF margins are positive. When you average the last couple of years, they're double digit. We continue to be measured in our approach there. These are long-term contracts. We don't want to get ahead of ourselves. We've contemplated a certain aspect of time on wing in the base contract assumptions. But we're really excited about this additional option and where it makes sense. We'll be putting that into these engines with the customers. And to the extent it drives a benefit, we'll see that later in the contract term. Operator: Our next question comes from the line of Gavin Parsons of UBS. Gavin. Gavin Parsons: Maybe carry through on Pratt margins. What's the right medium-term margin rate for Pratt? And how should we think about kind of the directional GTF services margin expansion, the OE engine loss and spare mix and then other contributors like V2500 and Pratt & Whitney Canada. Neil Mitchill: A lot there, Gavin. Let me provide a little bit of context. So first of all, I'm pleased to see the margin expanding at Pratt and then overcoming some of the tariff headwind that's important. You think about the growth drivers there, we're going to continue to ramp on the OE side. That's going to drive a little bit of a headwind over the next couple of years as we put more and more of those engines on wing on new aircraft on the aftermarket, but that's going to continue to grow as well. That's going to grow profitably, and it's going to grow above the composite Pratt margin that you see today. So I expect tailwind to the overall Pratt margins over the next couple of years. Again, I'm not going to put a number on it. But certainly, the ingredients are there. Chris talked about the V2500. Today, if you asked us a year ago about the outlook on shop visits, it would have been lower. We're seeing improvement in the number of shop visits and the mix. Those are much heavier on the V. So I see sustained revenue and profit from those aftermarket visits over the next several years as well. All of that, I think, puts us in a position where Pratt's margins continue to expand sequentially as we go through '25, '26, '27. As we've talked about longer term, Pratt is a mid-teens, low to mid-teens business. We've seen those kinds of margins in the past. We've gotten a lot of our engineering and development behind us with respect to the GTF advantage that will start to shift to other priorities. However, the ingredients are there for growing aftermarket and don't forget about Pratt Canada and the military engine business, both very profitable, above, well above where the Pratt composite margin is today, and those will continue to grow in volume as well, contributing to improved margins in the Pratt business. So all the right ingredients and feeling really confident about the GTF advantage, which will continue to grow and start to overtake that V2500 as those volumes come down late in the decade. Operator: Our next question comes from the line of Noah Poponak of Goldman Sachs. Noah Poponak: Chris, you've made a few comments on the call here, suggesting overall aftermarket MRO I guess, engine and outside of the engine are different, but that aftermarket capacity has improved, I guess, has there been a step function improvement in ability to get work through? Or is it more of a stabilization? I'm just curious if you can put a finer point on that. And then, Neil, on the R&D cash and free cash flow, is there any refund or retroactive catch-up? Or is it pure you had an expense versus amortization mismatch this year and now that's gone. Neil Mitchill: No. Let me start on the R&D. I mean, it's pretty complicated. And over the last couple of years, we've been getting some refunds on the tax side as it relates to R&D as definitions have been crystallized through the regulation. That said, as it relates to this year's outlook and the improvements, I'd say, like I said, about 25% or so of the free cash flow tailwind comes from the implementation of this new regulation, it's pretty complex in how we're going about doing that because it does drive our taxable income lower with the expensing and the continued amortization of the prior years. So I won't get into any of the other technical things there. But over time, all of the research and development that we have capitalized and we will continue to incur will be deductible for tax purposes as it relates to the U.S. expenditures. And so that will drive a continued sustained cash tax benefit over the next several years. Chris? Christopher Calio: Yes. And on your question, I think you were going is on GTF MRO output. And yes, pleased with the 22% here. And that's -- yes, we've added capacity an additional shops to the GTF network. We've talked about that a few times. But really, when you think about the growth in output, it's improving the velocity and efficiency in our workhorse existing shops today. Think MTU, think Pratt, think Delta, those are the shops that continue to drive output to drive material into the shop, into shrink the in-shop turn time that I referenced earlier. Operator: Thank you. With that, I would now like to turn the conference back to Nathan Ware. Nathan Ware: All right. Thank you, Latif. That concludes today's call. As always, the Investor Relations team, and I will be available for follow-up questions. Thank you all for joining, and have a good day. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX First Quarter 2025 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, President and Chief Executive Officer; 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 its forms 8-K, 10-Q and 10-K 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. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Chris Calio: Thank you, and good morning, everyone. We're clearly in the middle of a highly dynamic operating environment right now, and we'll, of course, talk about that today. But first, I want to highlight the strong financial and operational performance we delivered in the first quarter. Starting with the top-line, we generated 8% organic sales growth. We also drove 120 basis points of segment margin expansion, which included strong contributions from each business segment. And we generated strong free cash flow, an improvement of more than $900 million versus the prior year. On an organic basis, commercial aftermarket sales were up 21%, commercial OE sales were up 3% on a difficult prior-year compare, and defense sales were up 4%. Underlying these results is our continued focus on execution and the deployment of our core operating system. Starting with the GTF program, PW1100 MRO output was up 35% year-over-year and 14% sequentially, and we remain on track for over a 30% improvement for the full year. This output is a key enabler for reducing AOGs, which we continue to expect to trend down in the back half of the year. Isothermal forging output also continued to be strong in the quarter after record output last year, up over 10% versus prior year. And our outlook for the fleet management plans remains consistent with our prior comments. Our focus on supply chain also continues to yield results. At Collins, overdue line items across all suppliers were down over 20% versus the prior year. And at Raytheon, material receipts were up again, marking eight consecutive quarters of year-over-year growth. Also in the quarter, we made significant progress on two future franchises in our innovation pipeline. Pratt received FAA certification for the GTF Advantage, an important milestone for the program. The Advantage incorporates all of the learnings from the first 10 years of the GTF engine and service. We expect it to provide up to 2 times the time on wing compared to the current engine, and it will enter service with full life LLPs. We remain on track for initial deliveries to Airbus later this year. We're also certifying an upgrade package to incorporate roughly 90% to 95% of the GTF Advantage durability improvements into the existing fleet during MRO visits. We're targeting next year to have this package available for customers. And at Raytheon, we have completed the prototyping and development phase of the lower-tier air and missile defense sensor, or LTAMDS program. LTAMDS brings advanced 360-degree performance to the market and more than twice the tracking range compared to the existing Patriot radar system, enhancing protection against complex threat scenarios, including large quantities of unmanned aircraft systems and hypersonic weapons. LTAMDS can be integrated with battle-tested industry-leading capabilities of Patriot, which is the backbone of air and missile defense for 19 partner countries around the world. LTAMDS will now transition into the production and deployment phase with continued deliveries to the US this year and next, followed by deliveries to European customers. So, overall, we've made good progress in the quarter on multiple fronts, and we're pleased with our performance. Okay. Let me turn to the operating environment and our current thinking on tariffs, which we have outlined in terms of potential direct impacts on Slide 4. Generally speaking, the aerospace and defense sector has operated in a duty-free environment and that has been instrumental to the industry maintaining one of the largest trade surpluses across American manufacturing industries for decades. Our industrial base is largely located in the US, including about 70% of our employees and a majority of our total labor manufacturing hours. And on the supply chain side, about 65% of our product spend is with US suppliers. We also continue to invest in our US industrial base. Over the last five years, we've invested nearly $10 billion to enhance our domestic manufacturing footprint and capabilities. And this year, we're planning another $2 billion of investment to further increase our US capacity. For example, in the first quarter, Raytheon completed a $60 million expansion project in Tucson, Arizona, which will significantly increase capacity to support growing effector demand. In this year, Pratt has kicked off a $285 million investment to expand our foundry in Asheville, North Carolina. This is part of our broader turbine [airfoil] (ph) production strategy to support growing demand and to maintain a competitive cost structure. Combined, this industrial base and significant investment supports our position as a net exporter of goods out of the US, with exports exceeding imports by over $12 billion last year. But like many companies in the industry, our supply chain and customer base are global, and we import raw materials, parts and modules from around the world. In light of this, we would be impacted if the current environment were to stay in place, because not all regulatory and operational mitigations would address our tariff exposure. But the situation remains fluid, and it's difficult to assess the impact of multiple variables from a change in the duration and size of the current tariffs to countermeasures taken by other countries to the potential secondary effects of customer reactions and supply chain and operational disruptions. As a result, we have not included the potential tariff impacts in our outlook for the year at this time. That said, we believe it is prudent and helpful to at least share some estimates of the direct impact of the current tariffs on our outlook, assuming they were to stay in effect throughout the year. Now, these estimates don't include secondary tariff-related impacts, such as changes to customer demand. So, let me turn it over to Neil to take you through our assessment of the impacts. Neil? Neil Mitchill: Okay. Thanks, Chris. Let me take you through the various categories of incremental direct tariff exposure and the level of pre-tax operating profit impacts, net of available mitigations we have currently assessed for each category. Starting with Canada and Mexico, assuming the USMCA agreement continues, we estimate there would be a cost impact of around $250 million, assuming current tariff rates remain in place for the rest of the year. With respect to China, at current US and China tariff rates, we estimate there would also be a cost impact of around $250 million. Again, assuming the tariffs remain in place through year end. Keep in mind, our business in China primarily serves local customers and China accounts for only about 2% of our global imports. As it relates to the rest of the world, we estimate there would be a cost impact of around $300 million at the 10% tariff rate currently in place. And finally, on steel and aluminum, we estimate the cost will be around $50 million for the year. For all of these scenarios, we would expect to see most of the impact in the back half of the year as inventory is liquidated. And from a cash perspective, we assume there would be a bit larger drag due to the timing of inventory consumption and duty drawback recovery, and this impact would be evenly spread over the rest of the year. Going forward, we expect the landscape to continue to evolve and we'll update our assessment accordingly. Now, let me turn it back over to Chris. Chris Calio: As Neil said, we're closely tracking the changes in the global trade environment. While some of the exemptions we have had in the past will continue to apply, such as the military duty-free exemption for U government and foreign military sale contracts, we are also working to implement and capture additional mitigations. These include regulatory mechanisms such as temporary imports under bond, duty drawbacks, free trade zones, contractual and pricing actions, and implementing operational changes such as leveraging different suppliers and assembly sites. Despite these near-term uncertainties, I want to remind everyone that our company remains exceptionally well positioned in all of our key end markets given the strength of our product portfolio, which is reflected in our backlog. We exited the quarter with a backlog of $217 billion, which was up 8% year-over-year and includes $125 billion of commercial orders and $92 billion of defense awards. On the commercial side, we remain cautiously optimistic that aircraft utilization will remain strong, supporting continued aftermarket demand. But of course, we will closely monitor consumer sentiment as we approach the busy summer travel season. On the OE front, we expect production of new aircraft to remain strong given the backlog levels at our OEM customers. On the defense side, we're encouraged that the continuing resolution passed with funding for key priorities, including next-generation adaptive propulsion, standard missile effectors, LTAMDS radars and our Coyote counter UAS system. There's also growing commitment to increase defense budgets globally. Of note, the European Union has pushed for an additional $850 billion in defense spending over the next four years, focused on munitions and integrated air and missile defense products, which are fully aligned to our core capabilities, such as Patriot, NASAMS, Coyote and F-35. These are all battle-proven and tested systems that our partners and allies rely on each and every day for national security. Additionally, we have strong and long-standing international co-production and co-sustainment agreements with European companies, including MBDA and Kongsberg that position us well to help meet the increased demand across the region. Before I hand it back over to Neil, let me reiterate that we are very pleased with the performance in the first quarter and the progress we are making on our three strategic priorities: executing on our commitments, innovating for future growth, and leveraging our breadth and scale. And while the industry's operating environment is dynamic, our team is experienced and will remain focused on execution and the things in our control. Okay. With that, I'll turn it back over to Neil to take you through the first quarter results. Neil? Neil Mitchill: Thanks, Chris. I'm on Slide 5. As Chris said, operationally we're off to a strong start to the year. In the first quarter, adjusted sales of $20.3 billion were up 5% and up 8% organically, led by strength in commercial aftermarket. Segment operating profit of $2.5 billion was up 18% as drop through on higher volume, the benefit of cost reduction activities and improved defense mix drove 120 basis points of segment margin expansion with strong performance at all three segments and highlighting the continued momentum on our cost transformation activities across the company. We've now seen four consecutive quarters of year-over-year consolidated segment margin expansion. Adjusted earnings per share of $1.47 was up 10% from the prior year, driven by segment operating profit growth, which was partially offset by an expected higher effective tax rate and a higher share count. On a GAAP basis, EPS from continuing operations was $1.14 and included $0.27 of acquisition accounting adjustments and $0.06 of restructuring and other items. And free cash flow was $792 million in the quarter, which included approximately $200 million for powder metal related compensation. On the capital deployment front, we returned $890 million of capital to shareowners during the quarter, primarily through dividends. And on the sale of the actuation business at Collins, we continue to make good progress on key milestones and are working through the remaining items required to close. With that, let me hand it over to Nathan to take you through the segment results for the first quarter. Nathan? Nathan Ware: Thanks, Neil. Starting with Collins on Slide 6. Sales were $7.2 billion in the quarter, up 8% on an adjusted basis and 9% organically, driven by strength in commercial aftermarket and defense. Adjusting for divestitures, by channel, commercial aftermarket sales were up 13%, driven by a 15% increase in parts and repair, an 18% increase in mods and upgrades, and a 1% increase in provisioning. Defense sales were up 10%, primarily due to higher volume across multiple programs and platforms, including multiple C4I programs, the Survivable Airborne Operations Center program and F-35. And commercial OE sales were up 2% versus the prior year as higher A220, regional and 787 volume was partially offset by lower 737 MAX volume. Adjusted operating profit of $1.2 billion was up $179 million versus the prior year, driven by drop through on higher commercial aftermarket and defense volume. The resulting margins at Collins expanded 130 basis points in the quarter versus prior year. Turning to Collins' full year outlook. Excluding the potential impact of the tariffs that Neil discussed, we continue to expect sales to grow low-single-digits on an adjusted basis and mid-single-digits organically, with operating profit growth between $500 million and $600 million versus 2024. Shifting to Pratt & Whitney on Slide 7. Sales of $7.4 billion were up 14% on both an adjusted and organic basis, with sales growth across all three channels. Commercial aftermarket sales were up 28% in the quarter, driven by higher volume and favorable mix across both large commercial engines and Pratt Canada. In military engines, sales were up 4%, driven by increased engine deliveries on the tanker program and higher volume on the F135 Engine Core Upgrade program. Commercial OE sales were up 3% in the quarter, primarily driven by increased deliveries. As a reminder, commercial OE sales were up 64% in Q1 of 2024. Adjusted operating profit of $590 million was up $160 million versus the prior year as increased deliveries in large commercial engines was more than offset by drop-through on higher commercial aftermarket volume and favorable commercial aftermarket mix. Lower R&D expense more than offset higher SG&A expense. All of this resulted in margin expansion of 130 basis points in the quarter versus prior year. Turning to Pratt's full year outlook. Excluding the potential impact of tariffs, we continue to expect sales to grow high-single-digits on an adjusted and organic basis with operating profit growth between $325 million and $400 million versus 2024. Now turning to Raytheon on Slide 8. Sales of $6.3 billion in the quarter were down 5% on an adjusted basis as a result of the cybersecurity divestiture completed at the end of the first quarter of last year. As expected, on an organic basis, sales were up 2%, driven by higher volume on land and air defense systems, including International Patriot and LTAMDS, which was partially offset by lower development program volume within air and space defense systems. Adjusted operating profit of $678 million was up $48 million versus the prior year, driven primarily by favorable mix and $15 million of improved net productivity. This was partially offset by the absence of the cybersecurity business. The resulting margins at Raytheon expanded 120 basis points in the quarter versus the prior year. Bookings in the quarter were $4.4 billion, resulting in a book-to-bill of 0.7 And on a rolling 12-month basis, Raytheon's book-to-bill is 1.35. Key awards in the quarter included over $750 million for Netherlands air and missile defense capabilities, about $650 million of classified awards, and about $250 million of Evolved SeaSparrow Missile orders for Japan. Turning to Raytheon's full year outlook. Excluding the potential impact of tariffs, we continue to expect sales to grow low-single-digits on an adjusted basis and mid-single-digits organically, with operating profit growth between $150 million and $225 million versus 2024. With that, I'll hand it back over to Chris for some closing remarks. Chris Calio: Okay. Thanks, Nathan. I'm on Slide 9. Before we open up to questions, I want to emphasize that RTX is built to perform in any environment. The fundamentals of our business remain intact and our continued focus on execution has delivered a strong start to the year. With industry-leading products on the highest-growth platforms in commercial aerospace and defense and our commitment to innovation over the long-term continues to pay off. With next-generation products such as the GTF Advantage and LTAMDS demonstrating our leadership and future growth opportunities. The long-term structural demand for our products and technologies all remain in place today. Additionally, the need for our defense solutions that provide critical security to the US and our allies has never been stronger. And so, I'm confident that these trends will drive significant growth for us over the coming years. With that, let's open it up for questions. Operator: [Operator Instructions] The first question comes from Peter Arment of Baird. Please go ahead, Peter. Peter Arment: Yeah. Thanks. Good morning, Chris and Neil. Nice results. Chris Calio: Good morning, Peter. Peter Arment: Hey, Chris, thanks for the details on tariffs. It's very helpful. Obviously, things are very dynamic. So, I guess, I'll ask a question on related to kind of the current defense environment. Are we seeing the ReArm Europe effort as a big opportunity for Raytheon or does it change any of the timing of awards that you were looking at? And then, I guess, just overall, do you expect still the Raytheon business to have a book-to-bill above 1 this year? Thanks. Chris Calio: Yeah, thanks, Peter. I would say that the focus of the EU on ramping up prevent -- presents an opportunity for Raytheon clearly. I mean, just think of the countries there, Poland is up close to 5%, the UK has talked about taking spending up, Germany obviously. There was obviously the EU announcement for support for the $850 billion of additional defense spending over the next four to five years. And I think, again, as I said upfront, clear opportunity for Raytheon given its core competency in integrated air and missile defense systems. These are proven battle-tested products, think Patriot GEM-T, NASAMS, Coyote. And we've got a very strong European installed base, got eight Patriot users and we've got strong co-production and co-sustainment relationships, as I said in my remarks. I mean, we've got nine suppliers in Poland alone on Patriot, MBDA partnership on the GEM-T ramp up. So, again, strong demand in the region and strong partnerships overall. I will tell you, overall, on Raytheon's demand signal, that hasn't changed. I think there are some timing issues that will recover in the year, which we expected, but the global demand remains strong. We expect a book-to-bill of 1.0 or more. Peter Arment: Appreciate the color. Thanks, Chris. Operator: Our next question comes from Robert Stallard of Vertical Research. Please go ahead, Robert. Robert Stallard: Thanks so much. Good morning. Neil Mitchill: Good morning. Chris Calio: Good morning, Rob. Robert Stallard: Chris and Neil, obviously, a very fluid situation with the whole trade war thing, but in terms of the $850 million you've laid out here, is that a gross or a net number after you've applied these mitigations? And similar to that, your peers earlier this morning said that they were essentially going to pass on cost as a surcharge to customers. What sort of ability do you have there, particularly on the commercial aerospace side of things? Chris Calio: Yeah. Thanks, Rob. Yeah, the $850 million is inclusive of mitigations, Rob. Those mitigations, regulatory like we talked about, things like duty drawback, contractual, again, that's pricing and other mechanisms and I'll talk about that in a second, and then, operational, where are there things where we can optimize the flow of material and work to again get the best mitigation we can from the tariff regime. On pricing, look, Rob, we've been operating in a highly inflationary environment over the last several years. And so, I think, we've gotten pretty proficient at knowing where and how to pass along higher costs through pricing. Again, situation is fluid. There are a number of variables that are out there. And so, we came into the year with a number of sort of levers we would potentially pull if we saw things change in the marketplace. We're going to let things sort of play out. And then, to the extent that we see some softening or other things, then we're going to go and execute on that playbook. But again, we know how to push pricing. I think you just got to be balanced about it given where we are with our customers. Robert Stallard: Great. Thanks, Chris. Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead, Myles. Myles Walton: Thanks. Hey, Chris, you mentioned that the tariff side didn't assume changes in customer buying behavior or operational disruption. Could you maybe talk about those as elements of watch items, in particular, the China strategy, as it relates to aircraft and aircraft parts, what your assumptions are there in terms of what they may or may not do? And then, also, relative to supply chain disruptions, where are you most focused to ensure that these tariff issues don't create supply chain disruptions? Thanks. Chris Calio: Yeah. Thanks, Myles. Look, I'll take the supply chain piece first. Maybe just think of the first quarter, we saw, again, some steady improvements continuing in our supply base. You heard me talk about structural castings at Pratt up 16% year-over-year, hear me talk about Raytheon's material growth eight straight quarters, Collins bringing down overdue line items. Rocket motors, again, one of our key suppliers saw output up substantially in Q1 year-over-year. So, again, saw some continuing stability and improvement in the supply chain as we exited Q1. And so, obviously, we're going to stay super tight with our supply base, making sure that we're all working together on tariff mitigations and the movement of work and making sure that we don't see those disruptions. I mean, keep in mind, the industry has been used to a duty-free environment. So, all of us have had to come up with different sort of processes and protocols to avail ourselves of these mitigations that we've talked about. And so, again, we want to stay locked tight with our supply base to make sure we know how to do this and we keep parts flowing. We've seen in the past what happens when you kind of are herky-jerky with your supply chain. We saw that in COVID. It takes a while to recover. We want to continue that moving forward. On China, I mean, look, it's obviously an important market for commercial aerospace, both in terms of RPK growth, fleet growth. I would say that Western companies are pretty integral to the growth in China as well. So, I don't want to get out ahead of ourselves here to see how this plays out. I think we've just got to kind of sit back and see where it stands. I mean, I'll just point back to what I said before. The US A&D industry has a large trade surplus. It is a great example of US competitiveness, advanced manufacturing and technology leadership. And then, ultimately, we hope that's recognized. On the supply chain front out of China, again, we've been on a path to develop multiple sources globally for a while now. A lot of that was hastened frankly out of COVID, and so we're going to continue to accelerate those efforts. Myles Walton: Thanks, Chris. Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Your question please, Ronald. Ronald Epstein: Yeah. Hey, good morning, guys. Chris Calio: Good morning, Ron. Ronald Epstein: So, yeah, just recently, as you all know, we had the decision on the NGAD manned aircraft. Do you have any idea on NGAP, when that could be? Because I would imagine it's going to be one of the XA engines from either you guys or your competitor. Do you have any color around that? Chris Calio: Well, I guess, what I would say here, Ron, is we got an award in Q1 for about $550 million to continue to progress on NGAP. And we're actually very pleased with what we're seeing on the testing side. And we're getting some great feedback from that and from the customer. And again, I think Pratt has a demonstrated record of providing leading fighter propulsion technologies at scale, and it's making significant strides on technologies that are going to improve range and stealth. So, again, we're excited that NGAD is moving forward, and that hopefully what we're doing on NGAD will yield some benefit. And again, we're pleased with how that program is moving and the funding that underpins it. Ronald Epstein: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Scott Deuschle of Deutsche Bank. Your question please, Scott. Scott Deuschle: Hey, good morning. Chris, have you seen any operational impacts of the SPS fire at either Collins or Pratt? And then, for RTX, is most of that lost fastener capacity being made up by SPS itself on existing contracts, or are we needing to get that demand filled by alternative suppliers? Thank you. Chris Calio: Yeah. Hey, Scott. Our team separate and apart from tariffs and all the analysis there, was working really hard on understanding the impacts from that fire. We're working closely with not only SPS, but others where we could potentially pick up the slack there. I'll tell you that as we continue to sort of move forward here, work through with some alternate suppliers, work through with SPS, we're feeling more optimistic in our ability to avoid any notable impacts given the fire. Scott Deuschle: Thank you. Chris Calio: Thank you. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Please go ahead, Sheila. Sheila Kahyaoglu: Good morning, Chris and Neil. Chris Calio: Good morning, Sheila. Neil Mitchill: Good morning, Sheila. Sheila Kahyaoglu: I wanted to go back to tariffs, and I appreciate you guys have a pretty tough job in the trade surplus that aerospace has. So, Neil, maybe in your comments you mentioned the $850 million. I just want to clarify that the net impact and how do we think about that across the rest of the Q2 to Q4 and across the segments? Is there any timing mismatch where it hits Collins first and Pratt in '26? Any detail you could provide? Neil Mitchill: Sure. Thanks, Sheila. Yeah, obviously, a lot of estimates involved in kind of assessing the impact here, but just to be clear, the $850 million on the page is an approximation. It is net of mitigations. As Chris talked about, there are a variety of mitigations available to us. And frankly, many of them are new in terms of our application of them because we lived in an environment where most of our goods were coming across the border without a duty. And so, we'll continue to mature our mitigation strategies and, in part, the size of the number reflects the time that it takes to mature that. So, if you just step back though, let me break that down just a tad for you. And again, this assumes the rates that are out there today remain in effect for the rest of the year. Think about that as about a nine-month period. I'd say the Raytheon impact is very minimal. Think about that as like a $0.01 per share kind of a number. The rest of it, the residual impact is split pretty evenly between Collins and Pratt. So, a little over $400 million each. As I think about the timing of that, if this were to play out in effect as it is today, think about that fairly back-half loaded on the earnings side, because some of this will end up in inventory and then turn through the P&L as the inventory is sold. And then, I guess, the other comment I would make, I made a comment that the cash flow impact would be a bit larger, and that's because of the timing lag on getting the duty drawback cash back to us. So, think about that as about 15% to 20% above the rough estimate that we provided today. So, I think though as I really step back, I think there's a lot of variability yet to come here. And so, what we wanted to do today was just provide a framework and break it down by bucket of applicable tariffs and countries, so that as things evolve, it will be easier for you and for us to model that -- those changes. And of course, when that firms up, we'll take that into account and bake it into our outlook. Sheila Kahyaoglu: Great. Thank you. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Your line is open, Seth. Seth Seifman: Thanks very much. Good morning. Chris Calio: Good morning, Seth. Seth Seifman: Just wanted to ask about it, apologies if you addressed this, but in the -- you mentioned, not assuming changes in customer behavior, but, just kind of the latest indications you're getting in order activity and kind of the shorter cycle areas of Collins aftermarket and what kind of -- might be most exposed if we were to see a significant slowdown in air traffic for the rest of the year? Neil Mitchill: Thanks, Seth. That's a good question. Let me start and I'll hand it off to Chris if he has anything to add. I would anchor ourselves first and foremost back to the first quarter. It was a good solid first quarter. I know that things have changed as we exited the quarter, but our order activity was strong. Our aftermarket was really strong. And as we looked at the first few weeks here in April, we've seen no major changes in the behaviors of our customers. Now, that's a relatively short period of time, obviously, given the dynamics in the environment. But as we look ahead, I think -- and go around the business, I'll start with the OE side. The demand there remains very strong. Obviously, it's a constrained environment. There's a lot of demand for new aircraft and we expect that to largely continue. If you stick with Pratt and Whitney for a minute and you think about the aftermarket there, clearly tremendous demand for GTF aftermarket. We saw strong output, as Chris alluded to in his opening remarks, in the first quarter and expect us to be on track to continue to deliver growth there throughout the rest of the year. And on, the V2500 side, I talked about 800 shop visit outlook for the full year and we were right in line with about a quarter of that in the first quarter. So -- and I'd say the same on the PW2000s and 4000s, our legacy engines. So, the indicators there are pretty consistent. I think we've got a good bottoms-up view of the customer demand profile and we've factored in some of the things you're hearing about from our customers. On the Collins side, I would say the same applies on the OE outlook. And as you think about the aftermarket, really strong first quarter. The compares get a little bit more difficult, but again, as we looked at April so far, those orders remain intact. Now, there's a reason we have a range on our outlooks. And I think as we sit here today, I think our ranges operationally can absorb some of the impact if there is softening in the later part of the year. We're coming on a really important part of the travel season. And as those aircraft fly, they require parts, they require maintenance and the slots coming into the shops are obviously constrained, and I think our customers are going to want to maintain their position in line. Chris Calio: Yeah. I think the only thing that I would add, Seth, is building on something Neil said, which is really kind of the process that we go through. We've got people embedded with our airline customers, service reps. Our customer-facing teams do bottoms-up analysis with our customers and have a really, really solid understanding of their assumptions on traffic, on capacity, and of their plans and the levers they're thinking about sort of pulling. And so, as we see how this sort of plays out, we'll take action as necessary as we're watching those buying patterns. We watch them on a daily basis and we react quickly when we see shifts. Seth Seifman: Great. Thank you very much. Operator: Thank you. Our next question comes from the line of Jason Gursky of Citi. Please go ahead, Jason. Jason Gursky: Hey. Good morning, everybody. Chris Calio: Hey, Jason. Jason Gursky: Neil, I was wondering if you -- just a clarification one, if you'd be willing to talk about the gross impacts of tariffs. You've talked about the net impact here. And then, Chris, I'm wondering, just to get your initial thoughts and takes -- take on some of the executive orders that have been coming out of the White House. It looks like they want to get engaged in procurement reform and maybe go off and rewrite federal acquisition regulation. Just kind of what should we be looking for from the outside? Is this necessarily a good thing to go see procurement reform and trying to cut down on red tape and speed up acquisition processes? Or are there some things that we should be kind of beyond the watch for that might have unattended negative consequences for the industrial base? Thanks. Neil Mitchill: Thanks, Jason. Let me start by talking about the tariffs a little bit. I mean, I think it's mostly important to look at the net impact. If you were to apply the tariff rates to gross imports or gross movement across borders in the case of tariffs coming from other countries, I think that would skew that number considerably, particularly given some of the mitigations that are available to us. You think about USMCA for goods moving Canada, Mexico and United States, doesn't fully cover us. It's not the same as the commercial aircraft agreement that was in place and is no longer available, but that mitigates things in a significant way. Similarly, on the defense side, the military duty-free option that were available to, that covers a significant amount of the gross impact. It gets a little bit more difficult, because there's a lot more paperwork involved when it requires temporary import under bond or drawbacks. So, I think again, that's why we've laid out a net number here. I think that's the most important thing. And as I said before, we're continuing to operationalize the mitigation efforts. There's a fair amount of work to do to ensure our products meet the qualifications of either USMCA or are able to qualify for temporary import under bond and, of course, drawbacks because we need to track the parts on a serial number basis. So, a lot to do. I expect us to be able to mature that and improve things if this were to last multiple years. Chris? Chris Calio: Yeah. On your second question, Jason, I would just say, look, we applaud the administration's effort to streamline procurement. The faster we can move to awarding contract, the better. It gets us to line up our labor more quickly, gets us to get our supply chain on contract more quickly, takes risk frankly out of some of the bids. Time is never your friend as you're trying to execute those things. So, again, we see that as net positive all around. I mean, the focus for us, Jason, when we think about the executive orders and frankly just the administration writ large is executing on our backlog. I mean, the feedback that, of course, we're getting is we need more of your product and we need it faster. And so, it's partnering with both the administration and our supply chain, identifying where we see bottlenecks, trying to eliminate those bottlenecks and keep the ramp going. We've seen progress on a number of key programs, think GEM-T, think Coyote here in the first quarter, and we still got a ramp ahead of us across a number of effectors because the demand is really strong. Operator: Thank you. Our next question comes from the line of Gautam Khanna of TD Cowen. Your question please, Gautam. Gautam Khanna: Yeah, thank you. Good morning, guys. Chris Calio: Good morning. Gautam Khanna: Wondering if we could switch to OE. A, I was curious, are you seeing any sort of production rate expectation declines on the A350 or other products? And if you could just update us on supply chain constraints and how those have progressed? I know you made some comments in the opening, but if you could just elaborate 787 and some of the other areas that were long poles in the tent before? Thanks. Chris Calio: Sure. Look, I know we -- I'll sort of echo what Neil had said earlier, which is the airframers have strong firm backlogs and are focused on continuing to ramp, right? They need to keep material flow going through their shops from the supply chain. So, we don't see any material changes there. And again, we see a ramp ahead and we want to stay out of their way, make sure they have what they need from us as they're moving up that ramp. On supply chain, I named some of the key part families sort of upfront here in terms of where we're seeing progress, rocket motors, structural castings. Again, we see steady improvement across. Again, we've got ramps ahead of us in our plans. We've got to continue to see that improvement. On 787, we've done, I think, a very good job in working and partnering with Boeing on heat exchangers. I feel like that is now up to where it needs to be on 787, and we're going to continue to keep a close eye on that as Boeing continues to ramp. Gautam Khanna: Thank you. Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Your line is open, Kristine. Kristine Liwag: Hey. Good morning, everyone. I mean, Chris and Neil... Chris Calio: Good morning. Neil Mitchill: Good morning. Kristine Liwag: The focus has been on the negative impact on tariff, but I would imagine that in the discussion that the administration is having with other countries on how to close the US trade deficit, the aerospace defense industry's role as a net exporter, I mean, can't really be ignored. So, I guess first, are you having any discussions about that? And are you seeing incremental demands from international orders from this? And second, $1 trillion US defense budget kind of came under the radar a few weeks ago. And taking this into consideration, I mean, how much flexibility do you have in ramping up capacity? Chris Calio: Yeah. Thanks, Christine. Look, we've been consistent in our advocacy through a number of channels, legislative with the administration on exactly what you just said. Again, we really believe that the US aerospace and defense industry is really well positioned to meet what the administrative's sort of North Star and trade objectives are and that this industry has just been a shining example of US competitiveness and US manufacturing prowess. And if you just think about all the investments we make here in the US, both in terms of our people, our factories and our technologies, again, those are the things that we continue to emphasize. On the 2026 sort of budget, I guess, we'll see how that ultimately shakes out. Again, focus areas will continue to be integrated air and missile defense, [indiscernible] missile defense, counter UAS, I think all things that are in our core competency. To your point on capacity and rate increases, again, you've heard us talk about our backlog today. We are in an urgent mode in terms of increasing capacity across the board. I gave you the example of Tucson. Previously, we've done it in Huntsville. We've done it in Camden, Arkansas. We're doing it across our footprint for the very reason that you mentioned, which is the demand is strong today and we see that continuing into the future, and we've got to be ready to continue to meet that demand. Kristine Liwag: Great. Thank you. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Please go ahead, David. David Strauss: Thanks. Good morning. Chris Calio: Hey, David. David Strauss: Just a follow-up, I think, on some questions that have been asked. First of all, V2500, the shop visit assumption there this year, if that's held and how you think V2500 shop visits would hold up in a, let's say, flattish kind of flight hour environment if we go into a recession? That's the first question. And then, second of all, on GTF and powder metal, Chris, you've talked about the ramp that you saw last year and expecting this year on powder metal material and MRO capacity. I guess, how much do we ultimately or do you ultimately need to see powder metal capacity, MRO capacity increase, I guess, beyond what you're thinking about for 2025 to be able to accomplish fixing all the, I think, 3000 engines that need to have parts replaced? Thanks. Chris Calio: Sure. I'll start with the last part, David, and then, Neil, maybe you want to talk V2500. When we think about the GTF fleet management plan, David, again, pleased with the MRO output. I'll note here that this MRO output was also on heavier work scopes compared to Q4. So, really pleased about that. Continue to see continued improvement in in-shop turnaround time. A lot of that is taking time out of Gates 1 and Gate 3. In terms of capacity, again, I don't think it's an MRO shop issue. We've got the number of shops that we need in network. It's really just optimizing the flow within each one of those. And again, as I said before, that comes down to the Gate 2 material flow. When we see material flowing, we see turn times come down substantially. As I said, we're taking as much as we can out of Gates 1 and 3 as we continue to drive better flow with our supply chain into Gate 2. As we continue to see that improve, we feel really good about the shops we have in our network and their ability to take that material and shrink turn times substantially. Neil Mitchill: Thanks, Chris. David, on V2500, rather, 800 shop visits was our estimate coming into the year as you pointed out. We were up 7% in the first quarter of this year, year-over-year, in terms of our inductions, right on track for about a quarter of the full year output. We're also seeing the mix of those shop visits trend towards heavier overhauls given the age of that fleet. If you were to project that out, if I were to project that out in a flatter environment, I think it holds pretty solidly. We saw 11 retirements of V2500-powered aircraft in the first quarter. As you know, over the last several years, those retirements have been relatively low. It's still a relatively young fleet. And frankly, there's a tremendous amount of demand still as you all know in the narrow-body area. And so, I think for a short period of time, even in a lower demand environment, those shop visits would likely stay relatively consistent. Our customers need that lift, and as we continue to get the GTF fleet back up in the air, then I think we would see that start to tail off a little bit, but that's a little bit of a ways out. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein. Please go ahead, Doug. Doug Harned: Good morning. Thank you. Chris Calio: Good morning, Doug. Doug Harned: Chris, over the last couple of years, you've had a really big increase in backlog at Raytheon and a lot of that's been helped by international, particularly Europe. When you look forward, looking at mid-single-digit growth this year at Raytheon, it seems to be that you have an outlook that's well below what one might expect from that backlog growth. Can you comment on the timing in which we should see that backlog flow into revenues? And perhaps, also, how you're thinking about some of the Buy European movement inside Europe and how you're participating kind of on the ground in Europe as well? Chris Calio: Yeah. Maybe I'll start with the second part first, Doug. As I was saying upfront, we view the increased defense spending in Europe as an opportunity. And we all saw the $850 billion support over the next four to five years to continue to build up European munitions and defense overall. As I said, one of the biggest needs are integrated air and missile defense systems and effectors, which is again right in our core competency: Patriot, GEM-T, NASAMS, LTAMDS, which we just mentioned getting through Milestone C and going into production, another opportunity there. So, again, feel like that's a real opportunity for us, especially on the back of the very strong partnerships that we have in terms of co-production and co-sustainment. We don't go it alone in Europe on some of our key programs. We think that's a competitive advantage. In terms of the timing of the sort of backlog, if you will, Doug, again, some of that is driven by contractual terms and length of those contracts, how those play out, but again, you've got some very long lead material items that sit in many of these programs that take time. Again, I'll go back to the point I made before. The more streamlining we can do, especially on FMS, you saw that with one of the EOs that the government had sort of put out there. Streamlining that process, the faster that we can get supply -- our supply chain on contract, get long lead material flowing and shorten those delivery cycles. Neil Mitchill: And the only thing I would add to -- yeah, sorry, I'll just add another point or two here. I mean, if you looked within the businesses, land and air defense systems, that's up a strong double-digits, right? Where you'd expect to see the growth, we're seeing it. It's offset by some expected headwinds in lower development programs, and that frankly is lumpy, it's timing. So, I think as you step back and look at the broader Raytheon portfolio, we still feel good about the mid-single-digit sales growth this year. We expected the headwind we saw in the first quarter. We have a couple of points of that headwind in the second quarter frankly, but underlying the bread and butter of the Raytheon portfolio, it remains on track and our execution is on track there and we're seeing capacity increases and that's translating to output. So, I think those are a couple of the dynamics going on within the business. Doug Harned: Right. Okay. Very good. Thanks. Operator: Thank you. Our next question comes from the line of Scott Mikus of Melius Research. Please go ahead, Scott. Scott Mikus: Good morning. Chris Calio: Good morning, Scott. Scott Mikus: Chris, Neil, quick question on Pratt. There is a labor negotiation with the vote on a contract in early May. I'm just wondering how you're approaching that and if there's any contingency plans put in place, if there is a strike to still work down the GTF AOGs. Chris Calio: Yeah. Well, look, I won't get into the specifics of that one, Scott. I'll just say that I think we've had a pretty good track record over the last few years in a highly inflationary market with getting large significant union negotiations to agreement without any interruption. And we're cautiously optimistic that we can do that here as well. We have a longstanding relationship with this labor union. There's a lot of demand in the system. So, obviously, feel like we can get to the right place there and continue to meet the demands of our customer. Scott Mikus: All right. Thanks for taking the question. Chris Calio: You bet. Operator: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Please go ahead, Matt. Matt Akers: Hey, guys. Good morning. Thanks for the question. Sorry to go back to tariffs, but I guess one question we're getting this morning is kind of why are you not able to pass-through more of this $850 million, I guess, just either whether it's contract kind of escalation or just aftermarket pricing or kind of drawbacks because a lot of your product ultimately kind of gets exported. So, is that not the right way to think about it, or is there maybe like a timing mismatch that maybe you get this back in the future, or maybe could you possibly do better than this if you are able to recover some of that? Chris Calio: Well, let me break this in two parts here, Matt. So, in terms of can we do better, so you sort of said upfront, these are relatively new sort of processes and systems that we've put in place to avail ourselves of the mitigations -- the regulatory mitigations and some of the operational mitigations. And so, as we continue to get reps on those, I suspect that we will get those more learned out and there could be opportunities. On pricing, again, I would say that we've had experience over the last few years in how to pass along higher costs through pricing to our customers where reasonable. Again, I think you have to be balanced. You have to balance that against a number of factors, your contract, of course, but what the market will bear, what the market landscape is. We have not been shy about pushing through higher costs through pricing and we'll continue to look for opportunities to do that, but I don't think it's not a panacea for all things tariff. Matt Akers: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Your question please Noah. Noah Poponak: Hi, good morning, everyone. Chris Calio: Hey, Noah. Noah Poponak: Neil, your full year guidance for segment EBIT at Pratt and Collins, I think implies the margins are pretty flat sequentially through the year, maybe even down a little at Collins. Can you talk about that? How much of that is actual pre-tariff fundamental drivers in the business? And how much of that is leaving cushion where you could therefore absorb tariffs if they stick? Neil Mitchill: Thanks, Noah. Appreciate the question. And I think if we were sitting in an environment with maybe a little less uncertainty, I'd feel like we were well positioned within our outlook, and that's how we started the year as we talked about 90 days ago. Strong first quarter, really pleased with the margins we saw both at Collins and at Pratt. And I would comment at Pratt that was on lower spare engines and more install engines. So, I think I'm really pleased to see the kinds of margins we're seeing there with the mix of the install versus spare engine mix in the first quarter. And as we look out to the rest of the year, we'll see higher installs at Pratt. That will bring with it a little bit of headwind as it does all the time, but I remain cautiously optimistic. I think at this juncture in the year given the uncertainty we're seeing around the customer base, we're going to sit here and hold that for the rest of the year. We'll look at it again in another 90 days, and if the strength continues, then that'll be great. If not, I think we've got a little room to absorb some softening that might take place as we exit the summer months. So, I'll just leave it at that for now. And of course, 90 days, we'll be back to provide an update. Noah Poponak: Okay. Thank you. Operator: Thank you. Our final question comes from the line of Gavin Parsons of UBS. Please go ahead, Gavin. Gavin Parsons: Thanks. Good morning. Chris Calio: Hey, Gavin. Gavin Parsons: Just following through on Raytheon margins there, I think the guide for the full year implies about 10.5%, and I think that's with $100 million of productivity. So, given you did 10.7% in the first quarter with $15 million of productivity, I guess, first, is there anything abnormal in that margin? And then, second, longer-term on Raytheon margins, anything that keeps you from achieving that 100 basis points of volume plus 100 basis points of productivity that you had been talking about a couple of years ago at the '23 Investor Day? Neil Mitchill: Sure. Thanks for the question. Listen, I think we're pleased with the Raytheon margins in the first quarter, too. Obviously, it's not where we think the full potential of the business is. We think it can get back into the 12%-plus range and will. We saw about $15 million year-over-year productivity improvement. We had said we'd see about $100 million on a full-year basis and still hold that expectation. So, again, mix contributed in a significant way in the first quarter. That mix can vary throughout the course of the year, but we're definitely seeing a trend towards more international mix in the Raytheon sales and backlog and we expect that trend to continue. So, again, at this point in the year, just want to make sure we reserve a certain amount of contingency here, but I feel good about how we started the year and I expect us to continue to see that play out. We have big growth in absolute dollars and profit for Raytheon as we move through the rest of the year. That's reliant upon the continued supply chain health. Again, we've seen good movement there, eight consecutive quarters of material growth. So, again, assuming all that holds, we expect that margin to hold as we go through the rest of the year as well. So, thanks for the question. Gavin Parsons: Thanks. Operator: With that, I would now like to turn the conference back to Nathan Ware. Nathan Ware: All right. Thank you, Latif. That concludes today's call. As always, the Investor Relations team and I will be available for follow-up questions. So, thank you all for joining us today and have a good day. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX Fourth Quarter 2024 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, President and Chief Executive Officer; 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 risks and uncertainties. RTX SEC filings, including its Forms 8-K, 10-Q and 10-K, 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. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Chris Calio: Thank you, and good morning, everyone. As you saw in our press release, our fourth quarter adjusted sales, EPS and free cash flow capped off a year of very strong performance for RTX. In 2024, we delivered $80.8 billion in adjusted sales, up 11% organically, driven by 14% growth in commercial OE, 13% growth in commercial aftermarket and 9% organic growth in defense sales. Adjusted EPS was up 13% year-over-year to $5.73. We delivered 90 basis points of consolidated segment margin expansion with contributions from all three business segments, and $4.5 billion in free cash flow. Customer demand for our technologies and solutions remains robust, and we ended the year with a backlog of $218 billion, up 11% year-over-year, including $125 billion of commercial backlog and a record $93 billion of defense backlog. On the defense side, Raytheon's backlog continues its favorable mix shift and is now 44% international, up 8 points year-over-year. We'll walk through the fourth quarter details in a few minutes, but I know everyone is interested in 2025. So let me first share a few comments on that front. A favorable demand environment and the strength of our advanced products across commercial aerospace and defense position us for sustained growth in 2025 and beyond. On the commercial side, passenger air travel remains robust, and IATA estimates that global RPKs will grow approximately 8% this year. Commercial airframer backlogs also remain at record levels. We have significant content on the fastest-growing platforms. On the defense side of the business, there continues to be tremendous need for our products such as Patriot, NASAMS, F135, GEM-T, F-117 and Coyote, all critical equipment being used around the world. We also expect continued strength in international demand for many of these products with key partners and allies in NATO, in the Indo-Pacific, committed to increasing defense spending. And as everyone knows, it's pretty dynamic right now on the macroeconomic front, but RTX is positioned to perform in any environment. Over the last several years, we've continued to qualify new and second sources in our supply chain, and we've made substantial investments in capacity expansion and modernization of our infrastructure in the United States. And we have strong partnerships around the world that support production and deliver services within the markets that we serve. All of these factors support another year of positive momentum for RTX and we expect full year 2025 adjusted sales to be between $83 billion and $84 billion, which translates to organic growth of between 4% and 6% year-over-year. For segment profit, we expect 10% to 13% growth resulting in continued segment margin expansion, with all three businesses again contributing to the year-over-year growth. From an EPS perspective, we expect adjusted EPS of between $6.00 and $6.15, up 5% to 7% year-over-year. And for free cash flow, we expect between $7 billion and $7.5 billion for the year. This growth supports capital returns to our shareowners with over $33 billion returned already since the merger, including $3.7 billion in 2024. Today, we have a clear line of sight to deliver towards the high end of our $36 billion to $37 billion capital return commitment by the end of this year. We are committed to continuing our strong capital deployment strategy as we move forward. Our performance will continue to be underpinned by the strategic priorities we've been discussing the last few quarters, executing on our commitments, innovating for future growth and leveraging our breadth and scale. Let's move to Slide 4, and I'll provide an update on each of these priorities. First, executing on our commitments. On the GTF fleet management plan, our outlook remains consistent with our prior comments. As we've discussed, we expect to gradually reduce PW1100 AOGs throughout this year, driven by continued improvement in engine throughput at our MRO facilities. Last year, MRO output was up 30% with a significant increase in forging production, and this year we expect MRO output to grow above 30%. More broadly, we continue to leverage our core operating system, Industry 4.0 improvements and focused capacity enhancements to drive productivity across the company. Last year, enabled by core, we continue to improve productivity across the company, growing sales 11% organically with less than a 2% increase in headcount across RTX. And this year, we expect to complete a record number of core projects to drive operational performance and continued segment margin expansion, with an emphasis on improving on-time delivery, reducing inventory and reducing the cost of scrap, rework and repair. Additionally, we completed our goal of connecting 40 of our top factories to our proprietary data analytics platform. We continue to harness this value to drive company-wide productivity improvements through equipment efficiency, better quality and enhanced product flow visibility. For example, last year, we saw a 50% improvement in on-time delivery for Raytheon circuit card assembly production line. We also saw a 50% increase in equipment utilization in pilot cells at Pratt's module center for the F135. This year, we plan to double the number of product families leveraging this digital infrastructure, which will allow us to expand our use of data and AI in our aftermarket operations and product development. Next, let's talk innovating for future growth. In 2024, we spent over $7.5 billion in company and customer-funded research and development to advance technologies that address the immediate and emerging needs of our customers. Through our ability to rapidly bring new technology to production and meet rigorous customer requirements, we are uniquely positioned to deliver capabilities at scale. For example, Raytheon's upgraded Coyote effector recently demonstrated enhanced capabilities against complex drone targets. Designed, produced and fielded in less than 18 months, these enhancements showcase our ability to rapidly integrate software and hardware technology into products. And as you may have seen, the Army highlighted the effectiveness of this upgrade with over 170 threats intercepted in recent conflicts. We're leveraging the same rapid development cycle across the company, including on multiple classified programs to meet our customers' urgent need to field improved capabilities. And we continue to make good progress on the GTF Advantage at Pratt with the completion of all engine testing requirements, including a test schedule with more than double the endurance testing of the original program. We're pleased with the results and are on track for engine certification in the first half of this year with deliveries to follow in the second half. This type of innovation will continue in 2025 as we plan to spend over $7.5 billion again on company and customer-funded R&D to both field new products and develop advanced capabilities that are critical for the next generation of commercial and defense platforms such as fuel efficiency, resilient networks, directed energy, autonomy, AI and advanced materials. We're also innovating how we do our work as we continue to implement AI applications across RTX. Last year, we saw benefits in areas including product testing, first article inspections and RFP responses. For example, using Generative AI, Collins' avionics business has seen software testing cycle times improve by 3x, while maintaining our same quality standards. We have a plan this year to deploy another 40 use cases. Through our continued initiatives to leverage machine learning and generative technologies, we expect to improve operational speed, cycle times and capital utilization, while decreasing our dependency on external labor. And lastly, leveraging the breadth and scale of RTX. As part of our broader infrastructure plan to maximize utilization of RTX facilities, Collins is building out 125,000 square feet of production space in Raytheon's Richardson, Texas facility to support new wins, including the multibillion-dollar award last year for the Survivable Airborne Operations Center program. Through leveraging an existing RTX facility, we've been able to reduce the investment for this capacity expansion by 50%. And as we continue to evaluate our footprint, we've launched a significant number of projects across the company to lean out our manufacturing floor space and increase utilization, all with the goal of reducing our fixed costs and creating additional capacity. Bringing this all together, we feel very good about the momentum we've created heading into 2025 and where our business is positioned. With that, I'll turn it over to Neil and Nathan to take you through more details on the fourth quarter and our 2025 outlook. Neil? Neil Mitchill: Thanks, Chris. I'm on Slide 5. As Chris said, we had strong financial performance to finish the year. In the fourth quarter, adjusted sales of $21.6 billion were up 9% and up 11% organically, ahead of our prior expectations, primarily driven by commercial OE at Pratt. By sales channel, growth was led by commercial aftermarket, which was up 15%, and Defense, which was up 10% organically. Commercial OE sales grew 10% as higher deliveries at Pratt more than offset the lower narrow-body volume we expected at Collins. Segment operating profit of $2.7 billion was up 29%, with segment operating margin expansion of 180 basis points versus the prior year. Adjusted earnings per share of $1.54 was up 19% from the prior year, driven by segment operating profit growth, which was partially offset by expected higher taxes and lower pension income. On a GAAP basis, EPS from continuing operations was $1.10 and included $0.30 of acquisition accounting adjustments, $0.05 of restructuring and $0.09 of other nonrecurring items. Free cash flow for the quarter was $492 million, bringing the full year total to $4.5 billion, which included approximately $1.1 billion of powder metal compensation and slightly higher year-end disbursements, including capital expenditures. In total, the full year included approximately $2.6 billion of impacts from powder metal, legal matters and the Raytheon contract matter that we've previously discussed. Also in the fourth quarter, we completed the sale of the Collins Hoist & Winch business as we continue to prioritize investments in our core. Lastly, we returned $852 million of capital to shareowners, primarily through dividends. And we paid down $800 million of debt in the quarter, bringing our total debt paydown for 2024 to $2.5 billion. With that, I'll hand it over to Nathan to take you through the segment results, and then I'll come back and share some additional details on our 2025 outlook. Nathan Ware: Thanks, Neil. Starting with Collins on Slide 6. Sales were $7.5 billion in the quarter, up 8% on both an adjusted and organic basis, driven by strength in defense and commercial aftermarket. By channel, defense sales were up 13%, primarily due to higher volume across multiple programs and platforms. Commercial aftermarket sales were up 12%, driven by a 21% increase in provisioning, an 18% increase in mods and upgrades and a 9% increase in parts and repair. And as expected, commercial OE sales for the quarter were down 6% versus the prior year, driven primarily by lower narrow-body volume on the 737 MAX. Adjusted operating profit of $1.2 billion was up $172 million versus the prior year. Drop-through on higher commercial aftermarket and defense volume was partially offset by lower commercial OE volume and unfavorable commercial OE mix. For the full year, Collins generated $28.3 billion of adjusted sales and $4.5 billion of adjusted operating profit, resulting in 100 basis points of year-over-year margin expansion. Shifting to Pratt & Whitney on Slide 7. Sales of $7.6 billion were up 18% on both an adjusted and organic basis, with sales growth across all three channels. Commercial OE sales were up 31% in the quarter, primarily driven by increased deliveries and favorable mix in Large Commercial Engines. Commercial aftermarket sales were up 17% in the quarter, driven by higher volume in Large Commercial Engines, primarily GTF and Pratt Canada. In Military Engines, sales were up 8%, driven by higher volume across F135 production, the F135 engine core upgrade program and F135 sustainment. This was partially offset by lower sustainment volume across other legacy platforms, primarily the F-100 and F-117. Adjusted operating profit of $717 million was up $312 million versus the prior year, driven by favorable OE volume and mix in Large Commercial Engines, favorable mix in Pratt Canada aftermarket and drop-through on higher commercial aftermarket and military volume. Pratt also benefited from an approximately $70 million insurance recovery in the quarter. Also in the quarter, Pratt booked $8.9 billion of awards, including $1.4 billion for F135 sustainment. For the full year, Pratt & Whitney generated $28.1 billion of adjusted sales and $2.3 billion of adjusted operating profit, resulting in 100 basis points of year-over-year margin expansion. In addition, GTF engine shipments in 2024 were up 14% on a year-over-year basis. Now turning to Raytheon on Slide 8. Sales of $7.2 billion in the quarter were up 4% on an adjusted basis and 10% organically. The sales growth was driven by higher volume on land and air defense systems, including Global Patriot, NASAMS and counter-UAS programs as well as 5 points from higher volume associated with the restart of contracts with a Middle East customer. This growth was partially offset by the impact from a cybersecurity divestiture and lower volume on air and space defense systems. Adjusted operating profit of $728 million was up $110 million versus the prior year, driven primarily by drop-through on higher volume, improved net productivity and favorable mix, partially offset by the impact from the cybersecurity divestiture. Year-over-year, net productivity improved by approximately $50 million in the quarter. Bookings in the quarter were $9.5 billion, resulting in a backlog of $63 billion and a full year book-to-bill of $1.48 billion. Key awards included $848 million to supply Romania with additional Patriot systems, highlighting the continued demand for air and missile defense solutions. Raytheon also booked $1.9 billion of classified awards, $763 million for Stinger Air Defense Missiles and $591 million for the Next-Generation Jammer airborne electronic warfare system. For the full year, Raytheon generated $26.8 billion of adjusted sales and $2.7 billion of adjusted operating profit, resulting in 100 basis points of year-over-year margin expansion. Net productivity at the business was up approximately [$116] (ph) million on a year-over-year basis in 2024. With that, I'll turn it back over to Neil to provide some more color on our 2025 outlook. Neil Mitchill: Thanks, Nathan. Turning to Slide 9. Let me talk through the drivers of our 2025 outlook that Chris highlighted. Starting with sales, supported by the demand environment we've discussed, we expect total RTX sales to be between $83 billion and $84 billion for the year. Within this outlook, we've assumed that Collins actuation divestiture is completed by the end of the second quarter. Therefore, on an organic basis, this translates to between 4% and 6% top line growth. Looking at it by channel at the RTX level and adjusting for divestitures, we expect approximately 10% commercial aftermarket growth. On the commercial OE side, sales are expected to be up mid-single-digits year-over-year as we align with our customers on delivery requirements, which we see ramping throughout the year. And defense sales are also expected to grow mid-single-digits across the company. With respect to EPS, let me take you through the year-over-year walk. Starting at the segment level, at the midpoint of our outlook range, operating profit growth of 12% is expected to drive approximately $0.66 of EPS growth. Included in this segment growth is a headwind of roughly $0.07 associated with the divestitures we completed last year and the expected actuation divestiture this year. And due to the progress we've made on paying down debt from the accelerated share repurchases completed in 2024, we expect a tailwind from lower interest of about $0.05. Partially offsetting these items is approximately $0.15 from lower FAS/CAS and nonservice pension income, driven primarily by the actions we've taken to improve the funded status of our plans, as well as $0.06 from a higher share count. And finally, we also expect a $0.16 headwind from other items, which is primarily comprised of $0.06 of higher corporate expenses as we invest in our digital systems and capabilities and $0.05 of higher taxes. All of this brings us to our adjusted EPS outlook range of $6 to $6.15 per share. Moving to our cash walk. The first piece of our year-over-year growth comes from segment operating profit and working capital. Combined, this will drive an operational improvement of approximately $2.3 billion. Specific to working capital, we expect a year-over-year improvement of approximately $1.3 billion, with the majority coming from inventory and contract assets as we deliver commercial OE product, achieve defense delivery milestones and improve our supplier inputs and material throughput. This also includes CapEx where we expect to invest between $2.5 billion and $2.7 billion during the year as we continue to expand capacity and accelerate automation efforts to support our long-term organic growth. Next, the onetime legal and contract matters that we paid last year will not repeat in 2025, resulting in a tailwind of approximately $1.5 billion. We also see a headwind of approximately $900 million, primarily driven by the absence of an R&D tax-related benefit in the prior year and higher cash taxes in 2025. Finally, we expect powder metal compensation impacts to be between $1.1 billion and $1.3 billion, which is up around $100 million year-over-year at the midpoint. All in, we expect free cash flow to be between $7 billion to $7.5 billion in 2025. With that, let's turn to Slide 10, and I'll provide some details for the segment outlooks. Starting with Collins. We expect full year sales to be up low single-digits on an adjusted basis and up mid-single-digits organically. As I already noted, this outlook assumes the completion of the sale of the actuation business around midyear. Adjusting for this divestiture, we anticipate commercial aftermarket to be up high single-digits to low double digits driven by growth in passenger air travel and mods and upgrades volume. Commercial OE sales are expected to be up mid-single-digits as increased volume on multiple platforms is partially offset by impacts from the expected timing of our customers' production ramps. And defense is expected to be up low single-digits on top of the 9% growth we saw in 2024. With respect to Collins' adjusted operating profit, we expect it to grow between $500 million and $600 million versus the prior year, driven by drop-through on higher volume across all three channels as well as higher pricing and continued progress on cost reduction efforts across the business. Finally, this includes an approximately $80 million headwind associated with the actuation divestiture. Shifting to Pratt & Whitney. We expect full year sales to be up high single-digits on both an adjusted and organic basis. By channel, we expect commercial aftermarket to be up low double-digits due to higher volume across Large Commercial Engines and Pratt Canada. Commercial OE is expected to be up mid-single-digits with another year similar large commercial engine unit delivery growth, partially offset by mixed headwinds. And military sales are expected to be up mid-single-digits, driven by sustainment activity across the F135 and F-100 platforms and the F135 Engine Core Upgrade program. For Pratt's adjusted operating profit, we expect growth of between $325 million and $400 million versus the prior year, driven primarily by drop-through on commercial aftermarket and military growth. This will be partially offset by increased commercial OE deliveries and mix within that channel. And at Raytheon, we expect sales to grow mid-single-digits organically as double-digit growth in land and air defense systems is partially offset by lower development volume. Raytheon's adjusted operating profit is expected to be up between $150 million and $225 million versus the prior year, driven by drop-through on higher volume, favorable contract mix and improved net productivity. Also keep in mind, there is an approximately $35 million headwind associated with the sale of the cybersecurity business in the first quarter of last year. In addition, we've included an outlook for some of the below-the-line items in the appendix of our webcast. All in, 2025 is expected to be another strong year of performance for RTX. A lot has changed since we issued the original 2025 target several years ago. And while there have been some updates, the fundamental value drivers of the company and cash generation potential have not changed. Okay. With that, I'll turn it back over to Chris. Chris Calio: Okay. Thanks, Neil. I'm on Slide 11. As I said upfront, I'm pleased with how we ended 2024 and the momentum we have heading into 2025. The growth we've achieved over the last few years has been remarkable, and we continue to make the right investments to advance our market-leading technologies and capabilities well into the future. Looking ahead, we are a focused, technology-driven aerospace and defense company that is aligned with strong macroeconomic growth drivers and well positioned on the right industry growth platforms. Combined with technology synergies across our products and a strong balance sheet that enables us to innovate at scale, I'm confident we can drive sustainable growth in sales, margin and cash flow generation, resulting in significant long-term returns to shareowners. Okay. With that, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Myles Walton of Wolfe Research. Your question please, Miles. Myles Walton: Thanks. Good morning. Maybe, Chris, on powder metal and the GTF, there wasn't a lot of discussion. So I'm taking that as good news that you're still on track, still on plan. And maybe just to put a point to it, it looks like your cash expectation for spend in '25 is the same. Are we still on track for the $800 million to $1 billion step-down in 2026? Chris Calio: Yeah. Thanks, Myles. Let me go through the main components here. As I said upfront, the outlook remains consistent and the underlying technical and inspection assumptions all remain intact. So good news. AOGs have been stable. And now look, I said this before, MRO output is the key enabler. We saw some very good progress last year. PW1100 output was up 30% last year. So very good progress in terms of material flow and in-shop performance. But we need to continue to ramp output to bend the curve here as we work our way through 2025. And we talked about a plan here of above 30% growth in 2025, and that's going to be critical. Now, the supply chain is going to be instrumental in helping us get there. And we've continued to see improvement there. Structural castings were up 12% year-over-year. Isothermal forgings output was up significantly. And of course, that's important as we incorporate full life powder metal parts into MRO. As you know, it's already going into new engine deliveries. So again, there are a lot of puts and takes, as you might imagine, as we're going through this process. And our 100% focus, again, is on bending the AOG curve, to make sure that we get the assets back into our customers' hands as quickly as possible. Neil Mitchill: And, Myles, on the cash side, I think if you think back over the last couple of years, we started out with a placeholder of $0.5 billion, we were able to defer that. Last year, in '24, we ended at about $1.1 billion, so a little ahead of where we had estimated. And as you can see from today's comments, we see between $1.1 billion and $1.3 billion for '25. We're going to continue to work with our customers to manage the timing of those cash flows. Right now, I'd say we have the residual amount parked in 2026. Could that go out a little bit further? Perhaps. We want to make sure we manage the cash carefully on this program. We're happy with where we are with the customer agreements that we have in place right now, with the vast majority of the AOGs are under a customer support agreement already. So, we feel good about the profile that we've laid out so far. Myles Walton: All right. Thank you. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Your line is open, Peter. Peter Arment: Good morning, Chris, Neil, Nathan, nice results. Chris Calio: Good morning. Peter Arment: Hey, Chris. Chris. On the -- so new administration, new spending priorities, how are you thinking with how Raytheon is aligned in terms of any replenishing stockpiles and how you see kind of that playing out for you? You got a huge international mix. I think you mentioned 44%, and just how you see kind of the uplift that's coming from the international side along with opportunities you're seeing on the replenishment side with the new administration. Thanks. Chris Calio: Yeah. Thanks, Peter. Good question. Well, and you sort of led with it up front, right, the demand for our products continues to be really strong, right? Raytheon, a $63 billion backlog. 1.48 book-to-bill. As I said in my comments upfront, you've got 30-plus systems in operation in conflicts today defending the US and our allies very, very effectively. In the US, it's about replenishment, as you referenced. As you move across the world, Europe, this is about integrated air and missile defense, continuing to replenish effectors, GEM-T, AMRAM and the like. And as you move to Asia-Pac, it's more on naval munitions, the standard family, SM-3, SM-6, continuing to ramp up there. So overall, again, we continue to see international demand to be very strong. The NATO countries are continuing either to commit or actually spend above the 2% target, you think of what you're seeing in Poland, it's coming up on almost 5%. Again, international demand continues to be strong. We've seen that in our backlog, and that will be a tailwind for us. Peter Arment: Appreciate the color. Thanks. Operator: Thank you. Our next question comes from the line of Ron Epstein of Bank of America. Please go ahead, Ron. Ron Epstein: Hey, good morning, guys. Chris Calio: Good morning. Ron Epstein: Yesterday, the Air Force bumped up their contract for NGAP to about $3.5 billion, a big number. Where do you guys stand on the program? Where are we? How do we think about it? Kind of what's going on with that next-generation engine? Chris Calio: Yeah, I'll take that one, Ron, it's Chris. So, look, regardless of where NGAD is and the timing, and there's been a lot in the public out there, we've continued to develop our NGAP solution. We've gone through rigorous testing over the last few years. We've been really pleased with the results there. I can't get into too many of the details, as you might imagine. But this is something where we've had a lot of resources on it and have been very pleased with the testing that we have seen. And this funding will help us continue in that area, continuing to drive down any risks on the key requirements that are there. So very pleased with that award. Again, we think we're going to have a very competitive offering. Ron Epstein: And how much of a tailwind is that for Pratt this year? Or I mean, how do we think about that just kind of on the financial side? Neil Mitchill: Well, I'd say between the engine core upgrade on the F135 program and this work that we're doing, we've got Pratt in at mid-single-digit growth for the military side of their business. Clearly, a tailwind here, Ron. I see this continuing to grow. As you know, more broadly speaking, a lot of the older aircraft continue to fly. The aftermarket remains strong. So I'd say, by and large, this is a tailwind for Pratt, and happy to see this funding being put in place over the next number of years to continue this development. Ron Epstein: Great. Thank you. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is open, Scott. Scott Deuschle: Hey, good morning. Chris Calio: Good morning, Scott. Scott Deuschle: Neil, are there any components of the free cash flow outlook in 2025 that you would call out as potentially normalizing or reversing in 2026 apart from, of course, the powder metal costs? And I'm mainly just trying to get a sense of whether this broader working capital improvement to remain a persistent tailwind beyond 2025. Thank you. Neil Mitchill: Sure. Appreciate the question. I know there's been a lot of focus on our cash flow, and we're focused on that entirely here within the company as well. And so as we look at the outlook that we just put out for '25, think about $7.2 billion at the midpoint and about $1.2 billion of powder metal. So, you just do the math there, operationally, about $8.4 billion. Now there's a $1.3 billion working capital tailwind baked into that year-over-year improvement. But as you can see from the level of inventory we have and the level of contract assets, we think we've got additional runway to continue to improve working capital turns as we move beyond 2025. So, we have a lot of work to do here in 2025 already, but we're very confident. We've been focused on this for a couple of years. Didn't get there last year, but I think we're well stocked to support the ramps of our customers in that regard. The only other nonrecurring item, if you will, that I think about in '25, we've got a couple of hundred million dollars set aside for an international tax payment that we'll be making here in the first quarter following a court finding that came out early this year. And there's always a couple of puts and takes. But by and large, I'd say that $8.5 billion range is fairly strong operational baseline. Scott Deuschle: Great. And, Chris, just to clarify, has Boeing restarted issuing purchase orders for 737 MAX avionics equipment yet? Chris Calio: Yeah, Scott. We're back with Boeing working the ramp, as you might imagine. Frankly, we were working at even throughout the strike making sure that we were ready to go when they ramp back up, continue to engage closely with them on that. Scott Deuschle: Thank you. Operator: Thank you. Our next question comes from the line of Rob Stallard of Vertical Research. Your question please, Rob. Rob Stallard: Thanks so much. Good morning. Chris Calio: Good morning, Rob. Rob Stallard: It's probably a question for Neil. On the 2025 aerospace OEM guidance, it looks pretty conservative compared to what Airbus and Boeing are currently saying. So, wondering if you built some contingency into your forecast or if there's anything going on with inventory, for example, that's impacting that guidance? Thank you. Neil Mitchill: Sure. Yeah. Let me make a couple of comments, Rob. Let me start with the Collins side. Understand the question with production rates anticipated to be going up considerably, there's obviously a little bit of inventory in the channel here, and we've taken a prudent approach, I think, at this time of the year to contemplate that in the Collins outlook. It's not across the board. I think it's targeted to specific systems within the narrow-body value stream. But as we look through the year, we expect the ramp to continue to go up, and as you can tell from the inventory levels that we have at Collins, feel well positioned to meet a rising rate ramp should we see a faster growth as the year unfolds. On the Pratt side, maybe just a couple of comments for additional color there as well. Large Commercial Engines, we were up 14% in unit deliveries last year. I expect a similar level of unit growth as we look to 2025. And then as you look at Pratt Canada, they were relatively flat, up about 1% on their units, but we expect that to tick up as well in '25, probably similar to what we're seeing on the Large Commercial Engines side in terms of units. Offsetting that, of course, is a little bit of mix headwind, but we're pretty happy with the performance that Pratt generated at the end of the year. Good pricing on their engines. And we see that continuing as we get into '25. Now, a little bit early to kind of get ahead of ourselves here, but if there's upside, we're prepared to, and capacitized, to meet that growing ramp. Operator: Our next question [Technical Difficulty] of Jefferies. Your question please, Sheila. Sheila Kahyaoglu: Good morning, guys, and thank you. Chris Calio: Good morning. Sheila Kahyaoglu: Maybe just still picking up on commercial aero on Pratt. 2024, if we look at the OE growth, it was about 21%. GTF deliveries were up 14%. So, is that seven-point delta all price on spares on GTF? How do we think about that in '25? And on Pratt EBIT growth of $350 million at the midpoint, or $370 million, does that all drop through to the free cash flow bridge too, Neil? Is there -- how do we think about negative engine margin factoring in more investment in GTFA and just aftermarket incrementals? Neil Mitchill: Yeah. So, let me start with the OE top line and then I'll move to the -- how that's dropping through in our walk for '25. Sheila Kahyaoglu: Sure. Neil Mitchill: We had a good mix of engines delivered last year at Pratt. And so as I look at this year, I think we'll see a modest tilt towards more installs, but we're still going to see a very robust level of demand for spare engines. As you know, the fleet is in need of that support, and there's plenty of demand out there, and we're getting good pricing on those. So I expect that to continue. In light of that mix shift, as we think about the '25 walk, the majority of Pratt's profit growth will come from aftermarket. We're going to see really good drop-through on the aftermarket, probably to the tune of $500 million or so. You'll see your expected level of drop-through on the military side of the growth in the business. And offsetting that, of course, is going to be some negative engine margin headwind. I'd put that in the range of $150 million to $200 million kind of range as we see the volumes continue to tick up. But as I've said for a long time now, getting these engines out in the field is healthy for the fleet, and it just gets us started faster on getting to the aftermarket phase. And as you think about the aftermarket phase of the GTF today, sitting in a really good position. It's growing at a robust rate, it is profitable, and we've been profitable for several years. And I think there's continued runway not just on the margin side, but as you know, given the nature of these agreements, those will -- those future shop visits are going to come with cash payments. And so that will create additional tailwind for Pratt & Whitney and for RTX as we look out over the next few years. Sheila Kahyaoglu: Great. Thank you. Operator: Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Your question please, Seth. Seth Seifman: Hey, thanks very much and good morning, everyone. Chris Calio: Good morning, Seth. Seth Seifman: Maybe a question and maybe a tag on a quick clarification at the end. On the question, the age of the fleet is obviously supporting growth in the aftermarket at Collins. When you think about growth from here, how do you think about production and deliveries back about five or six years ago as we headed into the COVID period, the number of planes that are coming off warranty and how that's going to affect aftermarket growth at Collins? And then just quickly, if you could talk about the number of large engine deliveries you expect at Pratt this year. Neil Mitchill: Good morning, Seth. Let me start maybe on just the installed base kind of comment. We've been talking a bit about we were at, obviously, lows of deliveries back in the 2020, 2021 time period, with each year thereafter growing. And as Collins delivers new products, they are under warranty for a period of time. So you can expect that each year that rolls off a warranty is larger than the year that preceded it, at least for the last several years. So I expect that to continue to provide some tailwind on to the Pratt installed base. Think about it, they've got $160 billion installed base out there. And so it's going to begin generating even greater volumes of aftermarket going forward. So that's how I think about the aftermarket there. And just to follow up, Pratt is similarly situated. There were about 800 V2500 shop visits in 2024. We see about the same exact number as we look at '25. So continued robust demand. Retirements are very low. And we expect that to continue as well for the next several years at least. And in addition, we're getting good content on those shop visits because 20% of those engines haven't seen their first shop visit yet and only 55% have seen one. So we've got plenty of tailwind in the installed base of both of those businesses looking over the next five years. Seth Seifman: Great. And then on the deliveries? Neil Mitchill: Yeah. So, yeah, just to clarify here, we had about 14% growth in the units delivered of Large Commercial Engines in '24. We expect about the same growth in '25. Seth Seifman: Great. Thank you very much. Neil Mitchill: Yeah, thank you. Operator: Thank you. Our next question comes from the line of Jason Gursky of Citi Research. Your question please, Jason. Jason Gursky: Yeah. Thank you. Good morning, everybody. Chris Calio: Hey, Jason. Jason Gursky: Chris, I was wondering if you could spend a few minutes talking about your top three or four priorities for the year. I suspect some of that will be productivity. So I'm just kind of curious to get an update on productivity across the company, maybe where you are relative to where we were pre-pandemic and what it's going to take to get us back to the productivity that you saw then. And then Iron Dome, what does that mean? What kind of opportunity is there for you all if we do really put up an Iron Dome here in the United States? Thanks. Chris Calio: Yeah. Thanks, Jason. So, on the priority front, as you might imagine, with a $218 billion backlog, our number one priority is executing on that backlog and executing on our commitments. And I'll tag on, of course, the GTF recovery plan there and making sure that we continue to ramp MRO. The demand out there continues to be robust, both defense and commercial. Our customers need our products. And so we've got to just continue to ramp. And on the Pratt and Collins side, we've got to continue to have a healthy supply chain to make that happen. We have a number of people embedded in our supply chain for that reason. At Raytheon, we've seen it's now the seventh quarter in a row of material receipt growth, so happy about that. We need to continue to ramp on rocket motors. I'd say, on some programs, Jason, we're in a healthier position. On others, we're falling behind. But again, this is all about executing on the backlog. Now, a key piece of that, of course, is kind of your second question, which is on productivity. You heard what I said upfront, 11% sales growth, 2% headcount growth. These are the kinds of initiatives that we need to continue to drive in order to deliver the backlog at the margins that we've committed to. Again, a big part of that will be our core operating system, continuing to increase the number of engagements. And those are things you just see across the business, leaning out our factories, leaning out our processes, just becoming more efficient, all around driving waste out of the system. And we're also making investments, Jason, in automation, in AI, things that will continue to drive productivity without the need to add headcount, again, doing things faster and cheaper along the way. And then your third question on Iron Dome. Well, look, as you know, we're a major partner in Israel's Iron Dome today. I suspect, in the US, you're going to probably need to evolve that to address different types of potential threats, perhaps longer-range strikes, protection of infrastructure. But again, layered integrated air and missile defense systems are core to us. It's the bedrock of Raytheon, and they are among the best at it. And so we're ready to engage on this as it takes shape over the study period. We view this as a significant opportunity for us, something right in our wheelhouse. Jason Gursky: Great. Thank you. Operator: Thank you. Our next question comes from the line of Gautam Khanna of TD Cowen. Please go ahead, Gautam. Gautam Khanna: Yeah, thanks. Good morning, guys. Chris Calio: Good morning. Gautam Khanna: I was wondering if you could just broadly comment on the supply chain. Where you're still seeing constraints? In the past, you've talked about heat exchangers and seats and the like. It sounds like at Pratt, the output is getting a lot better. But if you could just talk broadly where the pinch points are and kind of how those have progressed maybe over the last 90 days. Chris Calio: Yeah. A lot of them, the pinch points and the areas of focus are just as I was going through previously. Again, structural castings for us, 12% year-over-year growth at Pratt, need that to continue to ramp. Need to continue to ramp in isothermal forging production. We own a lot of that value stream, but there's other pieces of it that we don't. We need to continue to see that ramp up. Collins, it's been microelectronics, generally speaking. We've seen those lead times come back into line. So, feel good about that. At Collins, there's really like 33 suppliers that drive about 50% of the overdue line items. And so laser-focused on those 33 with people embedded there to drive that. And then again, at Raytheon, the big piece, of course, rocket motors, as I just mentioned. We're seeing progress on some programs, need to ramp on others. So as your question suggests, the supply chain is going to be critical to executing on the backlog that I just mentioned. And so it's a critical focus area for us. You mentioned seating and heat exchangers. I'll just say on the interiors business, sort of writ large at Collins, so double-digit sales growth last year. So, feel good about the trajectory as that business continues to recover. Seating specifically, we continue to work through the certification there. These are complex, especially on the first class and business seats, and the certification requirements are relatively high. They've got a high bar there. But we think we have our arms around those and what we need to do there to get those certified, to the airframers and then out to our customers. And then on heat exchangers, I would tell you that we continue to make progress on the production ramp and the recovery. Doubled production output last year and remain on track to recover to the needs of our customers here in 2025. So, feel good about the progress there. Gautam Khanna: Thank you. Operator: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Your line is open, Matt. Matt Akers: Hey, good morning, guys. Thanks for the question. Can you touch on pension? It looks like FAS/CAS a little bit of a headwind in '25. Is the thought that that will still sort of lead lower in the out years? And if so, what's kind of the headwind we should think about for FAS and CAS? Neil Mitchill: Yeah. Thanks, Matt. Yeah, we definitely see a headwind here, $0.15 as we outlined in our outlook. Our plans remain really well funded. In fact, we ended the year with a funded status of 104%. And so as a result, over the last number of years now, we've employed a de-risking path, which essentially is enabling us to design a plan to protect that funded status. And so as a result of that, we will expect to see the income come down a little bit, and it has. But by and large, the plans that we put in place for the pension remain really, really strong. We continue to see income and expect to have significant income beyond, but it will trail off a little bit each year after 2025. So obviously, there's a lot of assumptions that go into the pension. But by and large, we're in a really good position as we exited '24, and expect that to continue. Matt Akers: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Ken Herbert of RBC Capital Markets. Please go ahead, Ken. Ken Herbert: Yeah. Hi, good morning. Chris Calio: Good morning, Ken. Ken Herbert: Hey, Chris or Neil, you called out provisioning in particular as a real source of strength for the aftermarket at Collins in the fourth quarter. As you think about the, call it, 10% growth in '25, can you provide -- for Collins in particular, can you provide any disaggregation of provisioning versus repair the parts of the business? And I guess as part of that, is there any incremental risk you're seeing around destocking at airlines as they think about spare parts across the Collins portfolio? Thank you. Neil Mitchill: You're welcome, Ken. Let me start with the last part. We haven't really seen any significant destocking. Obviously, the aftermarket growth for the last several years has been tremendous. And I think we're expecting at the RTX level about 10% growth again here in 2025. If you think about the Collins side of the business in particular, and break it down a little bit, we still see parts and repair up in the high single-digits, maybe a little bit better. We're getting really good -- obviously, installed base is growing. I just talked about that, plus we're getting good pricing. On the provisioning, probably a little bit more in line with the OE growth, mid-single-digits, which tends to track sort of the install -- or not the install, the delivery of new aircraft. What's going to be a bright spot for Collins this year is mods and upgrades. That will be over 10% coming off a year that was flat. Obviously, that depends on the kinds of upgrades that are required, often regulatorily driven. But that's another area that's expected to be strong for Collins as we go through 2025. So, feel really good about where we are. And obviously, going back to that installed base of $160 billion, and over at Pratt, it's also very significant, so a lot of tailwind in the aftermarket going forward. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Your question please, David. David Strauss: Thanks. Good morning. Chris Calio: Hey, David. David Strauss: Two-part question. Neil, first on GTF aftermarket, you gave some rough color there. Could you just be a little bit more precise where exactly you're booking GTF aftermarket today, I guess, in 2024 and expectation for '25? I think previously back at the Investor Day in '23, you talked about getting to mid-teens aftermarket margins on GTF. That's my first question. And then second question, on Collins, I think you had previously talked about this being a 40-plus-percent incremental margin business, getting close to 20% margins in 2025. We're obviously not going to get there. So what's the right level of incremental margins to think about on Collins going forward? Thanks. Neil Mitchill: All right. Thanks, Dave, for the question. Let me start with the aftermarket. Let me give you a little bit of background here. Obviously, the aftermarket is growing substantially as we do a lot of accelerated shop visits as it relates to the powder metal matter. And the margins are not quite at the mid-teens level, but I will tell you that they're near double-digits. And if you average the last couple of years, they're over double-digits. So, we've been doing a good job of getting margin in the aftermarket. And we've talked about some of the EIS contracts that we have here, and as those continue to age out and burn down and get replaced with newer contracts with the airline customers, we're getting good pricing, because the engine is performing really, really well. And so in addition to that, we're putting a lot of new material and enhancements into the engine to improve its durability. And as Chris alluded to in our prepared remarks, the GTFA coming online at the end of this year, which Chris will probably comment on in a minute. So, all of the right ingredients there for continued growth, certainly on the top line, continued expansion of margins as we move forward. And really pleased to see that for the last several years, this has been a profitable part of the Pratt & Whitney business. And as the V2500 continues to be fairly steady for the next several years, the GTF is going to be tailwind to Pratt as we get into the later part of the decade. So, really good there. As far as Collins and the incrementals, if you look at the outlook we put out today, you're going to see about a 40% incremental margin. I'm not going to get ahead of ourselves today, but I'd say longer term, we see nothing that says that the Collins business can't return to its pre-COVID margins. They've done an incredible amount of work to drive cost out of the business. They have even more actions in place for 2025. And I think there's tremendous opportunity. Obviously, we've been dealing with some inflation that was on plan. And the OE volumes, if I were to look back four years ago to what we were assuming versus where we are today, they're below that today. So, I think they've done a nice job to compensate for under-absorption in the business, and there's clearly some runway as we look ahead and beyond 2025. Chris, any comments? Chris Calio: The only thing I was going to amplify on, David, was on the advantage. Obviously, we're very pleased with where we are from a testing and certification perspective. But the GTF aftermarket margins are going to be all about driving increased time on wing on the installed fleet today. And those things we're going to be delivering before GTFA fully cuts over. And so we are aggressively continuing to put in and develop enhancements to improve time on wing, whether those be additional cooling holes, whether it would be coding. The other thing I'll tell you is, as we've gone through the GTFA certification process, we are identifying elements that we can go bring back into what I'll call the base program. These are things that maybe a few years ago we weren't sure we would be able to port over, but we're feeling today like that's something we really want to pursue and have an avenue towards. So again, that will be very important as well to drive the GTF aftermarket margins. David Strauss: Thanks very much. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Please go ahead, Noah. Noah Poponak: Hey, good morning, everyone. Chris Calio: Hey, Noah. Noah Poponak: Neil, you just touched on it at Collins, but I was -- I wanted to ask, if I take a step back and zoom out and look at those 2025 segment margin targets from 2021, and you referenced that a lot has changed, but which of those are still achievable in the medium term and have just had cost inflation or some other more transitory headwind versus which of those have structurally changed and the old target is just no longer relevant? Neil Mitchill: Excuse me. Listen, I think all of the margin targets we've talked about are achievable in the business in the long term. If you take them one by one, Collins has shown significant margin improvement already. We have another 150 basis points of margin improvement baked into the '25 outlook. And I think with the volume of the aftermarket, the cost reduction focus and the actions we're taking in the supply chain, they will get there too. It's going to take a little while. Obviously, there's been a number of headwinds that we could not have contemplated back in 2021. I recall when we put these targets out there, we were among the first company talking in the COVID environment publicly. So it was really unique times. We've also lost over $0.75 billion of sales due to the Russia-Ukraine conflict. So there's been a lot of changes, but I think we've done a lot to overcome them. At Pratt, you saw good margins coming out of the fourth quarter. And again, we think Pratt has the potential to grow its margins to where we thought they'd be today. They're not too far off. The top line has grown faster, and obviously, that's been driven by aftermarket and the GTF, which comes with a lighter margin, but still positive, as I just talked about. And then, of course, Raytheon see no reason why that can't get to margins that are north of 12%, 12.5% as well. So the productivity there at Raytheon continues to improve. We saw good improvement in '24. We're expecting another $100 million in 2025 year-over-year. So, I think all things are on track. But there's been a number of changes, but I think we're doing what we can and controlling what we can control. Chris Calio: Yeah. I mean, David, some puts and takes for sure. But I would say that we feel even stronger about the underlying fundamentals of each of the businesses. Inflation was a huge headwind when we put those out in '21. But I would just say we -- our conviction around the fundamentals and margin runway for each of the businesses remain strong. Noah Poponak: Okay. And, Neil, what's your latest assumption for the last year you have a GTF powdered metal cash flow headwind? Neil Mitchill: So, as I said a little earlier, we've got the residual amount parked in 2026 right now. We've done a nice job, I think, of managing the profile of cash flow so far. We're working very closely with our customers, obviously, to support them. But right now, I've got that parked in 2026. Could it linger a bit? I suppose. But I think we're talking about a tailwind when we go from '25 to '26. Noah Poponak: Okay. Thank you. Neil Mitchill: You’re welcome. Operator: Thank you. Our final question comes from the line of Scott Mikus of Melius Research. Please go ahead, Scott. Scott Mikus: Good morning. Neil, Chris, I was hoping if you guys could provide some color on the production rates implied in your guidance for the 737, A320, 787, how have they progressed through the year. And then also a quick question on Collins. Do you have any update on the certification timing for the new business class seats there? Chris Calio: Yeah. Thanks for the question. I don't want to get out too far ahead of our customers. You'll hear from them over the coming days. But we are expecting commercial OE growth, as we said, up in the mid-single-digits. Our focus, frankly, as I said earlier, is continuing to work with the supply base to make sure that we are all in sync. I want to make sure that they know what they need to deliver and that we're doing everything we can to help them, which is why we've got hundreds of folks there doing that. So again, you heard Neil say this, at Collins, we've got the capacity to continue to ramp. We've actually gone and protected some long-lead items in case the ramp is even greater than we think. But we're going to stay super tight with the customers to make sure that we can continue to support them going forward. On the seating question, again, as I said earlier, those are some very complicated certification requirements, and we are working through some testing, but feel like we've got our arms around those, generally speaking, and have a path forward. Scott Mikus: All right. Thanks for taking my questions. Operator: With that, I would now like to turn the conference back to Nathan Ware. Nathan Ware: All right. Thank you, Latif. That concludes today's call. As always, the Investor Relations team and I will be available for follow-up questions. Thank you all for joining us today, and have a good day. Operator: And this now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX Third Quarter 2024 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, President and Chief Executive Officer; Neil Mitchell, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download from RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net non-recurring and/or significant items often referred to by management as other significant items. The company also reminds (ph) listeners that the earnings and cash flow expectations [Technical Difficulty] in this call are subject to risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, 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. [Operator Instructions] With that, I will turn the call over to Mr. Calio. Christopher Calio: Thank you, and good morning, everyone. As you saw from our press release this morning, RTX delivered another strong quarter of performance, building on our momentum from the first half of the year. Demand across the business, including double-digit growth in commercial aftermarket and defense remains robust and drove 8% organic sales growth. Our focus on execution drove 100 basis points of segment margin expansion in the quarter and free cash flow was strong at $2 billion. Based on these results and our expectations for the remainder of the year, we are again raising our full year outlook for adjusted sales and EPS, and Neil will take you through the details here in a few minutes. . Also, of note in the quarter, we completed the accelerated share repurchase program we initiated last October, returning $10.3 billion of capital to shareholders. We've now returned over $32 billion of capital to shareowners since the merger, putting us well on track to deliver on our commitment of $36 billion to $37 billion by the end of next year. Looking ahead, we continue to experience robust demand for our products and services. We saw incredible growth in our backlog, which ended the quarter at a record $221 billion with a book-to-bill of 1.8, and included $25 billion of defense, and $11 billion of commercial orders. Clearly demonstrating the differentiated performance that our products and services provide to our customers and supporting our confidence in the long-term growth of RTX. There were several notable highlights. At Raytheon, we booked a record $16.6 billion of awards in the quarter, driven by the continued global demand for integrated air and missile defense capabilities, with 45% of these bookings for international customers. Key awards included $3 billion associated with our Patriot and GEM-T products, $1.3 billion for SM-3 and $1.2 billion for AMRAAM. Importantly, we booked $1.9 billion for LTAMDs, the first domestic and international production order for our next-generation 360 degree air and missile defense system. At Pratt, we were awarded a $1.3 billion contract for the continued development of the F135 engine core upgrade program, which will deliver enhanced engine range and performance for all variants of the F-35 well into the future. And at Collins, the FAA awarded our connected aviation team a $470 million sustainment contract for the continued technical refresh and enhancement of our air traffic control automation system, which was deployed at over 500 air traffic control towers across the U.S. The system provides a real-time view of the airspace and tools to assist with air traffic management and airspace safety. Okay. Let's move to Slide 4, and I'll provide an update on how we are progressing on our strategic priorities, all of which are enablers to drive best-in-class performance across RTX, including continued top line growth, margin expansion and strong cash flow generation. I'll start with executing on our commitments. And first and foremost is our GTF fleet management plan. We remain on track, and our financial and operational outlook remains consistent with our prior comments. At the end of Q3, our inspections of powdered metal parts continue to progress according to plan. The associated fallout rate remains below the 1% expectation and the findings are consistent with the underlying assumptions of our fleet management plan. At our MRO facilities, throughput of engines is improving. PW1100 output increased 10% sequentially and 27% on a year-over-year basis. The team is utilizing core practices to optimize the inspection sequence and implement concurrent assembly operations in our MRO facilities. We've now reached support agreements with 28 of our customers, covering roughly 75% of the impacted PW1100 fleet. The terms continue to remain in line with our assumptions. We're also leveraging our core operating system and Industry 4.0 initiatives across the company to drive continuous performance improvements while expanding capacity. For example, at our Raytheon facility in McKinney, Texas, our focus on core implementation, along with investments in capacity and automation has significantly increased production of our 360 degree sensor suite for the F-35, known as EODAS, which stands for electro-optical distributed aperture system. Specifically, the team drove yield improvement and streamlined test and inspection operations and move from an assembly line production process to a single piece build flow, which has resulted in a 5x increase in production capacity for EODAS over the past 12 months. And at Collins, our avionics business is already benefiting from our connected equipment by deploying an automated smart torque system resulting in zero torque related defects and saving over 20,000 labor hours so far this year. Across RTX, we've now connected 34 factories with our proprietary digital analytics technology, and we are on track to connect 40 factories by the end of the year. On the capacity front, we continue to invest in increasing output on our key franchise programs to deliver on strong customer demand. This month, Pratt opened a new 845,000 square foot facility in Oklahoma City that will support global sustainment efforts for military engines, including the F135, F117 and F100. This state-of-the-art facility also features automation and advanced manufacturing technologies that will streamline processes, resulting in improved productivity and throughput. Shifting to innovating for future growth. We continue to execute on 14 cross technology road maps across RTX to develop next-generation technologies in domains that support our customers' long-term needs. An example is our hybrid electric propulsion technology to improve fuel efficiency. In the quarter, Airbus Helicopters selected Collins and Pratt Canada support the development of a hybrid electric propulsion system for its PioneerLab technology demonstrator, which is targeting a 30% improvement in fuel efficiency on a twin engine helicopter. Pratt Canada will provide a derivative of its PW210 engine, combined with two electric motors from Collins. And as part of our Advanced Materials roadmap, Collins and Raytheon are working together to adapt commercial break carbon-carbon composite technology to hypersonic missile applications. Thermal management is a critical requirement given the high level speed, and high temperature environments at play. In the quarter, the team achieved Technology Readiness Level 6, demonstrating the ability of the parts to survive and perform in extreme environmental conditions. These initiatives highlight our commitment to developing critical next-gen products and solutions for our customers. Finally, we're focused on leveraging the breadth and scale of RTX. This includes driving simplification within our digital footprint and harmonizing common processes to take cost and complexity out of the business, will ultimately help drive productivity. So far this year, we've eliminated over 265 systems to streamline our engineering, supply chain and manufacturing processes. For example, Collins is on track to reduce their engineering systems by 20% this year. This will help optimize the end-to-end process flow through standard work. We're also leveraging our scale within our supply chain to drive increased efficiencies, speed and savings. Through a coordinated RTX approach, we've identified more than 100 million pounds of common metals across 60 unique alloys that are procured by our suppliers. We have negotiated long-term agreements with these alloys that our suppliers can leverage to reduce lead times and cost, and currently have 45 suppliers utilizing these agreements to plan to add 15 more by year-end. We expect to realize a 10% to 15% cost savings on these alloys utilizing this approach. Okay. So overall, I'm pleased with the progress we've made in our strategic priorities and the momentum we've created across our businesses. With that, I'll turn it over to Neil to take you through the third quarter results in more detail. Neil? Neil Mitchill: Thanks, Chris. I'm on Slide 5. As Chris said, we delivered another strong quarter of organic sales growth, segment margin expansion, and free cash flow. RTX’s adjusted sales of $20.1 billion were up 6% and up 8% organically. By sales channel, growth was led by commercial aftermarket, which was up 11%, and that's on top of 25% growth last year as global air travel continues to grow. Defense sales were up 10% organically as we continue to execute on our backlog and commercial OE was flat as favorable mix at Pratt was offset by lower narrow-body volume at Collins. Segment operating profit of $2.4 billion was up 16% with segment operating margin expansion of 100 basis points versus the prior year. Adjusted earnings per share of $1.45 was also up 16% from the prior year, driven by segment operating profit growth, a lower share count and a lower effective tax rate which were partially offset by expected headwinds from higher interest expense and lower pension income. The tax rate in the quarter benefited by about $0.07 per share from tax impacts principally related to a legal entity reorganization. On a GAAP basis, earnings per share from continuing operations was $1.09 and included $0.31 of acquisition accounting adjustments and $0.05 of restructuring and other significant non-recurring charges. And free cash flow was again strong at $2 billion as continued strength in collections helped offset some higher inventory. In the quarter, we returned $1.1 billion of capital to share owners, including dividends and $294 million, principally related to the closeout of the accelerated share repurchase program initiated last year. On the portfolio front, we expect the sale of the Collins hoist and winch business to close here in the fourth quarter and the actuation business mid-next year. Okay. Turning to Slide 6. Let me share a few details on our updated outlook for the year. As you've seen through the third quarter, the performance across all three of our businesses has been strong, and our end markets remain robust. As a result, we have updated our full year outlook to incorporate this performance, along with our expectations for the rest of the year. Specific to commercial OE production, based on our latest assessment of production rates, we now expect OE sales at the RTX level to grow roughly 10% versus prior year towards the low end of our prior expectation. And at Collins specifically, commercial OE is now expected to be flat for the year, and that's down from our prior expectation of mid-single digit growth. This outlook assumes that we're able to restart some level of shipments to Boeing in the fourth quarter, and we see no change to the long-term structural demand for our OE products. With that said, strength across our other sales channels, including commercial aftermarket, Pratt original equipment and defense is expected to more than offset these impacts. All-in, we're increasing our full year adjusted sales outlook to between $79.25 billion and $79.75 billion, up from our prior range of $78.75 billion to $79.5 billion, and we continue to expect approximately 8% to 9% organic sales growth for the full year. We are also increasing our adjusted EPS outlook by $0.15 on the low end and $0.13 on the high end, putting the new range at $5.50 to $5.58, up from $5.35 to $5.45. Improved segment profit outlook that Pratt and Raytheon more than offset a change at Collins, and we have also flowed through improvements in our tax rate and some below the line items. Nathan will take you through the segment outlook updates in more detail, we've included the corresponding updated outlook for other items in the appendix of our webcast deck. On free cash flow, we remain on track to achieve our outlook of approximately $4.7 billion. In the fourth quarter, we expect powder metal related disbursements to increase as well as payments associated with the legal and contract matters that we discussed and recorded in the second quarter. For the year, we now expect powder metal outflows to be about $1 billion down $250 million from our prior expectation. This, combined with slightly lower CapEx is expected to offset the working capital impacts associated with the lower commercial OE volume at Collins. Before I hand it over to Nathan for the segment details, just a few comments on how we're thinking about next year. Right now, we are working through our annual planning process across the company. And overall, with our current backlog and the expectation of continued global demand across our end markets, we expect another year of solid organic sales growth and segment margin expansion, as well as significant free cash flow generation. We continue to analyze scenarios around aircraft production rates, the profile of commercial aftermarket growth and the likelihood of an extended continuing resolution for U.S. defense spending. We also continue to actively work through supply chain and inflation challenges with our mitigation strategies, including forward deploying our people to suppliers, second sourcing arrangements, increasing our long-term supplier agreement coverage and customer pricing initiatives. With that said, we feel good about the strength of our businesses and our underlying fundamentals, and as we always do, we will be back in January on our fourth quarter earnings call with a complete outlook for the next year, incorporating our latest assessment of these items. Okay. Let me turn it over to Nathan. Nathan Ware: Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.1 billion in the quarter, up 6% on both an adjusted and organic basis, driven by strength in commercial aftermarket and defense, partially offset by lower commercial OE volume. By channel, commercial aftermarket sales were up 9%, driven by an 11% increase in parts and repair, a 16% increase in provisioning and a 6% decrease in mods and upgrades. With mods and upgrades continuing to be against a difficult prior year compare that benefited from the 5G mandate. Defense sales were up 14%, primarily due to higher volume across multiple programs and platforms, and commercial OE sales for the quarter were down 8% versus the prior year, driven by lower narrow body volume, including the impact of the Boeing work stoppage. Adjusted operating profit of $1.1 billion was up $53 million versus the prior year. Drop through on higher commercial aftermarket and defense volume was partially offset by lower commercial OE volume unfavorable commercial OE mix and higher R&D expense. Looking ahead, on a full year basis, we continue to expect Collins sales to grow high-single digits on both an adjusted and organic basis, though likely at the low end of this range. We expect a lower commercial OE volume that Neil mentioned earlier to be partially offset by higher defense volume. And we are updating the outlook for operating profit to grow between $575 million and $650 million versus 2023 compared to our prior range of between $650 million and $725 million, as we incorporate the impact of the lower OE volume and associated absorption and disruption impacts. Shifting to Pratt & Whitney on Slide 8. Sales of $7.2 billion were up 14% on both an adjusted and organic basis with sales growth across all three channels. Commercial OE sales were up 9% in the quarter, primarily driven by favorable mix in large commercial engines. Commercial aftermarket sales were up 13% in the quarter, driven by higher volume in both large commercial engines and Pratt Canada. In the military engines, sales were up 20%, driven by higher sustainment volume across the F135 and F117 platforms, as well as higher development volume driven by the F135 engine core upgrade program. Adjusted operating profit of $597 million was up $184 million versus the prior year, driven by drop through on higher commercial aftermarket and military volume. Favorable mix and lower OE delivery volume in large commercial engines were offset by higher production costs. In the quarter, Pratt booked over $11 billion of awards. In addition to the Engine core upgrade award that Chris mentioned earlier, Pratt also booked $2.3 billion of F117 sustainment and $6.6 billion of commercial awards. Turning to Pratt's full year outlook. We continue to expect sales to grow mid-teens on an adjusted and organic basis, most likely towards the higher end of this range, driven by stronger military volume and the favorable mix in large commercial engines that we've seen so far this year. And we are updating the outlook for adjusted operating profit to grow between $475 million and $525 million versus 2023, up from our prior range of between $400 million and $475 million. Now turning to Raytheon on Slide 9. Sales of $6.4 billion in the quarter were down 1% on an adjusted basis as a result of the cybersecurity divestiture in the first quarter. On an organic basis, sales were up 5%, driven by higher volume on land and air defense systems, including Patriot, NASAMS and counter-UAS programs, as well as higher volume on advanced technology programs. This was partially offset by lower volume on air and space defense systems. Adjusted operating profit of $661 million was up $91 million versus the prior year, driven primarily by favorable mix improved net productivity and drop through on higher volume, partially offset by the impact of the cybersecurity divestiture. In the quarter, net productivity improved $33 million year-over-year and included an unfavorable impact of $53 million related to a classified program. Of note, Raytheon has now seen four consecutive quarters of year-over-year margin expansion. And as Chris highlighted, bookings in the quarter were $16.6 billion, resulting in a backlog of $60 billion and a book-to-bill of 2.6. On a rolling 12 month basis, Raytheon's book-to-bill is 1.48. In addition to the awards mentioned earlier, Raytheon also booked $1.2 billion of classified awards, $737 million for AIM9X and $538 million for Javelin. In total, Raytheon's backlog is now 44% international, up over 10 points from last year. Looking ahead, we continue to expect Raytheon sales to grow mid-single digits organically for the year and due to the volume drop through and favorable mix you've seen so far this year, we now expect Raytheon's operating profit to grow between $200 million and $250 million versus 2023, up from our prior range of between $125 million and $200 million and this includes the impact of the cybersecurity divestiture. With that, I'll turn it back over to Chris. Christopher Calio: Okay. Thanks, Nathan. I'm on Slide 10. As you heard today, RTX is extremely well positioned for growth. We've got an installed base in commercial aerospace that has a long aftermarket tail and leading defense franchises that are seeing record global demand. Our team remains focused on supporting our customers and executing on our commitments, which led to our strong third quarter performance and an improved outlook for the full year. And as we continue to drive our strategic priorities, we're confident in our ability to deliver sustained growth in organic sales, earnings, and cash flow over the long term. . Okay. With that, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Rob Stallard of Vertical Research. Please go ahead, Rob. Robert Stallard: Thanks so much. Good morning. Christopher Calio: Good morning. Neil Mitchill: Good morning, Rob. Robert Stallard: Chris, a question for you on the GTF. I was wondering, how you manage the competing demands of the spares pool versus the Airbus line in the third quarter, and how confident you are in hitting the delivery targets for the fourth quarter? Thank you. Christopher Calio: Yeah. Thanks, Rob. Obviously, a critical initiative for us. So look, we've continued to ramp deliveries this year of both OE and spares. So, if you think about year-to-date, in aggregate deliveries of about 16% and also about 7% up sequentially, that's the composite. But I'll also tell you that both OE and spares are up individually as part of those composite numbers. I'll also note that we're well above our 2019 volume. So again, continuing to ramp and balancing all the needs. And that balance is going to continue as we're going to allocate amongst OE, spares and MRO to support the fleet. Our situation with the fleet and with powdered metal, we've got to continue to make those trades in order to support our customers. And a big part of that balance and supporting that balance is that we've got to continue to drive production of key part families. So think isothermal forgings, they continue to ramp up 38% year-over-year. And then the other piece I would say is structural castings. We've got to continue to improve in that area. There are some part numbers that have recovered the plan, some that are going to take a little bit longer to recover. But I would say, all-in-all, Rob, we're aligned with Airbus and what they need here in the fourth quarter and laser-focused on helping them make their deliveries at the end of the year. Robert Stallard: Thanks, Chris. Operator: Thank you. And our next question comes from the line of Myles Walton of Wolf Research. Your question, please, Myles. Myles Walton: Thanks. Good morning. Christopher Calio: Good morning. Myles Walton: I was hoping you could touch on Raytheon. Obviously, really good bookings and -- but the organic growth has been sitting around 5% for a couple of years. What's the type of acceleration we should all think about into '25 and beyond. And also from a mix perspective, that 10 points higher mix in the backlog, how quickly does that impart into a significant mix shift in the sales in '25 and '26? Thanks. Christopher Calio: Hey, Miles. So look, the story at Raytheon right now is the demand is incredibly strong, right? I mean, if you think about the $16.6 billion of bookings this quarter, it's fantastic. The rolling 12 month book-to-bill is almost 1.5 and they've got a $60 billion backlog today. And as you noted, the international piece of this is up over 10 points, about 44% of the total backlog. Now that's going to take some time to work through, that's not going to be something that's going to materialize in large measure in 2025. We've got to continue to work through the backlog that we have and that's going to take some time. We are heartened by the fact that the supply chain and material flow continues to be healthy. We've seen six straight quarters of growth and that's going to need to continue. We've also continued to build out capacity. We've talked before about expansion efforts in Texas and Arkansas, at Redstone as well, and in Tucson. So supply chain is getting healthier, capacity is being put into place. Demand is there. We just got to continue to work through this backlog. But again, I think that mix shift that we've talked about will materialize and be tailwind to growth at Raytheon in the coming years. Neil Mitchill: And Myles, good morning. It's Neil. I would just add that we're definitely seeing the benefit of the mix already show up. And as you think about the margin improvement in the quarter, I would attribute over 100 basis points of that to the mix alone. And the good news there as well as we're seeing year-over-year improvement in productivity that Nathan highlighted, and that's in spite of some headwinds that we dealt with in the quarter, frankly. So still feel good about this year. As Chris has talked about at length, we've got some supply chain challenges that we've been dealing with. And as those continue to free up, then, we'll see the top line grow commensurately with that. Clearly, a strong backlog going forward, though. Myles Walton: Thank you. Operator: Thank you. Our next question comes from the line of Jason Gursky of Citigroup. Your question, please, Jason. Jason Gursky: Yeah. Great. Good morning, everybody. Christopher Calio: Hey, Jason. Jason Gursky: Hey, Chris. You mentioned -- you made some comments I should say, about productivity in your prepared remarks. I know, Nathan talked a bit about it in his as well. Why don’t we just could add some context to your views on productivity. Kind of, where we are today, maybe relative to where we were pre-pandemic across your businesses and where do you think this can all go over time, kind of, your expectations about productivity growth in the quarters and maybe multiple years ahead and kind of the expectations that you're kind of building into your plan? Christopher Calio: Yeah. Thanks, Jason. So look, a couple of thoughts here. I would say, at Raytheon, we've talked about productivity for a while now and the lack of productivity that we've had. And we're starting to see some green shoots there. You just heard Neil talk about that. I think that's going to be a function of, again, the quality and improvements that we're making, core driving improvements and shortening that period of performance all the fundamentals that come with that business as we get into what I would consider to be some of the core of our business there. The things we know how to do really well, those legacy programs that make up a big part of that backlog. I think we continue to see productivity there, and I already mentioned before, the continuing health of the supply chain being a critical factor there. I think we've got the labor in place. But again, it's the supply chain we need to continue to get healthier. I'll say, across other parts of the business, we're driving productivity in many respects through automation in our factory 4.0. If you go into our factories today, we're continuing to drive connected factories, making sure that we've got the automation in place to take the labor hours out where it makes sense, again, to continue to drive the kind of productivity we need to see across the business. The backlog is there. It's exceptionally strong, both defense and commercial. And as we continue to see the supply chain get healthy as we continue to drive automation in our connected factories, the productivity, I think, will come in this business across all three segments and frankly, be tailwind to the margin expansion we expect across all three businesses. Neil Mitchill: And maybe to add with respect to Raytheon, we've already seen about $110 million of productivity benefit year-over-year. So I think really good traction. We had talked about -- seeing about 200 on a full year basis. And I think, we're largely on track to do that. The backlog programs that have been causing consternation in the supply chain aberrations are diminishing now, and we're replenishing that backlog with new bookings that are priced at current prices with the current lead times kind of embedded in them. So encouraging to see the progress so far, and I think we'll continue to expect that to continue at Raytheon in particular. But as Chris said, across the portfolio in all of our areas where we're doing long-term contract accounting. Jason Gursky: Great. Thanks. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Your question, please, Sheila. Sheila Kahyaoglu: Good morning, Chris, Neil, Nathan. Christopher Calio: Good morning. Sheila Kahyaoglu: So maybe if we could talk about Collins, please, both on the OE side and the aftermarket. Collins aftermarket was up 9%. OE was down 8%. First on the OE, it implies Q4 down 15%, just given the flat guidance now. So what are you expecting there just around the shipset volumes, if you could give any color? And then secondly, maybe if you could talk about the aftermarket up 9%. I know tough comps in some of the businesses there, but how do you think about the correlation between OE down and aftermarket? Are you seeing any aftermarket benefit from the delayed deliveries? Neil Mitchill: Thanks, Sheila. Good morning. Let me start on the OE side. As you heard us talk about, we did recalibrate the Collins outlook for the rest of the year, taking into account. The fact that our OE was down in the quarter, and that was really driven by a few things. I would say narrow-body volumes were down. We saw a little bit both on the A320 side as well as the 737 side. We obviously had a little bit of impact from start of the strike as well. And what we've done is, we've calibrated a level of impact here in the rest of the year going forward. We think we got that reasonably calibrated. We do expect to resume some shipments later in the quarter. And like everybody, we're looking forward to tomorrow and the situation at Boeing getting resolved. So I think we got that calibrated, that's really what's driving the majority of that. There's also a little bit of mix headwind going on within the wide-body. Wide-body in the quarter was up about 1% on the sales line. But what we saw is a little bit higher weighting towards 787 and lower A350. And as you all know, the 787 is not a profitable line for us on the OE side, that's been exacerbated by the movement of heat exchangers from Russia into the United States and the U.K. So a couple of things that we're dealing with there. But I think as we look at the rest of the year, we've got that reasonably calibrated on the OE side, and that's what causes us to take down the number. Now on the aftermarket side, we're continuing to see good provisioning, good repair work going through at Collins. And so, I still feel good about that. I think it remains to be seen about longer term how this plays out, but clearly, the older platforms are continuing to fly. We've seen very low levels of retirements and that supports continued aftermarket strength that we're seeing at Collins, and I expect that to continue into next year as well. So those are a few comments there on those two items. Sheila Kahyaoglu: Thank you. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Your question, please, Peter. Peter Arment: Yeah. Thanks. Good morning, Chris, Neil, Nathan. Christopher Calio: Hey, Peter. Peter Arment: Hey. Maybe, Neil, just to level set us on maybe free cash flow kind of the cadence when you think about it going forward. You've talked about, obviously, this year, if we back out the payments and everything, you guys are probably over 80% kind of conversion. Just thinking at a high level, when you think about '25, how you're thinking in terms of any moving parts or pluses or minuses we should be thinking or does conversion improve with all of kind of the initiatives that Chris has established on productivity and whatnot? How do we think about that? Thanks. Neil Mitchill: Yeah. Thanks, Peter. First of all, in '24, we remain very confident in the $4.7 billion. As I laid out in my prepared remarks, we've got a couple of moving pieces, but I think we'll be able to manage the inventory going forward to deal with the headwind that we're seeing this year. We're still counting on some significant working capital benefit this year, about $700 million year-over-year. And I think that's a big opportunity for RTX. As we look at our balance sheet, we've been doing the right things to protect the supply chain. We've got significant sales ahead of us. So we want to be ready to deliver on that. But that's an opportunity for us to continue to convert the working capital turns, drive those up higher and deliver some more free cash flow. I think big picture, we see a lot of organic strength in the free cash flow. I think that's evidenced by the $4 billion of free cash flow we've seen year-to-date. We're expecting another strong operational fourth quarter. We've got some payments that we're going to deal with that are consistent with what we talked about last quarter. But as we look longer term, I see no reason why the business here won't generate 90% to 100% free cash flow conversion against adjusted net income. So all the right pieces in place, the underlying demand is there. We need to kind of calibrate around OE deliveries longer term, and everybody's got an eye on the broader economy and inflation. But right now, I think the underlying drivers of the business remain strong. Christopher Calio: Yeah. And just to add on to that, Peter, as we've talked about, I think, pretty consistently, a big piece of that cash flow growth is the profit growth in the aftermarket and up 23% last year. Year-to-date growth this year, 12%, so still robust, continue to see strong RPK growth. Collins has that installed base that's out of warranty, that's about $1 billion. V2500 continues to be strong. We've seen low retirements there. So the fundamentals, as Neil pointed out, in the aftermarket continue to be really strong, big piece of that cash story. Peter Arment: Appreciate the details. Thanks, Chris and Neil. Operator: Thank you. Next question is from the line of [Technical Difficulty]. Your question, please, Ron. Ronald Epstein: Yeah. Hey. Good morning, guys. Thanks. Hopefully, you can hear? Christopher Calio: Hey, Ron. We can. We got you. Ronald Epstein: So what are the takeaways? It seemed like after spending a couple of days at AUSA this year that this next generation of company seems to be getting a little bit of traction, right? So who I'm talking about, the Palantir’s and roles (ph) of the world. How are you thinking about them? Are they a competitive threat? Are they potential partners? How are you thinking about defense tech? I know you've got your RTX Ventures division, but broadly, how are you thinking about that? And is it an opportunity or a threat? Christopher Calio: Yeah. Thanks, Ron. I think it's both. I think there are areas where I think we're competing in the marketplace. And I think we remain always paranoid about competition across the landscape, established players and some of these new players. We continue to invest heavily in R&D and in our innovation roadmaps and story. And I think one of the advantages that we've got is our ability to scale and scale production, a very sophisticated production system and be able to scale. Now there are things that we also learn from our competitors about agility, about low cost, about getting things out to market faster. Again, all parts of the things, when we look at the competitive landscape, we're looking at and bringing in-house, seeing how we can adapt. But at the end of the day, I think we've got a fantastic product portfolio that's going to be critical to the U.S. and our allies for decades to come. But I also, as I said upfront, view it as potential partnership opportunities. There are things that they do very well, perhaps on the software side that could be of use to our [indiscernible] products, given our hardware expertise. So again, we're looking at it both ways. And as you noted in your question, we continue to invest in early-stage companies through RTX Ventures. And I'll tell you just reviewed this with our board. There's a few promising investments that we've made that we think will give us access to technologies that we can integrate into our established product portfolio to add capabilities and performance. Ronald Epstein: All right. Thank you. Operator: Thank you. Our next question comes from the line of Gautam Khanna of TD Cowen. Please go ahead, Gautam. Gautam Khanna: Hey, thanks. Good morning. Christopher Calio: Good morning. Gautam Khanna: I was wondering if you could frame up for us when do you think at Raytheon defense productivity takes a more significant turn. I mean, obviously, this year, it's a big change year-over-year. You do have some challenged programs that at some point, I imagine are also kind of a negative to that ledger. When do those kind of roll off? And do we ever get back to the kind of pre-pandemic $200 million plus of favorable, and if so, when is that realistic? Thanks. Neil Mitchill: |Thanks. Thanks for the question, and welcome to the call. I want to thank Cai for over 50 years of following our company. So welcome to following us, it will be good to work with you. Just a comment on the -- not the Patriot, on the productivity here. We've seen $110 million year-over-year improvement, like I said, expect that to be close to $200 million. So I think we're certainly turning the corner there. And as you pointed out, there are still some headwinds in there. And I think there always will be. Programs will go well and some will have some challenges. We do difficult stuff. I won't get into specifics for next year, but we expect that to continue to improve as we go forward. Whether we get back to the same levels of the kind of productivity, I think, depends entirely on the mix and the environment that we're operating in. Now we clearly have a lot of backlog, which allows us to buy material at large volumes. And that's where we tend to drive the majority of our productivity. What we really need to do to see greater levels of productivity relative to the bidding margins here is to have productivity in our factories as well on the assembly side. And that will come with improvement in the supply chain, and we already talked about the importance of rocket motors to that value stream. So those are the kinds of things we're watching, but I would say that there is a lot of good positive productivity embedded in the business. We're working through the backlog where the pricing was not aligned with the cost inflation that we've experienced over the last few years and we're seeing the international mix improve. I think longer term, we'll start to see LTAMDS and other large franchises come into play as well, and those will give us more opportunities for productivity. So bottom line, hard to put a number on it, but we're going to see that margin improvement. We're seeing it this year. We expect to see more of that next year. And I think this business has turned the corner in terms of the productivity steps forward that we're all hoping for. Operator: Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Please go ahead., Seth. Seth Seifman: Hey. Thanks very much. Good morning. I wanted to follow up on Collins. There was a shortfall in the quarter, the guide is down, I think, about $75 million, which is around what you guys missed my estimate in this quarter. And you talked about the guide down relating to absorption of the Boeing strike and all that, which seems like it should be ahead of us. But it would seem that the you kind of need kind of a pickup in the margin at Collins in the fourth quarter. And I wonder, if you could talk about what's driving that and how much kind of that absorption really impacted Q3 versus other stuff? Neil Mitchill: Sure, Seth. Let me take that one. Let me talk about a few of the moving pieces on the ROS for the quarter. First of all, we did see positive lift of about 300 basis points from higher volume in Collins commercial aftermarket defense channels. So that was good to see, and that dropped through. Offsetting that, we saw about 200 basis points of headwind from the lower commercial OE volume and the associated absorption and disruption impact and unfavorable mix in the quarter. So we did experience some unfavorable mix and drop-through on that. The volumes are down sequentially and year-over-year on the OE side. So I already talked about some of the moving pieces there. Talked about 787 volume being a little bit higher inside of the wide-body, and so that creates headwind as well. And third, we saw about 100 basis points of headwind from a combination of a few things. We had higher R&D, about $40 million. I attribute that to mostly timing within the year that was within our Avionics business as we continue to invest in upgrades to those platforms, slightly higher SG&A, and we saw a little bit of headwind in our interiors business. We've talked in the past about some of the first-class and business class seating, certification challenges that the business is seeing, you've heard about that with us and more broadly across the industry. So we did have about $35 million of contract headwind in the quarter. Again, I don't expect that to repeat. So as we look from Q3 to Q4, we see about 130 basis points at the midpoint of our outlook margin uptick. And I think that's going to largely come from the mitigation actions that we're undertaking to address the temporary reduction in the OE deliveries at Collins, in particular and of course, the absence of the EAC headwind on the interiors business that we saw here in the third quarter. So I kind of characterize these items as short term in nature, one-time. There's good strong underlying strength in the business. The aftermarket is really strong. We're getting good drop-through there. Defense has been very, very strong. And Collins has taken good proactive measures here to make sure we balance, keeping our supply chain warm and our factories moving so that we're prepared to restart deliveries as soon as Boeing gets the work stoppage behind them. Seth Seifman: Great. Thanks very much. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Please go ahead, Noah. Noah Poponak: Hey. Good morning, everybody. Christopher Calio: Good morning, Noah. Neil Mitchill: Hey, Noah. Noah Poponak: Hey, Neil. Just following up there on the Collins margin. You had the '25 framework implied that segment margin just below 20% and had the incremental stepping up a lot next year. Is that still the directional framework or have just a lot of things moved around? And then, on the GTF powdered metal, any numbers you can put around how many engines have actually gone through the process and are back in service. And then of the engines we can see are off wing, how many of them are in a shop versus in line to get in a shop? Christopher Calio: Yeah. No, I'll start with the powdered metal and then Neil can chime in on the Collins margin question. So again, just to reiterate, been pretty consistent on this, everything coming off the line today, going to the airframers as the full life powder metal parts. MRO, again, it's a balance of the material and of that allocation and it's going to be a ramp, again, as I said, throughout the year. I would say, you're going to really start to turn the corner on the insertion of powdered metal parts as we head into 2025. As we continue to ramp up the isothermal forging, as I said, 38% up year-over-year, and we're putting in place continued capacity in all pieces of that value stream to continue to ramp in 2025. So we have to do less balancing of that material in 2025. So that's the story on powdered metal. In terms of what's being inducted and what's in the parking lot, yeah, there still remain a significant number of engines that are awaiting induction. Again, that's a big part of what it's going to take us to power through this particular situation over a multiyear period. I would say, the turnaround times, however, are still in line with what we've talked about previously, the shop visit mix still consistent between heavy and light. And as I've said before, when we get our gate two, which is our material accumulation into a healthy spot. We've had pockets of this throughout our MRO shops. Our turnaround times, in particular on heavy work scopes has been exceptional. So again, we've got to continue to get the material flow going again, try to get to a point in 2025 where that balance has to become less pronounced. And once we do, we'll start to see that flow through our engines and get inductions and WIP in a better spot. Neil Mitchill: Thanks, Chris. On the margins, no, let me just talk a little bit about, I'm not going to get ahead of ourselves on '25 and provide specific guidance today. We'll be back in January to do that. But as I think about the Collins business, there are a few things we're watching. Notably, the OE levels, I think that's an important ingredient. And as we get through the fourth quarter here, we'll have a lot more clarity on what that's going to look like. As we've talked about for a long time now, the Collins business is capacitized to deliver at volumes that are much higher than where we are today. And frankly, in some cases, much higher than where we were in 2020 and certainly in 2019. So absorption is a really important part of the Collins OE story, and we need to see the volumes increase to get better unit cost on the deliveries, that's a watch item for us. Like everybody, we're continuing to update, renew our long-term agreements and with that comes some pressure on the cumulative effect of inflation over the years. So something that we also want to make sure we get calibrated into our outlooks for next year. But underlying all this is really, really strong Collins demand. They're on the right platforms, the provisioning has been strong, repairs are strong. We see the demand for the OE side continuing both Airbus, Boeing and Embraer. So it really is strong fundamentals, but a few watch items that we need to kind of calibrate into the margin story. That said, I expect the margins to grow at Collins. We expect good operating profit growth next year, and we expect that to convert to free cash flow growth as well. So the fundamentals of the business are there and remains strong for both next year and years to follow. Christopher Calio: And maybe just to add, Noah, I think Neil laid it out well, obviously, the installed base, the $100 billion of out-of-warranty equipment. It's going to continue to drive aftermarket and profitability and margin expansion at Collins. But the part that I'll accentuate here is, the cost reduction actions that are a key part of this. Just the tactical, you heard Neil talk about some of those cost curtailment actions that Troy and the team have put in place as a result of the work stoppage and the lower OE volumes, so we've been pretty aggressive there. But also talk about the more structural cost reduction that's happening there. The movement of 2.7 million hours to low cost areas, the formation of centers of excellence like electronics to get economies of scale in important parts of the value stream. So that's the other piece of the Collins story that the team is focused on. As Neil said, on the right platforms, that's going to continue to provide tailwinds. The focus on cost is going to be really important as well. Noah Poponak: I really appreciate all that. Neil, did you quantify the EAC in Collins in the quarter? Neil Mitchill: Yeah. It's about $35 million on the interior side. Noah Poponak: Okay. Thanks so much. Neil Mitchill: Yeah. Operator: Thank you. Our next question comes on the line of David Strauss of Barclays. Your question, please, David. David Strauss: Thanks. Good morning. Christopher Calio: Good morning. Neil Mitchill: Hey, David. David Strauss: So I wanted to follow up on GTF and the spend there. I think, Neil, you had talked about it ramping up in Q3. It doesn't look like it did. It sounds like you plan on spending less this year, maybe if you can help us what the path looks like from here as it relates to '25 and '26. But I guess just high level, if you're reaching compensation agreements with your customers, your customers have a lot of aircraft on the ground out of service. I guess, why aren't you paying more or are you swapping maybe cash payments for something else in the future? Thanks. Neil Mitchill: Sure, David. Happy to provide a little more color there. First of all, just so everyone's grounded, we do expect to make about $1 billion worth of payments this year. We've made a little over $300 million year-to-date. We've talked about the number of customer agreements that we have in place. It's 28 now, covers about 75% of the AOGs. And so what we do as a matter of our practice years, we're crediting the customers as the AOGs occur. We consider that a cash payment when that credit is applied to a customer account or we make a cash payment. So that's how we're quantifying it. It's a cash equivalent, if you will, impact to us during the year. It's coming down a little bit because it's taken some time to get these agreements in place. And once we have agreements, then we're following the terms of those agreements and issuing those credits or making those payments. We do expect that to ramp up now in the fourth quarter. What I can say is, overall, all of the underlying financial assumptions that gave rise to the charge we took and the reserve we put up remain consistent and the agreements that we've executed also remain consistent with those underlying assumptions. So I won't get into specifics around when we expect the ultimate payments to make place, but we'll continue to provide the same level of transparency about what we're spending and how much we're spending, so that we all and you all have a good look at the underlying organic performance of the business. So that's where I would say, we are today. We'll certainly see the fallout of these payments take place over the next couple of years as those AOGs continue to exist and then come down as planned as we move through next year and into '26. David Strauss: So thanks for that. I think you had said $1.5 million next year and then $200 million tail in '26. Does that doesn't hold anymore, it's more likely to kind of shift out to the right? Neil Mitchill: Well, I would just say that sometime over the next two years, we're going to make the full amount that we've accrued for at this time. The assumptions remain the same. We'll provide an update on that in January as well. Again, giving everybody the visibility and transparency to exactly what we're assuming. If it's different, we'll update our outlook accordingly. David Strauss: All right. Thank you. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein & Company. Please go ahead, Doug. Douglas Harned: Good morning and thank you. Neil Mitchill: Hey, Doug. Douglas Harned: On Raytheon, you've got great orders here, strong international focused very much on missiles and missile defense. So that's very good, as I see it for margin expansion going ahead. But can you talk a little bit about the other side of the business, the airborne and space systems, which have been more difficult for you for growth. What's going on there in terms of strategy and how you see that part playing out? Christopher Calio: Yeah. Thanks, Doug. I think you're right. It has been a more challenged story for us. As you pointed out, when you look at the demand in the backlog today, significant strength in that integrated air and missile defense. And that's going to be a driver of Raytheon in '25 and beyond, frankly, when you look at the size of this backlog. There are other pieces of the business that we're evaluating, Doug. I think we've got, for instance, some real strength in our space business. Now, is it where we've historically been strong and will that continue into the future, that's what we're evaluating. There are certain parts of that space domain today that have been really, really difficult for anybody to make into a sort of profitable business right now. We don't want to go chase business and buy business at really, really difficult margins on, fixed-price development programs, that's not who we want to be in that space. We've got to play to our strengths, things like space protection, ISR, C2. So those are the areas that we're continuing to look at and say, how do we strengthen the foundation and other pieces of this business that we either need to invest further in or decide that's not where we see the growth in that portfolio coming. Douglas Harned: Is there a time frame that you can see where you'll pretty much have a new strategy in place and positioned for growth? Christopher Calio: Well, first of all, I think Raytheon is exceptionally well positioned for growth. I would say, it large, Doug, as you kind of in your question. In these particular areas, yeah, we're undergoing a portfolio evaluation across the board, as we always do, to determine what parts of the business while might be strong historically. Aren't necessarily going to be a part of the business going forward, that's ongoing. We do that every year around this time of year and we'll make some of those decisions as we head into 2025. Now again, these are long-cycle businesses, as you know, Doug. So pivoting a strategy in some of these areas will take some time, and we're going to be thoughtful about it. Douglas Harned: That’s very good. Thank you. Operator: Thank you. Our next question comes from the line of Gavin Parsons of UBS. Your question, please, Gavin. Gavin Parsons: Thanks. Good morning. Christopher Calio: Hey, Gavin. Gavin Parsons: I know we'll learn tomorrow on the Boeing front, but I just wanted to learn more tomorrow anyway. But I wanted to clarify that you said you're full stopped. And if your expectation is that you would resume when Boeing resumes or if you think there's some possibility for destocking there? Christopher Calio: Yeah. Hey, Gavin. So yeah, like you, we'll be watching closely tomorrow. Pleased about the news regarding a potential resolution would be good news, not just for Boeing for us but for the industry. I think everyone is certainly rooting for that. We've actually and Neil referenced this in the prior answer, we've continued to try to keep our value streams healthy, our supply base and our factories, that means, we've continued to take in material on certain higher volume programs and continue to build product. And once this work stoppage is over, then whatever has to happen logistically for Boeing to start receiving material, we want to be prepared to be able to do that. I mean, obviously, Boeing is going to want to ramp in '25 and beyond. We want to make sure that all facets of the value stream are healthy enough to do that. So we haven't just stopped cold turkey that just wouldn't be healthy for the supply chain, wouldn't be healthy for our factories. So we've continued to do that. There are other parts of the Boeing product portfolio that we have that have stopped that we've taken certain cost curtailment measures. But by and large, we've continued to, again, take in material and build product because we want to be ready when the re-ramp arrives. Gavin Parsons: Appreciate the detail. Operator: Thank you. Our final question comes from the line of Scott Deuschle of Deutsche Bank. Your question, please, Scott. Scott Deuschle: Hey, good morning. Chris, it seems like there's a lot of 787s already built sitting in Charleston, I think, waiting for seats, I think mostly for Lufthansa and American. Is Collins the seating supplier for either of those airlines? And then, do you have any sense for where you're at on the FAA review there for those customers, assuming Collins actually is seating supplier for either of those? Christopher Calio: Yeah. It is Scott. It is a seating supplier on certain of those, not all of them, but certain of them. And yes, you're absolutely right, we are working through the certification with both Boeing and the FAA, so that is ongoing. While that's ongoing, we're continuing to drive the supply chain to make sure that we've got the material we need, so that when that gets behind us, we can go make deliveries and then they can continue their flow and get it out to the customers who are obviously looking for the lift. And again, I said this before, as the strike has happened, 787 tier point is not a part of that. And so we've just been full steam ahead on making sure that as Boeing decides it wants to take rate up that we're there and ready to do it. Neil referenced heat exchangers and what we need to do there in terms of the environmental control system. There are other parts of the 787 content that we've got to continue to ramp to support Boeing. We know that's going to be a crucial part of their recovery, and we want to make sure we're poised to help them there. Scott Deuschle: Thank you. And Neil, sorry if I missed this, but is there any directional framework you can share on how to think about military aftermarket growth at Pratt next year? Just given the installed base that we think would be growing a lot now that delivery hold has been lifted, and I assume flight activity starts to ramp up? Thanks. Neil Mitchill: No problem. Thanks, Scott. Yeah. I don't want to get too far ahead of us, but I mean we saw a really strong 20% military growth at Pratt in the quarter. I would say, the aftermarket was right in line with that. So as the installed base, as you pointed out, continues to grow, I do expect Pratt to continue to see the benefits of the top line growth there. I won't put a number around it today, but it's going to be -- continued strong growth on the military business of Pratt, that's a great business there. And we're seeing the margins grow as well as the mix shift goes from sort of a baseline of OE levels of production that then grows on the top line on the sustainment side. And it's not just F135, it's F117 as well as we pointed out in our prepared remarks. So see continued growth there. The orders in the quarter at Pratt were 2x what they were a year ago and even more so at Raytheon. So again, the backlog remains really, really strong in all of our defense businesses as we look ahead. Scott Deuschle: Thank you. Operator: Thank you. With that, I would now like to turn the conference back to Nathan Ware. Nathan Ware: All right. Thank you, Latif. That concludes today's call. As always, the Investor Relations team, and I will be available for follow-up questions. So I really appreciate everyone joining, and have a good day. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day and welcome to the RTX Second Quarter 2024 Earnings Conference Call. My name is [Livia], and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, President 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 nonrecurring 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 risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will now turn the call over to Mr. Calio. Chris Calio: Thank you, and good morning, everyone. As you saw from our press release this morning, RTX delivered strong operational and financial performance in the second quarter as we continue to execute on our customer commitments and strategic priorities. Let me start with the highlights on Slide 3. We saw another quarter of excellent top line growth with adjusted sales of $19.8 billion, which were up 10% organically. Adjusted EPS of $1.41 was up 9% year-over-year, driven by profit growth and margin expansion across all three segments, and free cash flow was strong at $2.2 billion. We also saw continued growth in our backlog, which ended the quarter at $206 billion with a book-to-bill of 1.25. There were also some notable contract wins in the quarter, including a 10-year MRO agreement to support Collins significant content on Air Canada's 787 fleet of up to 70 aircraft, including avionics, air management and electric power systems. Collins also received a multibillion-dollar award for the U.S. Air Force's next-generation survivable airborne operations center, and Raytheon received a $639 million award for SPY6 radar production for the U.S. Navy. As you saw in early July, Germany placed an additional order for Patriot Systems. This is on top of the $1.2 billion order they placed for multiple systems in the first quarter of the year. We also saw some positive GTF announcements at the Farnborough Airshow earlier this week, with over 700 GTF engines ordered, including options and commitments. These include Cebu Pacific selecting the GTF to power the carriers order for up to 152 additional single-aisle aircraft and Avalon selecting the GTF engine for up to 160 aircraft. So another quarter of robust orders with significant wins already secured early here in Q3 and more expected as the year progresses. We also continue to make progress on our critical initiatives. Specifically regarding the GTF fleet management plan, we remain on track with our financial and operational outlook consistent with our prior comments. As of the end of Q2, we have inspected over 6,000 powder metal parts that are in the field across all programs and the associated fallout rate remains below the 1% we had assumed and the findings are consistent with the assumptions that underpin our fleet management plan. At our MRO facilities, throughput of engines continues to improve, and overall capacity is expanding with the recent addition of two new MRO shops into the network. PW1100 MRO output increased 10% versus the first quarter. We expect this ramp to continue in the second half of the year. As it relates to the PW1100 fleet, AOGs have leveled out over the past few months and remain in line with our expectations. We've also now reached support agreements with 20 of our customers, covering roughly 65% of the impacted fleet and the terms are in line with our assumptions. Beyond our operational performance, let me also comment on the legal and contract charges we outlined in our press release this morning, and then Neil will provide a more detail in a bit. We're nearing completion of agreements with the Department of Justice, SEC and Department of State to resolve several legal matters. These matters primarily arose out of legacy Raytheon Company and Rockwell Collins prior to the merger and acquisition of these companies. We've already taken robust corrective actions to address the legacy gaps that led to these issues, being implementing enhanced compliance and training measures. We also took a charge related to the anticipated termination of Raytheon fixed price development contract that was entered into before the merger. As we've been discussing in the last few quarters, we've been battling through some challenges in a handful of fixed price development programs, including this one. But this specific contract is unique in terms of its scope, deliverables and associated risk profile, which led us to pursue termination. So we're pleased to be putting these matters behind us. And as I highlighted earlier, our operational performance was very strong in the quarter. Given this performance and the continuing strength of our end markets, we are raising our outlook for adjusted sales and EPS. We've also revised our cash outlook for the year as a result of matters I just discussed. Lastly, as you saw in May, we raised our dividend 7% and remain on track to return $36 billion to $37 billion of capital to share owners from the merger through the end of next year. Okay, with that, let's move to Slide 4, and I'll spend a few minutes on our strategic priorities that will enable us to drive best-in-class performance across RTX, including meeting customer demand, continued sales growth, margin expansion across our segments and strong cash flow generation. Given our growing installed base and the unprecedented demand for our products, our first priority is executing on our commitments, powered by our core operating system, our focus is on driving incremental operational improvements to ramp output and deliver on this demand. Today, we have over 4,000 core projects being worked across the company. For example, at Collins, our avionics business improved first pass yield by 2x in its fire detection product line by reconfiguring the production sell-out, creating digital tools and upgrading equipment. And at Raytheon, the team conducted a core leadership week to identify initiatives to more than double weekly output on a key component of our AIM9X effector. As a result, the team achieved a 90% increase in output in the quarter, is on track to hit their full year target by the end of Q3. We also continue to add capacity to meet the demands of the industrial ramp-up. During the quarter, we announced a $200 million investment in our carbon break facility in Spokane, Washington. Once complete, it will add 70,000 square feet of manufacturing footprint to meet rapidly growing demand for our Collins brake solutions. And on the defense side, we're investing in test equipment and tooling to more than double production capacity by year-end in our Coyote program, which is a low-cost kinetic effector for the counter unmanned aircraft systems that directly address today's drone threats. In addition to creating new capacity, we continue to modernize our existing footprint as part of our Industry 4.0 initiatives. Across RTX, we have now connected 26 factories with our proprietary digital analytics technology, providing us with real-time data to boost equipment efficiency, improve quality and yield higher output. This represents a 30% increase in connected sites since the start of the year, and we remain on track to connect 40 factories by the end of the year. These incremental efficiency, capacity and technology improvements are critical to meeting the needs of our customers as we operate in the strongest demand environment in our history. Let me move now to our second priority, innovating for future growth. We are executing on our cross-company technology roadmap to develop differentiated solutions in areas such as sustainability, advanced propulsion, next-generation sensing, connected battle space and hypersonics, this year alone, we will spend over $7.5 billion on company and customer-funded research and development to mature and introduce new capabilities to our customers and sell our product pipeline. For example, we are working on a number of hybrid electric demonstrator programs to deliver advanced propulsion technologies and enable greater fuel efficiency across all future aircraft segments. Recently, our Collins, Pratt and Technology Research Center teams completed a significant milestone in the development of our hybrid electric demonstrator, validating the integrated system functionality of the engine, electric motor, batteries and high-voltage electric power distribution. And in the quarter, we delivered the first TPY2 radar that incorporates our proprietary gallium nitride technology. This technology is a game changer for our sensing capability, providing expanded surveillance range and supporting additional missions in the space domain and hypersonic defense. We also continue to invest in our digital transformation and AI. This year, we are adding an additional 30-plus use cases that generate incremental productivity and cost savings across RTX using advances in artificial intelligence and deep learning. In total, we have over 200 AI use cases currently deployed across various internal functions. Our AI investments are also enabling new and improved capabilities in our products such as predicting equipment failures and aiding human operators in executing complex tasks. These types of investments in innovation will allow us to continue to develop next-gen products and solutions well into the future. Our third priority is to fully leverage our breadth and scale across RTX to drive value for our stakeholders. Specifically, this includes creating a more efficient and competitive cost structure and managing our common supply chain. For example, over 35% of our product procurement spend is with common suppliers that support all three of our businesses. We're using a unified RTX approach to our contracts and sourcing strategy. It also includes harmonizing our product lifecycle and management processes developing integrated solutions for strategic campaigns and pursuits such as NGAD, FLORA and next-generation commercial platforms. And of course, we'll also continue to review our portfolio and prune where needed as well as target bolt-on M&A to support our RTX technology roadmap and grow our core franchises. And underlying all three of these priorities is our unwavering commitment to safety, quality and compliance and everything that we do. It's what we and our customers expect and a commitment we will never compromise on. Putting it all together, I'm extremely excited and confident about the future of RTX. With that, before I turn it over to Neil, I want to acknowledge the leadership update we announced last week. As you saw, Steve Tim has decided to retire after 28 years with the company. Steve was a great partner in teammate, and I want to thank him for his leadership at Collins, and we're very fortunate to have a strong bench and are very excited that Troy Brunk is taking over as the new President of Collins. Troy has served as the President of three of the six Collins business units is uniquely qualified for the role . Okay. Let me turn it over to Neil to take you through the second quarter results in more detail. Neil? Neil Mitchill: Thanks, Chris. I'm on Slide 5. As Chris said, operationally, we had a strong quarter and continue to make progress on key financial metrics across RTX. RTX adjusted sales of $19.8 billion were up 8% and on an organic basis, were up 10%. By channel, commercial OE was up 19% as we continue to support aircraft demand. Commercial aftermarket was up 14% as domestic, international and long-haul travel continues to grow. And excluding the Raytheon cybersecurity divestiture, defense sales were up 7% as we execute on our backlog. . Segment operating profit of $2.4 billion was up 19% with growth at all three businesses contributing to consolidated segment operating margin expansion of 100 basis points. Adjusted earnings per share of $1.41 was up 9% from the prior year, driven by segment operating profit growth as well as a lower share count, which was partially offset by expected headwinds from higher interest and tax expense and lower pension income. On a GAAP basis, EPS from continuing operations was $0.08 and included $0.29 of acquisition accounting adjustments and $0.03 of restructuring and other significant nonrecurring items. In addition, as it relates to the items Chris mentioned, GAAP EPS also includes a $0.68 charge related to the expected resolution of several legacy legal matters and a $0.33 charge related to a fixed price development contract at Raytheon. With respect to the legal matters, we are working to finalize deferred prosecution agreements and a civil settlement with the DOJ and an administrative order with the SEC. These agreements will cover the previously disclosed investigations of defective pricing claims for certain legacy Raytheon company contracts, which were entered into between 2011 and 2013 and in 2017. They will also cover the previously disclosed investigations of improper payments made by Raytheon Company and its joint venture, Thales-Raytheon Systems in connection with some Middle East contracts dating back to 2012. As a result, we recorded a pretax charge of $633 million in the quarter, which brings our total reserves associated with these matters to $959 million. In addition, we recorded a pretax charge of $285 million related to voluntarily disclosed export controls compliance matters primarily identified during the integration of Rockwell Collins and Raytheon Company into RTX including matters which are expected to be addressed in a consent agreement with the Department of State. As part of the resolution of each of these three matters, we will be required to retain independent compliance monitors over the 3-year term of the agreements. In total, we expect to pay about $1 billion related to these matters this year and have incorporated that into our updated free cash flow outlook for the year. I'll take you through the other moving pieces of our outlook on the next slide. While the financial impact of these items is above what we had previously reserved, we believe the provisions we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward. As it relates to the fixed price development contract, as you know, we've been discussing the challenges we've been working through on this front for some time. In conjunction with that effort and an anticipated termination on one of our Raytheon programs with a foreign customer, we've recorded a pretax charge of $575 million in the quarter. Again, we've incorporated the expected cash outflows into our revised free cash flow outlook for this year. For the quarter, cash flow was robust with $2.2 billion of free cash flow that was driven by strong collections across the portfolio and some lower tax payments. We also continued our deleveraging in the second quarter and paid down another $750 million of debt bringing our total debt repayments since the accelerated share repurchase was initiated last October to $2.7 billion, and we returned $867 million of capital to shareowners primarily through dividends during the quarter. On the portfolio front, we're also pleased that Italy has approved the sale of Collins actuation business, and we continue to actively support the remaining efforts to complete the transaction. And as you may have also seen, we have entered into an agreement to sell Collins hoist and winch business for over $500 million. Another great example of the portfolio pruning we are doing to focus on our core franchises. Okay. Turning to Page 6. Let me share a few details on our updated outlook for the year. As you've seen, the first half performance across all three of our businesses has been strong, driven by end market demand and continued execution. There are, of course, a few areas we continue to monitor, including pockets of supply chain challenges, inflation and the ongoing OE production rate uncertainty. But given the results to date, we are increasing our full year adjusted sales outlook to between $78.75 million and $79.5 billion, up from our prior range of $78 million to $79 billion and we now expect 8% to 9% organic sales growth for the year, up from our prior range of 7% to 8%. We are also increasing our adjusted EPS outlook by $0.10 on the low end and $0.05 on the high end, putting the new range at $5.35 to $5.45, up from $5.25 to $5.40. The improvement is driven primarily by lower interest in corporate expenses, higher pension income and a lower full year effective tax rate. We have included the corresponding updated outlook for these metrics in the appendix of our webcast slides. On free cash flow, as I mentioned earlier, we've incorporated our expected cash outflows associated with the legal and contract matters into our outlook. Partially offsetting these impacts is some improvement in current year tax payments of roughly $500 million. All in, we have updated our free cash flow outlook to be approximately $4.7 billion compared to our previous expectation of approximately $5.7 billion. With that, let me turn it over to Nathan to talk you through our segment results and outlooks. Nathan Ware: Thanks, Neil. Starting with Collins on Slide 7. Sales were $7 billion in the quarter, up 10% on both an adjusted and organic basis, driven by strength in commercial aftermarket, commercial OE and defense. By channel, commercial aftermarket sales were up 12%, driven by a 16% increase in parts and repair, a 15% increase in provisioning and a 9% decrease in mods and upgrades. With mods and upgrades coming off a difficult prior year compare that benefited from the 5G mandate. Commercial OE sales for the quarter were up 10% versus the prior year, driven by growth in narrow-body, wide-body and regional platforms, and defense sales were up 7%, primarily due to higher volume. Adjusted operating profit of $1.15 billion was up $230 million or 25% from the prior year driven primarily by drop-through on higher commercial aftermarket volume as well as higher defense and commercial OE volume. Looking ahead, on a full year basis, we now expect Collins sales to grow high single digits on both an adjusted and organic basis up from the prior range of mid- to high single digits, driven by continued strength in commercial air traffic and defense volume. And we continue to expect operating profit growth between $650 million and $725 million versus 2023. Shifting to Pratt & Whitney on Slide 8. Sales of $6.8 billion were up 19% on both an adjusted and organic basis with sales growth across all three channels. Commercial lease sales were up 33% in the quarter on higher engine deliveries and favorable mix in the large commercial engine business. Commercial aftermarket sales were up 15% in the quarter, driven by higher volume and favorable mix in both the large commercial engine and Pratt Canada businesses. And in the military engine business, sales were up 16%, primarily driven by higher sustainment volume across the F-135 and F-117 platforms. Adjusted operating profit of $537 million was up $101 million versus the prior year. Drop-through on higher commercial aftermarket volume and favorable mix as well as favorable large commercial OE mix was partially offset by headwinds from large commercial OE engine deliveries and the absence of a $60 million favorable prior year contract matter. Drop-through from higher military volume and favorable mix was more than offset by higher production costs and higher R&D and SG&A expenses. Turning to Pratt's full year outlook. We now expect sales to grow mid-teens on an adjusted organic basis, up from our prior range of low double digits driven by stronger military volume and higher commercial OE, and we continue to see adjusted operating profit growth between $400 million and $475 million versus 2023. Now turning to Raytheon on Slide 9. Adjusted sales of $6.6 billion in the quarter were down 2% as a result of the cybersecurity divestiture completed in the first quarter. On an organic basis, sales were up 4%, primarily driven by higher volume on land and air defense systems, including Patriot, counter UAS programs and Stinger. Adjusted operating profit of $709 million was up $47 million versus the prior year, driven primarily by drop-through on higher volume, favorable mix and improved net productivity, partially offset by the impact of the cybersecurity divestiture, and Raytheon had $5 billion of bookings in the quarter, resulting in a backlog of $51 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 1.13. In addition to the SPY-6 award that Chris mentioned earlier, Raytheon also had $928 million of classified awards and a $393 million award from NASA to design, produce and deliver four units that will provide advanced earth observation. Looking ahead, we now expect Raytheon sales to grow by mid-single digits organically, up from the prior range of low to mid-single digits, driven by improved material flow. As a result, we now expect Raytheon's operating profit to grow between $125 million and $200 million versus 2023, up from the prior range of between $100 million and $200 million, and this includes the impact from the cybersecurity divestiture. With that, I'll turn it back over to Chris to wrap things up. Chris Calio: Okay. Thanks, Nathan. I'm on Slide 10. As you've heard today, our second quarter operating results were very strong, and we're confident in our updated outlook for the full year. But if you step back and just think of beyond 2024 and look at the long term for RTX, we've got the best position franchise programs with the right content on the right platforms across commercial, aerospace and defense. Our large and growing installed base will support significant commercial aftermarket growth for decades to come, and our industry-leading defense capabilities address the threats playing out across the global landscape. All right. With that, let's open the line for questions. Operator: [Operator Instructions] The first question comes from the line of Peter Arment from Baird. Peter Arment, your line is open. Peter Arment: Hi, thanks. Good morning, Chris, Neil, Nathan. Chris Calio: Good morning. Peter Arment: Chris, nice results. Just, I guess, maybe just on the GTF fleet management plan. It sounds like everything is going according to plan and remains on track, but maybe if you just peel back the onion a little bit, I know you talked about some pacing items in the past about getting full life distant to the MRO shops and just kind of material availability. It sounds like the MRO capacity is going as planned, but maybe any kind of metrics or any color, what you're seeing and any opportunities actually where any of these metrics might still be able to come into the left before 2026? Thanks. Chris Calio: Yes. Okay. Peter, thanks for the question. Let me take you through where things stand. As you noted, our key assumptions around AOGs, lingering turnaround time, shop visit mix between heavy and light and customer compensation all remain consistent. And as I noted up front, our assumptions on the inspection follow-up rates and the findings are all consistent, or even better than we planned. So good stability around the key assumptions. As you know, MRO output is the key enabler and we're focused on improving the material flow, better processes in the shops and we've added some capacity on this front. And again, we saw some good signs of progress here in the first half of the year. I mean, output was up 10% from Q1 to Q2 and first half output on the 1100 is up over 30% versus the first half in 2023. So continue to drive some output there, which is helpful. The key enabler of course on the MRO output is material. You had mentioned that, no upfront. We're continuing to see some progress on structural castings. Structural castings are up about 5% sequentially and 14% year-over-year, so good progress there. And then on forging, the powdered metal parts. We continue to drive output there as well. Isothermal forging were up almost 100% year-over-year. And we continue to add additional capacity for inspection and machining. For example, we've nearly doubled our sonic inspection capacity for the year. So again, driving on all the key enablers, Peter, to try to get this fleet in as healthier shape as we possibly can. I'll also just note, sort of unrelated to the fleet management plans. We continue to drive OE output as well. OE deliveries were up sequentially, up 30% in the first half on a year-over-year basis, despite sort of grinding through some of the supply chain portabilities. And we're also pleased with the additions to the GTS backlog that were announced at Farnborough recently. So again, focusing on what we can control on the fleet management plan and continuing to drive both supply chain and new orders into the backlog. Peter Arment: Appreciate all the details. Thanks, Chris. Operator: Thank you. And our next question coming from Robert Stallard from Vertical Research. Robert Stallard, your line is open. Rob Stallard: Thanks so much. Good morning. Chris Calio: Good morning, Rob. Chris Calio: Hi, Rob. Rob Stallard: Chris, following on the GTF theme, I was wondering if you could comment on what the situation is with Airbus and their recent forecast cut, because they've clearly not been getting as many new engines as they anticipated. So those engines instead go into the spare engine pool? Thank you. Chris Calio: Yes. Thanks, Rob. So again, you heard me say just a minute ago to Peter that ROE deliveries are up sequentially and up first half of the year, 30% on a year-over-year basis. We're not necessarily where we need to be with Airbus. But again, we're seeing strong growth sequentially and year-over-year. And our outlook reflects our assessment of kind of where Airbus needs support from us. And we're aligned on what they need. You alluded to the fact that, we're balancing both OE and spare engine and material. And that's true. And we need to do that for the support of the fleet. But again, I continue to be encouraged by what we continue to drive in terms of production, and getting Airbus what they need. And I think in the back half, we're going to continue to balance the OE spare engine and MRO needs. But I think, we'll be in a position to get Airbus what they need. Operator: Thank you. And our next question coming from the line of Myles Walton from Wolfe Research. Miles Walton, your line is open. Myles Walton: Thanks. Good morning. Chris Calio: Good morning. Myles Walton: Hi Chris or Neil, I'm not sure, which on the defense side and on Raytheon, could you maybe dig a little bit into, what are the problem programs still remaining? Maybe a percentage of revenue, if that's where you want to handle it, or backlog. And then specifically to this decision to sort of proactively cut losses and terminate the contract, not an easy decision. But are there other contracts where you could extinguish similarly, or would that cause customer distress? And lastly, was there a cash impact? Thanks. Chris Calio: Yes, thanks, Myles. I'll start and then Neil can certainly chime in. Certainly not an easy decision, but we've been alluding to the fact that we've had a significant classified program out there that was, we would say, not in our wheelhouse. Meaning the work that we had taken on, and this contract was pre-formation of RTX, was not within our core competency. And we struggled with that, and we struggled to get to the right technical solutions, and ultimately came to a point where, we just didn't think it was productive anymore to continue to go down this path. And ultimately decided it was in the best interest of us, and the customer to just kind of do a reset here, and allow us to go focus our resources on some of the other programs that we've got. You had mentioned a handful of other, I'll call them classified development, fixed price development programs that we've been talking about. I'll say those are much different in terms of risk profile than the one we took action on here. Those have some important milestones here in '24 and in '25. But we feel like we've got a much better handle on those than the one we're talking about here. And feel like we understand the risks much better there, and what needs to be done to get them to closure. Neil Mitchill: And just to add, Myles, in terms of the cash flow impact. So, as I sit here today, there's really just a few changes that we've made to our '24 outlook. The first is about $1 billion related to the legal matters. We sold about a $0.5 billion related to the contract matter that Chris just was talking about. And offsetting that is about a $0.5 billion of improvement that we've seen operationally in our tax payments due to some planning that we've done. So, net-net, that's $1 billion. And I would expect that that mostly sits in the fourth quarter of this year. It'll depend on when we get the final resolutions with the government agencies, but that's trending towards certainly late September, or early in the fourth quarter. Myles Walton: Okay. Thanks for the color. Neil Mitchill: Yes. Operator: Thank you. And our next question, coming from the line of Sheila Kahyaoglu from Jefferies. Sheila, your line is open. Sheila Kahyaoglu: Good morning, guys, and thank you. Chris Calio: Good morning. Sheila Kahyaoglu: So, right Neil maybe another one for you. Just you're going to do about $7.2 billion of net income this year on an adjusted basis, and generate $4.7 billion of cash. Some of that is one-time items with the DOJ, the powder metal and tax. So, how do we think about that gap closing on net income to cash flow? And then just on the DOJ, can you elaborate a little bit more how we think about that, the outcomes of it and the cash impact outside of '24? Neil Mitchill: Sure. Let me start with free cash. You just heard me talk about sort of the changes that we rolled into our outlook for the year. As I think about the absolute value of the $4.7 billion, remember, that includes a couple of non-recurring items that are pretty substantial. And if you adjust for those things, you kind of get to a $7 billion, $7.5 billion, maybe even higher level of free cash flow that is operational. So, I think as we look forward, Sheila, and we get the powder metal payments behind us this year and next year, just a little color, so far we're a little less than $200 million into our $1.3 billion in powder metal outflows this year. We expect that to obviously ramp up. You heard us talk about doubling the number of customers that, we've got agreements with, and about two-thirds of the fleet under agreement. So, I would expect third and fourth quarter kind of be split pretty evenly, with respect to the rest of the payments this year. But if you look at the underlying operations, you can see that there's real strong organic sustainable cash flow. And I think that's what we'll be looking to see sustain itself over time. Now, in particular, there's some working capital improvement. I've talked about like $1.1 billion of improvement year-over-year and arriving at our $4.7 billion. Obviously, inventory was a use of cash in the first half. We expect that to turn around in the second half, which is typical for our business. We've got a little bit of headwind from the OE production rates that we've contemplated in that, but we're seeing stronger collections on the customer side. So, that balances for the rest of this year. So, that's how I would characterize the free cash flow situation today. As it relates to the DOJ and the outcomes, I think we feel very certain about the amount of cash impact that's going to happen this year. As we talked about in our prepared remarks, we've reached agreements in principle. There's some work to do to get that finalized with the various government agencies. That could take a few months, but when it happens, that will get filed and be available publicly. And then shortly thereafter we'll be required to make the payments associated with that. There's very little that lingers beyond that. I'd say it's in the $50 million a year kind of range following 2024, so it's manageable. Those costs will include some residual payments on the global trade related consent agreement, as well as some internal costs that we'll obviously invest in to continue to improve our processes, as we support the monitor activities. So, I would leave it at that for now with those items. Sheila Kahyaoglu: Cool. Thank you. Neil Mitchill: Yes, thank you. Operator: Thank you. And our next question, coming from the line of Doug Harned from Bernstein. Doug Harned, your line is open. Doug Harned: Thank you. Good morning. Chris Calio: Good morning, Doug. Doug Harned: What you've talked about and what we've heard as well is that, your shop on the GTF, that a lot of the shops visit times, you've brought that down significantly the time in the shop, which is great. And so, presumably, this is with improved parts availability that's allowed you to do that. And I know in Q1 you did divert resources away from V2500 work in order to better enable you to provide GTF parts. And so, two things on this. I guess first, and where do you stand now on V2500 MRO? Is that kind of back to normal? And then second, even though those shop visit times seem to have come down significantly, everything we've seen is that induction wait times are still quite long. And perhaps, if you could address those two issues, it would be really helpful? Neil Mitchill: Doug, let me start on the V2500. Then I'll hand it over to Chris to talk a little bit about the GTF induction times and turnaround times. On the V2500 on a first half basis, we're at about 369 inductions to-date. So, we had talked about 800 on a full year basis, and we expect that. We still expect that to continue. And I guess the good news there is that, with that acceleration, not only are we seeing an increase in the number of shop visits in the second half of the year, we're also seeing more work scopes. So, these are heavier overhauls. And all of that will contribute to the second half growth that we'll expect to see coming from Pratt & Whitney, particularly in the aftermarket. So, the second half story for Pratt's, operating outlook is really focused around what we call the mature commercial engines, the V2500 being the biggest part of that. So, that's where we sit today on that front. Chris, maybe a couple comments on GTF. Chris Calio: Yes. Before I do that, Doug, I'll just say on the V, I mean, obviously our customers are relying heavily on that, given the other stress in the fleet. So, we're heavily focused on making sure that, V inductions, turnaround times and what not, that the support is there for the customer base. On the GTF MRO, you're right. In the shop, when we've got material flowing, when we've got material in the right positions in gate two and gate three. We are seeing significant reduction in shop turnaround time, both our shops and our partners, which is really encouraging. The induction times are really a function of what we would call the parking lot. Doug, there are a lot of engines that came off wing, obviously, when the AD hit. People did some of that proactively. So, we are still working through a large parking lot of engines that need to get inducted into the shop. But again, we're encouraged by what we're seeing when the material is there, which is why we're so heavily focused on making sure the supply chain is healthy. You heard me talk about structural castings, isothermal forgings. These are the things that are going to be the biggest unlock for us as we take the AOG numbers down, and support our customers. Doug Harned: Very good. Thank you. Operator: Thank you. Our next question, coming from the line of Ronald Epstein from Bank of America. Ronald, your line is open. Samantha Stiroh: Hi, good morning. This is Samantha Stiroh on for Ron Epstein. I was wondering if you could talk a little bit about Collins, particularly interiors, kind of what they're doing and what your expectations are there? Thank you. Chris Calio: Good morning, Samantha. How are you doing? Let me start there. I mean, we're seeing significant improvement in the interiors business. And frankly, the second half story for Collins is going to rely substantially on the aftermarket uptick there, in mods and upgrades. And the one thing I would say about the Collins portfolio of businesses as we've seen really strong performance across all the segments, the - SBU segments there. And many of them are at or above, frankly above, where we were in 2019. Interiors is the one place where we're still lagging. So we're encouraged by the orders we are seeing there. And we do expect that to translate to substantial growth in the second half of this year that's going to be driving a substantial part of Collins aftermarket year-over-year. Operator: Thank you. And our next question coming from the line of Seth Seifman from JPMorgan. Seth, your line is open. Seth Seifman: Hi, thanks very much and good morning. Chris Calio: Good morning. Seth Seifman: Chris, Neil, I wonder if you could address the free cash flow target for next year. Kind of talk about whether you feel like that still stands, areas of risk, areas of opportunity and kind of your level of confidence? Chris Calio: Yes. Thanks for the question. Right now, Seth, we don't see a reason to change the outlook. The fundamental business drivers remain strong on both the commercial and defense side, our end markets have proven pretty resilient and demand remains strong as we set up front. I think with everybody else, there are several items that we're tracking that have 2025 implications. I think OE rates kind of continue to see the strength in the aftermarket. That's a big part of the cash walk in 2025. And of course, the supply chain I mean you just heard me talk about the sequential improvement and the stability we're seeing, but that's got to continue to ramp. But again, still feel like the 2025 cash goal here is achievable based on everything we see today, both within our four walls and the macro environment. Seth Seifman: Thank you very much. Operator: Thank you. Our next question coming from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag, your line is open. Kristine Liwag: Hi. Good morning Chris, Neil and Nathan. Chris Calio: Good morning. Kristine Liwag: Maybe back with Pratt, you guys have highlighted that isothermal forgings are getting better. You're seeing doubled capacity increases in sonic inspections, which are all good, but structural castings continue to be an issue. Can you provide more color on why structural casting continues to linger. And then also, I mean, look, this historically has been one of the bottlenecks for previous aerospace ramp ups. So I guess, how is your approach different this time around to mitigate risk? And any color you could provide on the underlying tightness would be helpful? Chris Calio: Sure. Thanks, Kristine. And you're right, structural castings has been a habitual sort of constrained value stream even since the beginning of the ramp-up back in the '16, '17 time frame, while we've seen some improvement here, I mentioned up 5% sequentially. It needs to be higher than that, in order to continue to meet the demands of both OE to the airframers, spare engines, and MRO. So again, while we're seeing sort of positive incremental improvement, it needs to continue to grow. And the reason its constrained is because there are very few people that do this. And a lot of us in the industry rely on the same players. And so, we're all ramping up around the same time. To your point about what we're doing differently. I would say we're really working hard on making sure that our demand signal is crystal clear that people know what we need both from an OE, but also an MRO perspective. And then getting on LTAs as quickly as we can, so that we can make sure that, again, supply chain knows what we need, when we need it and that they can go make the necessary investments to deliver. Neil Mitchill: One thing I would add there, too, is that we've forward deployed a lot of our own people to these suppliers to help sort through the assessments that are required around the inspection criteria. As you know, these are parts that are built to extremely tight tolerances. And it's important to have our engineering teams working collaboratively with the supply base. To make sure that we can clear those items, as they come through the production process. And that's been something that I think we've put a lot of effort into over the last couple of years, frankly, but we've ramped that up recently. Kristine Liwag: Great. Thank you. Operator: Thank you. Our next question coming from the line of Cai von Rumohr from TD Cowen. Cai von Rumohr, your line is open. Cai Von Rumohr: Thanks so much. Chris Calio: Good morning. Cai Von Rumohr: So operations look good at Pratt and Collins in the quarter, sales beat, margins beat, and you've increased sales for the year, but you basically didn't touch profit guide, for Pratt or Collins, is that conservative? Or are you assuming, I mean, it looks like in Collins, the margins are the same or basically a little bit lighter in the second half than the second quarter. Give us some color on that, if you could? Chris Calio: Hi Cai, thanks for the comments. Overall, we're pleased with the first half results as you kind of outlined there, and we've updated our full year guide to reflect that strong top line growth. When we think about the segments and what's going on there, there are some headwinds. We've got some higher product costs, primarily in the defense pieces of Pratt and Collins. We've got a little bit of under-absorption with some of the lower OE rates. And we've seen some higher E&D. Now we have offset some of those headwinds with some below-the-line items, such as corporate spending reductions and tightening. So there are a few moving pieces here, but we've got good momentum as we enter the second half of the year, and we're confident in the updated outlook. Neil Mitchill: Thanks, Chris. Yes, let me add a little bit, Cai, in terms of the top line, maybe some perspective on the moving pieces. You saw that we took up our sales 750 at the low end, 500 at the high end. So think about the midpoint, obviously, 625. If you break that down, I would put $500 million of that is in the Pratt & Whitney business. It's really two pieces of that. About $400 million of that, 80% is in the military business. We saw really strong material inputs, particularly supporting the F135 and F117 aftermarket. We dropped that through. And the rest is slightly higher OE. You saw the numbers we had in the first and second quarter. And so, we're seeing good mix and we're letting that flow through to the full year as well. As Chris mentioned, the profit side of Pratt, we're seeing higher production costs, again, particularly in the military side of the business as we burn down the F135 contract and a little bit of higher R&D spending supporting the continued certification of the GTF advantage and obviously, the powder metal related things. At Collins, we also took that guide up a little bit, see high single-digit, I think, 7% to 8% higher end of the range that we were at before. That's about $100 million of sales. And as I think about that, it's a couple of hundred million, maybe a three points lower on the commercial OE side. We've taken our rates down on the Boeing side in particular, but offsetting that or more than offsetting that is the aftermarket and the military side of Collins as well. So about a one point increase on the commercial aftermarket, two points on defense. Just to kind of round it out, at Raytheon, we now see solid flat, if you will, organically up mid-single digits. It's about $50 million. There's slightly higher eliminations at the corporate level. We're going to kind of hold as a placeholder of what we saw in the second quarter for the rest of the year, a lot more intercompany activity between Collins and Pratt and Collins and Raytheon there. So again, we're early, we're encouraged by the first half results on the profit side. But certainly, on the top end, we're seeing a trend towards the top end of our prior ranges, taking them up slightly here. And of course, if there's more, you'll see that in the results. I want to kind of see another quarter play out. Cai Von Rumohr: Terrific, thank you very much. Neil Mitchill: You're welcome. Operator: Thank you. Our next question coming from the line of Jason Gursky from Citi. Jason Gursky, your line is open. Jason Gursky: Great. Thank you, and good morning, everybody. And Nathan, welcome to the call. Hi Chris, I know - I recognize that you're executing on the existing engine platforms. But I'm wondering if you wouldn't spend a few minutes talking about the future. These flow coming out of Farnborough suggests maybe rolls is going to get back into the narrow-body market. GE made some comments this week on its earnings call that customer interest in the rise continues to grow. And then I think somebody at Pratt at Farnborough suggested that your next generation GTF might be 25% more fuel efficient. Not clear to me whether that was relative to the existing GTF, or it was a comment about the overall existing fleet. But I'm wondering if you can just kind of paint a picture for us, on what the next generation of engines is going to look like from your perspective, where the customers are kind of starting to have more conversations with you all about that, and what the potential timing of a new engine on the narrow-body side might be? Thanks. Chris Calio: Yes. Thank you, Jason. And as you might imagine, having been a Farnborough this week, there was a lot of conversation around the future of narrow-body on sustainability and on when those platforms will be launched and get into service. I will just - I'll kind of maybe break this into sort of near medium and then longer term. Near medium, our focus and you sort of alluded to this, is on the GTF advantage. Right now, we're about 90-plus percent of the way through that testing. We've got some good results out of our environmental and durability, and so we're continuing down that certification path. As you know, another 1% of fuel burn, 4% thrust, but a more durable and reliable engine. So that's the near term. As we think about sort of the medium, longer term, I will tell you, we're evaluating and investing in a number of key enabling technologies for insertion into future GTF configurations. Think, composite fan blades, advanced materials like CMCs, planetary gear system. And then you referenced hybrid electric. Some of those numbers that were coming out of Farnborough are, what I would call hybrid electric or electric applications. And you think about that for the narrow-body, I view that as more of an assist, if you will, around sort of corner points of the flight envelope, lower platform, smaller platforms, the hybrid electrical view more work. And we continue to invest there and have made some really strong strides in some of our demonstrator programs. So again, we've said this before, the GTF architecture continues to have runway. And so, these are all the enabling technologies that we continue to invest in that we think we're going to be able to insert in that for the next-generation single-aisle. I'll also make the point that many of us in the industry are focused on fuel efficiency, and rightly so. I will tell you that we're also really focused on durability and reliability. As we continue to go push efficiency gains in the engine, there's always going to be trade-offs. We've got to make sure that those trades make sense, which is why we continue to invest in things like advanced coatings, and other advanced manufacturing techniques that can help with the durability of the engines. If you talk to operators today, the number one thing that they want in addition to sustainability and fuel efficiency is time on win. We've got to make sure that as we're driving efficiency and rightly so, that we're also focused on the durability of the engines in the time on wing. That's frankly how - that's what the customers need and that's what we need for our business model. Operator: Thank you. And our next question coming from the line of Matt Akers from Wells Fargo. Matt Akers, your line is open. Matt Akers: Yes. Hi, guys. Good morning. Thanks for the question. I wanted to see if you could touch on divestitures a little bit. You've been pretty active there. Could you talk about just kind of what inning we're in there? What's left to divest? And specifically, are you able to give the revenue and EBIT contribution from the Hoist & Winch deal? Neil Mitchill: Good morning Matt, this is Neil. We're really happy, obviously, with some of the transactions that we've announced recently in Hoist & Winch in particular. Not going to be able to give you the numbers today, but once that transaction is closed, we'll get that out there in the right form. But we got good value there. We expect to close that in the fourth quarter as it relates to the actuation business at Collins. We are pleased to see the Italian approval in the last quarter. We're continuing to support Safran and the efforts that are required to close that transaction. Again, nothing that we see we can't get through here, but it's going to take a little bit of time, some regulatory hurdles still remain there. But there's other things we're looking at. We're always looking at the portfolio. As Chris and I have talked about, we're targeting bolt-on type M&A that fits into our technology road maps where it's appropriate. We want to be opportunistic there, but we also want to be thoughtful and careful. And then we're always looking at the portfolio from a pruning perspective, nothing to announce today. But I can tell you that we're going through a rigorous process, as we always do every year. And there'll probably be a handful of others that we come up with. We've talked about some of them in the past, but again, nothing to say today. Chris Calio: Yes. Maybe just to add to that, Matt, we do have a robust and rigorous process, to take a hard look at the portfolio every year. And while there are businesses that might be solid performers, we want to make sure that they fit into the criteria long-term within RTX, namely technology differentiation and strong aftermarket tails, right? So continuing to look at the portfolio through that prism. I'll also remind you that we've set up an RTX Ventures. We've been making investments in early-stage companies keeping our eye on some of those trends, both commercial and defense. And so those may yield some opportunities as well for bolt-ons that fit into, again, our criteria. Matt Akers: Great. Thank you. Operator: Thank you. And our next question coming from the line of David Strauss from Barclays. David Strauss, your line is open. David Strauss: Thanks. Good morning, everyone. Chris Calio: Hi David. David Strauss: Went through Neil, your comments on Collins and the Boeing OE reach, you said took them down. I didn't know if that meant you actually have reduced the rate at which you're building on the MAX and 787, or are you just going up more slowing? Maybe if you could clarify that? And if possible, talk about where you are exactly on the MAX and 787? Thanks. Neil Mitchill: Sure, David. Listen, I'm not going to get into specific rates per se, but I'll tell you that, obviously, we started the year with a more aggressive outlook in terms of what that rate ramp would look like. What I would tell you is that we're in the low 30s in the first half of the year. And we do expect the rate to ramp up as the year goes on. So it's not a flat rate assumption, but I'd say it's a calculated increase. And you'll be able to hear from Boeing next week. I think I'm sure they'll have something to say about their rates. I'd say today, we're aligned with the airframers, but we're monitoring it just like everybody else. On the Airbus front, Chris talked about it already same thing. We're aligned there with the Airbus team on output. There is always a desire to increase those rates, but we're doing the best we can to balance between airline customers and the OEMs here. But I'd say from an outlook perspective, we're reasonably well calibrated, barring some change that we're not aware of right now. David Strauss: Thanks very much. Neil Mitchill: You're welcome. Operator: Thank you. And our next question coming from the line of Robert Spingarn from Melius Research. Robert, your line is open. Scott Mikus: Thank you. This is Scott Mikus on for Rob Spingarn. Chris Calio: Good morning. Scott Mikus: Neil or Chris in the past, you've mentioned that you don't exactly like the business model where the engine OEMs go through a heavy development cycle, lose cash on the OE sales and have to recoup your investment in the aftermarket. So I'm just wondering with the general misalignment of profit drivers between the airframers and the engine OEMs that can create tension when allocating scarce resources. On a future clean sheet aircraft program, is there going to be a broader industry discussion to better align those profit drivers between the airframers and engine OEMs? Chris Calio: Thanks for the question, Scott, and it's a good question. Yes, the short answer is yes, there's going to need to be a discussion around aligning our business model. And I believe that's not only in the interest of -- I'll speak from the engine side from the Pratt team, but also from the airframer team. When you are - you've got different incentives in terms of how you make your money, it does just drive a tension. And ultimately, sometimes the customer is the one that's sort of caught in between there. And so again, I think the more that we can align our business models the better will be for the OEMs and for the customer base. And you're right, the opportunity to do that is going to be on the next platform. We're already obviously entrenched in their current platforms. But I think we're both seeing this at times, misalignment play out. And I think with the new platforms, it gives us a chance with a clean sheet of paper to sketch out how do we get better aligned and better serve our customers. Scott Mikus: Thanks. I'll stick with one. Operator: Thank you. And our next question coming from the line of Noah Poponak from Goldman Sachs. Noah, your line is open. Noah Poponak: Hi, good morning guys. Chris Calio: Hi Noah. Neil Mitchill: Hi Noah. Noah Poponak: With regard to the GTF powdered metal process, is it possible to put numbers around of the number of engines that will need to come off wing, how many - what percentage even if a range have come off wing and of that, how many have actually fully gone through the full fixed process, versus are waiting in line to do so? Chris Calio: Thanks, Noah. So let me just step back and give you sort of a powder metal sort of ramp-up and insertion background here. So as we've talked about before, since late last year, everything coming off the line going to the OEMs had the full life powder metal parts. Now all spare engines have those as well. MRO was always a, I'll call it, a phased ramp-up. And so we'll start to see this ramp up here in the second half of the year, and it's going to continue to accelerate into 2025 and into 2026. Again, we've put a lot of emphasis on isothermal forging production. As I said, upfront, we put a lot of demand into the system, as you might imagine, given what's happened with the fleet. And we've seen some solid progress we need to continue to see some more ramp up. And as we said before, when a shop - excuse me, when an engine comes into the shop for a visit, we do an evaluation based on the work scope it needs, where it operates, when it was naturally going to see another shop visit to determine whether or not insertion of those parts makes sense. Again, we're trying to get the longest time on wing that we can and make sure that we allocate these resources appropriately. And so that -- those are all the things that go into decision as to which engines get the full life parts in, which we can do an inspection and do all the other things in the engine, because it was already slated to come back in advance of the time limits that, we've established. So there's a lot of moving pieces here. But suffice it to say, it's going to be a continued ramp back half of this year, '25 and '26 on powdered metal production and insertion and MRO. Noah Poponak: Okay. As you are going through incremental customer negotiations, are you finding yourself able to change assumptions either are better or worse based on what you've experienced thus far? Or is it more kind of the assumptions remain similar, because the output has been in line? Chris Calio: The assumptions remain similar, Noah. But I'll tell you, each customer negotiation is different based upon where they operate and how they operate. And so the agreements are tailored to those, I would say, airline-specific metrics and criteria. But we're using the same, I'll call it, key assumptions that we outlined upfront across the board. Noah Poponak: Okay. Thank you. Operator: Thank you. And final question coming from the line of Scott Deuschle from Deutsche Bank. Scott, your line is open. Scott Deuschle: Hi, good morning. Thanks for taking my question. Chris Calio: Hi, Scott. Scott Deuschle: Hi, Chris, are you seeing progress with the FAA in terms of getting some of these wide-body first-class seats certified? And then I'm sorry if I missed it, but are you seeing momentum on ramping up output on the 787 heat exchanger? Thanks. Chris Calio: Yes. Thanks, Scott. So yes, we - on the seating question, we continue to work our way through the certification there. These are actually a lot more complex, and I think people understand and the certification requirements are relatively high bar, but we think we have our arms around what we need to do there to get these certified and ultimately into the hands of airframers and the airlines. On the heat exchanger, I'll just remind everyone that, that was a part that we had to move as a result of the conflict in Russia/Ukraine, out of Russia, and then set up another source here, and set up a separate supply chain, and that has taken some time. But we're starting to ramp up there to the rates that we need to support what we think Boeing's demand is. Scott Deuschle: Thank you. Chris Calio: Thank you. Operator: Thank you. And with that, I will now turn the call back over to the RTX team. Chris Calio: All right. Thanks, Olivia. That concludes today's call. As always, I and the Investor Relations team will be available for follow-up questions. I really appreciate everyone joining us today, and have a good day. Neil Mitchill: So good day everybody. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX First Quarter 2024 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Chris Calio, President and Chief Operating Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, 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 risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, 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. [Operator Instructions] With that, I will turn the call over to Mr. Hayes. Greg Hayes: Thanks, and good morning, everyone. As you all know, next week at our annual shareholders meeting, I'll be stepping down as CEO and turning the reigns over to Chris Calio. For the past two years, Chris has had responsibility for leading our three business units, Pratt & Whitney, Collins and Raytheon. There's no better evidence of his success than our results this quarter with strong sales and operating profit growth and a record backlog of over $200 billion. I'll be back at the conclusion of the call for some final comments, but let me turn it over to Chris right now to give you an overview of the company and our first quarter performance. Chris? Chris Calio: Thank you, Greg, and good morning, everyone. First, I want to acknowledge and express my appreciation for Greg's leadership. He has created significant value over the last decade as CEO and has shaped RTX into the best portfolio in A&D with our three industry leading businesses leaving a strong foundation for a continued success. Before we discuss our first quarter, I want to spend a few moments on the strength of this foundation and how we plan to build upon it in 2024 and beyond. I know we've highlighted it before, but I think it's worth repeating. Collins is an industry leader, number one or number two on 70% of its product portfolio and has an off-warranty installed base of $100 billion, which will create decades of aftermarket growth. At Pratt, the large commercial engine business has an installed base of 12,000 engines and a backlog of over 10,000 GTFs, which will also drive growth for decades to come. But Pratt is much more than the GTF. Pratt & Whitney Canada remains the premier small engine business with sole source positions on over 200 platforms and 63,000 engines in service, which also comes with long aftermarket tails. And Pratt's military engine business is set to power the F-35 and B-21 bomber well into the future. At Raytheon, our defense franchises are essential to the US and our allies as they confront the threats of today and tomorrow with programs like the Patriot air defense system, GEM-T, NASAMS, SPY-6 radars, AMRAAM, Tomahawk and the Standard Missile family, and future technologies like LTAMDS, hypersonics and LRSO, the long range stand-off cruise missile. So as we move forward, our focus will continue to be transforming RTX from the best portfolio in A&D into the best company in A&D. This means being recognized by our customers as a trusted partner that executes on its commitments, it means leveraging our core operating system to help drive operational excellence in terms of quality and cost, it means being the provider of differentiated technologies that create a competitive advantage, and it means converting all of these attributes into best-in-class financial performance and long-term shareholder value. All right, with that, let me move to the quarter on Slide 2. We've gotten off to a strong start to the year, with organic sales up 12%, segment operating profit up 10%, and free cash flow in line with our expectations. Commercial OE was up 33% across RTX, driven by continued strong demand for new aircraft. The commercial aftermarket was up 11% as we continue to see strong growth in both domestic and international RPKs. So clearly the commercial arrow demand is there. But as you all know, the industry is still working through supply chain constraints and other challenges, which is leading to some OE production rate uncertainty. And this will continue to be a watch item for us for the year. On the defense side, we delivered 7% growth year-over-year and ended the quarter with a defense book-to-bill of 1.05 and a backlog of $77 billion. We're pleased the fiscal year 2024 spending bills have been enacted and provide $886 billion in defense spending, which is up 3%. But more importantly, the budget supports our key programs and technologies, including next generation propulsion, critical munitions, and upgrades to the F-135, ensuring it remains the only engine powering every variant of the F-35 Joint Strike Fighter. The budget also supports investment in key capabilities to address current and future threats, such as systems that counter unmanned aircraft and hypersonics, where RTX provides leading technologies. And we are encouraged by the progress on the Ukraine supplemental bill, which the DoD will use to further deepen critical US munition stockpiles such as TOW, Javelin, and Excalibur, and provide needed air defense capabilities to the region with NASAMS and Patriot. Internationally, we continue to see heightened demand from US allies. In the quarter, Raytheon was awarded a $1.2 billion contract to supply Germany with additional Patriot air and missile defense systems. Okay, let me move beyond the end market dynamics and talk about some of our critical initiatives. And I'll start with an update on the GTF fleet management plan. Continue to stay on track here, and our financial and operational outlook remain consistent with our prior comments. As you may have seen, in March, the GTF airworthiness directives were issued and are consistent with our service bulletins and service instructions. On the technical side, the results from the ultrasonic angle scan inspections have all been in line with our initial expectations and assumptions. With regard to new engine production, as we said in our last call, all GTF engines being delivered to our customers' final assembly lines have full-life HPC and HPT disks. And on the MRO side, we have started the process of incorporating full-life disks into certain engine overhauls. And as we previously said, we expect to progressively ramp this effort throughout the year. In addition, the PW1100 engine shop visits completed in the quarter were in line with our plan and up 50% year-over-year. With regard to overhauled turnaround time, our average wing-to-wing turnaround time assumptions remain consistent with our prior guidance of roughly 250 to 300 days. With the AD now issued, we are now essentially at our peak AOG level. We continue to expect an average of roughly 350 AOGs from 2024 through 2026. And lastly, we have reached support agreements with nine of our customers. And these are in line with our assumptions. With that, let's turn to Slide 3 and I'll share a bit more on how we're leveraging our core operating system in digital transformation to drive quality, efficiency and productivity. As I said before, our core operating system is all about driving continuous improvements that compound over time to create a significant impact on our business. Let me give you a few recent examples. Our nacelle business within Collins deployed core across seven factories that support the A320neo program, resulting in an 8% improvement in on-time delivery and a 17% improvement in quality. And at Raytheon, on the TPY-2 program, which is a radar designed to detect and intercept ballistic missiles, we leveraged core practices to help double first-pass yield on high-volume circuit cards, resulting in a 40% reduction in manufacturing hours per unit and improved on-time delivery. We also remain committed to enhancing our factories through digitization, automation, and connected equipment. Last year, we connected 20 factories and have another 20 planned to be completed by the end of this year. Once fully connected, these factories will achieve improved overall equipment efficiency, better quality, and ultimately higher output. And lastly, we will continue to invest both directly and indirectly through RTX Ventures and our cross-company technology roadmaps to develop differentiated technologies to fill our product pipeline. These include areas such as advanced materials, electrification, power and thermal management, and microelectronics. This year, we will invest about $3 billion in company funded R&D along with $5 billion in customer funded R&D to develop new technologies and products. We are also expanding our manufacturing capacity in key areas to meet customer demand, a key priority within our $2.5 billion of capital investment in 2024. One of our most significant new products coming to the market is LTAMDS, which is the next generation advanced 360-degree air defense radar that provides significant performance improvement against a range of threats, including UAS and hypersonics. This program recently completed another successful live fire event with representatives from seven countries in attendance. We expect both the first domestic LRIP and international FMS contracts this year. And today, we're announcing $115 million expansion of our Raytheon Redstone Missile Integration Facility in Huntsville, Alabama. When complete, the factory's capacity for integrating and delivering several of our critical munitions programs will increase by more than 50%. So with the best portfolio within A&D, core driving our continuous improvement in operational excellence and ongoing investments in next generation technologies, I'm incredibly confident in RTX's future and our ability to transform into the best company in A&D. With that, let me turn it over to Neil to take you through our first quarter results. Neil? Neil Mitchill: Thanks, Chris. I'm on Slide 4. As Chris said, we got off to a really good start this year on a number of our key financial metrics across RTX with Collins, Pratt and Raytheon all making progress in line with our expectations. Additionally, we completed the sale of Raytheon cybersecurity business at the end of the first quarter with gross proceeds of $1.3 billion and we've made progress on deleveraging the balance sheet, having paid down over $2 billion of debt since we initiated the ASR last year. RTX sales of $19.3 billion were up 12% organically versus prior year, and that is on top of 10% growth in the first quarter of last year. Demand strength was also reflected in our backlog, which is now $202 billion and up 12% year-over-year. Segment operating profit growth of 10% was partially offset by expected headwinds from lower pension income and higher interest expense. And our effective tax rate for the quarter included a current period foreign tax benefit. Adjusted earnings per share of $1.34 was up 10% year-over-year. And on a GAAP basis, EPS from continuing operations was $1.28 and included $0.29 of acquisition accounting adjustments, a $0.21 benefit related to tax audit settlements, an $0.18 net gain related to the cyber business sale, a $0.13 charge related to initiating alternative titanium sources, and $0.03 of restructuring and other nonrecurring items. And finally, free cash flow was an outflow of $125 million in the first quarter, in line with our expectations, and a $1.3 billion year-over-year improvement. As planned, the timing of defense milestones and increase in shop visits, along with inventory build to support our growth drove higher working capital this quarter. Okay. Let me turn to our business units and some of the progress we made in the quarter. You heard Chris give a status update on the GTF fleet management plan, so let me touch on our top priorities at Raytheon and Collins. At Raytheon, the business continues to see incredible demand. And as we said on our last call, we're taking actions to advance our key franchises, improve our supply chain, and drive margin expansion. In the quarter, Raytheon saw 50 basis points of sequential margin improvement and 20 basis points on a year-over-year basis. On the material front, we saw a double-digit increase in material receipts in the first quarter versus prior year, the fourth consecutive quarter of growth, which of course is driving the top line, but more importantly, helping to alleviate bottlenecks in the manufacturing processes and burn down overdue sales. Moving over to Collins, our focus remains on driving incremental margins through continued commercial OE and aftermarket growth and the benefit from ongoing structural cost reduction. In the quarter, Collins saw strong sales growth and 90 basis points of margin expansion on both a sequential and year-over-year basis. And we expect future volume increases to drive continued fixed cost absorption benefits across the business this year. On the cost reduction front, we continue to make progress as well. For example, Collins is in the process of shifting 2.7 million manufacturing hours to best cost locations by the end of 2025. To date, over 2 million of those hours have already been moved, with 400,000 more planned for the rest of the year. And finally, we also achieved an incremental $105 million of RTX gross merger cost synergies in the quarter, and we're approaching the $2 billion target we updated last year. So good progress on our top priorities to start the year. With that, based on our first quarter results and strong backlog, we remain on track to deliver our full year outlook, including full year sales of between $78 billion and $79 billion, which translates to between 7% and 8% organic revenue growth. In addition, we continue to see adjusted earnings per share between $5.25 and $5.40 and free cashflow of approximately $5.7 billion. Now, let me hand it over to Jennifer to take you through the segment results. Jennifer? Jennifer Reed: Thanks, Neil. Starting with Collins on Slide 5, sales were $6.7 billion in the quarter, up 9% on both an adjusted and organic basis, driven primarily by continued strength in commercial aftermarket and OE. By channel, commercial aftermarket sales were up 14%, driven by a 17% increase in parts and repair, a 16% increase in provisioning, and a 3% decrease in mods and upgrades. Commercial OE sales for the quarter were up 14% versus the prior year, driven by growth in wide-body, narrow-body and bizjet platforms. And defense sales were up 1%, primarily due to higher volume. Adjusted operating profit of $1.05 billion was up $145 million, or 16% from the prior year, which dropped through on higher commercial aftermarket volume, partially offset by unfavorable OE mix, higher space program costs, and increased R&D expense. Looking ahead, on a full-year basis, we continue to expect Collins sales to grow mid to high single-digits on both an adjusted and organic basis with operating profit growth between $650 million and $725 million versus 2023. Shifting to Pratt & Whitney on Slide 6. Sales of $6.5 billion were up 23% on both an adjusted and organic basis with sales growth across all three channels. Commercial OE sales were up 64% in the quarter and higher engine deliveries and favorable mix in the large commercial engine business. Commercial aftermarket sales were up 9% in the quarter, driven by higher volume within large commercial engines, primarily related to GTF overhaul activity, as well as an increased volume at Pratt Canada. Legacy large commercial engine aftermarket revenues were down slightly versus prior year as a result of increased allocation of material to support the GTF fleet. And in the military engine business, sales were up 21%, primarily driven by higher sustainment volume across the F-135, F-117, and F-100 platforms, and higher development volume, primarily driven by the F-135 engine core upgrade program. Adjusted operating profit of $430 million was flat to prior year. The benefit of favorable commercial OE mix and drop through on higher commercial aftermarket volume was partially offset by headwinds from increased commercial OE deliveries, unfavorable commercial aftermarket mix, and the absence of a favorable $60 million prior contract matter. Higher military volume and favorable mix was more than offset by higher R&D and SG&A expenses. Turning to Pratt's full year outlook, we continue to expect sales to grow low double digits on an adjusted and organic basis and adjusted operating profit to grow between $400 million and $475 million versus 2023, as large commercial engine aftermarket continues to ramp and military volume grows. Now turning to Raytheon on Slide 7. Sales of $6.7 billion in the quarter were up 6% on both an adjusted and organic basis, primarily driven by higher volume on land and air defense systems and advanced technology programs. The increase in land and air defense system programs reflect higher customer demand for the Patriot, counter-UAS systems, and NASAMS. Adjusted operating profit for the quarter of $630 million was up $46 million versus the prior year, driven primarily by higher volume and improved net productivity, partially offset by unfavorable mix. Also recall that Q1 2023 net productivity included the exercise of a significant unfavorable contract option that did not repeat in the first quarter of this year. Bookings and backlog remain very strong. In the first quarter, bookings of $8.1 billion resulted in a book-to-bill of 1.23 and a backlog of $53 billion. In addition to the German Patriot award that Chris mentioned earlier, Raytheon also saw significant orders for the GEM-T, NASAMS, and classified work. Looking ahead, we continue to expect Raytheon sales to grow low to mid-single-digits organically, with operating profit up between $100 million and $200 million versus 2023. As a reminder, the profit outlook includes an $80 million year-over-year headwind from the sale of the cybersecurity business. With that, I'll turn it back to Chris to wrap things up. Chris Calio: Thanks, Jennifer. I'm on Slide 8. With our portfolio strength and current demand, our overall backlog is at a record $202 billion. And our focus as a team remains on executing this backlog to meet our customer commitments and driving operational performance. And our top priorities for the year remain unchanged. First, at Pratt, it's about continuing to execute the GTF fleet management plan. Second, at Raytheon, it's about delivering the backlog and improved margins. And third, at Collins, it's about generating strong incremental margins. As I discussed, our core operating system underpins our execution on these priorities and drives continuous improvement across RTX. At the same time, we're investing over $10 billion in research and development, modernization, and digital capabilities, continuing to evaluate our portfolio for incremental opportunities to further enhance our focus and prioritize future investments. And as we do this, we remain on track to return $36 billion to $37 billion of capital to shareowners from the date of the merger through next year. So with that, let me turn it over to Neil. Neil Mitchill: Thanks, Chris. Before we go into Q&A, I want to quickly update everyone on an Investor Relations team leadership transition. After three years leading the team, Jennifer Reed is moving on to her next opportunity. Jennifer took the helm in an unprecedented environment and worked tirelessly to ensure all of our stakeholders had timely and clear information during the critical post-merger years for RTX. I want to thank Jennifer for her leadership and I also want to introduce Nathan Ware, who is coming over from our Collins business to lead Investor Relations. Some of you will remember Nathan as he was a member of the UTC IR team leading up to the merger. But since then, Nathan has held a couple of roles at Collins and most recently as CFO of the Interiors business. Jennifer and Nathan will work to ensure a smooth transition for all of us and all of you. And with that, we are ready to open the line for our first question. Operator: [Operator Instructions] Our first question comes from the line of Myles Walton of Wolfe Research. Your question please, Myles. Myles Walton: Thanks, good morning. And thanks for the help, Jennifer, over the years. Can you talk to the Pratt aftermarket first to start and sort of if there is risk to achieving the full year guidance, given the harder comps that play out for the rest of the year, given the 9% in the first quarter and low double digits expected for the full year? Neil Mitchill: Good morning, Myles. This is Neil. I'll start out, and Chris can add anything here. But a couple of things on the Pratt aftermarket. I think 9% aftermarket growth in the first quarter was largely as we expected. We took the first quarter to make sure that we started off on a strong foot with respect to the GTF aftermarket overhauls, and I'm sure Chris can provide a little more color there. In doing so, there was a little bit lighter material allocation to the V2500s. We're actually down a handful of shop visits year-over-year in the first quarter, a little bit -- around 175 or so. We still feel confident though that we'll hit 800 shop visit inductions on the V2500 for the full year. And so what we expect to play out over the remainder of the year is that we will see more and more of those shop visits come in. We'll also see the content on those shop visits increase. So we'll see better drop through on the legacy aftermarket. Back in January, we talked about the PW2000s and PW4000s. There's some puts and takes there. They largely offset for the year. So it's really about seeing that legacy aftermarket continue to grow. So full year, still expect low teens sort of growth in the aftermarket of Pratt and we're confident that we'll see the material flowing to support that. Chris Calio: Yeah, I mean, I guess the only thing I would add, Myles -- this is Chris -- is to Neil's point, we know we needed to come out of the gate strong on GTF MRO given the situation in the fleet management plan. And so we were allocating material and resources with that in mind. And I think we saw the fruits of that here in the first quarter. But as Neil said, we continue to see the demand on what we call the mature fleets, the V and others. And that ramp up is calibrated in our number for the year. So still feel confident it's going to deliver the full year shop visits that we need. Myles Walton: All right, thanks. Makes sense. Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Please go ahead, Kristine. Kristine Liwag: Hey, good morning, everyone. Chris Calio: Morning, Kristine. Kristine Liwag: Greg, thank you for your leadership over the years. And, Jennifer, wish you the best in your next endeavor. So, maybe on GTF, Chris, thank you for providing more color in the GTF fleet management plan. And at this point, it seems like everything is progressing well. So as we look forward to understanding the risk retirement, are there other milestones you're monitoring to see if there could be potential risk reduction? Is there a number of specific completed AOGs or more customer agreements to be completed? Any sort of gauge to help us understand risk retirement would be helpful? Chris Calio: Sure. Thanks, Kristine. Good morning. So look, the GTF fleet management plan is a multiyear process, and we're going to continue to grind through that over the next three years or so. And we've laid out all of the key enablers. We listed them on the call today. We've done it historically. And that's going to be AOG levels. That's going to be turnaround times. And so, again, we've given those sort of ranges on each of those key enablers, and we're going to continue to do everything we can to stay within or move to the lower end of those ranges. And again, the single biggest enabler for us is MRO output. We have a very good first quarter, but we've got a large growth plan here in 2024. And so for us, it's about material flow, including the new powdered metal parts that we're going to be putting into the engines as we said during the last call and during our comments. We continue to add the full life HPC and HPT in MRO, and it's going to ramp throughout the year. So that will be a key indicator for us. The more output we can get, obviously the more relief we can get the fleet, the less AOG days, and then the less penalties. It's really that simple. So for us, it's all about the MRO enablers, chief among them, continuing to ramp up the powdered metal part production and insertion into MRO. [Technical Difficulty] Kristine Liwag: Great. Thank you very much. Chris Calio: Yeah. Sorry about that feedback there, Kristine. So hopefully that all came through. Kristine Liwag: Very helpful. Appreciate it. Operator: Thank you. Our next question comes from the line of Seth Seifman of JPMorgan. Your question please, Seth. Seth Seifman: Hey, thanks very much and good morning. Maybe kind of a small picture question here, but it is one that we get a lot. When you think about the trajectory of aircraft on ground, and it seems like we are right around the highest level we'll see here at -- in the 550-ish level, when we think about where that goes from here, do we think of that more as a plateau for the remainder of the year or for a couple of quarters? Or do we start to see some progress there? And when you think about where turnaround times are kind of now and the improvement that you can make over the next few quarters, is there anything that you can kind of lay out for us to gauge that? Chris Calio: Hey Seth, this is Chris. Thanks for the question. Yeah, so look, we are as we said in our comments essentially at peak AOG. I mean, there'll be some perturbations a little bit above, a little bit below, but we see that as kind of the peak and we're going to start to gradually chip away and move that down. So again, as I said to Kristine's question, the number one enabler of that is our MRO output. And again, strong start to the quarter but we've got a big plan for the year and we're focused on turnaround times and new material. At the end of the day, in terms of our MRO output, it's not so much about capacity. We've got enough shops, we've got enough labor, it's about material flow. The faster that we can flow material, faster we can take turnaround times down, increase output, and then burn down the backlog of those engines waiting for induction. Seth Seifman: Thank you very much. Operator: Thank you. Our next question comes from the line of Ron Epstein of Bank of America. Your question please, Ron. Ron Epstein: Hey, good morning, guys. Chris Calio: Good morning, Ron. Ron Epstein: Could you speak a little bit to the supplemental that got through the house and how that plays out for your defense business. What goodies are in there for you guys? Chris Calio: Hey, good morning, Ron. This is Chris. So, as I'm sure you've seen, if you break down sort of the supplemental into its big buckets, it's about $60 billion for Ukraine, another $25 billion or so for Israel, and $10 billion for INDOPACOM. So, when we look at our product portfolio against those big buckets, we look at Ukraine and say about two-thirds of that is addressable with RTX products. Think GEM-T, NASAMS, Patriot, AMRAAM, AIM9X, Israel, we kind of handicapped that as about 30% addressable, stockpile replenishment, Iron Dome, David's Sling procurements, and then INDOPACOM, again, roughly that 30% addressable with the RTX product suite, namely SM-6, Tomahawk, AIM9X. So again, the services will have their specific lists of what they're looking for, but again we think our product portfolio is pretty well positioned to address the needs in each of those theaters. Ron Epstein: Great, and if I may, just a quick follow on. You had some challenges with the fixed development -- fixed price development program within missiles. How's that going? Chris Calio: Yeah, so again, when you look at the productivity story at Raytheon, Ron, that's a big part of the continued margin expansion. And so in the quarter we saw improvements in productivity, which is really helpful. Again, as you know, our productivity plan for the year is effectively no productivity, but last year, of course, we had some headwinds in the productivity department. So again, overall an improvement for the year. We've still got some classified programs, fixed price that we are continuing to work through. We said that's kind of a 12 to 18 month journey as we work through those. I would say on a number of them, we've made some good progress towards milestones and others we're going to continue to battle our way through during that period. Neil Mitchill: Chris, I'll just add with respect to the productivity, in the first quarter we saw about a $58 million year-over-year Q1 to Q1 improvement. Of course, we had the exercise of an option last year, which accounts for maybe, 55% of that improvement. But nonetheless, we're expecting $200 million year-over-year and continue to expect $200 million year-over-year. And so, good progress in the first quarter. But there's still three quarters to go, but we are encouraged by the shift that we've seen here in the first quarter so far. Ron Epstein: Great. Thank you. Operator: Thank you. Our next question comes from the line of Cai Von Rumohr of TD Cowen. Your question please, Cai. Cai Von Rumohr: Yes, thanks so much. So you had a 23% gain at Pratt in the first quarter. If we're going to low double digits, call it 11%, 12%, you have to have a sharp deceleration as you go through the year and yet you're still guiding to what, low teens for the aftermarket which would suggest either your total guide is low or we're going to see a flat to down year in commercial or military as we go through the year. Can you give us some color in terms of each of those three parts of Pratt's business and their quarterly sequence as we move through the year? Neil Mitchill: Sure. Kai, let me start here. I mean, we had a really strong start to Pratt's first quarter. Most of that was on the back of commercial OE deliveries, up 40% almost in the first quarter on a unit basis. So that obviously drove the top line and some good mix there too between installs and spare engines as we look to position the GTF fleet as best we can to start the year. I think some of that's going to moderate clearly as the rest of the year unfolds. So I think we had a good start out of the gate on installs. On the aftermarket side, you're right, we're going to see more of the mid-single-digit type of growth in the next three quarters. So again, that will be fueled by V2500s coming up a little bit. The top line is going to be also bolstered by GTF aftermarket, which of course doesn't come with nearly as much profit, but will certainly help the fleets get healthier. And military also had a really strong first quarter start. The material coming in in the first quarter was positioned to support the aftermarket principally in the military business. And we do see that slowing down a bit in the next part of the year. So those are the key ingredients. Not going to get into the specifics on a quarterly cadence here, but we're just one quarter into the year, but do -- a good start to the year, and we'll see we're kind of holding on to our guidance at this point. Cai Von Rumohr: Thank you. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Your line is open, Sheila. Sheila Kahyaoglu: Hey, good morning, Chris and Neil. Thank you. And, Jennifer, congratulations on your next move. Wishing you all the best and thank you. I wanted to ask one on Collins, maybe Neil or Chris. Just the guidance for the year implies a step up 16.6% margins versus a 15.7% adjustment in the quarter -- adjusted basis in the quarter. Can you maybe talk about what drives that margin expansion as we progress through the year at Collins and if you could give us any more detail on the impairment of $175 million? Neil Mitchill: All right, let me start, Sheila. As I think about -- first, let's start with the first quarter for Collins. It was a really good quarter. We had about $145 million of profit growth on an adjusted basis. We've talked about the Collins growth trajectory really being driven by the aftermarket. Now, there's still a long ways to go. We put out a range of $650 million to $725 million for the full year. And so what we're going to see is increased drop-through on the continued cost reduction essentially that Collins embarked upon several years ago. And we're starting to see the cost associated with achieving that cost reduction ease, as well as the benefit from the actions start to drop through in the form of stronger incrementals. So feel like the aftermarket trajectory supports that at this juncture. And that I think is going to really continue to be the key driver for the Collins profit growth for the rest of the year. If I just comment for a minute on the $175 million. As we said in our remarks, that charge related to some procurement of titanium, which I know you all know is an important commodity for the aerospace industry. Given a number of ongoing supply chain dynamics around aerospace-grade titanium in particular, especially as it relates to the titanium that we use in our landing gear manufacturing at Collins, we've taken some steps to secure alternative sources for that supply. And it's taken us some time to do that, frankly. So specific to the charge, we reached an agreement with tow new suppliers during the quarter in connection with those agreements as well as some sanctions imposed by Canada, which were announced in February. We took a charge to reflect two things. One was the higher purchase commitment cost that came about as a result of these two new agreements. And the second is the impairment of about $75 million of costs that had been previously capitalized on the balance sheet associated with a specific program that are no longer recoverable. So as we talked about since 2022, we've been evaluating our global sourcing strategies to mitigate the potential impact of sanctions and other restrictions. And frankly, we've de-risked that in many areas. And I think this is an important step in putting this issue behind us. So, feel good about the agreements we have, but they're certainly at a higher cost, and so we took a charge to deal with that. Sheila Kahyaoglu: Great. Thank you. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein. Please go ahead, Doug. Doug Harned: Yes, good morning. Thank you. On the defense side, so in Raytheon you made a leadership transition, Wes Kremer retired in Q1. Can you talk about how, if at all, you're thinking about the strategy differently? And I'd say in two areas, one, you mentioned a little bit about this before in terms of bringing margins up to your objectives in 2025, which presumably fixed price contracts play into that, but also the supply chain progress. And then second, back in Paris, you talked about a need for a new strategy on the space side, to really reinvigorate growth there. Can you comment on how you're thinking about those now with the new leader in place in Phil Jasper? Thanks. Chris Calio: Yep. You bet, Doug. Good morning. This is Chris. So let's start first on the first part of your question here on the supply chain and Raytheon margins and how we're thinking about that. If you just take a step back for a sec, Doug, it's a tremendous backlog at Raytheon. You saw the increase here in Q1. A big part of that, obviously, is the continued focus on execution, in particular the supply chain. We've had four consecutive quarters of material receipt growth at Raytheon. So feeling like the focus on the supply chain and the health of the supply chain is starting to pay dividends and we're seeing that flow through, again, with some of the margin increases here in Q1. And so again, Phil and team are incredibly focused on execution, head down and execution on this backlog at the margins that we need. And again, big part of that is supply chain. And we're adding production capacity as well to meet the demands of this ramp. You heard us announce today Huntsville. Last quarter we talked about the expansion in Camden, Arkansas. So again, putting in the production capacity that we need in driving material. So that's where the focus is. On space, we did talk about a bit of a pivot, Doug, from a space prime, if you will, to being more of a component supplier to the space primes. And I think when you look at our strengths in that portfolio, I think that pivot is the right one. We've got historical strength in some of the exquisite space areas. We've got some other strengths in some of the key components that go in to the prime satellites and buses. But again, I think that's where we're going to be shifting away from perhaps being a space prime to being more of a component supplier. Doug Harned: Very good, thank you. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Your line is open, David. David Strauss: Thanks, Good morning. Best of luck, Greg. I enjoyed working with you. Same thing, Jennifer. Chris, on the GTF plan, I think it's calling for disc replacement, replacement on 3,000 or so engines. Can you just tell us at this point how many have actually seen full replacement actually having been done at this point? That's my first question. Then the second question, you reached an agreement with Spirit Airlines in the quarter that was made public. Is that amount kind of on a per-AOG basis representative of your other customer agreements? Because that would seem to imply a higher compensation number than you've baked into your forecast? Thanks. Chris Calio: Yep. So on the first question, David, yeah, the disc replacement. So, again, we're at early stages. I told you this was going to be a three-year process. Again, the priority was making sure everything we delivered to our customers' final assembly lines had the full life powder metal parts and that's what's happening today. It was going to be a ramp throughout the year into ‘25 on insertion of those full life parts into MRO. So I would say today it's early days. And so there haven't been a ton that have received all of those things. But as we said before, we're working hard to optimize the work scopes there, depending on where the engine is operating, what configuration it has, was it going to come in for another visit within this time frame anyway depending on where it operated. So again, the focus is on output and part of that is optimizing the work scope. But again, early days. As for the customer compensation, we've got about nine agreements under our belt, which represents about a third of the fleet. I think we're close on a number of other significant ones, and the compensation on all those remains within the guidance that we provided on this. David Strauss: Thank you. Our next question comes from the line of Rob Stallard of Vertical Research. Your line is open, Rob. Rob Stallard: Thanks so much. Good morning. Chris Calio: Good morning, Rob. Rob Stallard: Greg, all the best for the future, and Jennifer, thanks for all your help. It's been interesting times, obviously. Greg Hayes: Obviously. Rob Stallard: A question for Chris probably. At Collins, there's clearly some things going on with the 737 MAX at the moment. I was wondering what sort of implications they could potentially be for the Collins business and what do you see as the risk of potential de-stocking as this year progresses? Chris Calio: Yeah. Hey, Rob. Yeah, as you pointed out, significant content at Collins on 737 and 787, so across the main growth platforms there at Boeing. I would say that, I mean, we've kind of mentioned this upfront, we've got some, I guess, some uncertainty around rates today. We think that we've calibrated a lot of that in, but again I know the Boeing company will provide their guidance tomorrow, so we won't get out ahead of them. We're just kind of focused on working with them, supporting them through the dynamics in play, and preparing to take whatever actions we think necessary, depending on the guidance that they provide. But I'll just say that the team has worked very hard to go drive the material and we need to support their rates, and we've got the capacity to do so. Rob Stallard: Okay, thanks, Chris. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Please go ahead, Noah. Noah Poponak: Hey, good morning, everyone. Chris Calio: Hi, Noah. Noah Poponak: Two follow-ups on topics already asked about, but on the powdered metal process, can you quantify even if roughly how many engines that are off wing are actually in an MRO facility now versus waiting in line to get into one? And then, Neil, on the defense margins, the guidance implies that each quarter, the rest of the year looks roughly similar to the first quarter. You have the framework next year for a decent amount of expansion. I would have thought you would have sort of ramped through this year into that ‘25 expansion. How do we kind of flip in ‘25 or do I just have the numbers off there? Neil Mitchill: No, let me start with defense and I'll hand it off to Chris to hit your first question. But, listen, I think we had a number of headwinds last year. I think you're all well aware of that. And so as we put together our outlook for this year, we essentially assumed no productivity for the year. Now, as Chris said, and I talked about earlier, that's a significant step-up from what we experienced last year, and largely last year was driven by a handful of fixed price development programs, but we're not out of the woods there. So what I would say is, we took an approach that is not assuming a huge uptick. Remember, this is a business that several years ago was kicking off $300 million, $400 million, and $500 million of positive productivity. There is still positive productivity in the Raytheon business each quarter, but it's been overwhelmed by the negatives. And so at this point, I think we're really pleased to see a quarter like this to start the year. There's work to do, obviously, to get multiple quarters together that look like this one going forward. And that's what we're focused on. We're really focused on improving the health of the supply chain and moving the material through that you could see has come in, and now we got to get it through the entire manufacturing process to meet these important needs of our customers. And that's really where our focus is. I do think it will step up in ‘25. One encouraging thing is we had significant orders during the quarter and the margins in that new backlog are very healthy. The mix of those new orders, about 60% foreign sales. So it's a good start, but one quarter at a time. Chris, maybe a couple of comments? Chris Calio: Yeah, sure. So I'm not going to get into the specific numbers on where things stand in terms of those engines waiting to be inducted. But again, you look at the turnaround times, the extended turnaround times that we've talked about, engines coming off today are going to have to wait a bit before they actually do get inducted and enter into gate one in the MRO process. Suffice it to say, and we kind of alluded to this up front, big step up this year in GTF shop visits. And that's why we've played a little bit of the allocation game, in the last year, early this year, to get off to a strong start there. Again we've got a big ramp on GTF MRO throughout the year in order to support this fleet. Again we think we've got the capacity to do it, the labor to do it, the partners in our MRO shops who are incredibly adept at this, it's about material flow. Noah Poponak: Neil, the fixed price development programs that have been a challenge in Raytheon Defense, when do those end? When do those move out of development? Neil Mitchill: Yeah, so here's a couple ways to look at it. About 1% of our existing Raytheon backlog today constitutes those programs. And I'd say it's about 12 to 18 months. There's a few of them. So we still have a little ways to go. We are making progress, critical milestones on each program. In the first quarter, we had net unfavorable productivity of about $28 million. Nearly all of that was associated with these programs. So there's still some headwinds that we're encountering as we get additional technical learning and going through testing. But that's the timeframe and that's the magnitude I would put on it. Noah Poponak: Okay, thanks for taking my questions. And, Greg and Jennifer, thanks for all the help over the years. Greg Hayes: Thanks, Noah. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Peter, please go ahead. Peter Arment: Thanks. Good morning, everyone, and Greg and Jennifer, best of luck. I’ve enjoyed it over the years. Chris, on Raytheon, Europe continues to be a really strong region for bookings. Maybe you could talk about the outlook there and how should we think about, I guess Neil just touched upon it, the FMS mix kind of ramping and going to benefit margins. Is this -- should we expect the FMS mix to kind of be a multi-year process as it plays out where that shows up favorably on margins, but also just maybe just talk about the outlook on bookings? Thanks. Chris Calio: Yeah, I think that's right, Peter. I think it is a multi-year process. To your point, if you just think about what's going on out there today, the integrated air missile defense, the demand there is exceptionally strong. Obviously, Patriot, NASAMS and of course, GEM-T and the like, you saw a huge order from NATO at the end of last year for us, and the demand continues to be really strong. To your point, when we look at our margins throughout the year, our margin progression story at Raytheon, we're expecting a tailwind from mix as we increase the international backlog. About 60% of Raytheon's Q1 bookings were international, and so that's provided us a nice tailwind, and we expect that to continue. Peter Arment: Appreciate the color. Thanks, Chris. Operator: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Please go ahead, Matt. Matt Akers: Yeah. Hi, good morning everybody. Good luck, Greg and Jennifer. I had a couple of questions. One, what's the current wing-to-wing turnaround time for GTF full stop visit? Is it close to that 250, 300 days, or is it shorter and it sort of builds as the pipeline of planes waiting gets bigger than, I think you might have said, Pratt aftermarket, mid-single digits, the rest of the quarter. Did I mishear that? Is that actually mid-teens? Chris Calio: So let me start with the, now with the wing to wing turnaround time. Yeah, it's in that range that we've provided in that 250, 300. Again, a lot of that will continue to be dependent on the mix of work scopes. We're still believing that it's going to be more of a 90% heavy, 10% lighter shop visit. And with that, we'll stay within that range. If we can find a way to come up with medium work scopes and other things that can alleviate the need for new, we'll call it non-powdered metal, material repair development and the like, perhaps we'll be closer to the lower end of that range, but we're in there today, given the shop visit mix that we see and the material flow that we see. Neil Mitchill: Thanks, Chris. Matt… Matt Akers: Great. I guess the aftermarket? Neil Mitchill: Yeah, sorry. I didn't put my mic on. Just a couple of clarifications. So, When I said mid-single digits, I was referring to the military growth. We had really strong growth, obviously, in the first quarter. On the aftermarket, think about that as low to mid-teens for the rest of the year. Matt Akers: Great. Thank you. Neil Mitchill: Yep. Operator: Thank you. Our next question comes from the line of Jason Gursky of Citigroup. Please go ahead, Jason. Jason Gursky: Yeah, good morning, everyone. Jennifer, Greg, best of luck with your new roles and ventures, and Nathan, welcome back. Chris, just a quick question for you on Raytheon and the defense side of the business. Solid book-to-bill here in the first quarter. So I'm wondering if you can talk about the pipeline that you see here for the next 12 to 24 months and what you think the book-to-bill is going to look like over that time period. Do we have a prolonged period here of book-to-bills above 1 that forecast or shadow -- yeah, forecast growth here for multiple years? Thanks. Chris Calio: Yeah. Hey, Jason. Look, I think, given the threat environment we described and we kind of laid out in the question on the supplemental, we're going to continue to see strong top line growth at Raytheon and strength in bookings. And again, if you just kind of go region by region, it's replenishment in the US, it's the integrated air and missile defense in Europe, it's naval munitions in Asia. So, again, feel like the strength of demand is going to continue to be there. And then the other thing I'll say, Jason, is we're also thinking through some of the advanced capabilities that we're trying to bring to market as well. LTAMs, which I mentioned up front, the 360-degree radar, the refresh on AMRAAM, SPY-6 radar, which has gone through its initial sea trials, counter-UAS capabilities with our Coyote system, and then things like high-power microwave as you look to sort of the drone swarm threat that continues to build. So again, strong demand for the existing pipeline of products. We continue to invest in that next generation product, which we think meets the emerging threats. Jason Gursky: And to be clear [indiscernible] you think that leads to a book-to-bill above 1 here for this year and maybe going into ‘25? Neil Mitchill: I was just going to comment on the book-to-bill. I mean, certainly, really strong first quarter With top line sales projected to where we see them, it's obviously going to change the math a little bit on the book-to-bill calculation, but we still expect a book to bill over 1.1 for this year. And I think it's going to be strong next year. But obviously as sales go up too, that'll level off a little bit. But the backlog is going to continue to grow. To put a finer point on some of the awards for this year, we see AMRAAM, we've talked about LTAMDS, both with the US Army and Poland, certainly Patriot, SPY-6, and SM-3. So a good list of potential things. The large international ones can be lumpy. They can come in this year. They could fall into next year. But, we see a lot of demand signals that are really strong there. Jason Gursky: Great. And thanks [for cutting you out] (ph) before you could get to it, Neil. Appreciate it. Neil Mitchill: No problem. Thank you. Operator: Thank you. Our next question -- our final question comes from the line of Gavin Parson of UBS. Your question please, Gavin. Gavin Parson: Thanks. Good morning. Chris Calio: Good morning, Gavin. Gavin Parson: First, I was wondering if you guys could just give an update on what ratio of GTF customer compensation agreements have actually been completed. And then second, if you could just give a little more detail on the OE rate uncertainty you talked about. I know we're waiting for Boeing tomorrow, but if you're actually already seeing a lower pull on any of those programs and if that's considered in Collins guidance? Thank you. Chris Calio: Yep, sure, Gavin, This is Chris. So again, on the GTF customer piece, we've set up front, we got about nine done. We're in the final throes of a few more and those nine that we've got under our belt represent about a third of the GTF fleet total. And then on the rates again, Boeing will provide the guidance tomorrow. I just think we're very much embedded with them 737, 787. What do we need to do to support a ramp on 787? And then what do we need to do to help them go wherever they need to on 737? And so we won't get out ahead of them, but just know that we're working a number of scenarios and we'll take whatever action is necessary based upon what they need. Gavin Parson: Thank you. Operator: Thank you. I would now like to turn the conference back to Greg Hayes for closing remarks. Greg Hayes: Okay, thank you, Latif. I'll keep these comments brief, but as I step back from the day-to-day responsibility as CEO of RTX, I want to take this opportunity to thank our team for their trust and support over this past decade. Any success we have had is the result of the hard work and dedication of the entire team, the senior leadership team, but also the whole 185,000 people that make RTX a great company that it is. I also want to thank our investors. It's been an interesting decade or so in the role. And thank you for your patience as we've transitioned and transformed what was United Technologies, a multi-industry company, into RTX, which is, I believe, the best positioned A&D company in the world today. We've got great products, great portfolio of people and technologies, and a great backlog that I think is going to serve us well into the future. There is, of course, always more to do. We can talk a lot about that. I think Chris is absolutely on the right track, that is focusing on execution, focusing on technology and making sure we have the best team possible. And I can't think of a better leader than Chris to lead RTX for the next decade or so. You should all know that Chris has the full support of the Board, but not just the Board, the entire senior leadership team and the entire organization. And I look forward to working with Chris in the near term and watching from the sidelines beyond that as he is successful. I also want to thank Jennifer. Jennifer and I have worked together for a decade from Sikorsky's disposition to the integration of Raytheon and UTC and lately for the last three years as Head of Investor Relations, she's been a great resource for the company and a great friend. So, Jennifer, thank you. With that I think that's all. Thanks for listening today. Jennifer, Nathan and team will be available all day to answer whatever questions you have. But thanks for listening and take care. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX Fourth Quarter 2023 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Chris Calio, President and Chief Operating Officer; Neil Mitchill, Chief Financial Officer and Jennifer Reed, 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 risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, 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 opportunity to participate. [Operator Instructions] With that, I will now turn the call over to Mr. Hayes. Greg Hayes: All right, thank you, and good morning, everyone. We've got a lot to cover today, but let me start with the news we shared last month, which I'm sure you all saw. Effective on May 2, the date of our annual share owners meeting, Chris Calio will become the new CEO of RTX. Chris's appointment is the result of a very deliberate and thoughtful succession planning process conducted by our Board of Directors over the past three years. While I'm going to remain in my role as Executive Chairman, Chris will be taking the reins of the company. As you all know, I've worked with Chris for many years and I can't think of a better person to take on this role. Chris has a deep understanding of our industry our customers' needs, and our operation. And most importantly, he's an outstanding leader. Here I'd like to say that I'm honored to have led this organization for almost the last 10-years. But most importantly, I'd like to thank each and every employee, who has supported our mission over the last decade. We would not have been able to accomplish all we did if not for you. Going forward, I have the utmost confidence in Chris's ability to lead this great company and continue to drive performance and value creation for all of our stakeholders for years to come. With that, let me turn it over to Chris to take you through an update on our end markets and the year. Chris? Chris Calio: Well, good morning, everyone, and thank you, Greg. I'd like to start by thanking all RTX employees for their contributions last year. And I want to share how humbled I am that our board has given me the opportunity to lead this world-class team. As we move forward, our focus will continue to be on delivering our record backlog, accelerating innovation, and driving operational performance across the portfolio to meet our customer and shareholder expectations. I'd also like to acknowledge a couple of other leadership changes we've recently announced. First I'd like to thank Wes Kremer for his significant contributions to the company as he transitions into retirement. Over the course of his 20-year career here, Wes has led the development of some of Raytheon’s most successful programs, including LTAMs, Standard Missile 3, and a range of strategic missile defense systems that defend the homeland and our allies. Wes has also played a critical role in restructuring the Raytheon business unit to better align with the needs of our customers. With Wes's retirement, Phil Jasper has been appointed as President of the Raytheon business. Phil brings with him over 30-years of experience in aerospace and defense, and most recently led the Collins Mission Systems business, where he played a critical role in integrating RTX's connected battle solutions this past year. Phil's deep knowledge of our military customers and their priorities, and his experience leading many business transformation initiatives throughout his career, positions him well to lead Raytheon. Now, before I cover the highlights of the year, let me get into an update on our end markets. First and foremost, demand for our products and services in both commercial aerospace and defense has never been stronger. Air travel has returned to, and in some cases surpassed, pre-pandemic levels, and the global threat environment is driving unprecedented demand, especially in air defense systems. Starting with commercial aero, we saw solid air traffic growth this past year with global revenue passenger miles back to 2019 levels and domestic air travel now 5% above 2019 levels as we exited the year. The strong recovery has helped drive significant aftermarket demand for both wide-body and narrow-body aircraft, with growth expected to continue into 2024. On the defense side, increases in global spending have led to a defense backlog which is now at $78 billion, up $9 billion from a year ago. Just this past quarter, we received a GEMT order with $2.8 billion from NATO, which is the largest GEMT contract recorded in Raytheon history. Domestically, we are pleased that a bipartisan funding agreement has been reached supporting increased defense spending and expect Congress will complete their work on the full-year ‘24 appropriations bill in the next several weeks. With that, let me turn to slide two, provide an update on 2023, and I'll start with some of the highlights. We delivered $74.3 billion in adjusted sales for the full-year, up 11% organically and adjusted EPS of $5.06 was up 6% year-over-year, both of which were ahead of our outlook. And more importantly, we ended the year with $5.5 billion in free cash flow, which also exceeded our commitment. On a full-year basis, commercial aftermarket was up 23%, commercial OE was up 20%, and defense was up 4%. On the capital allocation front, we returned over $16 billion of capital to share owners for the year, including $12.9 billion of share repurchases supported by our $10 billion ASR and $3.2 billion in dividends. We're beginning the process of deleveraging this year to ensure we maintain a strong balance sheet, which will be in part supported by the closure of our previously announced divestitures. At the same time, we remain focused on ensuring that business continues to be positioned to achieve sustained growth. In 2023, we spent almost $10 billion in CapEx in company and customer funded R&D, while capturing $95 billion in new bookings, resulting in company-wide backlog growth of 12% in a book-to-bill of 1.28, ending the year with a record RTX backlog of $196 billion. So while there's a lot of positive momentum in our markets and across the business, we have two matters we've been heavily focused on, Pratt's powdered metal situation and Raytheon's margins. So let me hit these two head on and I'll start with powdered metal. Our top priority continues to be executing on our fleet management plans, and both the financial and operational outlook remain consistent with our call last October. While we are still in the early stages, I'm going to provide a few more details on the progress we've made to-date. As you saw, Pratt has issued the necessary service bulletins and service instructions to operators, which are entirely consistent with our underlying financial and operational assumptions that we previously communicated. The FAA is in the process of drafting the corresponding airworthiness directives, which we expect to be issued within the next month or so. And just as a reminder, it is common practice for a fleet management plan to be communicated through multiple service bulletins and airworthiness directives to address different engine models, compliance times, or components and sections of the engine. Continue to conduct ultrasonic angle scan inspections and powder metal parts, and our findings remain consistent with our prior analysis and assumptions. Let me now turn to our industrial plans. You'll recall our focus is on ramping production of HPT and HPC disks to support both OE and MRO deliveries. We've made solid progress here as well. Continue to secure the necessary machining and inspection capacity for increased disk production. Today, all OE GTF engines being delivered to our customers final assembly lines contain disks produced from powdered metal manufactured after Q3 2021 and have full certified lives. On the GTF MRO front, we have begun installing full life disks during certain shop visits. And the number of engines receiving full life disks in MRO will increase throughout the year as we continue to ramp up production of these parts. Our estimated wing-to-wing turnaround time remains consistent with our prior guidance. Pratt grew GTF MRO output by almost 30% year-over-year in 2023, while also making investments in additional shops, test cell capacity, and repair capability to support even more growth in 2024. With respect to the number of AOGs, we continue to expect the roughly 350 on average that we previously guided. However, we will likely see a lower peak level than previously anticipated due to the timing of the AD issuance and proactive fleet management by our customers. Additionally, our conversations with customers continue to progress. To-date, we have finalized several customer support agreements, and these have been in line with the assumptions we outlined last year. And lastly, just a comment on the remaining Pratt & Whitney fleets. Both the financial and operational outlook remain consistent with what we discussed on our prior call. We continue to execute on those plans. I'll now shift to Raytheon's performance. We continue to experience profitability challenges driven by productivity headwinds within the business, primarily attributable to legacy fixed price development programs that we have previously discussed, as well as continued supply chain and operational headwinds. Let me start by providing some color around our productivity issues. And it’s important to note that we are in fact achieving productivity in several parts of Raytheon's business, in particular on certain legacy product families where we've received successive awards that are creating scale in our factories and in our supply chain. For example, we increased GEMT output by 50% year-over-year by using our core system to refine work instructions, increase test equipment uptime, and reduce product cycle time, all without additional capital or manpower. We also recognize productivity gains when we successfully retire technical and schedule risks on our contracts, which is more frequent in our programs in the production phase. However, those gains have been overcome by unfavorable productivity in other areas. In 2023, about 70% of this headwind came from challenges on fixed price development programs, and the remaining 30% was driven by unfavorable material costs, as well as supplier delinquencies, which have had the effect of extending the period of performance in several cases. So what are we doing about it? Our plan to stabilize the current performance and deliver profitable growth consists of a few elements. One, we expect improvement in our fixed price development programs as we satisfy certain technical and programmatic milestones. We will also be more selective and disciplined about the work we pursue moving forward. Two, we are making modifications in our approach to winning new work. We continue to ensure that our new contracts and additional contractual lots have better protection from supplier inflation. This will take some time to play through, but we expect this will help us improve our margin profile. Three, we continue to drive improved supply chain performance and material flow. Overall, our material receipts were up 8% in 2023. And we need to continue on that trajectory here in 2024. Four, we continue to take indirect cost actions that will help us avoid some of the headwinds we experienced in 2022 and ‘23. For instance, we optimized Raytheon's realigned business structure by further consolidating and streamlining several of our sub business units earlier this month. This will reduce indirect costs and overhead and better position the business for profitable growth. And lastly, there will be some tailwind that comes from a mixed shift in our business as development programs and technical refreshes move into production, and the mix of our sales shifts more towards FMS and DCS. So there's obviously a lot of work to do, but this business has a strong foundation and it starts with its product portfolio. As I said earlier, the demand for Raytheon's products is incredibly strong, and I'm confident that Phil and the team are focused on addressing these challenges and delivering this record backlog at the margins that we need. With that, let me turn it over to Neil to take you through our fourth quarter results. Neil Mitchill: Thanks Chris. Turning to slide three, we finished the year strong and ahead of our expectations with solid growth in organic sales across all three segments, even as the year-over-year comparisons became more difficult. And overall segment operating profit for the year was up 18% versus 2022. We also ended the year with strong free cash flow as you heard from Chris. For the fourth quarter, we had adjusted sales of $19.8 billion, up 10% organically versus the prior year. This was primarily driven by growth in commercial aerospace, as well as growth across defense in all three segments. Adjusted earnings per share of $1.29 was a bit better than our expectations and up 2% as profit from higher commercial aftermarket at Pratt and Collins and drop through on higher defense volume was partially offset by the expected headwinds from higher interest taxes and lower pension income. Keep in mind we dealt with about $2.3 billion of inflationary headwinds in 2023 of which about a quarter of that was in the fourth quarter, which we largely overcame through pricing and cost reduction actions. On a GAAP basis, earnings per share from continuing operations was $1.05 per share and included $0.29 of acquisition accounting adjustments, a $0.06 benefit related to a customer settlement, and $0.01 net charges associated with restructuring and other non-recurring items. And finally, we delivered free cash flow with $3.9 billion in the quarter, bringing our total free cash flow for the year to $5.5 billion, which is about $700 million ahead of our prior outlook, as powder metal related impacts have shifted and year-end collections were stronger than expected. With that, let me hand it over to Jennifer to take you through the segment results and I'll come back and share our thoughts on 2024 and 2025. Jennifer Reed: Thanks, Neil. Starting with Collins on slide four. Sales were $7 billion in the quarter, up 12% on both an adjusted and organic basis driven primarily by continued strengths in commercial OE and aftermarket growth. By channel commercial aftermarket sales were up 23%, driven by a 27% increase in provisioning, a 26% increase in parts and repair, and an increase of 7% in mods and upgrades in the quarter. Commercial OE sales for the quarter were up 17% versus the prior year, driven by continued growth in both narrow body and wide body platforms. And military sales were up 1% primarily due to higher deliveries. Adjusted operating profit of $104 billion was up $190 million or 22% from the prior year with drop through on higher commercial aftermarket volume and favorable mix partially offset by lower commercial OE as drop through on OE volume was more than offset by higher production costs. In addition, higher R&D expenses offset by lower SG&A. Shifting to Pratt & Whitney on slide five, sales of $6.4 billion were up 14% both on an adjusted and organic basis with sales growth across all three channels. Commercial OE sales were up 20% in the quarter, driven by higher engine deliveries and favorable mix in large commercial engine and Pratt Canada businesses. Commercial aftermarket sales were up 18% in the quarter, driven by higher volume in both large commercial engine and Pratt Canada businesses. And in the military business, sales were up 4%, primarily driven by higher sustainment volume, which was partially offset by lower material inputs on production programs. Adjusted operating profit of $405 million was up $84 million from the prior year, primarily driven by drop through and higher commercial aftermarket volume and favorable commercial OE mix. This was partially offset by higher commercial OE volume, higher production costs and unfavorable military contract adjustment in the absence of a benefit from a prior year customer contract adjustment. And finally, higher R&D expense was offset by lower SG&A. Now turning to Raytheon on slide six. Sales of $6.9 billion in the quarter were up 3% on an adjusted basis and 4% organically, primarily driven by higher volume on advanced technology and air power programs. Adjusted operating profit for the quarter of $618 million was up $48 million versus the prior year, driven primarily by higher volume and lower operating expenses partially offset by unfavorable net program efficiencies. Bookings and backlog continue to be very strong as we finish the year. In the fourth quarter, $9.1 billion of booking resulted in a book to bill of 1.33 and an end of the year backlog of $52 billion. And for the full-year, Raytheon's book to bill was 1.22. With that, I'll turn it back to Neil to provide some color on 2024. Neil Mitchill: Thank you, Jennifer. Let's turn to slide seven. Before I get into the specifics on our ‘24 financial outlook just a couple of comments on the environment as we look ahead. So let me start with the positives. As Chris said global RPMs are back to 2019 levels. However, they have not fully recovered with respect to long-haul international travel, particularly widebody, but that is expected to continue to be a tailwind for us going forward. On the narrowbody side, demand for new aircraft remains strong, which continues to support both OE and aftermarket growth. Specific to the commercial OE side, with increasing commercial production rates, we expect commercial OE revenue will be up between about 10% and 15% in 2024. Now, with respect to commercial aftermarket, we currently expect sales to be up over 10% in ‘24, and that's on top of the 23% growth we saw in ‘23. Turning to defense, global defense spending remains elevated, which will continue to support our backlog ahead as our key programs remain well funded. Across RTX, we remain laser focused on driving operational excellence to deliver cost reduction and further margin expansion. In 2023, we achieved $295 million of incremental RTX merger cost synergies, keeping us on track to achieve our $2 billion in gross cost synergy goal by the end of 2025. On the challenges side, there are certain pockets where inflation remains elevated, we will see the lingering effect of the past couple of years inflation as we deliver on our backlog. In ‘24, we expect to see about $1.7 billion of material and labor inflation, which we expect to be more than offset by higher pricing and the benefits from our digital transformation projects and other aggressive cost reduction initiatives across the company. And as Chris said before, we continue to focus on executing on our GTF fleet management plans and are working relentlessly to mitigate further disruption to our customers. And of course, we're continuing to support the health of the supply chain. While we are seeing continued improvements, there are areas that remain challenged where we are dedicating resources, including suppliers, who provide structural castings and rocket motors. Two critical areas that continue to pace our recovery. And as I mentioned back in October, we continue to see headwinds due to the actions we have taken to preserve the improved funded status of our pension plans, as well as the recognition of historical asset experience. And finally, we're keeping an eye on the U.S. and global tax environment, congressional action on the fiscal year ‘24 budget, and of course the broader geopolitical and macroeconomic environment. So with that backdrop, let me tell you how this translates to our financial outlook for the year on slide eight. At the RTX level, we expect another year of solid growth and adjusted sales, segment operating profit, and earnings per share, along with continued strength and free cash flow. Before I get into the details, let me share with you a couple of key assumptions embedded in our outlook as it relates to the two dispositions we announced last year. First, with respect to the Raytheon cybersecurity business, we have assumed that this transaction will close here in the first quarter. Therefore, on a reported basis, we will see about a $1.3 billion year-over-year reduction in reported sales, and about an $80 million year-over-year headwind to operating profit. The Collins ‘24 outlook still includes the actuation business as we continue to work on the business disposition. So with that, starting with sales at the RTX level, we expect full-year 2024 sales of between $78 billion and $79 billion, which translates to organic growth of between 7% and 8% year-over-year. From an earnings perspective, we expect adjusted EPS of between $5.25 and $5.40, and that's up 4% to 7% year-over-year. And we expect to generate free cash flow of about $5.7 billion for the year. And despite only being up $200 million year-over-year, there were strong operational improvement. So let me take you through the moving pieces. First, we're expecting strong segment profit growth and working capital improvement to drive $2.3 billion of improvement year-over-year. Embedded in that is about a $100 million headwind on higher CapEx in ‘24 as we continue to invest in capacity expansion, digital transformation, and operational modernization. Payments related to powder metal impacts are expected still be a headwind of about $1.3 billion. We’ll also see a net headwind of about $500 million, primarily from higher interest expense principally from the debt we issued to fund the ASR. And finally a headwind of about $300 million from lower pension cash recovery. Now let me turn to our EPS walk, starting at the segment level, operating profit growth of about 16% is expected to result in approximately $0.72 of EPS growth at the midpoint of our outlook range. With respect to pension while markets have improved since our call in October there will still be a headwind of about $0.36 year-over-year. And as I just mentioned, given the increased debt outstanding, interest expense will be a $0.30 headwind. A lower average outstanding share count resulting from our recent ASR will provide a tailwind of about $0.37. And finally, our tax rate in ‘24 is expected to be approximately 19.5% versus the 18.5% in 2023. This combined with higher corporate investments in digital transformation will result in a $0.16 headwind year-over-year. All of this brings us to our outlook range 5.25 to 5.40 per share. Okay with that let’s go to slide nine, to get into our outlook by segment where we expect continued organic sales and earnings growth across all three businesses. Starting with Collins we expect full-year sales to be up mid to high-single-digits on both an adjusted and organic basis, primarily driven by both widebody and narrowbody commercial or reproduction ramps and continued commercial aftermarket. Military sales at Collins are expected to be up low to mid-single-digits for the year. With respect to Collins adjusted operating profit, we expected to grow between $650 million and $725 million versus last year. This is primarily driven by drop through on higher volume across all three channels, as well as higher pricing and the benefit from continued costs reduction initiatives. Turning to Pratt & Whitney, we expect full-year sales to be up low-double-digits on an adjusted and organic basis versus prior year driven by higher OE deliveries in Pratt’s large commercial engine and Pratt Canada businesses, as well as continued growth in shop visits across legacy large commercial engines, GTF, and Pratt Canada. Military sales at Pratt are expected to be up mid-single-digits driven by higher F-135 sustainment volume as heavy overhauls continue to ramp. As a result, we expect Pratt's adjusted operating profit to grow between $400 million and $475 million versus last year primarily on commercial aftermarket drop through and military growth, which will be partially offset by higher large commercial OE deliveries. And at Raytheon, on our organic basis, we expect sales to grow low to mid-single-digits versus 2023, as we deliver our backlog and continue to see supply chain improvement. Adjusted operating profit at Raytheon is expected to be up between $100 million and $200 million versus prior year driven by drop through on higher volume and improvement in productivity, which will be partially offset by mix headwinds. Keep in mind we'll see about $80 million of year-over-year headwind from the divestiture of the cybersecurity business this year. And to wrap up our outlook at the RTX level, higher intercompany activity will increase sales eliminations by about 10% year-over-year. And we've included an outlook for some of the below the line items and pension in the webcast appendices. Finally, let me make a few comments on our 2025 financial commitments. As you know, there have been some significant changes in the macro environment since we first established these long-term targets, impacts ranging from Russian sanctions, elevated inflation, issues with labor availability, and of course the associated disruptions throughout the supply chain. And we continue to take incremental actions to further reduce costs, realign our business units, increasing pricing, and investing in productivity improvements to combat these headwinds. Other factors underlying our long-term assumptions however have been also positive, such as the pace of the commercial air recovery and demand for our defense products and services. All that said despite those puts and takes we continue to expect Collins and Pratt to be within the sales and operating profit 2020 to 2025 growth targets we discussed last year at our Investor Day. However, because of the recent performance at Raytheon, we are recalibrating our outlook for this segment. When taking into account divestitures, we now expect the 2020 to 2025 annual growth rate for adjusted sales to be between 3% and 3.5% that's down slightly from our previous expectation of 3.5% to 4.5% for the same period and driven largely by the initiatives we talked about upfront it will take some time to convert over the next couple of years. As you know, demand remains strong and our robust backlog will continue to support significant top-line growth going forward. Similarly, with respect to Raytheon's adjusted operating profit growth, given the continued productivity challenges we described, we now see Raytheon's 2020 to 2025 annual growth rate to be between 1% and 2.5%, which is down from our prior outlook of between 5.5% to 7.5%. As a result of this segment change, we now see the RTX level adjusted sales annual growth rate from 2020 through 2025 to be between 5.5% and 6% on an organic basis, that's down slightly from our prior outlook of between 6% and 7%. And taking into account the adjustment to Raytheon's operating profit outlook, we now see overall RTX adjusted margin expansion to be between 500 and 550 basis points between 2020 and 2025. And that's down from our prior outlook of between 550 and 650 basis points. However, importantly, there is no change to our RTX 2025 free cash flow target of $7.5 billion, as we remain confident in the significant cash generating capability of our businesses and we are continuing to drive structural cost reduction and working capital improvements as we invest in the business and deliver on our commitment to return $36 billion to $37 billion of capital to share owners with the date of the merger through ‘25. So with that, I'll hand it back to Greg to wrap things up. Greg Hayes: Okay, thanks, Neil. On slide 10, let me just wrap this up. I know we've covered a lot of ground today, but I know there's some key takeaways that everybody should focus on here. Obviously, 2023 was a challenging year. The earnings performance of our Raytheon business obviously was disappointing, as was the Pratt powder metal issue. But importantly, demand remains strong across both of our commercial and defense markets. 11% organic growth in 2023 is just the beginning. With the strength of our $196 billion backlog, we're confident that we'll continue to see strong organic sales and earnings growth, along with accelerated free cash flow generation over the coming years. I believe we have the best positioned A&D portfolio, industry-leading franchises, and robust demand for our products and technologies. This positions us well for the future. Secondly, we're intensely focused on execution to support our customers and to drive operational performance improvement. We're clearly going to face challenges this year with the continued ramp of the supply chain and the impact of higher costs. But everyone at RTX is working tirelessly to overcome these obstacles and ensure that we deliver on our commitments. Lastly, we're staying disciplined and managing the business to continue investing in differentiated technologies and innovation, strengthening our balance sheet all while continuing to return significant capital to our share owners. I want to close again by thanking all the RTX employees, who have been working diligently every single day over the last year to deliver on our mission to create a safer, more connected world. With that, let's go ahead and open it up for questions. Operator: [Operator Instructions] The first question comes from the line of Robert Stallard of Vertical Research. Please go ahead, Robert. Robert Stallard: Thanks so much. Good morning. Chris Calio: Good morning. Greg Hayes: Good morning, Rob. Robert Stallard: Chris, inevitably a first question on the GTF situation. It does sound like some things have moved since your update in October. And I think you mentioned that the scheduling of the AOG looks like it's going to be slightly different profile and also there could be a related cash impact of that? So I don't know if you could give us some more color on that to development? Chris Calio: Yes, you bet Rob and good morning. So we did say here this morning that we do expect the peak to continue to be here in Q1 in terms of AOGs and then tread downward thereafter. Again, we think that peak is going to come down a bit since our initial assessment, because really two reasons. One, timing of the AED has shifted a bit to the right. And then two, customers took some proactive fleet planning and decided to, in some cases, accelerate some of their removals. They were doing their fleet planning for the year. They were pairing engines and doing all those things to make them more efficient. So again, peak here in Q1, trend downward after that and then it'll be more of a steady state as we talked about in our October and September guides on the matter. You mentioned a little bit on cash being pushed out. Again, that was the dynamic time as we're going through and having discussions with our customers on special support. We've made some progress on special support. I think we've talked about that upfront. We've signed several agreements with our customers, some important customers with large fleets. But the timing of that cash just simply moved out from the second-half of ‘23 into ‘24. Same total aggregate amount from 6 to 7, but the timing moved a little bit to the right for the reasons I talked about. Robert Stallard: Thanks, Chris. Chris Calio: Thank you. Operator: Thank you. Our next question comes from the line of Cai Von Rumohr of Cowen. Your question, please, Cai. Cai Von Rumohr: Yes, thanks so much. So your cash flow hit from the powdered metal issue is $300 million higher in ‘20 than you said. Can you tell us how big was the impact in ‘23 and are we still going to be at $3 billion and therefore there's a plus of $300 million pickup in ‘25? Thanks. Neil Mitchill: Hey, Cai. Good morning, it's Neil. Yes, and I'll take that one. So, you know, as Chris was just talking about when we closed out ‘23, for a variety of reasons, the cash flows shifted to the right. So the impact in ‘23 for powdered metal related dispersion was essentially zero. So we moved about half of that into 2024, that's the $1.3 billion that you're seeing. Still holding a $1.5 billion in our ‘25 outlook. And then we see the rest spilling into early 2026. So we'll continue to work, obviously, the agreements with our customers, and that will drive the ultimate timing of the payments, but you can see our assumptions that we've laid out there. Cai Von Rumohr: Thank you very much. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Your question, please, Sheila. Sheila Kahyaoglu: Good morning, everyone. I can't help, but compare and contrast given GE just reported this morning and they're talking about margins being flattish in aerospace based on OE mix and LEAP services mix? So, you know, just looking at Pratt, can you talk about the dynamics there given GTF volumes are growing, early GTF shops as it's climbed higher? So what drives margins 100 basis points higher? What's embedded into the guide? Neil, you gave great color on the revenue assumption. Can you give some assumptions on maybe the aftermarket specifics on the margins as well as the military overalls increasing? Is that beneficial? Neil Mitchill: Sure, thanks Sheila. Let me share a couple of other details that we didn't get into in the prepared remarks. So we did talk about the overall sales of Pratt being up in the low-double-digit range, you know, $400 million to $475 million of operating profit. The aftermarket sales are going to be up sort of low-teens. So the drop through on the aftermarket is going to be the principal driver of the year-over-year profit increase. We talked a lot about expanding the margins on our, you know, both our legacy and GTF aftermarket as we increase the volumes there. And so some of that will start to show up in ‘24 and that's a driver of drop through. On the OE side, we think the sales are going to be up in the mid-teens range. The good news there, as we look at engine productions, which think about that as up about 20%, we'll see about a headwind of maybe $125 million associated with that higher volume. So we're getting much better absorption as the volumes return back to levels that we had seen pre-pandemic and that we've been capacitized to. So I think that's another place that we're going to get some margin expansion. And then again, I'm not sure we got into this, but military will be up in the mid-single-digit range. I'd say again, we had 5% growth on the top line there. And of course, that comes with good drop through too, you know, as we get into 2024. So that's the Pratt story as we look into 2024, just a little more color there. Sheila Kahyaoglu: Great. Thank you. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Your question, please, Myles? Myles Walton: Thanks, good morning. I was wondering, maybe Neil, if you can comment on the offset to the lower implied earnings drop through from the ‘25 guidance? What was the offset to allow you to maintain the cash flow there? And maybe Chris, what by the end of, say, ‘24 would you have achieved in terms of incorporation of fully life parts into the fleet? Just as a metric, maybe we can sort of monitor by it? Thanks. Neil Mitchill: Thanks, Myles. Good morning. Let me start, let me maybe start to frame the answer to that question with a little bit of an updated walk between ‘23 and ‘25 on free cash flow to get to the $7.5 billion. And then I'll talk about, you know, what obviously offset the reduction in the profit as part of that. So, as we look from ‘23 of $5.5 billion, that $2 billion increase is going to come principally from, you know, what I would call operational growth, about $4.8 billion, $2.9 billion of which is going to come from the pre-tax segment operating profit, and you pointed out that, that will be lower than our prior guide, and that's around the midpoint. The remaining growth is going to come from working capital improvement, about $2.2 billion, about half of which we will deal with here in ‘24 as we look to hold our inventory flat. So our ‘23 headwind operationally was about $600 million, so we're looking year-over-year to improve that. And then we'll have about a half of the, I'm sorry, $400 million of CapEx between ‘23 and ‘25, so that'll be a headwind. And then I just talked about the $1.5 billion powdered metal impact and about $1 billion headwind that split pretty evenly between -- sorry pretty evenly between interest and improvement in taxes and then finally a few $100 million of pension headwind. All of that should get you to $7.5 billion. So what's changed as we look out to 2025, there's been really three things that are different. The first is we've got about $1 billion net of tax lower operating profit baked into this long-term guide. But that's been offset by about $700 million of improvement in taxes, most notably on the back of improvements in our R&D position, as well as a $200 million based on the assumptions we see today with respect to our pension outlays. And then a little bit of additional working capital. So those are the key drivers. Chris Calio: And I'll talk to you now about the full life incorporations. As we said upfront, I think we had made this commitment early on in September, October timeframe, full life powder metal parts in OE, so at our customers final assembly lines, starting this year. So that's a good thing. Keep in mind the OE engines have the latest build standard and so when you add in the full life parts to those you get the maximum time on wing for the customers and also keep in mind that means that the full life parts will go into our spare engines, which are going out to lift the fleet again, maximizing the time on the wing. On the MRO side, what we said was we were going to start the incorporation in Q2 of this year. We actually started that a little bit earlier. We've found opportunities to put full life parts into MRO where we think it makes the most sense from a time on link perspective. As we said early on in the year, we're not going to get all of our shop visits with full life parts. We're going to ramp throughout the year where we don't incorporate the full life parts into MRO. We're going to continue to obviously inspect those parts with the angle scan inspection that we developed and they will be put back into service until the next inspection interval. And keep in mind, one of the things that we've been doing is just looking at the build standard and the interval for each of these engines that are coming in. There are opportunities to sort of match up just based on the condition of the engine and where it is and where it flies in terms of the environment. A part that's been inspected that's not at full life, match it up with an engine that's going to be coming in for another reason around that same time, so you're not actually driving you know an incremental visit. So again that's sort of the algorithm that we're kind of going through each and every day with the Pratt team to sort of maximize our allocation in the full life parts. But the MRO will be a ramp throughout the year. I think ultimately we'll get to roughly the same place that we had assumed we would had we started in Q2, but it'll be a ramp throughout the year. And all of that's been factored into our outlook. Myles Walton: Thank you. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Please go ahead, Peter. Peter Arment: Thanks. Good morning, everyone. Hey, Chris, on Raytheon, you talked about some of the headwinds. Could you maybe give us a little more color on just where we are in terms of the profile of the fixed price development programs and whether we're peaking now? And then kind of related to all this just is when should we start to see more of that mixed shifts from more of the FMS that you kind of talked about where we could see some better pricing flow in terms? Thanks. Chris Calio: Yes, okay. Thanks Peter. So again as we talked about the productivity issues at Raytheon, about 70%, as we said upfront, were in the fixed price development programs. And I'll characterize some of these, Peter, as in some cases these are contracts that we took on that maybe weren't in our core capability suite, and we signed up for requirements and other specifications that were really, really difficult. And so it's taken us some time to continue to work through those. In some cases, what we're doing, Peter, is we're taking subject matter experts from across the company and just adding resources to these programs. It adds a little bit of expense, obviously, but I think in the long-term, it gets the capabilities of the customer faster and ultimately is better financially for us and for the customer. And then in some cases on these fixed price development programs, we're having discussions with customers about either restructuring specifications or altering the requirements in a way that still get capability that's needed and that's helpful. But you can get to them, frankly, in a shorter period of time and with a better financial profile. Those conversations continue to go. I'll tell you that we will, got a handful here that we're still going to be powering through in 2024 and see that horizon getting better in the next 12 to 18 months as we go through certain milestones, Peter and satisfy some contractual requirements. We then get into a different phase of the agreement and feel better about our ability to go and execute. Neil Mitchill: Chris, maybe I would add Just a couple of the financial points around our assumptions, financially going into 2024. As you think about the $100 million to $200 million profit increase, the first thing I would say is in ‘23, we had about a $240 million headwind associated with these negative productivity. As you said two-thirds, 70% associated with these fixed-price development programs, principally a couple of them. As we look to ‘24, our assumption is that our absolute value of productivity is zero. So we'll see about a $200 million improvement year-over-year. We'll see about $100 million at the midpoint from volume and a little bit of headwind as the lower margins roll through the backlog in ‘24. And that's what we've contemplated both in the ‘24 and the ‘25 outlook. All of that gets you down to our guide, of course, is that $80 million ahead I talked about. And as you kind of look into ‘25, our productivity assumption is about $100 million step up. So again, this business at one-time generated $300 million, $400 million, $500 million a year of productivity. But we need some time for that to play through to see those kinds of margins. But 2025 would not mark the peak of where we see Raytheon's margin potential. Peter Arment: Appreciate it. Thanks, Chris, yes. Chris Calio: You're welcome. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Please go ahead, Noah. Noah Poponak: Hey, good morning, everyone. Chris Calio: Hey, Noah. Noah Poponak: Neil, just want to make sure I have the -- I guess, the starting point and the implied margin correct in this new $500 million to $550 million, ‘20 to ‘25, so given restatements and the like. So I'm looking at 2020 segment operating margin all in of $8.2 implying that the ‘25 is $13.2 to $13.7, so is that correct? And then can you just talk a little more about getting there from this ‘24 guidance it would seem to either require a pretty nice step up in the Raytheon defense margin or acceleration in the incrementals at Pratt and Collins or all of the above? Neil Mitchill: Thanks, Noah. So as you kind of look at the multi-year outlook here, what we've done at the top end is we've tightened up the range a little bit for the RTX sales and margin. We still see Collins and Pratt being within the ranges we talked about. Frankly, the drivers are all the same that we talked about six months ago and the last quarter as well. The aftermarket is going to fuel that. We're going to get better absorption and we'll see the benefits of lower spending on investments we've been making to drive cost reduction and the benefit of that cost reduction. So if you put all that, that's going to put Pratt and Collins in that range, probably closer towards the middle of the high-end of that range. And then we just talked about the Raytheon pieces altogether. So I think at the midpoint, when you take into account the dispositions that we've either completed or have announced, you'll see that our margin assumption at the RTX level is about the same as where we were projecting before these tweaks for the Raytheon recalibration. Noah Poponak: Okay, and just to make sure I have your -- you said to Myles correct, in the $5.7 million of free cash this year and the $7.5 million next year, each of those assumes about $1 billion of positive change in working capital each year, is that right? Neil Mitchill: That's correct. And as you think about from ‘23 to ‘24, inventory is going to essentially, our plan is to stay flat, that will be about 80% of what generates that year-over-year working capital benefit in ‘24. And then as you look to ‘25, you know, we'll see continued improvement in inventory, as well as the benefit of customer advances. So we've realized a lot of customer advances over the last couple of years. They will burn down. And then as we see these international orders come back in, you'll see that pick up in the year ‘25. Noah Poponak: Okay, thanks very much. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein & Company. Please go ahead, Doug. Doug Harned: Good morning. Thank you. It sounded, from what you said, Chris, that you made some good progress on the AOG profile here for the GTF. But when you look at your customer base, you may have some who find that a high number of AOGs could put their financial performance at risk. Whether or not those issues are caused by Pratt, you could easily be targeted for responsibility. You already have the earlier go-first lawsuit. So how do you think about the risk for you with airlines that could be in a stressed financial position? And maybe more difficult perhaps than how you might normally compensate a customer? Chris Calio: Yes, thanks Doug. I mean, first of all, I'll tell you that we are engaging with our customers each and every day to try to figure out how best to support them, whether that's through induction, whether that's through special support, whether that's the spare engine allocation, whatever it may be. And you're right, Doug, there are some customers out there, 10 to 12, I think, as we've talked about before, they're going to be more impacted than others. There's some that are all Pratt fleets, whether it be GTF and V2500. So again, working very hard with them to come up with a compensation structure relative to the powdered metal AOG situation. That's fair, and that can give them a little bit of lift. Obviously, it won't make up for all of the disruption that they're having in their fleet and all of the things that they've got to do to accommodate for these removals. But again, doing the best we can to come up with a fair set of compensation structures to help out during these trying times. And then, of course, communicate with them consistently about what we're seeing in terms of the assumptions that we're talking about here. Full life incorporation, MRO, MRO output, all the things that are going to drive better fleet support for them. So obviously don't want to be in a position where we're putting our customers in harm's way and where they're going to be very upset with us and want to take action. But I'll tell you, we've got a track record of coming to agreement with our customers on some of the more difficult problems we've faced. I'm confident we're going to be able to do it again. Doug Harned: And if I can, are you seeing any improvement in the time, the induction time to get these engines in the shop as part of this AOG profile? Chris Calio: Right now, Doug, the wing-to-wing turnaround time remains consistent with what we had talked about previously. I will tell you, and we kind of alluded to this earlier, we are continuing to aggressively pursue with our aftermarket partners. Again, we've got some Tier 1 aftermarket providers as part of the GTF aftermarket network trying to come up with, you know, what I would call light or medium type work scopes that can take the, you know, in shop time, down further. Again, trying to maximize the time on wing, just depends on the operator, depends on the condition of the engine, but we're aggressively pursuing a number of work scopes that can take the in-shop time down. In addition, I think you've heard us talk about this before, we've industrialized a significant number of repairs on the GTF, I want to say about 1,300 in 2023. We've got another significant step up here in 2024 [Technical Difficulty] Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Your question, please, David. David Strauss: Thanks. Good morning. Chris Calio: Good morning. David Strauss: Wanted to ask, what exactly is the bottleneck, Chris, to be able to ramp up production of full-life discs, given that I think the powdered metal switch occurred a while ago I guess I'm just kind of confused there why it's not easier to ramp up the production of these full-life discs? And then could you touch on what you're expecting for large commercial engine deliveries in ‘24 and your confidence in being able to meet Airbus's requirements? Thanks. Chris Calio: Sure. So, you know, as we talked about, David, the powdered metal value stream, we're asking it, both our own shops and our supply chain, to step up significantly here so that we can incorporate into MRO, as we talked about earlier, and in OE. So much more than that value stream clearly had anticipated mid-year last year. Again, we feel like we've got pretty adequate forging capacity within our own four walls and with the supply chain. But again, we've got to continue to ramp up inspection capacity. We've got to ramp up machining capacity, all critical parts of that value stream. And I'll tell you, as you ramp up, and we saw this in 2019 as we were ramping and we're ramping up again here, as you take these parts to a volume that our supply chain wasn't necessarily anticipating and that we weren't necessarily anticipating, you've got to continue to double down on the fundamentals, the quality, the yield, the tooling, and the maintenance, all the things that are instrumental in enabling that volume jump. So, again, I would say we've made solid progress thus far in our, you know, generally tracking to where we thought we would be. But again, we've got to continue to step up throughout the year, especially as we want to increase the number of full life parts we put into MRO. To your question about Airbus, I think Neil said it before, up about 20% year-over-year here in ‘24. And again, we have discussions with Airbus all the time. They understand the fleet condition. They understand where we're ramping on powdered metal parts and the like. And so, we feel good about our ability to meet the commitment we made to them here in 2024. David Strauss: Thanks very much. Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Please go ahead, Ronald. Ronald Epstein: Hey, good morning, guys. Chris Calio: Good morning, Ron. Ronald Epstein: Just change the subject a little bit. Everybody seems to be talking about the powdered metal thing. And Collins, Collins outlook looks really good. Can you give some color around how much of that is being driven by widebody and interiors and if you're starting to really see a pickup there. Because the one thing that we're all kind of waiting for is the pickup in the widebody market. And that interior's business is generally a good leading indicator of what's going on. Greg Hayes: Let me start, Ron, and maybe Chris can add something. Let me give you a couple details first. On the aftermarket side at Collins, we expect that to be up high-single-digits to low-double-digits, I'd say 10% or more. On the OE side, mid to high-single-digits. And we're going to see, as everyone knows, about 40% incrementals there. And yes, wide body is going to be a big driver. So as we've seen a lot of narrow body, I'll call it catch up in growth over the last couple of years, we do expect that to shift to the widebody. Now keep in mind on the widebody OE side for Collins, the margins are a bit thinner there, but it does set us up for good longer term projections, especially as you get into ‘25 and ‘26 and beyond, as that comes off warranty and converts to aftermarket. Around the interior business, I think Steve Tim had said this back in June, that business is growing, but it's nowhere near levels of 2019. And so we don't see that coming back until about 2026. So the good news is, you know, there's a lot of runway there. And we are seeing a lot of activity there. So I think that will be a growth driver. But clearly, we're starting to see a bit more of a shift from narrow body into wide body as we go into the next couple of years. Chris Calio: Yes, maybe the only thing I would add to that, Ron, is that Steve and team are very focused on the transformation within interiors. I think there's some opportunity to consolidate sites, to continue to remove ERP systems. As you know, there's been an integration that's been going on in that interiors business in particular. So I think a lot of good work on continuing to transform the cost footprint in the interiors business. So when that volume continues to come back, it'll be at the types of margins that you would expect. Ronald Epstein: Got it. Got it. And have you guys seen any airlines, any customers yet requesting retrofits and upgrades to interiors on their existing widebody fleets? Greg Hayes: You know, Ron, that's actually an ongoing process. We're in the process of working with a number of airlines as they are going through their retrofit. And keep in mind, that is a three- to five-year process to upgrade these things. So we are still finishing out things that we had signed up for back in 2018, 2019. But again, as Neil said, the business is coming back. But given the long cycle nature of these upgrades, you're not going to see a heck of a lot of that in ‘24, more than ‘25 and certainly more than ‘26. Ronald Epstein: Got it, cool. All right, thank you very much. Chris Calio: Welcome. Sure. Operator: Thank you. Our final question comes from the line of Seth Seifman of JP Morgan. Your question please, Seth. Seth Seifman: Yes, thanks. So, good morning. Maybe just following up on Collins and kind of the growth outlook for this year when we think about how much OE production rates are rising. We think about the strengths in the aftermarket. What's the potential for upside on the top line there? And I guess how much is a drag on the military business? It's a pretty significant chunk of the portfolio and given the growth rate in the second-half and what you're forecasting overall for ‘24, it seems like maybe this isn't a business that's really a military business that's going to participate in the budget growth and outlay growth that we're seeing now? Greg Hayes: Good morning, Seth. Let me start, I wouldn't characterize the defense business within Collins as a drag. I think the defense business in ‘23 was flat at the top line and it experienced a lot of the same issues we've been talking about on the Raytheon side in terms of the impacts of inflation, the delays in the supply chain. But as we look to ‘24, we're going to see, I'd say, healthy growth there, low to mid-single-digits as we catch up and the supply chain catches up and we burn down the overdue there. And I think we're really well positioned on a lot of strategic platforms. Remember, we moved businesses from the Raytheon segment into the Collins Mission Systems business to create more synergistic opportunity there. And I think that's really taking hold and there's a lot of good proposal activity there. So I think it's a great fit. It's in the right place in Collins. More broadly, I think just talking about the aftermarket potential at Collins, very strong, but we just put up some significant numbers there with aftermarket of 26% and provisioning up 42% on a full-year. So clearly there's been a surge in aftermarket over the last year, and so we're dealing with some very difficult compares. And on the OE side, we'll start to see that growth moderate, but again, still on the back of some really strong 17% growth in ‘23. So I think Collins is well positioned and I think the defense business is a good fit and it's in the right place there for it right now. Chris Calio: Again, I'll just add, much like the interiors, I think Steve and team have a plan to continue to drive structural cost reduction within Collins to help, you know, margin expansion. We've talked about, you know, moving engineering presence to best cost locations by 2025 by significant number, same with manufacturing hours. So a lot of Center of Excellence activity going on in Collins that will continue to help with their cost footprint and support the margin expansion. Seth Seifman: Great. Thanks very much. Chris Calio: Thank you. Greg Hayes: Okay. Thank you, everyone, for calling in and listening today. As always, Jennifer and her investor relations team will be available all day to answer whatever further questions you might have. So with that, thank you and have a wonderful day. Take care. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the RTX Third Quarter 2023 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Chris Calio, President and Chief Operating Officer; Neil Mitchill, Chief Financial Officer and Jennifer Reed, 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 risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, 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 opportunity to participate. [Operator Instructions] With that, I will now turn the call over to Mr. Hayes. Gregory J. Hayes: All right. Thank you, and good morning, everyone. Before we start, I want to spend just a minute acknowledging the tragic situation playing out in Israel today. It has been devastating to see what has unfolded there over the last couple of weeks and our thoughts and prayers are with the people impacted including the thousands of RTX employees that call Israel home. With that said, let me turn to an update on our end markets. On the commercial aero side, air travel demand remains strong. We're seeing solid air traffic growth with global revenue passenger miles essentially back to 2019 levels and domestic air travel well above 2019 levels. We also expect strong demand for holiday and business travel for the remainder of the year, supporting continued aftermarket strength for both wide-body and narrow-body aircraft. On the defense side, the elevated threat environment is continuing to drive increased defense spending globally. Just one example in the quarter, the United States approved moving forward with the sale of F-35 aircraft to South Korea. That's estimated to be worth about $5 billion and will support further growth with this customer for F-35 content for years to come. Additionally, the U.S. State Department approved a significant sale to Spain for the Patriot air and missile defense systems earlier this month. And that's expected to include approximately $1 billion of Raytheon content. And as Russia's invasion of Ukraine unfortunately continues, we are seeing significant demand from the U.S. and our allies for advanced air defense systems and munitions. During this past quarter, this included additional orders for NASAMS, Excalibur, which are precision guided artillery shells, Stinger anti-aircraft munitions, and TOW anti-tank guided missiles. Domestically, despite what we've seen over the last few weeks in DC, we remain confident that there is bipartisan support for increased defense spending and RTX continues to be well-positioned across all three of our businesses. Shifting to Pratt & Whitney. Let me give you an update on the powdered metal manufacturing quality matter. Our efforts to-date have been heavily focused on ensuring the safety of our engines. As you saw in the press release this morning, we have finalized the charge recorded here in the quarter, which is in-line with what we had previously disclosed. So, just a few thoughts on the powdered metal issue. Through the early stages of removals and inspections of the PW1100 engine, which powers the A320 Neo aircraft, our outlook both financially and operationally remains consistent with our expectations. We've also made significant progress on the safety assessments for the other Pratt & Whitney powered fleets. That includes the PW1500, which powers the A220, the PW1900 which powers the Embraer E2, and the V2500, which powers the legacy A320. With the analyses substantially complete, we do not expect any significant incremental financial impact as a result of those fleet management plans. The focus of both Pratt & Whitney and the entire RTX organization is on maintaining the trust of our customers, and our partners, and we are relentlessly working to improve upon the plans we have in place today. As I said to many of you over the last few months, we remain confident in the future of RTX because the demand for our products is robust, our end markets remain resilient across both commercial aerospace and defense, and our team is laser focused on driving performance excellence to meet our customer needs. Our backlog is now a record $190 billion with a pipeline of both existing franchises and new technology developments. As we always have, we continue to actively manage our portfolio. As you saw this morning, we reached an agreement to sell Raytheon’s cyber services business and a cash sale for approximately $1.3 billion, which combined with the recently announced sale of Collins actuation business, this will generate approximately $3 billion of gross proceeds in 2024. So with that, let's turn to slide two. As we also announced this morning, our Board has approved a $10 billion accelerated share repurchase program or ASR, which we will be initiating tomorrow. Simply put, we see a significant discount between the intrinsic value of RTX and our current stock price. The long-term outlook of the GTF remained strong, and Pratt’s franchises extend well beyond the GTF. The V2500 has about 6,000 engines still flying and is in the sweet spot of its aftermarket cycle. Pratt Canada continues to be the world's premier small engine manufacturer with an installed base of more than 60,000 engines. And the military business of Pratt is the sole provider of engines the fifth generation fighters. Collins, has a great portfolio, with 70% of their product line serving is number one or two in their segments, and strong margin expansion opportunities. And lastly, our newly combined Raytheon segment has an incredible number of well-established franchises along with a growing portfolio of next generation technologies. This includes LTAMDS, which is the next generation Patriot Defense System, and the Hypersonic Attack Cruise Missile or HACM. Given the fundamental strength of the company and growth opportunities ahead, our Board recently approved an $11 billion authority to repurchase RTX shares. This includes $10 billion through an ASR program to help capture some of that value more immediately. The new authorization replaces the company’s previous program, which was approved in December of 2022. This ASR of course is on top of the $2.6 billion we've already repurchased year-to-date. Altogether, this will increase our capital return commitment to share owners to $36 billion to $37 billion through 2025 from the time of the merger. That's up from our previous range of $33 billion to $35 billion. As I said, this ASR program will commence almost immediately and will be funded through a combination of short and long-term debt. And importantly, we'll begin the process of deleveraging in 2024 in parts supported by the proceeds from the recently announced dispositions that I just mentioned. So despite near-term headwinds, the future of RTX remains bright and we remain steadfast in our commitment to deliver long-term shareowner value. With that, let me hand it over to Chris, to provide additional color on the Pratt matters and to cover the Q3 highlights. Christopher Calio: Thank you, Greg, and good morning, everyone. I'm on slide three. As Greg said, the powdered metal situation is our top priority. The bottom line is that our outlook for managing both the fleet impact and the financial impact remains intact since our last call, and our team continues to execute on our fleet management and recovery plans. Let me provide a few more details, and I'll start with the GTF. With respect to the PW1100, there is no change to the plan we outlined in our September call, the fleet management plan and financial estimates remain consistent with what we said six weeks ago, and our focus is on executing all elements of the fleet management plan, in particular, industrial output and material flow, MRO output and customer support. The first launch of the engine removals has occurred, and several of these engines were eligible for project visit work scope, and the turnaround time for these visits averaged roughly 35 days. While project visits will be a smaller portion of the overall shop visits, the turnaround time is encouraging, and our teams are continuing to identify further process improvements. And from a process perspective, additional bulletins will be released in the next few weeks that outline the life limits and repetitive inspection requirements that we detailed on our prior call. And just by way of background, it is common practice for a fleet management plan to be communicated through multiple service bulletins and airworthiness directives, to address different engine models, compliance times, or components and sections of the engine. Now let me share some details on our other GTF programs. For the PW1500 and the PW1900, we will institute a fleet management plan that will largely fit inside the shop visit plans that are already in place for these fleets. We believe the financial impact will be significant and has contemplated in our current contract estimates and the financial outlook for Pratt. As part of this plan, we will place a shorter life limit on certain early configuration parts, and an inspection requirement at about 5,000 cycles for current configuration parts. There will be some incremental AOGs in the first half of 2024, we believe these will be largely mitigated by the end of the year. Regulators and airframers are aligned with this recommendation , we expect the service bulletin implementing these actions will be released beginning in November, followed by airworthiness directives. Let me now turn to the V2500. And as a reminder, we've had a fleet management and inspection plan in place since 2021. We're going to augment this plan by accelerating certain inspections, but expect this too will have very little impact operationally or financially. It will result in a total of roughly 100 or less incremental removals stretched out over the next four years. The majority of these visits having a project visit work scope. Again, very manageable given the size of the V2500 fleet, the number of spare engines available, and engines in the market with available Green Time. All of this is contemplated in our current contract estimates and Pratt's financial outlook. This action will be communicated through a service bulletin to be released in the November timeframe. And lastly, turning to the F135, the joint program office is reviewing our fleet management plan recommendation which we believe will have limited, if any, operational impact on the customer. We continue to evaluate the balance of the Pratt fleet containing powdered metal, and expect any fleet management plan updates, if needed, to have limited impact. With our fleet management plans largely set, let me turn to the operational initiatives we are focused on to support our customers, increasing capacity and reducing turn times in our MRO shops, and ramping up the production of new full life powdered metal parts. First, with respect to MRO, we're accelerating previously planned investments in the GTF network to increase capacity and bring more shops online to support our customers. Just last month, Pratt announced they're adding capacity at their Singapore engine center which will be Pratt's third facility expansion this year. And earlier this month, MRO shops operated by China Airlines and Korea Air inducted their first GTF engines. And by the end of the year, Iberia maintenance will also be joining the GTF aftermarket network. Once complete, this network will have 16 sites globally, having brought online six partner shops this year with plans for an additional three shops to come online by 2025, bringing the total to 19. This will enable the network to be able to conduct more than 2,000 annual shop visits in 2025 to support the global GTF fleet, a roughly fivefold increase from 2019. We're also leveraging our extensive knowledge and talent across RTX to drive process enhancements to help us improve turn times in our MRO shops compared to our baseline plan. This includes a cross functional team focused on part availability, repair development and industrialization and process improvements on the shop floor. Second, and as we said in September, our objective is to replace as many HPT and HPC discs as possible with full life discs when engines come in for a shop visit in order to maximize their time on wing when they leave the shop. As we've said before, we previously made the necessary powdered metal production in forging capacity investments and now are increasing our machining and inspection capacity. Our baseline plan today forecast Q2 2024 to get to run rate capacity for disc production, we are working to accelerate this timeline, which will allow us to replace an even larger portion of the fleet with full life parts. So to wrap up on powered metal, our fleet management plans on the most impacted fleets are largely complete. The financial impact has been reassessed and remains consistent with what we said our September 11th, call on this subject, and we are fully focused on executing these plans. I'll shift now to the third quarter highlights, which Neil will provide some additional color on in a few minutes. On an adjusted basis, organic sales grew 12%, our third consecutive quarter of double-digit growth and segment operating profit grew 15%. Adjusted EPS was in-line with our expectations at $1.25, with strong free cash flow of $2.8 billion in the quarter. Sales growth was again led by the continued commercial air traffic recovery with strong commercial OE growth of 26% and 25% commercial aftermarket growth, while defense sales were up 2% year-over-year. In the quarter, we captured $22 billion in new bookings and had a book-to-bill of 1.19 across RTX, bringing our backlog to a record $190 billion. Finally, Q3 was the first quarter we officially began operating in our realigned three business unit structure. We are continuing to develop initiatives to leverage our scale and breadth to better enable customer alignment and best-in-class cost structure. With respect to our 2023 outlook, with one quarter to go, we are raising both our reported and adjusted sales outlook for the year. On a reported basis, we expect sales to be approximately $68.5 billion, and on an adjusted basis, we expect sales to be approximately $74 billion, up about 10% organically versus the prior year. We're also tightening our EPS range and have incorporated a few cents of tax headwind from some recent IRS guidance around R&D capitalization, which Neil will discuss further. As a result, we now see adjusted EPS between $4.98 and $5.02 for the year. Additionally, we expect free cash flow for the year to improve by approximately $500 million, driven primarily by the IRS guidance I just mentioned, just favorable from a cash perspective, and we are therefore increasing our free cash flow outlook to approximately $4.8 billion. So with that, let me turn it over to Neil, to take you through the additional details on the quarter. Neil G. Mitchill: Thanks, Chris. I'm on slide four. As you saw, we finalized our estimate for the PW1100 powered metal matter here in the third quarter, and have recorded a $5.4 billion sales charge our share of which resulted in a $2.9 billion operating profit impact. This is in-line with what we communicated in September, and resulted in reported sales of $13.5 billion in the third quarter. As Chris said, we had adjusted sales of $19 billion for the quarter up 12% organically versus the prior year. Growth was primarily driven by strong demand across our commercial OE and aftermarket businesses as OEMs continue to ramp production and airlines supported the busy summer travel season. We also saw positive growth in defense, as we continue to execute on our growing backlog. On a GAAP basis, earnings per share from continuing operations was a loss of $0.68 and included a $1.53 charge from the Pratt matter, as well as $0.40 from acquisition accounting adjustments, restructuring and other non-recurring and non-operational items. Adjusted earnings per share of $1.25 was up 3% year-over-year with higher segment operating profit partially offset by lower pension income, a higher effective tax rate and higher interest expense. As Chris alluded to you, the IRS recently provided guidance on R&D capitalization with respect to customer funded R&D for certain cost plus contracts. This means a portion of our previously capitalized R&D costs for tax purposes will now be currently deductible. While this will result in a slightly higher effective tax rate going forward and will reduce our cash tax payments. In the quarter, this resulted in about a $0.02 headwind to adjusted earnings per share for the full year, we expect this to be about $0.03 of headwind. Finally, as we had anticipated, we had strong free cash flow generation in the quarter of $2.8 billion which included a benefit of approximately $500 million from the IRS's R&D capitalization guidance, I just discussed. Now with that, let's turn to slide five, to get into the Q3 segment result. So before I begin, just a reminder, we are now reporting as three business units Collins, Pratt and Raytheon. Starting with Collins, adjusted sales were $6.7 billion in the quarter, up 17% on both an adjusted and organic basis, driven primarily by continued strength in commercial OE and aftermarket growth. By channel, commercial aftermarket sales were up 30%, driven by a 35% increase in both provisioning, as well as parts and repair, while modifications and upgrades were up 9% in the quarter. Sequentially, commercial aftermarket sales were up 6%. Commercial OE sales were up 27% versus the prior year, driven by growth in both narrow-body and wide-body platforms. And military sales were down 1% primarily due to the timing of deliveries. Adjusted operating profit of $1.04 billion was up $287 million or 38% in the prior year with drop through on higher commercial aftermarket and OE volume, partially offset by higher production costs, unfavorable military mix, and higher SG&A expenses. For the full year, given the continued strength in commercial OE and aftermarket, we now expect Collins sales range to be up low to mid-teens an increase from the previous range of up low double digits to low teens. With respect to operating profit, we are maintaining adjusted operating profit in our prior range of up $825 million to $875 million versus the prior year. Shifting to Pratt & Whitney on Slide 6. As it relates to the powder metal matter for the PW1100, in September, we communicated that we expected the gross financial impact to be in the range of $6 billion to $7 billion with an expected Q3 pretax operating profit impact of approximately $3 billion. As I just mentioned in the third quarter, we recorded a $5.4 billion sales charge resulting in a $2.9 billion pretax operating profit impact, representing our net program share in line with where we expected. Recall, I mentioned that certain elements of the gross $6 billion to $7 billion cost will be booked upfront and the remainder will be booked over the remaining life of the contract. So looking at Pratt's quarterly results on an adjusted basis, sales of $6.3 billion were up 18% and 17% on an organic basis with sales growth across all three channels. Commercial OE sales were up 25% in the quarter, driven by higher engine deliveries and favorable mix in the large commercial engine business. Commercial aftermarket sales were up 21% in the quarter, driven by both higher volume and content as well as favorable mix in both the large commercial engine and Pratt & Whitney Canada businesses. And in the military business, sales were up 7% driven by higher F135 development and sustainment volume. Adjusted operating profit of $413 million was up $95 million from the prior year with drop through on higher commercial aftermarket sales partially offset by higher commercial OE volume, higher production costs, unfavorable military mix as well as higher R&D expenses. Looking ahead, due to higher commercial OE and military volume, we now expect Pratt's adjusted sales to be towards the higher end of our prior range, or up mid-teens versus prior year. Given the higher military sales, as well as better mix across OE and aftermarket, we're also increasing Pratt's adjusted operating profit from our prior range of up $200 million to $275 million to a new range of up $350 million to $400 million versus the prior year. Turning now to Raytheon on Slide 7. Sales of $6.5 billion in the quarter were up 3% on an adjusted and organic basis, primarily driven by higher volume in Naval Power programs, including AIM9X and Advanced Technology Classified programs. Adjusted operating profit of $570 million was down $124 million versus the prior year driven primarily by higher volume on lower margin programs and lower net program efficiencies including additional headwind on certain fixed price development programs. In addition, as expected, there was an unfavorable impact of about $20 million from a significant contract option exercised in the quarter. Raytheon had $7.4 billion of bookings in the quarter, including $1.9 billion in classified awards, a $412 million award for the next generation short range interceptor program, and a $383 million award for Hawk and Patriot sustainment. This resulted in a book to bill of 1.16 and backlog of $50 billion. Year-to-date, Raytheon has a book to bill of 1.17. For the full year, we continue to expect sales to be up low to mid-single digits with respect to operating profit while the supply chain continues to improve as evidenced by the increase in material receipts we have seen in the last three quarters, Raytheon continues to have productivity and mix challenges. These stem from a combination of the fixed price development programs we have previously discussed, as well as higher production costs. As a result, we're reducing Raytheon's adjusted operating profit from the prior range of up $125 million to $175 million to a new range of up $25 million to up $75 million versus the prior year. Before I hand it back to Greg, just a couple of comments on the environment for 2024. Overall, we anticipate another year of solid growth in organic sales, segment operating profit, margin and free cash flow. However, the level of free cash flow growth will be tempered by the step up in cash impacts associated with the powder metal matter, as well as some headwind from cash taxes related to R&D. While commercial air travel demand has been incredibly strong from passengers and airlines, we see growth beginning to normalize as we head into 2024, with RPKs back at 2019 levels and the year over year compares becoming more difficult. However, overall, we expect continued growth in OE and aftermarket including the on-going recovery of the wide body. On the defense side, we continue to expect strong international and domestic demand which is already driven at 2023 year to date book to bill of 1.22 and a record defense backlog that will continue to convert to solid growth over the next several years. While inflation has begun to moderate, there are still pockets that remain persistently high within our manufacturing base, we expect this to continue into the next year. We'll continue working all the mitigation actions we've had in place the past two years and will implement additional strategic initiatives to offset the pressure we expect to see in 2024. Finally, as you know, we have seen a lot of volatility in the financial markets and interest rates. We expect this to drive further pension headwind next year that could be about $0.45 on a year over year basis given current market conditions and the actions we are taking to preserve improved funded status of the pension plan. So obviously, a lot of moving pieces here, but we are focused on driving execution an aggressive cost reduction and remain optimistic as we look ahead towards 2024 and 2025. With that, I'll hand it back to Greg to wrap things up. Gregory J. Hayes: Okay. Thanks, Neil. Let's just take a step back if we can for a minute. I know there's a lot of information we've given you today, but really I think there are three key takeaways from our discussion. First of all, I believe we have our arms around the operational and financial impacts of the powdered metal issue. Our focus at Pratt & Whitney and across RTX is now executing on those plans that Chris laid out. Secondly, strong demand continues in our end markets. That's evidenced by the 12% organic revenue growth we saw this quarter and the $190 billion backlog we ended the quarter with. Finally, we see tremendous value in RTX today and we're going to utilize our strong balance sheet to take advantage of this through a $10 billion ASR. With that, let me stop and open it up for questions. Operator: In the interest of time and to allow for broader participation, you are asked to limit yourself to one question. (Operator Instructions). Our first question comes from the line of Peter Arment of Baird. Peter Arment: Yeah. Thanks. Good morning, everyone. Gregory J. Hayes: Good morning. Peter Arment: Hey, Greg. The last time you guys, on the update call September, you talked about kind of the headwinds that you would see in Pratt & Whitney margins as you look out kind of to the mid-decade. Has there been any change to that or you can just give us an update on how you think that progresses? Thanks. Gregory J. Hayes: No, I think -- thanks, Peter. What we laid out, as you recall, back in September, we talked about the fact that some of the costs associated with the inspection interval, will end up in contract accounting at Pratt. And that'll depress margins on the aftermarket by about a point over time. Not significant, but it’s all contemplated in the Pratt guidance as we think about 2024, 2025. Peter Arment: Great. I'll leave it there. Thanks. Gregory J. Hayes: Thanks Peter. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Noah Poponak: Hey, good morning, everyone. Gregory J. Hayes: Good morning, Noah. Noah Poponak: Can you spend a little more time on defense margins? I mean, I heard the specifics you noted in the quarter, but just you know, continues to move lower. Is there some bigger, broader thing happening at the at the end market level. And Neil, did you ever provide a new consolidated, once you consolidated the two segments, margin target that's in the 25s. And just, you know, as you, as you spoke to 24 earlier in the call, can you just kind of update us on how you're expecting that defense margin to progress into the middle of the decade from here. Christopher Calio: Hey, Noah, it's Chris. Maybe I'll start and then ask Neil to talk about the consolidated Raytheon. First, in terms of the end markets, demand remains very robust. Here, Neil, talk about the 1.17 book to bill in the quarter, excuse me, year-to-date, the $7.4 billion in bookings in the quarter and the overall backlog of $50 billion. So really strong demand for the products. That said, we have had some headwinds. We've had some inflation hitting some fixed price programs. We've had a handful of challenging fixed price development contracts that have been a bit of a drag. That said, we have had some productivity gains in certain areas. As you might suspect, those mature higher volume programs, we have had some efficiency gains by leveraging supply chain with larger buys. And as we look forward, the supplier volume is growing. Labor attrition rates are decreasing, and frankly stabilizing. So those are some very positive signs as kind of we look forward in the defense business. And I'll say we just need to get through key milestones on those fixed price development contracts. We've talked about those on several calls now. And we've got some key milestones coming up over the next 12 months or so, that we've got to hit and get these programs through those milestones and then ultimately sold off. Neil G. Mitchill: Thanks, Chris. Let me just pick up on that where you left off. We definitely did provide a consolidated view, you're looking at margins around the midpoint, a little bit north of 12% when you get into 2025. I think as we look at the backlog, and the mix of what we see the sales shifting to between now and then we talked about, this year being sort of the low point of our mix, more domestically focused that we see that increasing over the next couple of years to be bit heavier on the foreign side, not surprising given the demand signals that we're seeing. So those are going to be the key drivers that get us heading in that direction. What we do know is that we have a really large backlog, $50 billion on the defense side right now and expect that to continue to grow. And we're focused on executing as we transition a number of programs as Chris was alluding to from early production to full rate production and those programs mature. So we know the formula for driving productivity. We have seen some challenges this year. And I think on the development programs, we'll see that happen over the next 12 months, but that's the story longer term. Noah Poponak: Is the rate of expansion in 2024 and 2025 similar, Neil, or is it more weighted to 2025? Neil G. Mitchill: It's going to be more weighted to 2025. We've got, as you know, a growing backlog here, but that will play out in sales probably later next year and accelerating through 2025. Noah Poponak: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Myles Walton: Thanks. Good morning. Hey Neil, maybe on the GTF, I'm looking forward, you're about to endeavor on something that looks pretty challenging in terms of 45% of the GTF powered A320 fleet on the ground. And managing all of the customers and their expectations and then you're on execution. I'm wondering, could you just lay out sort of the biggest risks in your screen that you're looking at? Is it part availability? Is it discovery of what incremental work might happen when you open up these engines? Is it maybe this MRO network coming online. There's just a lot balancing and maybe just a prioritization of the risk register would be helpful. Christopher Calio: Myles, this is Chris. Maybe I'll kick it off. The single, I think, biggest lever that we've got here and you kind of alluded to it is MRO output. I mean, obviously, it's a challenging time for the customers. There's going to be a fair amount of the aircraft on the ground. We've got to accelerate MRO output. And the key parts of those are capacity and material flow. On the capacity side, you heard about the expansions that we're doing both within the Pratt shops and across the network. In terms of material flow, you've heard us talk about this before, our objective is to put in full life HPT and HPC disks at these shop visits. And we've got to go continue to ramp those up. Again, that ramp up is well underway and progressing in key process steps like the powdered metal production, forging and heat treat. Investments have already been made and that capacity is in place. And then for more downstream processes like sonic inspection and machining, we're accelerating capacity there to make sure that we can meet this demand. And so some of this performed by Pratt and our partners and some by third parties. But again, very, very focused on the inspection capacity and the machining capacity. But at the end of the day, MRO output is what's going to support our customers and ultimately take down the AOGs and therefore take down the penalties we're going to have to pay to our customers. Myles Walton: Just a quick follow-up. Is that 19 number in 2025 of MRO shops different than your target earlier this year, I think it's the same. And so maybe just what has changed in terms of MRO network expansion? Christopher Calio: Yeah. Fair enough. It is the same, but we've accelerated as best we can. Some of these investments, I mean, they were in our plan. We've accelerated as much of that spend as we can. And again, it's bringing on the inspection capacity into the MRO shops. That's a key to unlocking, sort of the MRO throughput that I talked about. And then just, beyond that for a second Myles, you heard us talk earlier about the 35 or so day turnaround times on those project visits. And again, we know those aren't preponderance of the visits we're going to get. But there's a lot of learning’s that go on and a lot of learning curve that gets tackled when we're doing these things. So it's how quickly can we tear down? Inspection limits, repairs, test sell time, literally every part through every gate and MRO, taking time out and being more efficient and putting more resources in those areas. Myles Walton: Thanks, Chris. Operator: Thank you. Our next question comes from the line of Robert Stallard of Vertical Research. Robert Stallard: Thanks so much. Good morning. Gregory J. Hayes: Good morning. Robert Stallard: This might be a question for Chris. I'm following up on the powdered metal issue. When you spoke about this in September, you seemed pretty convinced that the issue would not be a problem on the A220, the E2 and the V2500, but it does sound like, there is something going on there now, although you said it's not significant. So I was wondering if you could elaborate on how the inspections have progressed on those engines. Thank you. Christopher Calio: Sure. Yeah, thanks for the question. So I think we had telegraphed on the last calls, we're going through our analysis is that those fleets would be far more manageable in terms of the impact. And while we will have, inspections and life limits on the 1500 in 1900. As we said, they will largely fall within the shop visit forecast we have today. The maintenance intervals on those frankly, are shorter than on the 1100. And so that's why many of these life limits and inspections fit within those plans. On the V2500, again, we've continued down that, inspection, accelerated inspection path we've had in place for about two years now. We're about halfway through that, through that fleet. And as we continue to do those inspections and learn more and analyze the data from those inspections. We're able to pinpoint, certain engines based on sort of their profile. Parts they've got in them thrust, you know, other characteristics that we've targeted for accelerated, you know, inspections. But again, think that's very manageable. That's a total of about a 100 or less shop visits stretched out over four years. And again, those are largely going to be project visit work scopes. And we've got a lot of experience on project visit work scope on the V2500. Those are in a 40 to 45 day turnaround time. We've become very, very proficient at those. So again, that's why we're calling those very manageable and will not have significant financial or operational impact. Robert Stallard: Thanks, Chris. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Thanks. Good morning, guys. Maybe if you could just walk us through cash, $1.6 billion generated year-to-date, $4.8 billion for the year. How do you think about the biggest drivers on a segment basis, as you head into the final quarter of 2023. And then just given stepped up GTF payments next year, what are the puts and takes there? And then if you don't mind, I just have to ask on the $10 billion ASR you know, why announce it now and not, you know, derisk some of the MRO output risk on the GTF? Christopher Calio: All right. Thanks, Sheila. Let me start with, what we need to do on free cash flow. So we were pleased to see $2.8 billion of free cash flow for the quarter, clearly strong and in line with the trajectory we need to see for the full year. And as you look at the fourth quarter, there's really two major parts that are going to drive, getting to the $4.8 billion. The first is clearly operating profit and we feel comfortable with that given the ranges we just put out there. And we need to see about $2 billion and a little over $2 billion of working capital improve in the fourth quarter. And I would break that down into about three buckets, about $500 million of inventory improvement Again, I think given the demand signals we're seeing and the growth we'll see in sales in the fourth quarter, we see that as achievable and manageable. We are expecting some significant advances and achievement of milestones on the defense side. So when you think about net liabilities and advances on contractual, long term contracts, that's about $1.2 billion. So that's a big piece of the fourth quarter. And then the rest really is the timing of disbursements that I would call normal in the course of business here. So a lot to do but we have good line of sight to those things as we look to the closing out the year. I'm not going to get into specifics about next year or the year after other than to say, we do see free cash flow growth in 2024. And we'll come back in January and provide more of a roadmap as to how you get there. And Greg, do you want to talk about the ASR? Gregory J. Hayes: Yes, sure. Sheila, the question around the ASR timing, I think it's a relevant question. And I would tell you we had a fulsome discussion with the board, about the timing of the ASR. And what convinced the management team and the board that it was the right time is our confidence in the powdered metal resolution. And having bound the financial impact of that, we saw this as an opportune time to double down on the stock. And again, if you think about it, we bought $2.6 billion back year to date. This is another $10 billion at what I believe to be a significant discount to intrinsic value. And this is the time to buy. And I think we're doubling down in terms of our confidence, confidence in the future of RTX, but also confidence that we really do have our arms around the powered metal issue. Sheila Kahyaoglu: Great. Thank you. Gregory J. Hayes: Thanks, Sheila. Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Ronald Epstein: Hey, good morning, guys. Gregory J. Hayes : Good morning, Ron. Ronald Epstein: When you look back on this situation, right? I mean, my understanding is, it first kind of creeped up, call it, the 2015 timeframe. And here we are today, what are the lessons learned? Like, on a go forward basis, because perhaps a going concern, there'll be new engines in the future. What are the big takeaways to not have this happen again? Christopher Calio: Hey, Ron, this is Chris. Yes, the incident that led to all of this was in March of 2020. And it wasn't until after we went through sort of a rigorous records review and did all of the investigation and the metallurgical analysis. Did we actually come to realize this was an incredibly rare defect. We hadn't seen it before. And then we were able to go back and trace it to 2015. But again, we didn't we didn't have that, the data in hand to make that determination until again much later into 2020. And if you just sort of step back and say, okay, once you figure that out, what would you guys do about it? Well, we made a number of systemic changes, you know, a Pratt powder metal processing facility, both manufacturing process changes and inspection techniques, we've gone through a rigorous safety risk assessment. I think you've heard us describe before, which incorporated all of the learnings from all of our inspection data into our models, right across every one of our programs. And you've seen us kind of go through those one by one as we prioritize the most impacted fleets. But again, it gets read across every single engine program that we've got. And then of course, we've responded by developing comprehensive fleet management plans that have a combination of the enhanced inspections that we've developed and the life limits on the parts. I would say maybe more broadly and unrelated to powdered -- the powdered metal situation. We've continued to leverage outside resources and expertise. We've got a product safety review committee comprised of outside industry experts and veterans that come in, look at our key engineering processes, do site visits, interview senior management and then below trying to understand culture and processes and what we can do better and they make recommendations. And we implement those. And that's something we do on a regular basis. Again, unrelated to the powdered metal, but we're not afraid to go leverage outside resources to give us another perspective. Ronald Epstein: And does that mean kind of going forward in just sort of the nuts and bolts of Pratt? It's just going to require some more investment in, you know, I don't know, infrastructure engineering or whatever to just, you know, kind of make sure everything's where it should be. Christopher Calio: But we're going to continue to invest, Ron, in automation for sure, both in terms of manufacturing process, and our quality system. I'll tell you, we're also making investments in machine learning so that we can look at all of this, the thousands and thousands of inspection records and data that we've got, you know, in house to help us better identify anomalies get out ahead of issues before they, turn into something, unfortunately, that has an impact on the fleet and on our customers. So we're going to continue to invest in those areas. We've had those investments plans in place. We're going to continue to accelerate those. Again, all part of the modernization of our footprint, and how we do things better, faster, leaner. Ronald Epstein: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Seth Seifman of J.P. Morgan. Seth Seifman: Thanks very much and good morning. Gregory J. Hayes: Good morning. Seth Seifman: Maybe a small bundle here of questions about cash. I mean, given what the consensus is next year, $5.2 billion, you're buying back $10 billion stock or you're accelerating stock repurchase. I mean, is it pretty fair to assume that, you know, streets not going to be disappointed in what you guys have to say in January regarding cash. And then when we move out to 2025 and we think just about the impact, the change in R&D and the change in the interest expense that you'll have from the share repo. How should we be thinking about the 2025 target versus, what you told us last month. Neil G. Mitchill: Okay. Set. Thanks for the question. You know, we're not going to get ahead of 2024, but we do see free cash flow stepping up. We are comfortable with our $7.5 billion 2025 free cash flow target that we've talked about. And as you think about what is going to be higher interest and increased benefit from the R&D impact. Those will just about offset in 2025. And so that's why today, I feel comfortable staying with the $7.5 billion target for 2025. Of course, there's a lot of time between now and then, but those are the two moving pieces we see today. Seth Seifman: Great. Thanks very much. Gregory J. Hayes: You're welcome. Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: Hey, good morning, guys. Gregory J. Hayes: Good morning, Kristine. Kristine Liwag: So maybe moving to a defense question, you know, the White House is requesting $106 billion (ph) in supplemental spending for a number of national security priorities, which includes over $50 billion in investment for the U.S. Defense industrial base. Looking at this request, you've got equipment for Ukraine, air and missile defense for Israel, and replenishment of stockpile for both. And this seems to fit quite nicely with the Raytheon Defense portfolio. So how much of this opportunity is addressable to the company and if the dollars are appropriated, when would be the earliest you could see this convert to revenue? Gregory J. Hayes: Kristine, let me start on that. So as I think I mentioned earlier in the conversation, we've seen about $3 billion of orders so far related to Ukraine replenishment. And that's really the replenishing U.S. war stocks. We expect another $4 billion of orders in the next two years. And most of that will play out over the next 24 to 36 months in terms of delivery. So you won't see a big revenue pop, even next year from this. As we think about this next tranche, the president's $100 billion plus request, which is more than $40 billion for Ukraine. What you're going to see is the same things that we have been seeing but in much higher quantities. So obviously, NACAM systems, which is the short range air defense system, and the Amram, munitions that we're using there. We're going to see those orders pick up. We would think significantly. The same is true with the Patriot air defense system. Again, those are GEMT (ph) missiles, that we supply for that. Those are in short supply today. So again, a big ramp there. But you'll also going to see other weapons systems come into play, specifically around countering the unmanned air vehicles. And we have systems today like the Coyote, which is very effective in terms of short range, dealing with these unmanned air vehicles. So again, I think really across the entire Raytheon portfolio, you're going to see a benefit of this restocking. On top of what we think is going to be an increase in DOD top line. Again, as we continue to replenish war stocks and also replenish some of the fleet in Pacific. So that's SM2s, SM3s, and other munitions that are really a huge part of this backlog that we've got today. Kristine Liwag: Thanks, Greg. And how do we think about the margin profile of these incremental opportunities? Are these new contracts margin accretive? Gregory J. Hayes: I would no -- actually, I wouldn't say they're margin accretive, nor would I say they're detrimental to margins. These are going out at kind of normal cost type programs, right? So you're talking about margins 10%, 11%, 12%. And again, these are well known in terms of the cost of these systems. We've been producing them for years. So we know what the costs are. And again, I think -- again, it's helpful to overall margins, but it's not hugely accretive. Again, I think Neil 10 to 12 was kind of kind of the sweet spot. Neil G. Mitchill: I think that's exactly right. These are mature programs that we've got a lot of history on. It's all about getting the supply chain ramped up to deal with the increased production that we expect. Kristine Liwag: Great. Thank you. Operator: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Matt Akers: Hey guys, good morning. Thanks for the question. I guess maybe just to clarify, the section 174, the $500 million benefit is part of that recovery from the 2022 payment. And I guess, how should we think about that sort of carrying forward that benefit into 2024? Christopher Calio: Thanks. That's a good question. Yes, some of that is, in fact, the recovery of the 2022 overpayments, if you will, we were able to file our tax return on a basis that assumed deductibility of these cost plus R&D contracts. What will happen though is it'll be a little bit of a headwind next year because we'll get a little bit more cash back this year in the form of making lower estimated tax payments. And then next year, we'll start to bake that into our next year's estimated tax payments and filing. So that's how that'll play out. If you kind of look at it over a multi-year period of time. It's about 40% of what we previously were deferring and amortizing. So if you kind of stretch that through 2026, that's about $1.7 billion of incremental goodness in free cash flow over that period. Matt Akers: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein & Company. Doug Harned: Good morning. Thank you. Gregory J. Hayes: Good morning. Doug Harned: Chris, when you talked about the -- on the GTF on the project visits, I mean, 35 days sounds like a very short number. When you look forward, before you would talked about removal to return time of 250 to 300 days, kind of a peak level of AOGs in H1 of 600 to 650. Now that you're looking at this process in more detail. Can you give us a sense of how any of that may have changed? And then also, if you're unable to do the replacements of discs and fibers and so forth, in the short term, presumably, that's an earlier revisit than you would have liked before. How does that affect your customers and the way you're thinking about the economics. Christopher Calio: Yep. Good questions, Doug. So the reason I mentioned the early, very early sort of handful of project visits and how we've done on turnaround times is honestly just to show, people that we are incredibly focused on taking minutes, hours, days out of this. And that can translate to the larger scope shop visits that we're going to face. And the organization's incredibly focused on literally every gate, within that process, including taking time out of the test cell process. But right now, Doug, those key assumptions that you just laid out the wing to wing 250 to 300, the PKOGs, those are the assumptions, those are what's baked in to the financial impact that we talked about here. And we're doing everything that we can to go, improve upon those. And as I said earlier, MRO output to us is the linchpin on that. And so I -- that's kind of where the organization's focus is, Doug, and that's where we've got to get better each and every day. To your point about, the new full life discs, yes, our plan today is to put those in, at OE first, in the first quarter of the year and then starting an MRO in the second quarter of the year at each of these shop visits, to the extent that the ramp up and the output isn't where it needs to be on those. We're not going to waste the induction slot. Doug, the engines will come in, they'll get an inspection into your point. They'll have to then come back in at a 2,800 to 3,800 cycle re-inspect, depending on the thrust of the engine, which is why it's so critical for us to continue this, ramp up in powdered metal forgings. So that when the engines leave the shop for these visits, they have got the longest time on wing, they can have and we don't see these back in our MRO shops during this period just because it'll add just more congestion. Doug Harned: Then if I may, one of the frustrations that I've heard out there is, you've taken the original tranche, the first tranche off in September, but airlines haven't seemed to be somewhat in the dark on the next set of engines that need to come off-wing and when that impact will, what is taking so long and being able to, help them know exactly what the impact and timing will be. Christopher Calio: We're actually having those discussions, Doug. I've been part of many of them, again, customer-by-customer looking at their engines by serial number. Again, because you've got to look at the cycle times on those and bounce them off against the fleet management plan. So it is, it's a rigorous thorough process, but we're having those conversations with customers. So they understand their specific impacts. As we said back, on the September call, the lion's share of these incremental shop visits that we're going to have the 600 to 700 in that ‘23 to ‘26. But two-thirds of those are ‘23 and relatively early in 2024. That's what causes that bow wave, Doug, that peak of 650 AOGs. And I think we talked earlier about when we're going to, provide some of those service bolt-ins and the ADs that are going to follow on. So that -- those communications are happening, you’re going to see that impact early in ‘24. Doug Harned: Very good. Thank you. Operator: Thank you. Our next question comes from Ken Herbert of RBC Capital Markets. Ken Herbert: Yes. Hi, good morning. Gregory J. Hayes: Morning Ken. Ken Herbert: Hi, Chris, I wanted to follow-up on that comment regarding your customer conversations. Can you provide any more sort of granularity on where you are in those conversations? And obviously, you've got, it sounds like incremental confidence in the ability to sort of bracket the risk around these, with all the uncertainty still with sort of timing on the shop visits. How are those conversations going and just give us any sort of metrics around what gives you that incremental confidence, I guess, on the customer side? Christopher Calio: Sure, Ken. Yes. Thanks for the question. So the focus, as you might imagine, over the last several months is walking our customers through the safety risk analysis, so that they understand that and what we're doing to ensure the continued safe operation of the fleet, then understanding the fleet management plans, cyclic limits, the inspection intervals, and its impact on their specific fleets. We're going to have certain customers, Ken that are going to be more impacted than others, just by virtue of their size, their reliance on the GTF. Again, it differs by customer. Conversations, as you might imagine, they're difficult. Customers understand what we're doing from a safety risk perspective, and think we're doing the right thing, but they're certainly not happy with the net effect. And they've not been happy with the fleet health even prior to powdered metal and our output on MRO and getting them the spare assets, and the engines in our shops, that the need. And so those are obviously difficult conversations, as you might imagine, Ken, and we’re having them with each customer individually as we go through and tailor their support packages. Again, some are more impacted then others, but those conversations are ongoing, and they will continue into the early part of year once people truly understand a fleet-by-fleet customer-by-customer impact and the changes they’re going to have to make for their flights, their network and what not. So those conversation are happening will progress early into next year. Ken Herbert: Thank you. Operator: Thank you. That does conclude the Q&A portion of our call. I would now like to turn the call back to, Greg Hayes, for closing remarks. Gregory J. Hayes: Okay. Thanks Latif, and thanks all for listening in today. As always, Jennifer and the IR team will be around to take your calls, and we look forward to seeing all of you in the coming weeks and months. Take care. Thank you. Operator: This now concludes today’s conference. You may now disconnect.

Operator: Good day ladies and gentlemen and welcome to the RTX second quarter 2023 earnings conference call. My name is Latif and I will be your operator today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer: Chris Calio, President and Chief Operating Officer; Neil Mitchill, Chief Financial Officer, and Jennifer Reed, Vice President of Investor Relations. This call is being webcast live on the internet and there is a presentation available for download from RTX’s 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 risks and uncertainties. RTX’s SEC filings, including its Forms 8-K, 10-Q and 10-K, 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-one-one 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. Hayes. Gregory Hayes: Thank you and good morning everyone. It was another strong quarter for RTX with continued strength across all of our end markets. On the commercial aerospace side industry-wide, we saw 1,200 new orders announced around the Paris Air Show. This is the largest number of orders in the history of the air show as airlines look to secure production slots well into the next decade. Global commercial air traffic remains on track with our projections with a very robust summer travel season, driven by incredibly strong consumer demand. This dynamic is supporting strength in the aftermarket and growth across the globe with revenue passenger kilometers now tracking at about 95% of 2019 levels, and long haul international, which has lagged in the recovery is showing strong growth with passenger flight hours up 18 points year-over-year, a good indicator for increasing demand for wide body travel. Turning to defense, we’re pleased that the House defense appropriation bill fully funds many of our programs, including importantly the F-135 engine core upgrade, which is the only engine funded for the F-35 joint strike fighter. Additionally, the bill also recommends the full budget request for other key RTX programs such as LTAMDS, LRSO, hypersonics, and Standard Missile-3. Internationally, we saw the State Department approve a large sale of advanced air defense systems for Poland as it bolsters its security amid the ongoing conflict in Ukraine. This would expand our existing partnership with Poland and make Poland the first international customer for our LTAMDS system, representing a key transition for this next-generation Raytheon franchise. Before we get into details of the quarter, as you saw in our press release this morning, we are working through an issue resulting from a rare condition in powdered metal that will require Pratt & Whitney to remove some engines from service for inspection earlier than expected. I want to make just a couple of comments here at the outset. First of all, it’s important to know that we understand the issue and we have begun to address it through an inspection protocol that we already have in place. That said, clearly this will have an impact on Pratt & Whitney and our customers. Chris and Neil will provide additional color later in the call on how we’re going to address the issue as well as the operational and financial impacts. As you’d expect, we’ll dedicate all the necessary resources to manage this. Now let’s turn to Slide 2 to go through some key highlights from the quarter. Q2 was another strong quarter of strong demand in both the commercial and defense segments of our business with $25 billion of new orders. This brings our total backlog to a record $185 billion. On the commercial side, Collins continues to convert its industry-leading portfolio into solid order strength. As I mentioned, industry-wide there were about 1,200 new aircraft orders announced in Paris. The aggregate amount of Collins and Pratt content on those aircraft will be about $20 billion through the life of the programs. On the defense side across the RTX businesses, we captured $13 billion in net bookings in the quarter, driving a strong book-to-bill of 1.22, and this takes our defense backlog to $73 billion. Contributing to the backlog in the second quarter were a number of significant awards, including $2 billion at Pratt & Whitney for Lot 17 of the F-135 engines and $1.5 billion for 117 sustainment. The Raytheon segment was awarded its largest ever AMRAAM contract for $1.2 billion from the U.S. Air Force and international partners, including Ukraine. The AMRAAMs will work in concert with their existing NASAM batteries to help protect the Ukrainian people. Earlier this month, we executed the business realignment. We are now officially operating as three business units. Our team has done a tremendous job in a relatively short period of time, shifting roughly $3 billion of sales and thousands of employees across our portfolio to better meet the evolving needs of our customers. Of course, our transformation isn’t done. We will continue to develop initiatives to better leverage our scale and breadth and to enable operational excellence and a best-in-class cost structure. Finally, as many of you saw last week, we agreed to divest Collins’ actuation business to Safran. We expect this deal to close in the second half of 2024 with proceeds from the transaction about $1.8 billion. With respect to our full year outlook, we’re going to raise the top line to reflect the strength we’re seeing in our end markets. The new range will be $73 billion to $74 billion. We’re also going to bring up the bottom end of our adjusted EPS range by a nickel to $4.95 to $5.05; however, we are going to reduce our 2023 cash flow expectations by $500 million to $4.3 billion, and this is primarily to reflect the developments at Pratt & Whitney that I discussed earlier. With that, let me turn it over to Neil to walk you through our financial results in more detail. Neil? Neil Mitchill: Thanks Greg. Let’s look at Q2 results on Slide 3. As Greg noted, we had another solid quarter with sales of $18.3 billion, up a strong 13% organically versus the prior year with growth across all four of our segments. Adjusted earnings per share of $1.29 was up 11% year-over-year with strong adjusted segment operating profit growth of 26%, partially offset by lower pension income and a higher effective tax rate. On a GAAP basis, earnings per share from continuing operations was $0.90 per share and included $0.26 of acquisition accounting adjustments, an $0.08 charge related to an airline customer insolvency, and $0.05 of restructuring and segment and portfolio transformation costs. Free cash flow of $193 million was generally in line with what we discussed when we were together in Paris last month, and finally on the capital allocation front, we repurchased $596 million in shares, putting us at about $1.2 billion year-to-date, on track for $3 billion in share repurchases for the full year. Let’s turn to Slide 4 to get into the Q2 segment results. Beginning with RMD, sales were $4 billion in the quarter, up 12% on an adjusted basis and 13% organically primarily driven by higher volume from air power, advanced technology and land warfare and air defense programs. Adjusted operating profit of $427 million was up $79 million versus the prior year, driven by favorable net program efficiencies and drop-through on higher volume, partially offset by unfavorable mix resulting from early stage production programs. RMD had $3.6 billion of bookings in the quarter, resulting in a book-to-bill of 0.92 and a backlog of $35 billion. In addition the AMRAAM award that Greg mentioned earlier, RMD also received a $265 million award for Javelin and a $251 million award for AIM-9X missiles. Year-to-date, RMD has a book-to-bill of 1.17. Shifting to RINS on Slide 5, sales of $3.7 billion were up 2% versus the prior year on an adjusted and organic basis. This was driven by higher revenue from sensing and effects as well as cyber and services programs, which was partially offset by lower sales from command, control and communications programs. Adjusted operating profit in the quarter of $297 million was down $18 million versus prior year, primarily due to unfavorable mix and higher operating expenses which more than offset improved productivity and drop-through on higher volume; however, as I mentioned in June, we still saw unfavorable productivity in the quarter due to a handful of fixed price development programs. In the quarter, RINS had $3.1 billion of bookings, resulting in a book-to-bill of 0.96 and a backlog of $17 billion. Bookings at Q2 in RINS included about $1.1 billion in classified award and $322 million for federal and civil cyber defense services. On a year-to-date basis, RINS has a book-to-bill of 1.15. Turning to Collins on Slide 6, sales were $5.9 billion in the quarter, up 17% on an adjusted and organic basis, driven primarily by strong demand across commercial aerospace end markets which resulted in higher flight hours and higher OE production rates. By channel, commercial aftermarket sales were up 29% driven by a 68% increase in provisioning and a 28% increase in parts and repair, while modifications and upgrades were up 9% organically in the quarter. Sequentially, commercial aftermarket sales were up 7%. On the commercial OE side, commercial OE sales were up 14% versus the prior year, which included growth in wide body, narrow body and business jets, and military sales were up 5% due to higher development volume. Adjusted operating profit of $837 million was up $220 million or 36% from the prior year with drop-through on higher sales volume and favorable mix which more than offset higher production costs, as well as higher R&D and SG&A expenses. Turning to Pratt & Whitney on Slide 7, sales of $5.7 billion were up 15% on an adjusted and organic basis with sales growth across the commercial segments partially offset by lower military volume. Commercial aftermarket sales were up 26% in the quarter due to higher shop visit volume and content in both large commercial engine and Pratt & Whitney Canada businesses. Commercial OE sales were up 22% in the quarter on higher engine deliveries and favorable mix. In the military business, sales were down 3%. The decline in sales was driven by the timing of the F-135 production contract award in the prior year, which was partially offset by higher F-135 sustainment volume this year. Adjusted operating profit of $436 million was up $133 million from prior year, with drop-through on higher commercial aftermarket sales and favorable large commercial OE mix partially offset by higher production costs and higher R&D expenses. Note that both this quarter and the prior year quarter had a similar sized contract benefit of roughly $60 million. With that, before we get into the updated outlook for 2023, let me turn it over to Chris to give some additional color on the Pratt fleet. Christopher Calio: Okay, thanks Neil. Let me share with you what I can at this point about the Pratt matter. As you heard from Greg, Pratt previously determined that a rare condition in powdered metal used to manufacture certain engine parts may reduce the life of those parts. It’s important to note upfront that the current production of powdered metal parts is not impacted and Pratt will continue to deliver both new engines and new spare parts across all product lines. I’ll come back to that in a minute. As a result of this rare condition in powdered metal, Pratt instituted enhanced inspections to be performed at scheduled shop visits; however, based on very recent learnings from these inspections, Pratt has now determined that the timing of these shop visits needs to be accelerated. While powdered metal parts have been widely used throughout Pratt’s product lines for decades, Pratt has bounded the potentially impacted material. It has concluded that this condition was present in rare instances in powdered metal produced from approximately Q4 2015 into Q3 2021. The PW1100 engine fleet which powers the A320 Neo will experience the most significant impact due to production volumes during this period. Based on the current assessment, Pratt anticipates by mid-September that approximately 200 PW1100 engines will be removed for enhanced inspection. Beyond the initial 200 engines, Pratt also anticipates that approximately 1,000 additional PW1100 engines will need to be removed from the operating fleet for this inspection within the next 9 to 12 months, though the exact number of engines and the timing of those removals is not yet finalized. It’s important to note that some of the engines that must be removed for inspection in 2023 and 2024 are already forecasted for a regular shop visit during this time period, and so the incremental impact to the fleet is still under evaluation. Capability to perform the accelerated inspections, which are focused on the high pressure turbine discs, is already in place and Pratt is developing plans to optimize shop visit capacity within its network to complete these inspections as quickly and efficiently as possible. As I said earlier, current production of powdered metal parts is not impacted and Pratt will continue to deliver both new engines and new spare parts across all product lines. This is a result of the combination of extensive improvements that were made to our powder processing to remove possible contamination sources and the deployment of enhanced inspections for improved detection. Pratt is also analyzing any potential impact to other parts of its fleet, but the current expectation is that they will less impacted based upon existing inspections, utilization profiles and maintenance intervals. Let me take a moment to explain the timing of these developments. We proactively monitor the performance of our engines throughout their life cycle. It’s foundational to how we maintain and manage the safe operation of our fleet. We do this in a number of ways: analyzing large amounts of data generated during operation, inspection parts in MRO, destructively testing certain parts to analyze their material properties, and characterizing what we observe. We use learnings from this proactive monitoring to inform our predictive models so we can address any issues before they appear in our fleet. In this case, as Pratt analyzed some recent inspection findings, it determined the need for an accelerated inspection plan even though the fall-out rate from these inspections is expected to be very low. The next step is for Pratt to publish a service bulletin describing the inspections, and the FAA will likely follow up with an air worthiness directive. The financial impact associated with these renewals is still being analyzed and will depend on a number of factors, including the result of the inspections, the amount of work needed to be done in our network shops, and of course the impact on our customers. This is obviously a difficult situation for our customers, especially given the strong demand for travel. We are truly sorry for the impact of this disruption and we will do all we can to support our customers. Safety always has been and always will be our number one priority, and we will never compromise in ensuring the safe operation of our fleet. We will of course continue to keep you apprised as our analysis progresses on both the operational and financial impacts of these accelerated shop visits. With that, let me turn it over to Neil to talk about how this impacts our 2023 outlook. Neil Mitchill: Thanks Chris. Let’s start with the segment outlook. As Chris mentioned, there continue to be a number of evolving assumptions around the financials at Pratt. Let me try to put some additional color around that, starting with the top line. Commercial aftermarket demand remains strong and we are continuing to ramp production. Because of this, we are confident in our prior sales range of up low to mid teens. On the profit side, given the strong first half results and continued top line growth, we still expect between $200 million and $275 million of operating profit growth for the year. Within that outlook for Pratt, here’s what we are assuming as it relates to the increased engine removals and inspections. Given Pratt’s results to date and aftermarket strength, the impact of the first 200 engines is contemplated within the range we just provided. Keep in mind, given the percentage of completion accounting for the aftermarket contracts and the relatively early life of the programs, the P&O impact will be less significant today. However, for the reasons Chris described, the impact of any further engine removals from service for inspection is not currently assumed in our outlook. Moving to Collins, given the strong results in the first half and the continued strength we are seeing in commercial aftermarket, we are increasing the full year sales range from up low double digits to a new range of up low double digits to low teens, and as a result of this increased demand and continued execution, we now expect Collins adjusted operating profit to be up between $825 million and $875 million compared to the prior range of $750 million to $825 million. Turning to the new Raytheon segment, given the strength of the backlog and the accelerating top line, we expect sales for the combined segment to grow low to mid single digits versus 2022. While we have begun to see increased material flow and improved efficiencies, we had lower productivity than we expected in the first half of the year, including costs associated with fixed price development programs, and similar to Q1, we anticipate another contract option exercise that will lead to a headwind in third quarter. With all that said, we’re expecting continued volume growth and second half productivity improvements, and altogether we see adjusted operating profit up between $125 million and $175 million versus prior year. Now let me summarize all this at the RTX level. As Greg mentioned, we’re increasing our full year RTX sales outlook to $73 billion to $74 billion, which translates to organic growth of between 9% and 10%. This is up from our prior outlook of $72 billion to $73 billion. With respect to earnings, we are tightening our adjusted earnings per share range by $0.05 on the bottom end and now expect adjusted EPS of between $4.95 and $5.05, given the first half results and some improvement in below-the-line items. We’ve provided an update on those below-the-line items in the appendices. Turning to free cash flow, the impact of the Pratt matter will be more meaningful on cash flow as we begin to ramp up inspections and MRO activity this year. As a result, we now see free cash flow up approximately $4.3 billion for the year, about $500 million below our prior outlook. Finally, we’ll transition to the new segment reporting here in the third quarter and we’ve provided the re-cast 2022 and 2023 quarterly financials in the appendices. With that, let me turn it over to Greg for some closing remarks. Gregory Hayes: Okay, thanks Neil. Just some closing thoughts before we get to the Q&A. We obviously had a very strong second quarter with $25 billion in new orders, which brings our backlog to a record $185 billion. Sales were also very strong with 13% organic revenue growth. This strength in sales and orders reflects the strength in both our commercial aero and defense markets. RPMs are on track to return to pre-COVID levels as we exit 2023, and military spending globally continues to increase in response to Russia’s aggression in Ukraine and the emerging threats in the INDOPACOM theater. Based on the continued strength in our markets, we are well positioned to deliver on our commitments for 2023 and beyond. With that, let’s open up the call for questions. Operator: [Operator instructions] Our first question comes from the line of Robert Stallard of Vertical Research. Robert Stallard: Thanks very much, good morning. Gregory Hayes: Morning Rob. Robert Stallard: Let’s start with the GTF, shall we? By my count, this is the third issue you’re dealing with at the moment - you have that quality escape noted at Paris, the ongoing time-only issues in these challenging environments, and now the metal problem. Is there a root problem or cause that’s linking these issues, and are you concerned about the potential impact on Pratt’s reputation for reliability? Thank you. Christopher Calio: Yes, thanks Rob, this is Chris. I’ll start. Obviously this is a disappointing development and will impact our customers. Let me just sort of take a step back and kind of walk you through the processes that are in place across Pratt. It’s got a strong process of fleet surveillance, evaluation, and taking corrective action that is used to support the safety of the fleet. In this particular case, the process worked, but I will tell you that, again, we continue to monitor the situation with the fleet, we continue to find learnings in fleet, and then we take those actions and update our models and correct them. But if you step back, this is not a GTF design issue, this is a manufacturing process issue on our part with metal. We very quickly went and enhanced those processes to make sure this doesn’t happen again and put in place the enhanced inspection techniques to make sure that we can continue to find this and address them promptly. We’re taking prompt action. Right now, we’ve got work through how we define work scope and the turnaround time that’s required, and of course do all the impact to the fleet that’s going to be required. Again, we talked about the comments upfront, GTF is going to have a lot of shop visits here in the back half of ’23 and into ’24. We need to figure out how many of those are incremental and what the true impact to the fleet is, but that’s ongoing. But again, we’re going to continue to invest in the GTF in the durability improvements that Shane talked about at investor day in June, and of course the GTF advantage. We will work through this difficult time, but again we continue to believe in the GTF, its architecture and its future. Robert Stallard: Okay, thanks Chris. Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Myles Walton: Thanks, good morning. Neil, I’m trying to understand the scaling of the $500 million lower free cash flow to the total population of engines that you’re going to be removing and inspecting. I think you said that the first 200 are encompassed in the guidance, but it wasn’t clear if that was just the segment profit guidance you were talking about. Also, obviously this is lingering into ’24 to get that whole 1,200 population, so should we think about a similar sized cash impact in ’24? Neil Mitchill: Got it. Let me start with what I can tell you now. First, let me remind you, it’s very early in this process. We have begun to investigate what the costs and the work scope and the timing might be, but there will be some learnings over the next 30 to 60 days and we’ll certainly come back and talk to you a little bit about that. As I think about the guidance, the comment I made was with respect to the Pratt guidance. Again, we had a first half that was very strong at Pratt. I think we’re well on track for the year, all else equal; but a couple of dynamics that will likely keep the P&L impact associated with the 200 accelerated inspections manageable for the year. First is we’ve talked about 85% of this fleet is under a long term contract, and we’re less than 5% complete on those programs on average, so as Chris just mentioned, we don’t know exactly how many but some of those 200 are already scheduled for a visit this year. When we think about those two things, that sort of helps us bound what the impact could be for this year with respect to that population. Given the thousand and the fact that a number of those are also already scheduled for a shop visit, we still need some more time to go think through that. As it relates to the cash flow, similar train of thought there - we really do need a little bit more time to go through this, but we’ve put a risk into our outlook because we know that we’ll have some calls on cash over the rest of the year. I would say there’s two things that are impacting the cash flow. The first is what I’d call the direct impact, and the second is what I’d call the indirect. On the direct side, it’s really going to be things like accelerated capital, some inventory to get ready for these inspections, expenses associated with the work that we’ll start to perform during the last quarter of the year, and then obviously customer disruption, so more to go there. Indirectly, there’s other work that this may disrupt in our business, and so we’re contemplating some of that as we look at this year. I think it’s a bit too early to kind of extrapolate that out to ’24 and ’25. Certainly we’ll come back over the next couple of months and provide a better update. Myles Walton: Can you clarify if the powder metal supplier is internal to you? Gregory Hayes: Myles, this is Greg. Yes, so we actually manufacture the powder in our facility in New York. That powder is then processed down in our Columbus, Georgia forge into a number of different parts. The parts we’re talking about here are turbine discs, but they are all internally manufactured with a proprietary powder. Myles Walton: Thank you. Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Ronald Epstein: Yes, hey. Good morning. A question for you, Greg. Kind of getting back to Rob’s question, when you look at the litany of issues that have happened here with this engine, everything from hot section issues, manufacturing issues, do you have a cultural issue in your engineering workforce? Are people not talking to each other? I mean, it also begs the question, how could you guys possibly not know about this at Paris when you did this major investor event? Can you just give us all some insight into how people are communicating and what’s going on in your engineering workforce? Gregory Hayes: Yes, you know Ron, we should differentiate between the durability issues that Shane talked about and that I’d call this a manufacturing quality issue. Let’s just take a step back. This is an issue that we first uncovered back in 2020 when we had an incident with a V2500 turbine disc. As a result of that investigation, we determined at that point that we had some contamination in this powdered metal that we make. It occurred very, very rarely, but it did happen, and it actually resulted in the turbine disc failure on an airline. As a result of that, we went through and did two things. First of all, we went out and inspected the V2500 fleet, but we also went back and we took a look at the powdered metal process to determine how this contamination happened. Through a lot of work, through a lot of discovery, we figured out what the contaminants were and by the end of 2021, about a year after that, we were able to manufacture powder that was, I would say, contaminant-free to the best of our ability. At the same time, we knew that this contamination had occurred between late 2015 and late 2020, early 2021, so we knew we had a suspect population in the fleet. We went out and so we started inspecting. We inspected the turbine discs as they were manufactured, we inspected turbine discs as they came back in, not just for the V but for the whole GTF fleet, in fact the entire fleet of Pratt products that were manufactured during this time frame. Those inspections, and there were over 3,000 of those inspections, yielded a very, very small fall-out rate, less than 1%. As Chris said, all of this data goes into our lifing model for the turbine disc, and based upon everything that we knew until very recently, we believe that the life of the turbine disc was such that we would see these discs in the shop and be able to inspect them before we ever had an issue. Now as we looked at the data again over the last couple of months, our safety risk assessment, our safety board went through their process of updating the data based on all the recent findings, and they said, you know what? We’re not absolutely positive that the lifing model is accurate, and so we want to take a look at these discs on a much accelerated basis. I would tell you, that is exactly the way the process is supposed to work, and so we’re going to pull back 200 discs, or 200 engines and look at the discs here in the next 90 days or so. In the next year, based upon those findings from the first 200, we think there’s probably another 1,000 out there, so 1,200 out of a little over 3,000 engines out there have to be inspected. But this is not a manufacture--sorry, it’s not a design issue. In fact, the engineers have been working on this issue hand-in-glove with the safety board and everybody else in manufacturing for the last three years, so I don’t believe that we have an engineering issue. Obviously this was a quality escape back from--you know, sometime between 2015 and 2020, and we are doing, I think, exactly the right thing, which is to bring these engines back, inspect them and ensure the safety of the fleet going forward. I think again, it’s--look, this engine, Ron as you know, has been a challenge since we launched it back in 2015. You guys can remember talking about bode rotors and all the other issues that we had, but if you think about this engine operating at the temperatures that we do, it has been a continuous discovery. This is not one of them. This is simply a quality issue from a manufacturing problem, so I would say, look, we’re on top of it, we’ve got this. It’s going to be expensive. We’re going to make the airlines whole as a result of the disruption we’re going to cause them, and I think we’re going to work ourselves through it. It’s not an existential threat to RTX; it’s not even an existential threat to Pratt. It is a problem, and we have them every day. We’ll solve it. Ronald Epstein: All right, got it. Gregory Hayes: Thanks Ron. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Peter Arment: Yes, thanks. Good morning. Greg, thanks for that color there, I appreciate that. On the powdered metal just specifically, when did you make the change? Was it back in 2020 or ’21, just so we can have better clarity on the engines that are being delivered today? Gregory Hayes: Yes, so it was mid to late 2021 where we changed all the processes in terms of the screening of the powdered metal to identify the contaminant, to eliminate the contaminant. Let’s be clear - this is a--these contaminants are microscopic, and unfortunately the original process, as we scaled up production for GTF, it got away from us a little bit. We fixed it, but I would tell you everything that we have shipped, or almost everything we have shipped, I should say, in the last three years, we believe is going to be just fine. That’s why we’re confident we can continue to support Airbus, continue to support customers with new deliveries, as well as with spares this year and next. Peter Arment: Appreciate it, thanks Greg. Gregory Hayes: Thanks Peter. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Good morning guys, thank you very much. Just on free cash flow, can we walk through the bridge, $1.2 billion of free cash flow usage in the first half, $4.3 billion expectation for the year? How do you think about the biggest drivers on a segment level basis in working capital? What are you expectations for factoring for the year, whether it’s a benefit or a headwind, and do we think about $500 million of Pratt impact for 200 engines, is that the rate we should assume going forward in future years or is that something you guys are working through? Neil Mitchill: Thanks Sheila. This is Neil, and good morning. I will take that one. First of all on the half a billion dollars, I wouldn’t extrapolate that. We need some more time, as I said earlier in the call, so let’s just focus on ’23. As I look at the walk from the first half to the second half, I’ll also say that we ended the quarter with positive cash flow, pretty much as expected, so the back half of the year is as we expected it to be. Obviously there’s some work to do there to generate the cash consistent with the profile we had last year. The major piece is really our--I’d put it in four major buckets. Obviously we have the rest of the year segment operating profit - it’s a little less than $4 billion or so. We feel pretty good about that, consistent with the guides that we just provided and updated. We’ve got capital, second half capital which is going to be a headwind of about $1.4 billion, and then we’ve got a working capital item that we have to kind of burn down - it’s about $3.5 billion, about $2 billion of that is inventory, I’d say split pretty evenly between Pratt and Collins, and then a billion dollars of the net contract asset liabilities, which is principally in the Raytheon segment, and that lines up to milestone payments we expect to receive in the back half of the year, as well as some international advances similar to what we had last year, that would occur late in the fourth quarter. The rest of the puts and takes are really the things we’ve talked about - pension, taxes, interest and other. The net of that is about half a billion dollars of an outflow in the second half. Again, same profile we were staring at 35, 45 days ago. We’ve layered in the Pratt impact - I think that mostly will impact working capital, it may have some capex as well. Sheila Kahyaoglu: Thank you. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: Hey, good morning guys. Gregory Hayes: Good morning Kristine. Neil Mitchill: Good morning. Kristine Liwag: For the Pratt issue, it seems like the free cash flow impact in 2024, 2025 is still a little bit unclear. How should we think about how this affects your 2025 free cash flow outlook of $9 billion, and is that still the number you’re reiterating or should we think about potential downside risk? Neil Mitchill: Hey, good morning Kristine. I’ll take that to start. Clearly all things equal, the issue we just talked about is going to put some pressure on Pratt margins and would put pressure on cash. I think it’s too early to put a number on that. We’re going to need some time to go through and understand what’s the work scope, how does that intersect with already planned work scope and the profile of those shop visits, and of course we’re always focused on trying to drive more out of our businesses and we would do the same here. I think I’ll leave it at that. We will come back to you over the next couple of months with more detail. Greg? Gregory Hayes: Yes, just maybe the way to think about this is we’re going to pull 200 engines back this year, a bunch of those were going to come back anyways, and then next year it’s another 1,000 and a bunch of those were already planned. Having said that, though, we know right now we’ve got 13 MRO facilities, we’re going to have to--our plan was to go to 19, we’re going to have to accelerate some of the tooling - that’s contemplated in this cash. We’re going to have to dedicate some spares to a rotable pool of engines to support some customers. Those things, again, will be behind us, I would say probably by the middle of next year in terms of the cash outflows associated with that. The big question in everybody’s mind will be, what are we going to have to do in terms of compensation to the airlines. We have contracts and special support agreements that are out there, so we’ll work through that but it’s going to take time. I guess the main point, though, is by the end of next year, this inspection program will be almost all complete and the 2025 outlook really shouldn’t be impacted, other than as Neil said, potential margin impact as some of these costs roll through the GTF support contracts. But again, we’ve got two years to work through that and we will figure that out, but in terms of the cash, really probably not a big difference as you get out to 2025. Kristine Liwag: Great, thank you. Operator: Thank you. Our next question comes from the line of Seth Seifman of JP Morgan. Seth Seifman: Thanks very much, and good morning. I wanted to ask a question about the Raytheon business. It looks like, and I want to make sure I’ve got the right recapped numbers here, but it looks like first half to second half, only kind of a modest sales increase expected but fairly healthy profit increase to get to the 150 of profit growth at midpoint. I guess if you could talk a little bit about what gives you confidence in that, especially in light of the option exercise you mentioned, and then also, I thought there was pretty good top line momentum at RND in the quarter, and the degree to which you do or don’t expect that to continue in the second half. Christopher Calio: Hey Seth, this is Chris. When you look at RND--we’ll break it down into the pieces of the new Raytheon segment. When you look at RND, we started to see some positive momentum in particular around material growth, right - about 14% year-over-year material growth. The kit fill rates that we’ve talked about for some time that were hovering in those mid to low 50s, were up into the mid 70s, so we’re starting to see material flow which is a big part of the continued productivity story at RND. At RIS, I would say, again, less material intensive but very good material flow and kit fill rates. The issues that we’re continuing to grapple with are the fixed price development contracts that we’ve got. We’ve mentioned before, we’ve got a handful of fixed price development contracts that are technologically very complex, that we continue to work our way through. We believe we’ll make significant progress on those here in 2023 and into early 2024, but overall again seeing positive momentum on the productivity front at Raytheon. Neil Mitchill: Thanks Chris. Let me add a couple comments here too regarding productivity. I think the first half of the year was encouraging in some regards - we turned the corner a bit. I think on a year-over-year basis for the first half of the new combined business, we’re essentially flat year-over-year. We are expecting about $100 million of productivity step-up in the second half of the year - think about that as--I’m sorry, on a full year basis, so about $75 million or so in the second half of the year. The material receipts is what makes us have the confidence around that path to the second half of the year. The other encouraging point I would say is particularly at the missile business, we saw the sales tick up on that material receipt and the mix of that material had good drop-through on it, so we’re starting to see the transition of the mix of production from development. We talked about 2023 being the low point. That’s how we’ve calibrated this into this revised outlook. We’ve also taken into account the first half performance as we’ve readjusted this realignment in the second half of the year. Seth Seifman: Thanks. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Ken Herbert: Yes, hi. Good morning. Neil Mitchill: Morning Ken. Ken Herbert: Maybe Chris or Neil, if you could dig a little bit further into what you bucketed as the other disruptions as we think about maybe an incremental diversion of engines into the spare pool and how we think about stresses on the capacity of the network as you deal with not only the 200 this year but the 1,000 next year. Within that other bucket, where do you see the primary risks or maybe the greatest unknowns as you think about the potential eventual impact on cash? Christopher Calio: Hey Ken, thanks. This is Chris. I’ll start. As we kind of noted upfront, there are a number of variables that are going into the fleet impact, both this year and next: work scope, making sure we define the work scope for these inspections, the turnaround time, trying to get the turnaround time and do this work as quickly and efficiently as possible, making it into a project visit to the extent that we can, and then optimizing the network capacity. You just heard Greg say we’ve got 13 shops across our network today - we’re adding more shops, but how do we go and optimize that network, because obviously we’ve got with today, as you know, as we’re trying to increase output on the GTF MRO, we’ve got to make sure that we’re inducting the right engines at the right time and making sure that we can do this, I’ll call it new work, new inspection work separate and apart to the extent that we can from the ongoing MRO work. All of that, I’ll call it optimization formula, is still being developed and we’re going to need a little bit more time on that. In terms of the other disruptions, Greg mentioned some of them; but again, we’re going to be looking at our network where all of our work is done to try to minimize any disruption on other programs, more mature programs perhaps that are going through the MRO cycle. Again, how do we make sure that those continue to flow uninterrupted while we do this work, those are the types of things we’re continuing to work through. Ken Herbert: Great, thank you. Operator: Thank you. Our next question comes from Jason Gursky of Citi. Jason Gursky: Hey, good morning everybody. You talked a little bit about the capacity in MRO. Can you talk a little bit about the capacity for the part itself, the internal manufacturing capabilities that you have there and whether this is another potential constraint for you all on the GTF? Christopher Calio: Yes, thanks Jason, this is Chris. Greg mentioned upfront that we’ve had this enhanced inspection technique in place for some time and have been doing these inspections. On the V2500 in particular, we’ve had, I think Greg, you said almost 3,000 of those inspections. I will tell you that the fall-out rate from that on this part has been very, very low, and so at this particular time, Jason, we don’t believe that the HPT will be the limiting factor, if you will, in terms of the turnaround time and our ability to work through this as quickly and efficiently as possible. Jason Gursky: Mm-hmm. If you were to go and do one of these inspections today, do you have a sense of--are we talking about weeks or days, or months to do this inspection? Christopher Calio: Yes, so we’re talking HPT discs, Jason, and so that particular module, you can’t necessarily do that on wing. You’ve got to take the engine off wing, you’ve got to disassemble the engine to get to that particular area. Unfortunately, based on the geometry and location of the part, you do have to remove the part to do this enhanced inspection capability, reassemble and then get it back out to the fleet. I think I mentioned before, we’re trying to turn this into, as best we can, what we would call a project visit, not a full interval shop visit, but that work is still underway. Obviously making sure the wing-to-wing turnaround time is as short as possible and doing what we need to do is an important element of understanding the fleet impact and what we need to do from a network perspective. Jason Gursky: Is there any silver lining to this at all, in the sense that you mentioned optimization on how you’re going to deal with these visits and these inspections? Is there an opportunity here to get through some of the durability swap-outs that you need to do anyway, so that you can kill two birds with one stone, so to speak, as you do these inspections? Christopher Calio: Yes, so when you think about that 2024 shop visit population, we’re going to, again, take a look at the utilization on those, the cycle time on those engines, and in working with our customers making a decision, a mutual decision on is this the right candidate for a project visit or should that work scope increase to take on additional work, which will benefit the time on wing and the interval of that engine moving forward several years. That is a decision, that is a conversation that we will have once we better understand again how many of these visits are truly incremental in 2024, and then the related fleet impacts. As you know, Jason, that is a part of the equation. Jason Gursky: Then lastly, do you think you’re going to learn enough by the time we have the October earnings call to provide us a little bit more clarity on things, or do you think this is going to be a discovery process that takes us out a number of months, into the end of the year? Gregory Hayes: Jason, we’re discovering something new every day here, so I think--all I would tell you is that over the next, I would say six weeks as we finalize the inspection protocols, as we finalize the turn times and work with our customers, keep in mind we’re trying to get the first 200 engines back by the middle of September, so I think by the middle of September, we’ll have a much better feel for what is involved here. We’ll have an opportunity to update everybody around that time. I think by the time we get to October, obviously we’ll know even more as we go through some of the initial inspections, so this is a learning process. We understand what it takes to inspect, we understand what it takes in terms of the inductions and the processes, and unless there is some surprise, I think we can have this pretty well bounded in terms of what the cost impact is, in terms of what the cash flow impact is, and so by the time we get to the third quarter call, obviously we’ll have a hell of a lot more knowledge than we do sitting here today. Jason Gursky: Great, thanks guys. Operator: Thank you. Our next question comes from the line of Cai Von Rumohr of Cowen. Cai Von Rumohr: Yes, thank you so much for taking my call. By my calculations, you delivered something like 1,600, 1,700 GTFs by the middle of ’21, so how do we get to 1,200 engines? I mean, are we sure that’s the number? Could it be a larger number, and is this just related to the PW1000 or does it also impact the Vs? Christopher Calio: Yes, so let me start maybe with the second part first, Cai. Our current assessment is that we don’t expect the same type of impact on the V2500. It has had an enhanced inspection fleet plan and management plan in place for some time, and as I noted and as Greg noted, we’ve completed a significant number of those inspections thus far and feel comfortable that this can be managed at this point within the existing shop visit forecast. As Greg noted, we’re still going through that analysis, it will take us into August to finalize that, but that’s our current expectation. Same on the other Neo applications - there are different characteristics and attributes on those engines, whether it be stress on the part, whether it be thrust, that we believe differentiates it from the 1,100, and such our current assessment is those can be managed within the existing shop visit forecast that we have for 2024. In terms of the population, Cai, you heard Greg talk about when we bounded the potentially contaminated material, we put in place the enhanced processes for powdered metal at that time and also put in the enhanced inspection techniques that we’ve talked about. Many of the engines that have come off, all of the engines that come off since that time have gone through this inspection and have been a part of what we would call this better powder processing regime. Ultimately we will inspect parts when they come in for their normal shop visit on down the line, Cai - as you know, these engines will come back for shop visits and we will inspect this, among other things during that time. What we’re talking about right now are those that we need to accelerate the shop visit for. Again, that’s based on all the variables that we talked about. We feel confident that as part of the safety management board that Pratt has, that we’ve got the right population and the right plan in place. Cai Von Rumohr: Just one quick follow-on, we’ve hit on all the negatives, but you just got this announcement of this $2.9 billion potential AMRAAM order from Germany. Can you give us some color on your munitions outlook in the out years, is that substantially better? Gregory Hayes: Yes Cai, it’s nice to talk about something other than GTF. Look - this AMRAAM order is an order that will be for both Germany, really for all of the NATO countries, that will also benefit Ukraine. I would tell you, that is on top of what we expect to see as relatively large order for GEM-T missiles associated with the Patriot air defense system. We have orders there from Saudi Arabia, we have orders coming from NATO. I think in the back half of the year, you’re going to see significant--we’re planning significant order intake on both AMRAAM and GEM-T, as well as of course Excalibur. Neil mentioned we’ve got the Javelin order, we had the Stinger order already - those orders will continue to grow. But I’ll tell you right now, we still have only seen $2 billion of orders associated specifically with Ukraine replenishment. We think there’s probably another $2.5 billion coming in the next 12 months associated with just the Ukraine replenishment on top of the GEM-Ts, and the GEM-Ts, again they’ll go to Germany, they’ll go to Poland, they’ll go to all 18 of those countries that are currently operating Patriot, so I think that’s a very positive sign and that’s why we’re so bullish on the defense outlook for the next couple of years. Cai Von Rumohr: Thank you. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. David Strauss: Thanks, good morning. Sorry, back to the GTF. Gregory Hayes: Come on! David Strauss: Sorry. I just wanted to ask you about how closely coordinated you are at this point with the regulatory bodies with regard to this, and have they kind of signed off on your plan or is there any risk here of potentially the population or the timeline of these inspections getting accelerated? Christopher Calio: Yes, thanks David, this is Chris. I would say all of this has been very closely coordinated with the FAA. I think you heard me upfront talk about that this will come in the form of a service bulletin that Pratt will publish, and then likely an AD that the FAA will distribute. But our safety management process, whether it be through events that happen in the field, things that we find through our continuous surveillance process or recommendations and assessment like this, are always very closely coordinated with the FAA, and then of course with the other international regulatory bodies as well. FAA of course is where we start, but we of course continue to coordinate with the FAA and those other international bodies, but bottom line, very closely coordinated with them. David Strauss: Okay, and a quick follow-up, you keep mentioning fall-out rate, low fall-out rate. I assume that is where you actually have to replace the high pressure turbine discs. What exactly have you assumed in terms of a fall-out rate, and given it sounds like the inspection here is pretty involved, how much more involved would it be and costly to be to actually replace the high pressure turbine blades versus just the inspection--or discs, sorry? Christopher Calio: Yes, so you’re absolutely right - that’s what fall-out rate means, those that we inspect and decide need to be removed and replaced. Our experience has been that’s been very, very low. If of course we had to replace the turbine disc, then we’d factor that into the turnaround time and that will of course potentially add some time to the process. But as of now, again David, our assumption--and we’re continuing to work through that and through the month of August here, but our assumption based on everything that we’ve seen thus far is that the fall-out rate will be very low, and that’s what’s embedded in our assumptions today. Gregory Hayes: David, keep in mind in order to do the inspection, as Chris said, we literally have to pull the high pressure turbine disc off of the engine and put it through this inspection protocol. Now, whether we put that disc back on or a brand-new one, it’s not a significant impact, and again with a very, very low expected fall-out ratio, I wouldn’t--of all the things I worry about, that would be low on the list. We have plenty of capacity for turbine disc out of Columbus, especially given what we expect to be a very small number of replacements. That is, I would say, the most manageable portion of this. David Strauss: Got it, thanks a lot. Operator: Thank you. Our final question will come from the line of Noah Poponak of Goldman Sachs. Noah Poponak: Hey, good morning everyone. Neil Mitchill: Morning Noah. Noah Poponak: On the powder metal, are you able to bound at this point whether you expect the free cash impact next year to be larger or smaller than this year, and then also following up on the Raytheon defense margins, can you just spend another minute on the fixed price development programs you’re citing - which ones are they, when do they move out of the development phase, and how do they play into the multi-year margin expansion you’re expecting? Neil Mitchill: Sure, yes. First of all on the free cash flow, again Noah, I hate to keep saying this, but we really need a little bit more time to put a finer point on our estimates, and we will come back to you on that part as it relates to ’24 and beyond. But I think we’ve talked at length about what the considerations are there and how we’ll be thinking about that, and that there is a possibility that some of these shop visits are already planned and there will be effects that counterbalance some of this in the out years, so more to come on that front. On the defense margins, you’ll recall back in Paris, I talked about $40 million to $50 million of headwinds we expected from the RINS business, and that happened just as we expected as we closed out the quarter. It’s literally a few contracts - I’d say most of them are classified, so hard to get into the names. The duration, I’d say the most--you know, the period of time that we’re looking at, probably 18, 24 months before those programs are fully behind us. We’re in the test phase, we’re obviously learning through that phase, but I think we have a little bit longer to go here. I think we’ve got it calibrated in the second half of our year outlook, but all the right resources are on it and, like I said, absent that, we are seeing productivity turn in the rest of the business, so it really is a focused set of programs that we’re dealing with. Noah Poponak: Okay, thank you. Neil Mitchill: You’re welcome. Gregory Hayes: Okay, thanks to everybody for listening in. Just to put all this in perspective, I think you need to keep in mind, we have very strong franchises between Collins, Raytheon and Pratt & Whitney, and the $185 billion of backlog. I know this GTF issue, this quality issue is a bit of a surprise. We have been working it for the last, I would say, 10 days or so. We will know a lot more in the next six weeks, and as that information becomes available, we will of course be sharing it with investors. But again, keep in mind this is a small piece of what is a great franchise across RTX. Having said that, Jennifer and her team are obviously going to be available the next couple of days to answer any follow-up questions that you have. Thank you all for listening, and take care. Bye bye. Operator: This now concludes today’s conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the Raytheon Technologies First Quarter 2023 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Chris Calio, President and Chief Operating Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download from Raytheon Technologies' 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 nonrecurring 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 risks and uncertainties. Raytheon Technologies SEC filings, including its forms 8 -K, 10-Q and 10-K, 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. [Operator Instructions] With that, I will turn the call over to Mr. Hayes. Gregory Hayes : All right. Thank you, Latif, and good morning, everyone. I trust everyone had a chance to see the press release. It was clearly a good start to the year for RTX, and demand remains strong for both our commercial aerospace and our defense businesses. And I think, importantly, we're seeing some stabilization in the supply chain. Before we get to the highlights for the quarter, let me just spend a couple of minutes on the macro environment. Starting on the commercial side. Domestic revenue passenger miles are now back to pre-pandemic levels, 2019 levels, as we exit March. This was led by a very strong rebound in China following their zero COVID policy reversal. On the international front, we have seen continued improvement in RPMs, reaching nearly 80% of 2019 levels. With strong consumer demand and record advanced bookings, we expect total global air traffic to fully recover to 2019 levels as we exit the year. On the defense side, we're very encouraged by the President's most recent fiscal year '24 budget request of $886 billion. That's up about 3%. And that's on top of last year's nearly 10% top line budget increase. The proposed budget includes broad-based support for many of our key programs, technologies and capabilities, including a request to fund multiyear munitions purchases for AMRAAM. It also prioritizes HACM, that's the Hypersonic Attack Cruise Missile, as the future long-range hypersonic missile. And perhaps most importantly for us, the budget reflects the DoD's decision to move forward with the engine core upgrade for the F135 engine, which we believe is a win for both the war fighter and the taxpayer. This program will solidify Pratt & Whitney's position on the F-35 and will provide additional thrust, range and efficiency necessary to support the needs of the war fighter well into the next decade. Looking internationally, we're also seeing strong demand for defense capabilities as our allies prioritize additional defense spending. Poland recently announced plans to spend 4% of their GDP on defense this year. That's the highest level across all of the NATO countries. And we continue to support Ukraine's ongoing needs, including the Pentagon's accelerated deployment of the Patriot missile defense system, adding another RTX capability to the Ukraine mission. Clearly, the demand environment remains strong across our end markets. And with that as a backdrop, let's turn to Slide 2 for the Q1 highlights. Importantly, we exited the quarter with a record backlog of $180 billion. This included over $20 billion of new awards from some of our key franchises in the quarter. As an example, RMD received a $1.2 billion award for Patriot for Switzerland. That marks the 18th Patriot partner nation. RIS was awarded $1.9 billion in classified awards. We also delivered solid financial performance with strong year-over-year organic sales growth of 10% and adjusted EPS of $1.22. Regarding free cash flow, we started the year slowly due to some timings of higher working capital, which Neil will talk to you about in a bit. Importantly, though, we remain confident in our full year outlook of about $4.8 billion of free cash flow. As expected, sales growth was led by commercial aerospace, with aftermarket up close to 20% and OEM shipments up close to 17% year-over-year. Additionally, in the quarter, we achieved an incremental $50 million of gross merger cost synergies, and we are quickly approaching the $1.5 billion target, with more opportunities still ahead. On the capital allocation front, we repurchased more than $560 million of our shares in the quarter. And we remain on track for $3 billion of share repurchases for 2023. And as you saw yesterday, we increased our dividend over 7% from $0.55 to $0.59 a share, in line with our commitment to return at least $20 billion to shareowners in the four years following the merger. We've done all this while continuing to invest in R&D, additional capacity, automation and the digitization of our production facilities in order to support our growing backlog. As you can see, we're extremely well positioned for growth this year and well into the future. Every day, we are furthering our integration to unlock the scale and breadth of RTX, all while driving additional technology synergies and a focus on operational performance. With that, let me turn it over to Mr. Calio to talk about the progress we're making in regards to our business realignment. And I'll be back at the end for a wrap-up and Q&A. Chris? Christopher Calio : Well, thank you, Greg, and good morning, everybody. I'm on Slide 3. As you know, we announced back in January, our plan to realign our portfolio into three business units: Collins Aerospace, Raytheon and Pratt & Whitney. And as we said, this realignment has three primary objectives. The first is to better align our market-leading franchises with our customers' priorities, ensuring more effective coordination and collaboration across our businesses. The second is to enhance our performance and capture additional synergies from both a product and technology standpoint. And third, to better leverage our resources to optimize our investments and cost structure. So let me update you on where we are in the process. After continued internal analysis and customer engagement, we determined the major content shifts within our portfolio necessary to achieve these objectives. First, the multi-domain command and control solutions of RIS and RMD will transition to the Mission Systems strategic business unit within Collins to create a more focused business to support connected battle space opportunities. Additionally, RIS' Air Traffic Management business will be integrated into Collins' Connected Aviation Solutions strategic business unit, further consolidating what we call the connected ecosystem of flight data and management into one business. These two moves will put Collins at the center of our company-wide collaboration efforts. They will now be responsible for more than half of our revenue synergy projects. In parallel, we will move Collins' intelligence, surveillance and reconnaissance business to the new Raytheon business unit, combining complementary sensing and imaging technologies to improve our offerings for multiple customer applications. And lastly, the new Raytheon business will merge the remaining RIS and RMD businesses into strategic business units aligned around specific customers, such as the Air Force, Army, Navy, space and missile defense. When this is complete, the top customer of each of these strategic business units will account for 70% or more of that business unit sales. In addition, we'll establish a strategic business unit that will operate like a merchant supplier within the Raytheon business unit. We'll centralize components and subsystems that are sold internally as well as to a broad array of government, commercial and other prime customers. enabling us to sell more effectively into these channels. As part of this realignment, we're pleased to announce that the new Raytheon business unit will be led by Wes Kremer, currently the President of RMD. Wes has over 20 years of experience across multiple businesses and product lines within Raytheon and is uniquely qualified to lead this business. We are now in the middle of the implementation phase, including our analysis and validation of targeted gross cost savings. We provide more details on the new design and the implementation status, including those savings at our investor meeting at the Paris Air Show. So overall, good progress thus far as we remain focused on our goal to operate under the new structure beginning in July. With that, let's move to Slide 4, and I'll provide an update on the current environment. In general, not a lot has changed since we spoke back in January, and demand remained strong across our end markets. On the defense side, as Greg mentioned upfront, some of the awards we received in the quarter and our record backlog. On the commercial side, we saw strong aftermarket growth in the quarter as airlines are preparing to support the busy summer travel season. With air traffic increasing and retirements remaining very low, we continue to see strength in parts, repair, provisioning and maintenance across our end markets. Given this demand, our focus remains on ensuring we have the capacity, supply chain performance and operational excellence necessary to meet our commitments to customers. So let me start and provide some color on capacity. In RMD, we continue to invest in new test equipment, tooling and automation at our Tucson, Andover and Huntsville facilities to support the ramp-up on key programs such as AMRAAM, StormBreaker, SM-3, SM-6 and Patriot GEM-T. At Pratt Asheville, North Carolina turbine airfoil site, we now have 63% of machining production assets on site and are progressing towards first article inspection by the end of May, on our way to improving productivity and cost in support of the high-volume GTF and F135 programs. While in Tucson, we recently completed a classified space conversion, bringing our total number of classified seats added over the past two years to almost 1,000, with the expectation of an additional 900 more by the end of '23. This will create the classified lab capacity for RMD to execute on recent development wins such as HACM, HALO and NGI. Furthermore, we are expanding our MRO network. This past quarter, two new facilities joined the GTF aftermarket network, a second MRO shop in Japan and a 155,000 square foot shop at Delta Airlines TechOps in Atlanta. We, of course, also remain very focused on the health of the supply chain, which continues to be a challenge from a performance and cost perspective. Starting with performance. While we have experienced stabilization in certain areas, such as electronics, continue to experience challenges in castings, forgings, raw materials and machining. And you've heard us talked before about our in-person support embedded our supplier sites, and that continues to increase. Today, we are present in more than 400 suppliers, with a focus on high-impact locations. And specific to defense, we have significantly increased on-site support in the last quarter, allowing us to help clear bottlenecks, better execute engineering and quality initiatives and provide improved overall visibility. And at RMD, this helped yield a 5% improvement in material receipts year-over-year, enabling increased flow through our factories. Additionally, we held an RTX supplier conference just a few weeks ago, where we engaged with about 70 key suppliers to review detailed action plans to ensure future capacity and to reduce current overdue positions. On the cost side, the overall inflation picture remains persistently high, and we are attacking those inflationary pressures from several angles. We have almost 2,000 cost reduction projects ongoing related to our supply chain, both product and non-product, including negotiating better contractual terms, transitioning work to lower cost sources and part redesigns to reduce cost. We're also going deeper into our supply chain to better understand their usage of constrained raw materials, such as aluminum, titanium and nickel, so we can get a complete picture of our embedded spend and to leverage total raw material purchases, drive improved cost positions and secure supply throughout our value stream. And lastly, we continue to leverage our core operating system to execute on our cost reduction initiatives as well as footprint modernization. As we previously talked about, we have thousands of ongoing projects, many of which are at the manufacturing line or cell level to take costs out of our operations. These range from things like redesigning material and machining flow to reduce labor hours and cycle time, implementing closed door machining to enable the completion of a part in one continuous process without any operator intervention. But these are relatively small initiatives with short paybacks. They are part of a continuous commitment to improvement and efficiency. So before I turn it over to Neil to recap the financials, I do want to provide a brief update on the GTF program. As you know, since the GTF program went into service in 2015, we have continued to introduce upgrades and improvements to increase reliability and durability. With respect to reliability, we have met the target level for dispatch reliability. This is now at mature engine levels. With respect to durability, we have improved time on wing since program inception. Again, time on, meaning how long engines can be operated before needing to be removed for maintenance. But we are not yet at the level we and our customers expect. This has put stress on the operations of the fleet. We continue to develop upgrades to the current GTF configuration to improve durability. We are also expanding our MRO capacity and working to reduce shop visit turnaround times to improve service availability. It will take some time to realize these benefits, but we are continuing to invest in time on wing improvements as we were able to do over the course of the V2500 program. And of course, in parallel, we continue to execute on our GTF Advantage Development Program, our next-generation GTF configuration, that will incorporate all of our experiences and technical learnings since entering into service. Okay. With that, let me turn it over to Neil to walk through our financial results. Neil Mitchill: Thank you, Chris. I'm on Slide 5. As Greg noted, sales of $17.2 billion were up a strong 10% organically versus the prior year. This growth was driven by both commercial aerospace and defense, despite some of the environmental challenges we continue to face. Adjusted earnings per share of $1.22 was up 6% year-over-year, with strong segment operating profit growth of 15%, partially offset by the expected lower pension income and a higher effective tax rate. On a GAAP basis, earnings per share from continuing operations was $0.97 per share and included $0.25 of acquisition accounting adjustments, restructuring and nonrecurring items. And finally, free cash flow was an outflow of $1.4 billion in the first quarter, which is historically our lightest quarter of the year due to the timing of incentive compensation payments and seasonality in our defense businesses. In addition to these typical dynamics, the timing of sales and cash collections as well as supply chain and capacity constraints drove higher working capital in the first quarter of this year. We expect to generate positive free cash flow beginning in the second quarter as commercial deliveries accelerate and performance as well as other funding milestones are achieved. And importantly, as Greg said, we remain confident in delivering about $4.8 billion in free cash flow for the full year. So with that, let's turn to Slide 6 and get into the segment results. Beginning with Collins. Sales were $5.6 billion in the quarter, up 16% on an adjusted basis and up 17% on an organic basis, driven primarily by the continued recovery in commercial aerospace end markets, resulting in higher flight hours and higher OE production rates. By channel, commercial aftermarket sales were up 24% on an adjusted basis and 26% organically, driven by a 43% increase in provisioning and a 29% increase in parts and repair, while modifications and upgrades were up 1% organically in the quarter. Sequentially, commercial aftermarket sales were up 8%. Commercial OE sales were up 12% versus the prior year, driven by production ramps in narrow-body, business jets and widebody. And military sales were up 9% due to both higher material receipts and manufacturing throughput. Adjusted operating profit of $800 million was up $216 million from the prior year, with drop-through on higher volume and favorable mix, partially offset by higher production costs and higher SG&A expense. Looking ahead, on a full year basis, we continue to expect Collins' sales to grow low double digits and operating profit of between $750 million and $825 million increase versus 2022. Turning to Pratt & Whitney on Slide 7. Sales of $5.2 billion were up 15% on an adjusted basis and 16% on an organic basis, with sales growing across all segments. Commercial OE sales were up 27% in the quarter on higher engine deliveries within both Pratt's large commercial engine and Canada businesses. Commercial aftermarket sales were up 14% in the quarter, primarily driven by increased volume and favorable mix. And in the military business, sales were up 13%, driven by the F135 production contract award in the second quarter of last year and higher F135 sustainment volume. Adjusted operating profit of $434 million was up $126 million from the prior year, driven primarily by drop-through on higher commercial aftermarket, favorable contract matter and higher military sales, which was partially offset by conversion on higher commercial OE volume. Turning to Pratt's full year outlook. We continue to expect sales to grow low to mid-teens and operating profit growth of $200 million to $275 million versus 2022. Shifting to RI&S on Slide 8. Sales of $3.6 billion were in line with our expectations and flat versus prior year, both on an adjusted and organic basis. This was driven by lower command, control and communications programs, which was mostly offset by higher revenue from Cyber and Services programs. Adjusted operating profit in the quarter of $330 million was down $48 million versus prior year, driven primarily by lower net program efficiencies spread across several programs. RIS began the year with strong orders in the quarter of $4.3 billion, resulting in a book-to-bill of 1.34 and a backlog of over $17 billion. This brings RIS' rolling four-quarter book-to-bill to 1.09. In addition to the significant bookings Greg mentioned earlier, RIS also received a $650 million award for the next-generation jammer and a $275 million Space Development Agency award for missile tracking satellite constellation. Looking ahead, we continue to expect RI&S' full year sales to be flat with operating profit growth of $75 million to $125 million versus 2022. Turning now to Slide 9. RMD sales were $3.7 billion, up 4% on an adjusted basis and up 5% organically, primarily driven by higher sales in the Advanced Technology and Air Power programs. Adjusted operating profit of $335 million was down $52 million versus the prior year, driven by the lower -- by lower net program efficiencies and higher development program mix, partially offset by higher volume. Lower net program efficiencies included the unfavorable impact of a significant option exercise in the quarter, which had about a 100 basis point impact on the margin. Like RI&S, RMD's bookings were also very strong to start the year with $5.2 billion of bookings in the quarter, including an over $600 million SPY-6 award. This resulted in a record backlog of $35 billion and a book-to-bill of 1.43 in both the quarter as well as on a rolling four-quarter basis. And for the full year, we continue to expect RMD sales to grow low to mid-single digits with operating profit growth of between $175 million and $225 million versus 2022. With that, I'll turn it back to Greg to wrap things up. Gregory Hayes : Okay. Thank you, Neil. I'm on Slide 10 here. Just a couple of thoughts before we open it up for Q&A. I think first and foremost, given the strength of our backlog and the continued end market demand, we, as a team, remain extremely confident we can deliver our '23 guidance and our 2025 commitments. Our success, of course, begins with ensuring that we're meeting our customers' most critical needs. We're keeping a watchful eye on external factors. And I would tell you that Chris and the entire senior leadership team remain laser-focused on mitigating supply chain constraints and driving productivity and efficiency improvements across all of the businesses. More importantly, we're continuing to invest in innovative solutions and differentiated technology that will continue to drive long-term growth. Last thought is, earlier this month marked the third anniversary of the merger. We've been able to accomplish a lot so far even with this challenging environment, and we know there's a lot more progress we can make with the ongoing business realignment, which will set up RTX for success for decades to come. We look forward to sharing more of this information on our transformational efforts and our long-range outlook during our Investor Day at the Paris Air Show on June 19. With that, let me open up the call for Q&A. Latif? Operator: [Operator Instructions] The first question comes from the line of Myles Walton of Wolfe Research. Myles Walton : Hey, Greg or maybe Chris, I don't know which. But on RMD, obviously, this has been one where you're sort of trying to get to the bottom of the issues. And it sounded like it was a contract option exercise. It was 100 basis points. But even with that, you obviously have an implied 12.5% margin for the rest of the year in the guidance. So I'm just curious, what's driving that? How profitable is the backlog growth you've now built up? I think that's one of the questions that everybody has. And I know after realignment, RMD won't exist, but it will still be part of the business, obviously. Christopher Calio : Hey, Myles, this is Chris. Thanks for the question. Look, agree, we'd like to be seeing the margins improving at a bit of a faster rate. But there are some real positives in this business when you step back. Most of it will be the backlog. If you think about the book-to-bill over the last 12 months, it's a 1.43, which is really phenomenal, with some key wins in some potential franchise areas. As Neil noted in his remarks, we did have a contract option exercise in the first quarter. It's a good business. Let's make no mistake about that. But because of the accounting resulted in a bit of a negative impact, about 100 basis points. If you exclude that, it would put RMD at a bit over 10%, sort of in line with where we were in Q4. As you sort of look ahead to the RMD margin profile, the two principal drivers of that margin improvement are going to be material flow and flow in our factory. And of course, just absorption brought on by higher material receipts and of course, the labor that goes with it. So if you think about the factory flow, we had a 15% increase in Q4 in terms of material sheets. Another 5% here in Q1, and we're starting to see the results in the factory. You heard Greg talk prior about kit fill rates being in the 50s. The material flow that we've seen lately has brought the kit fill rate up into the low 70s. Our historical rate is in more the mid-80s. But as we continue to drive more material, you'll see more material flow in the factories, getting those kit fill rates up. And that's going to reduce the period of performance. And then again, the second one, again, is just math. With increasing material volume in labor, we're going to see better absorption of our fixed and indirect support costs. So more productivity there. So that's the margin sort of profile and story in RMD. Myles Walton : Okay. And is it particularly back-end loaded to the year out of management in the second half? Neil Mitchill : Myles, this is Neil. Yes, I expect that to accelerate as the year goes on. But I would point to the second half. As Chris said, with the kit fill rates in the 70s, as that grows into the 80s and then higher as the year progresses, you'll see the productivity, the confidence around our ability to shorten that period of performance improve. And that will show up in the EACs. The other thing I'll say is that option we had, again, as Chris said, good business. There may be another one. But again, this is really good business coming on the heels of increased customer demand. So we'll be sure to continue to talk about that. But I think the fundamentals of the backlog are strong. As we look at the margin embedded in that backlog, it's above 10%, and that gives us the confidence that, that margin expansion will come over time. Operator: Our next question comes from the line of Noah Poponak of Goldman Sachs. Noah Poponak : Can we just spend a little bit more time on the Pratt margin? And I guess, what's happening with pricing in the aftermarket, maybe specifically in the engine? Just sounds like out there in the industry, given limited parts supply, limited MRO availability that pricing is maybe much better than normal. So curious what you're seeing on that front, especially things that are not on some version of a long-term agreement? And what does that mean for the Pratt margin going forward? Gregory Hayes : No, let me start. It's Greg. First of all, on the pricing side, with all of the inflation that we've seen over the last 18 months, I would say Pratt and Collins were both relatively aggressive last year in catalog price increases. And so I think we are seeing some of the benefits of that aftermarket part increase. But keep in mind, on GTF, for instance, more than 75% of all of those customers are on long-term support agreements. So you really aren't seeing the benefit of pricing there. Similarly, on the OEM contracts, again, we have some benefit of pricing, but it is very limited based upon the indices. Obviously, there's a dead band there. So we're not getting, I would say, a lot of pricing power today. It's not to say that we won't improve as time on wing, as Chris was talking about, improves, margins will improve, but pricing is not the driver of this. This is really demand-driven is what's driving top line here. Neil Mitchill : Maybe I'll just add about the margin profile of Pratt. Obviously, as we look at the rest of the year, Noah, we expect the engine deliveries to increase. Think about between 35% and 40% year-over-year. You saw 42% in the first quarter. That will obviously come with some negative engine margin headwind. I would put a number around $250 million in terms of rest of year NEM headwind that would then, coupled with the strong aftermarket that we're expecting to continue at Pratt, you'll see that margin sort of level out as the year goes on and those engine deliveries increase. Operator: Our next question comes from the line of Rob Stallard of Vertical Research. Robert Stallard : Maybe just a follow-up actually on Noah's question with regard to Pratt. 14% aftermarket growth year-on-year in the quarter, given the aggressive price increase that Greg referred to, feels a bit low. And then secondly, on those GTF volumes, how do those compare versus Airbus' A320 ramp plan? Neil Mitchill : Okay. So let me start on the aftermarket. 14% Pratt & Whitney consolidated level aftermarket growth on top of 37% a year ago. So when I think about that, it's still very strong growth. We have seen shop business increased low double digits here in the first quarter, and we expect that to continue as the rest of the year continues, Rob. I would tell you that the legacy engines remain very strong, even the PW2000s and 4000s. On the V2500, the shop visits continue. They are paced by some of the structural casting issues that we've talked about. So I think as we've seen improvement there, and I'll let Chris talk about that in a minute, we do expect to see accelerated growth in terms of the Pratt & Whitney aftermarket on a full year basis. We still think Pratt's aftermarket will be up 20% to 25% year-over-year. So nothing concerning in the first quarter results, as you know, incredible demand as we look at the rest of the year for the flying fleets of the Pratt engines. Christopher Calio : Hey, Rob, this is Chris. Maybe just a comment on the OE deliveries. Greg mentioned stabilization in the supply chain. I would say on structural castings, we continue to see some improvement, and that's obviously critical for Pratt. If you think about the key constrained castings at Pratt, they are up about 30% sequentially this quarter. Now that's not to the level of flow that we need. We continue to see some manpower sort of labor challenges in that supply chain, and we're taking some actions to try to address that, whether it be offload, whether it be helping to improve yields in the manufacturing process. But we are lockstep with Airbus on their demand for the year. And we are hand-to-mouth right now given some of the constraints. But again, lockstep with the demand, and that will continue to increase as we move into the back half of the year. Neil Mitchill : Chris, maybe just to add on to that a little bit. The key constrained structural castings, that 30% is a sequential improvement in the number of castings that we've been able to get in the first quarter. So continue to have the challenges, but good sign as we gain momentum starting the year. Operator: Our next question comes from the line of Matt Akers of Wells Fargo. Matthew Akers : I wonder if you could touch a little bit more on working capital. I mean a little bit of a bigger impact than we've seen in Q1 prior year is kind of spread across contract assets receivable inventories, anything that kind of drove that this quarter? Neil Mitchill : Sure. Thanks, Matt. Certainly, working capital was a drag on the quarter. I would say about -- we typically see a breakeven-ish type cash flow. We were expecting probably a slight outflow. It's obviously a little bit worse than that. About $500 million of that I would characterize as an inventory build. The silver lining here is that with the easing of the supply chain constraints, we've seen an incredible amount of inventory come in. We're also looking to balance that and make adjustments in our MRP as we look at the rest of the year, but about I'd call $500 million of the excess there associated with the inventory build, we increased our inventory $700 million. So we plan to grow our inventory and sort of a good news situation, it grew a little bit further. I fully expect that to turn the other way as we go through the rest of the year. On the contract asset side, that really was in our defense businesses. Again, the seasonality of those businesses is that we invest in the products. We ship them, and then we make milestone collections as we meet performance milestones. I expect those performance milestones to be met as we go through the rest of the year. So again, slightly higher than we had planned. We did get those billings out in early April, and they've already been collected. So I'm not concerned about that. Then the last piece we saw in terms of the first quarter was a slight increase in our receivables, probably about a couple of hundred million dollars. And frankly, that's due to the timing of sales. They came a little bit later in March. We'll collect that here in the second quarter. So as we look at the rest of the year and I think about getting from the outflow of $1.4 billion, up to our objective of 4.8 or so, here's how I would characterize that walk. The majority of that is going to come from profit that we've yet to realize. So nearly $5.5 billion, $6 billion there. We expect working capital to be flat year-over-year. So we'll have an improvement of about $2.7 billion, about half of which will come from inventory. We've got some puts and takes, a few hundred million dollars net of taxes and pension and then, of course, a little under $2 billion of capital, CapEx left to go in the year. And if you do all that math, you get to about the $4.8 billion. If you look at the fourth quarter of last year, I think we generated about $2.2 billion of cash. So I do expect it to be back ended, but turning cash positive in the second quarter, pretty consistent with what we saw last year, which was in the $750 million range and that's after absorbing about $650 million of incremental cash taxes that we'll pay here in the second quarter because of the R&D impact. So we feel confident in the full year. Obviously, a lot to do, but it's nice to have the inventory given the strength of the demand that we're all seeing here in the business. Operator: Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu : Neil, since you're so good with the numbers and you keep giving us detail, I wanted to ask another one on Pratt performance. What drove the strength in the quarter of 8.3% margins versus the 6% implied for '23? And sort of what drives the lower margins for the year? And how do we think about the aftermarket drop-through given some of the prior commentary on GTF aftermarket? And how do we think about the PwC and military mix as well? Neil Mitchill : Four questions. Let me seat back and remember them all. Here we go. So in the first quarter, as I think about the 8.3% margin for Pratt, there are really two things that I would point to. Clearly, we had the drop-through from the aftermarket growth. So you have that. We also had a favorable contract matter settled. That was about $50 million or $60 million. So that won't repeat, but it was good news. And we also had -- we had year-over-year headwind in negative engine margin of about $50 million. But obviously, I expect as we go through the rest of the year, as I said earlier, about another $250 million of headwind as those engine volumes step up. So I think that's the Pratt story. We clearly will see the continue to grow in the remainder of the year. We'll get good drop-through on that, and that should help to partially offset the negative engine margin headwind that will come with the higher engine deliveries. The other piece of that in terms of thinking about the GTF and time on wing, basically, what I can say is our estimates today contemplate everything that we know about the engine. We feel very comfortable with where we are with our contract accounting. And any challenges in terms of cost or additional resources we need to put into that area are already contemplated in the outlook that we have for Pratt and for RTX as a whole. So I don't see that as being a headwind against our expectations for the year. I feel like I missed one of those. Sheila Kahyaoglu: It’s okay. I have too many. Thank you. Operator: Our next question comes from the line Peter Arment of Baird. Peter Arment : Question is for Greg or Chris, maybe just focusing on RMD and just $35 billion backlog. I mean you've had some big wins. Obviously, Switzerland was a big one. But maybe if you could just talk a little bit about obviously, customer engagement is very high or probably at its highest levels ever. Maybe you could just talk about kind of the backdrop, the ability to continue to grow backlog or some of the bigger booking opportunities that are still out there? Gregory Hayes : Yes. Peter, let me start, and then I'll turn it over to Chris. But look, we had a very, very strong bookings quarter at RMD. Obviously, the Patriot, $1.2 billion for Switzerland. So that's a war we've been working on for a number of years. It's the 18th country to be a Patriot operator. But we see continuing demand that even is still not in the backlog. We know -- for instance, so far, we've only seen about $2 billion of awards related to Ukraine munitions replenishment. We expect that we'll see more of that coming up later this year and into next year. We also know that as LTAMDS, which is the Patriot upgrade system, is certified later this year, that we'll start to see orders internationally for LTAMDS also start to pick up as well as the U.S. DoD. Also, I think, you're going to see very strong bookings on SPY-6. SPY-6 is the new radar system for the Navy. We've had the initial low rate production contract on that, but again, much more to come on SPY-6, not just this year but into the future. On top of that, of course, AMRAAM continues to be very, very solid. There's Tomahawk, which will eventually be replaced by the LRSO. The fact is the backlog at RMD is only going to grow, we think, over the next couple of years. I think, again, one of the issues that RMD has, if you will, is you're going to see lower margins on some of these new development contracts, which is depressing the margin this year and next. That will start to turn around as we get into 2025, but it's going to take some time, but that is going to grow. And the other piece of the puzzle we don't really talk a lot about is the other international customers. Right now, our international sales in RMD are only about 30%. That's below historical levels. That should also improve as we get into LTAMDS, the next generation of AMRAAM delivery. So lots of good news out there. And for us, it's just a question of getting it out the door at this point. As Chris mentioned, we still are constrained from a supply chain standpoint, although it's getting a hell of a lot better. We still have work to do, and we talked about structural castings at Pratt. For RMD, it's all about rocket motors. And that impacts TOW, that impacts Javelin, that impacts Stingers, that impacts SM-6, SM-3. So again, as we work through those supply chain issues on rocket motors that should also drive extraordinary growth in the top line over the next couple of years. Operator: Our next question comes from the line of Ron Epstein of Bank of America. Ronald Epstein : A question that's come up a lot among investors is when you think about the GTF and its variance and all the long-term contracts that have been sold with it -- correct me if I'm wrong, it was about 80% of those engines have been sold with the long-term contracts? Gregory Hayes : Correct. Ronald Epstein : And you're having this time on wing issues. Like you mentioned the Sheila, it's not an issue this year. But as we go out over time, how can we get confidence that those contracts were actually priced right, particularly the ones that were put in place earlier in the program? Gregory Hayes : Ron, let me I'll turn it over to Chris. Obviously, Chris is intimately familiar with this having run the commercial engine business in Pratt. I would say the one bright spot is most of those contracts were eight to 10 years in length. If you think about it, they were -- this engine was introduced back in 2015. So as you think about the long-term outlook, I am very confident margins are going to improve because we'll have a chance to relook at some of those contracts. But obviously, there's a challenge today with margins because time on wing is not what we expected it to be. Reliability and durability are the two issues. And reliability is great. 99.98% dispatch reliability. Time on wing is the challenge. But again, I think as Chris explained, we've got some solutions to that, which we'll see over the next couple of years. Christopher Calio : Yes. And just to build on that, Ron, this is Chris. This is why that we are running as fast as we can to continue to insert upgrades into the fleet during shop visits. We've talked before about the sort of the block D upgrades, which are really aimed at combustor hot section, improving time on wing in those areas. That's only about we're only about 50% of the way through the fleet in terms of those upgrades. And so again, we've had some part constraints and shortages and labor in our MRO network, which has which has impacted our ability to output MRO to the levels that we and our customers want, which is why we're adding more capacity to that MRO network. You heard me talk about the new Japanese facility, delta, obviously, a top-tier provider joining the network helpful there as well. So adding capacity to networks where we continue to accelerate these upgrades and improve the time on wing. At the end of the day, that's what it's all about. In addition to the contract mix that Greg talked about, it's also about accelerating our repair development, making sure that we've got a full suite of repairs in our MRO networks so that we're not always having to replace parts. We can repair parts at a better cost and improve turn times. Ronald Epstein : And if I may, as a follow-on to this question, same thing. My understanding is the gear is just fine. It's the other stuff that's wearing out quicker. How did that happen? Because it was -- everybody was worried about the gear, not the other stuff. Gregory Hayes : I think to your point, Ron, the gear has proved to be extremely reliable. We have not seen a gear failure out there in any of the 3,000 engines or so that we've delivered. But again, we're operating in some very harsh environments. And I would tell you that we probably didn't spend enough time testing for those harsh environments, specifically places like India. And that's where we've seen the lower life on the combustor. We've seen some lower life the turbine blades just because of the harsh conditions there. So as we move forward to Chris' point, we have the advantage coming online. It's got a lot more testing. It's got all the learnings from the existing fleet. This should be significantly more durable out there in terms of time on wing. It's going to take us a couple of years before we can get all of those upgrades introduced. Neil Mitchill : To your point, Greg, and Ron, you're 100% right, the gear and the fuel burn performance have been spot on in meeting expectations. Keep in mind, this was a new architecture, and we've had some learnings along the way. The only thing I'll remind you, I kind of mentioned this in my remarks, we had a similar journey on the V2500. And it took us a while to get to the levels today that people are enjoying on the V2500. Big difference, of course, has been the ramp up on the GTF has been massive ramp versus when the V went into service. So there's a little bit more, I would say, time and buffer to help manage that fleet as it was entering into service. But the playbook is there on the V. We've got to follow it on the GTF. Operator: Our next question comes from the line of David Strauss of Barclays. David Strauss : Greg, specifically on the MAX, I think you previously commented that the expectation around Collins and the OE growth rate there was for the MAX to be in the low 30s for you all for the full year. Is that still what you're thinking even with the new issues that have developed here? And then second part of the question, just on rocket motors. Your view of the potential Aerojet acquisition by LHX and how that potentially could improve things in terms of rocket motor availability? Gregory Hayes : Yes. In terms of 737 MAX, I think current production rate is about 31 a month. Boeing had talked about moving that up to 37 a month by the end of the year. I would tell you, Collins is right now, I think we're all set at the 31 a month. And it might get a little bit better during the course of the year. But I think, again, that wouldn't be an issue in terms of our ability to ramp production to meet that. But right now, again, I think Boeing has got some challenges. We'll hear what they have to say here in another day or so. But we're, I would say, in constant contact with both Boeing and Airbus on OEM rates both at Pratt and at Collins. So no surprises there to think of or to talk about. As far as rocket motors, obviously, the potential acquisition by L3Harris of Rocketdyne is something that we have been discussing. The -- there's always a concern, I think, when you have one of your key suppliers going through a merger or an acquisition is that they lose focus on delivering and quality. And we are, again, laser focused. We've got folks out at Aerojet Rocketdyne every single day. We'll see what happens. I know there's a second request right now with L3Harris as it relates to their potential acquisition. And we have been obviously in contact with everyone as it relates to that. So we'll have to see what happens. But I would tell you, in the current antitrust environment, no deal is certain until it is actually done. So we'll have to see how this plays out and make sure that, again, the Aerojet Rocketdyne continues to focus on delivery and not get distracted by this deal. Operator: Our next question comes from the line of Rob Spingarn of Melius Research. Robert Spingarn : Neil, just going back to Collins. And I think in 2019, about 40%, 45% of the aftermarket there was from widebodies. I wanted to see if you could update us on where that is now? And how it's trending relative to narrow bodies, maybe this year and next? Neil Mitchill : Thanks for the question, Rob. I think what I would say about the growth at Collins right now is the majority of it is still coming from the narrow-body. We have started to see wide-body begin to improve. I don't have the exact number in front of me on that mix today. But as we think about the wide-body environment, those volumes are coming up. I would say, particularly seeing that in the interiors business on the OE side, as they continue to take those production levels up. And as you said, today, I think Collins is more in the -- on the OE side, probably about 30% of their OE sales relate to widebody, with about 40% from narrowbody. And then on the aftermarket side -- I'm sorry -- let me just stop there. I think that's enough for those numbers right now. Robert Spingarn : Okay. If I could just ask for a follow -- just a follow-up to Ron's question on the GTF losses, on the -- on engine delivery. And I think you mentioned recently somewhere that that's about $1 million per engine. Yes. How much of that is learning curve versus need for new productivity versus volume? In other words, which of those three things will improve the most? Neil Mitchill : Volume. Clearly, volume, as we continue to ramp back up to levels that we saw pre-pandemic, are going to be the tailwind, if you will, on a per engine reduction in negative engine margin. As you'll recall, we were already producing in the high 50s rate as we kind of entered into 2020. And when you think about the headwind we saw here in the first quarter on 40% higher volume, we're getting good absorption as we continue to take up those engine volumes. I expect that to continue. We're always working productivity. We're working productivity to offset the growing costs that we're seeing, particularly on the casting side. So we're doing all of those things. But I would say what's going to drop to the bottom line is going to be driven by that higher volume and the absorption that comes from that. Operator: Our next question comes from the line of Ken Herbert of RBC. Kenneth Herbert : I wanted to stay on Collins' aerospace for a minute. The first quarter aftermarket numbers were continuing to be pretty strong. You're seeing better pricing. Is it fair to assume that there's upside to sort of the full year aftermarket expectations within Collins? Or how do we see the sort of the remainder of the year progressing with tough comps, but with still very strong fundamentals in demand? Neil Mitchill : Thanks for that question, Ken. Clearly, the first quarter was a good strong start. Collins has lot of operating profit growth in our year-over-year plan between 750 and 825 and certainly seeing a little over $200 million of that happen in the first quarter was encouraging. And I think when you look at the provisioning numbers that we saw from Collins, very strong, obviously. I think a lot of that was driven by these airlines getting ready to put their fleets up in the air and be prepared to continue to fly through the summer travel season. It's certainly a watch item today, I would say. Our aftermarket outlook for Collins is in the low teens plus range. So certainly, a positive indicator, but it's one quarter into the year. It's a little early to kind of take those numbers up. But certainly, if they continue at this level, there will be goodness. And we'll see that goodness drop to the bottom line. But certainly, a great start driven by all the right things. The China reopening certainly gave a boost in the first quarter for Collins. And as we see OE deliveries continue to at least stabilize and grow as the year goes on. And I think that too will add some tailwind there. But a little early to kind of give a bigger number at this point. Operator: Our next question comes from the line of Cai von Rumohr of Cowen. Cai von Rumohr : So two issues at Pratt. First, you mentioned NEM was 50 million in the first quarter. Deliveries were up 48, so that's a little more than 1 million a unit. And yet if we look at the back part of the year, it should be another 50 to 70, something like that. And so why does NEM go up to 250? That seems an acceleration in the level per unit. And secondly, your aftermarket in the first quarter, up 14%. If I take out price, you're probably flat to up 1%. And I recognize it's a tough year-over-year compare. Why was it so low? And is part of that the casting shortage and having to allocate parts to OE? Neil Mitchill : So let me take the first one. I think we can take it offline, Cai, and Jennifer can help you a little bit. But I think as we look at the volume uptick as we go through the rest of the year, you'll find that when you combine that with the mix of new and spare engines that our negative engine margin is stable, if not reducing a little bit. So I feel good about that. There's a number of different engine families that make that up. So we don't see any issues there in terms of cost headwinds or degradation on a per engine basis as the rest of the year goes. As you think about the aftermarket, a couple of thoughts there. I had mentioned that we were addressing and dealing with material flow and availability. Certainly, the castings are playing a part in that in terms of allocations amongst MRO and OE deliveries. But we did see price improvements in the Pratt & Whitney portfolio as we do every year, and the volume is also dropping through. The content on the shop business is also stepping up across almost all segments of Pratt & Whitney, large and the small engine business as well. So we're seeing the right momentum there. And I do expect that as we continue to see the casting improvements alleviate as the year goes on, you'll see that also drop through in the top and bottom line. Gregory Hayes : Yes. I mean, Cai, the key for Pratt in terms of the aftermarket really goes back to V2500. And we see very strong input. I think shop visits were up more than 10% here in the quarter. So the pricing is a part of it, to Neil's point, but really, it is the volume coming back into the shops as these engines are flying more. Operator: At this time, I'd like to turn the call over to Greg Hayes for any closing remarks. Sir? Gregory Hayes : Well, thank you, everyone, for listening in today. As always, Jennifer and her team will be around to answer all of your questions over the next couple of days. Thanks again for listening and take care. We'll see you. Bye. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day ladies and gentlemen, and welcome to the Raytheon Technologies Fourth Quarter 2022 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Chris Calio, Chief Operating Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet, and there is a presentation available for download from Raytheon Technologies' website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustment 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 risks and uncertainties. Raytheon Technologies' SEC filings, including its Form 8-K, 10-Q and 10-K 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. [Operator Instructions] You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Hayes. Greg Hayes: Thank you, Latif, and good morning, everyone. I hope you've all had a chance to review our press release this morning. Before we get into the highlights, I'd first like to welcome Chris Calio to the call. As you know, Chris has been our Chief Operating Officer for the last year, has been responsible for our business units as well as our operations, engineering and digital functions. Effective March 1, Chris has been elected to the position of President and Chief Operating Officer of RTX. Chris has been instrumental over this past year in driving our focus on operational excellence and delivering for our customers in a very challenging environment. So welcome, Chris. Okay. Let's go to the webcast slide for Slide 2. We'll talk about some of the highlights for 2022. I don’t need to tell anybody that 2022 was an incredibly dynamic year. And I'm pleased to say that we were able to achieve, despite facing a number of significant challenges, including transitioning out of Russia, managing record levels of inflation as well as supply chain and labor constraints. With all that as a backdrop, we still delivered $67.1 billion in sales for the full year, which was up 6% organically and adjusted EPS of $4.78, which was up 12% year-over-year. We also returned almost $6 billion of capital to shareowners, which included $2.8 billion of share repurchases. And more importantly, even with the $1.6 billion headwind from the R&D tax legislation, we generated $4.9 billion in free cash flow, which exceeded our expectations. At the same time, we continue to position the business for sustained profitable growth. In 2022, we captured $86 billion in new bookings, resulting in backlog growth of 12%, a book-to-bill of 1.28 and a near record backlog at the end of the year of $175 billion. Additionally, we were granted over 2,600 patents last year. This places us in the top 10 of companies in the United States for the second consecutive year. While we invested $9 billion in R&D and CapEx, this allowed us to bring new technologies to our market and drive further automation and digitization through each phase of our product lifestyle from design, through development, through manufacturing and product sustainment. Our investment in recent awards supports our mission to create a safer and more connected world, which was especially true in 2022. Our products and technologies have been instrumental in helping the people of Ukraine defend itself. From the Stinger, Javelin and Excalibur to NASAMS and now Patriot air and missile defense system, we remain in lockstep with the U.S. government to ensure we can continue to support our allies. On the commercial side of the business, we saw continued advancements on our path towards leading the future of sustainable aviation with the start of development flight testing of the GTF Advantage engine, which, as you know, further enhances the GTF's position as the leader in fuel efficiency and CO2 emissions. Importantly, we also completed the first engine test run for our regional hybrid electric flight demonstrator. This system integrates a 1-megawatt electric motor, which was developed by Collins with a highly efficient Pratt & Whitney fuel burning engine, specifically adapted for hybrid electric operations. This new engine will reduce fuel burn and CO2 emissions by 30% compared to today's most advanced regional turboprop aircraft. These types of investments along with strong demand across both the commercial and defense end markets will position us for continued growth as we head into 2023. We're particularly proud that RTX outperformed among all companies in the Russell 1000 for local U.S. job creation in 2022. RTX leads the industry in employee giving and volunteering, which is a testament to the impact our workforce has in the communities where we work and where we live. Before I turn it over to Chris, I just want to spend a minute to talk about the status of our integration and the next steps as we evolve as a pure-play aerospace and defense company. As you know, in 2020, we brought together two great companies, UTC aerospace business and Raytheon. With combined strength, scale and capabilities that makes us uniquely equipped to innovate and deliver game-changing technologies and solutions for our customers. As we approach the third anniversary of this merger, we've accomplished many of our objectives, including exceeding our original synergy commitment, and we see even more opportunities ahead. So today, we're starting the next step in our integration and evolution. Our plan is to streamline our structure to a customer-centric organization with three focus segments: Collins Aerospace, Raytheon and Pratt & Whitney. This will better align us with our customers' needs and allow us to better collaborate on next-generation technology. There is still a lot of work to be done to make this happen, but let me turn it over to Chris to give you some of the additional details of this transformation and some additional business updates. Chris? Chris Calio: All right. Thank you, Greg. It's great to join today's call, and I'm looking forward to engaging more with everybody. I'm starting here on Slide 3. Over the past year, I've been focused with our team on driving operational performance and program execution as well as identifying ways to improve our cost position and to ensure alignment between our investments and our strategic priorities. As Greg noted, our merger integration is nearly complete, having realized gross cost synergies of $1.4 billion. And so we are now in the process of realigning RTX into three business units. Let me give you some additional color around our thinking on this. At its core, this move is about enabling us to better coordinate with our customers, aligning with their needs and collaborating more effectively across our businesses, all of which is feedback we've received from our customers. All of this will ultimately enhance performance, make us even more competitive and allow us to capture additional revenue synergies in areas such as connected battle space. For example, just this past year, we were awarded a phase of the JADC2 effort known as TITAN, where RIS and Collins are working together to deliver this cutting-edge solution to ensure our joint forces have one common operating picture of the battle space. Additionally, this realignment will allow us to better leverage our scale so we can optimize our footprint, improve resource allocation and reduce costs for both RTX and our customers. Now we don't have a number for you today in terms of cost savings as we are in the early stages of that analysis, but we do believe there are additional material opportunities to be realized. Commencing with this reorganization, Roy Azevedo, President of RIS business, informed us of his plan to retire. Roy will, however, stay on as an adviser over the next several months to help us with this important transformation. Shawn Mural, currently the CFO of RI&S, has been made acting President of RIS, effective February 1. While organizational changes like this are never easy, we have demonstrated our ability to successfully execute on these types of initiatives in the past. And many members of the team involved in this process have experience from our recent portfolio and merger transformations. The exact timing of this change isn’t final yet, the current plan is to make it effective during the second half of the year. Until then, we'll manage the business under our current structure. We'll provide updates on our progress over the coming months. Before I turn it over to Neil to discuss our results for the quarter and the outlook for the year, I want to turn to Slide 4 to share some of our critical assumptions for 2023 and the areas where we're focused to ensure we execute on our commitments. As Greg mentioned earlier, customer demand for our products and services continues to grow. In Commercial Aerospace, we expect global air traffic to fully recover to 2019 levels as we exit 2023 with continued strength in the U.S. and Europe. This is pretty consistent from what we're all hearing from the airlines. And like everyone else, we're keeping a close eye on China, which historically has represented about 14% of global air traffic. Our working assumption today is that China's lifting of COVID restrictions continues to be manageable and its traffic levels will remain robust. We also assume traffic in other parts of the world remain resilient. We are, therefore, expecting commercial aftermarket revenue growth across our aerospace businesses to approach 20% in 2023. Commercial production rates are also quickly accelerating. We expect commercial aircraft volumes will be up around 20% year-over-year. On the defense side, our backlog is expected to continue to grow given the heightened and increasingly complex threat environment. In the U.S., we continue to see strong bipartisan support as evidenced by the adoption of the Defense Authorization Bill and the Omnibus Appropriations Bill with a budget of $858 billion, which is up about 10% from 2022. In overseas, the EU is targeting a €70 billion increase in defense spending over the next three years and Japan will increase their defense budget by 26% this year. Given our current backlog and this continued strength in demand, we remain extremely focused on execution, and I see four key actions that will position us to be successful on this front. One, we continue to grow production capacity to deliver on this backlog as we move through 2023 and 2024. For example, we've made investments in key strategic locations like Asheville, North Carolina, for turbine airfoils, the Kinney, Texas for RF and EO/IR products and Bangalore, India to expand the Collins India manufacturing strategy. Second, we, of course, need a skilled workforce to execute our development and production programs. Labor availability remains a constraint. We've made some progress across RTX in Q4 through reduced attrition and other strategic retention and recruiting initiatives. Third, we need to continue restoring health within our supply chain. We've actively maintained a physical presence at close to 400 supplier sites. We continue to qualify additional suppliers on key programs. We secured sources of supply for critical commodities. While we are broadly beginning to see our supply chain improve, it is not yet at the levels we need, we are assuming a recovery as we move into the back half of the year. And lastly, we are taking a number of actions to deal with the elevated levels of inflation that everyone is experiencing. For perspective, we are expecting roughly $2 billion of labor and material inflation in 2023. And we are targeting to more than offset this headwind through higher pricing and aggressive cost reduction actions across all RTX. Some of these actions in the category are blocking and tackling, such as continual process improvement and some are more strategic in nature, such as driving productivity through increasing the amount of connected equipment and automated factory hours. There is no doubt, we've got a lot of work in front of us, but I think we all believe we've got the right actions identified, and more importantly, the right team in place to do it. So with that, let me turn it over to Neil to look at our financial results and outlook for 2023. Neil Mitchill: Thank you, Chris. Let's turn to Slide 5. I'm pleased to see how we finished the year where we continue to see solid growth in organic sales, and adjusted earnings per share and robust free cash flow in the quarter. Fourth quarter sales of $18.1 billion grew 7% organically versus the prior year. This growth was primarily driven by our commercial aerospace businesses as the continued recovery in commercial air traffic more than offset the supply chain and labor challenges we saw during the year. Adjusted earnings per share of $1.27 was in line with our expectations and up 18%, led by the commercial aftermarket at Pratt & Collins, which more than offset the impact of lower productivity in our defense businesses. On a GAAP basis, earnings per share from continuing operations was $0.96 per share and included $0.31 of acquisition accounting adjustments, restructuring and nonrecurring items. It's worth noting that both GAAP and adjusted earnings per share had a tax benefit of about $0.06 associated with legal entity and operational reorganizations, which were completed during the quarter. And finally, we had free cash flow of $3.8 billion in the quarter, bringing our total cash generation for the year to $4.9 billion which exceeded our commitment as a result of stronger collections, particularly in international areas across the portfolio. With that, let's turn to Slide 6, and I'll get into the segment results. Starting with Collins. At Collins sales were $5.7 billion in the quarter, up 15% on an adjusted basis and up 16% organically, driven primarily by the continued recovery in commercial aerospace end markets. By channel, commercial aftermarket sales were up 21%, driven by a 32% increase in provisioning and a 25% increase in parts and repair, while modifications and upgrades were up 5% organically in the quarter. Sequentially, commercial aftermarket sales were up 6%. Commercial OE sales were up 20% versus prior year, driven principally by the continued strength in the narrow-body. Military sales were up 5%, driven primarily by improved material receipts, higher volume and new program awards. Adjusted operating profit of $743 million was up $274 million from the prior year as drop-through on higher commercial aftermarket volume and lower R&D expense was more than offset by higher SG&A expense. So shifting to Pratt & Whitney on Slide 7, sales of $5.7 billion were up 10% on an adjusted basis and up 11% on an organic basis, with commercial OE sales growth in large commercial engines in Pratt Canada as well as higher commercial aftermarket volume. Commercial OE sales were up 37%, driven by favorable volume and mix within Pratt's large commercial engine and Pratt Canada businesses. Commercial aftermarket sales were up 11% in the quarter with growth in both legacy large commercial and Pratt Canada shop visits. In the military business, sales were down 2%, driven by lower military legacy program aftermarket sales. Adjusted operating profit of $321 million was up $159 million from the prior year, driven primarily by drop-through on higher commercial aftermarket, which included a favorable contract adjustment that was partially offset by higher SG&A and R&D. Turning now to RI&S on Slide 8. Sales of $3.5 billion were down 8% versus prior year on an adjusted basis, driven by the divestiture of the Global Training and Services business in the fourth quarter of 2021. On an organic basis, sales were down 5% versus prior year, driven by command, control and communications, cyber training and services and sensing and effects. Adjusted operating profit in the quarter of $278 million was down $122 million versus prior year. Excluding the impact of divestitures, operating profit was down $96 million, driven primarily by unfavorable mix, lower net program efficiencies and lower volume. RIS had a $2.9 billion of bookings in the quarter, resulting in a book-to-bill of 0.92 and a backlog of $16 billion and on a full year basis, RIS' book-to-bill was 0.96. Turning now to Slide 9. R&D sales were $4.1 billion, up 6% on an adjusted basis and up 7% organically, primarily driven by higher volume in Naval Power programs including SPY-6 production, higher volume in Strategic Missile Defense, including Next Generation Interceptor development and higher volume and advanced technology programs. Adjusted operating profit of $418 million was $68 million lower than the prior year, driven by unfavorable program mix and lower net program efficiencies, partially offset by drop-through on higher volume. RMD's bookings in the quarter were $6 billion for a book-to-bill of 1.48. And for the full year, RMD's book-to-bill was 1.37, resulting in a record backlog of $34 billion. So with that, let's turn to Slide 10 to discuss the financial outlook for the year. At the RTX level, we expect full year 2023 sales of between $72 billion and $73 billion, which represents organic growth of 7% to 9% year-over-year. From an earnings perspective, we expect adjusted earnings per share of $4.90 to $5.05, up 3% to 6% year-over-year. And we expect to generate free cash flow of about $4.8 billion. I should note, we are not assuming the legislation requiring R&D capitalization for tax purposes will be repealed in our outlook. And as a result, in 2023, we'll have a cash payment of about $1.4 billion related to the current law. While there are more details on the cash flow walk in the appendix, let me share a few of the moving pieces. First, we are expecting segment operating profit growth. Offsetting that will be increases in working capital, capital expenditures as well as a lower pension cost recovery. Additionally, we're expecting to buy back approximately $3 billion of RTX shares in 2023, of course, subject to market conditions. Now getting into the details around the earnings per share walk, starting at the segment level, we expect strong operating profit growth of about 20%, which results in about $0.77 of earnings per share growth at the midpoint of our outlook range. And as Chris noted earlier, this overcomes about $2 billion of material and labor inflation. And with respect to pension, although markets have improved since we spoke in October, pension will still be a substantial year-over-year headwind. Based on actual 2022 asset returns and where discount rates ended the year, that headwind will be about $0.22. Our tax rate in 2023 is expected to be approximately 18% versus the 14.4% we saw in 2022, which will result in a $0.22 headwind. This change is primarily driven by benefits recorded in 2022 that likely won't repeat in 2023. And to wrap things up, we see about $0.14 of net headwind year-over-year, primarily driven by higher interest and corporate expenses, and all of this brings us to our outlook range of $4.90 to $5.05 per share. So with that, let's go to Slide 11 for a little more detail on the segment outlooks. At Collins, we expect full year sales to be up low double digits, primarily driven by continuation of the commercial aero recovery. Military sales at Collins are expected to be up mid-single digits for the year as well. We expect Collins adjusted operating profit to grow between $750 million and $825 million versus last year, and this is primarily driven by drop-through on commercial aftermarket, higher OE production ramp and increased defense volumes. At Pratt & Whitney, we expect full year sales to be up low to mid-teens versus prior year, principally driven by higher OE deliveries in both Pratt's large commercial engine and Pratt Canada businesses, as well as continued growth in legacy large commercial engines, GTF aftermarket and Pratt Canada shop visits. Military sales at Pratt are expected to be flat, driven by higher F135 sustainment volume, which will offset lower F135 material inputs. We expect Pratt's adjusted operating profit to grow between $200 million and $275 million versus last year, primarily on higher aftermarket volume, which is partially offset by a higher large commercial OE delivery impact. Turning to RI&S, we expect full year sales to be flat versus the prior year and adjusted operating profit to be up between $75 million and $125 million, driven by improved net program efficiencies. And in R&D, we expect sales to grow low-to-mid single digits versus 2022 as the effects of the supply chain constraints ease in the back half of the year and for adjusted operating profit to be up between $175 million and $225 million versus prior year, driven by improved net program efficiencies, which will be partially offset by continued mix headwinds. And finally, higher intercompany activity will increase sales eliminations by about 10% year-over-year. And it's also worth noting, we've included an outlook for some of the below-the-line items and pension in the webcast appendix. So with that, let me hand it back to Greg to wrap things up. Greg Hayes: Okay, Neil, thanks very much. So we're going to close out on Slide 12 and take a quick look at our priorities. Obviously, there is no surprises here. As we head into 2023, I would tell you the future remains bright for RTX, especially with a $175 billion backlog and strong demand in all of our end markets. We also know the challenges that we saw in 2022 will continue, and we'll keep working to mitigate the big three that we continued to focus on: supply chain, labor and inflation. And although we're monitoring the macro environment, we remain optimistic on the economic outlook as the demand drivers for our businesses remain incredibly strong. As Chris mentioned, we're actively preparing for the demand ahead by expanding capacity, investing in digital solutions and leveraging automation to unlock efficiencies across our value streams. We have the right team in place, and we're making the right investments. And we're also taking proactive actions to mitigate the risks we see today and to ensure success not just in 2023 but beyond. The streamlining lining of our businesses is just the next step in our journey on leveraging the unique scale and capabilities of RTX to deliver value for our customers and our shareowners. Right now, it's all about program execution and managing costs. We have the backlog, we have the demand, and we have the technology and our balance between defense and commercial aero will help us navigate into the future. We will, of course, continue to stay disciplined in capital allocation, and we’re going to generate strong free cash flow this year and beyond, all of which enables us to return significant value to our shareowners. Most importantly, we remain confident in our ability to achieve our 2025 targets. We’re going to provide an update at our upcoming Investor Day, which will be on June 19 at the Paris Air Show. Before I close, I really want to say a special thank you to Roy Azevedo for his many contributions to Raytheon over these past 34 years. Roy has been a key member of our senior leadership team at RTX for the past three years, and we wish him nothing but health and success as he moves into the next phase of his career. So with that, let’s close out the – this portion and open it up for questions. Latif? Operator: [Operator Instructions] The first question comes from the line of Robert Stallard of Vertical Research. Please go ahead, Robert. Robert Stallard: Thanks so much. Good morning. Greg Hayes: Good morning, Rob. Neil Mitchill: Good morning. Robert Stallard: Greg, just like to follow-up on your final comment there on your confidence in 2025, whether there’s confidence has been shaken anyway by this change in the R&D tax legislation but also the supply chain challenges because you basically have to double the cash flow between now and then to get to your target. Greg Hayes: Rob that is a great question, one that we have been working through over these last couple of months. We obviously thought going into the end of 2022 that the tax legislation, the R&D amortization would get eliminated. Unfortunately, that didn’t happen. That cost us $1.6 billion last year. As Neil said, it will be another $1.4 billion. And as we go into the 2025 time frame, that drag will still be about $1 billion, about $800 million of that is actual net R&D deferral and there’s a couple of hundred million dollars of additional interest expense and financing our little loan to the government. So is all that being equal, we still see – and we had always talked about a $10 billion free cash flow in 2025. Realistically, I think that number is going to be $9 billion. Now most of that growth from, let’s call it, $5 billion this year to $9 billion is going to come from segment operating profit. We should grow between 2022 and 2025 by about $5 billion. And that just assumes an execution on the current demand that we have in backlog, right? That’s – there’s nothing else magic about that except the continued return of people flying and the defense budgets remaining very robust. So we see a path to the $9 billion. I don’t see a path to the $10 billion today because of the R&D. But it’s a long time, maybe we hope that people in Washington will understand that they’re making a very, very bad tactical decision here and not allowing us to deduct R&D, but it is the reality that we face today. Robert Stallard: Right. Thanks, Greg. Greg Hayes: Thanks, Robert. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Your question please, Sheila. Sheila Kahyaoglu: Hi, good morning, guys, and thank you. Maybe a little bit more focus on 2023. You mentioned 400 suppliers in the supply chain. How are you expecting the supply chain to unravel across both the commercial aerospace and defense segments? And you mentioned $2 billion of inflation headwinds. Can you talk about the impact of pricing on a net basis and across the businesses, maybe where you’re seeing the most impact? Chris Calio: Hey Sheila, it’s Chris. I’ll start with this one and then invite Neil and Greg to chime in. So let’s talk about supply chain for a minute. Maybe start with the positive, which was – saw some stabilization as we exited the year last year. If you look at R&D, material receipts were up 30% Q3 to Q4. Supplier delinquencies were down. At Pratt, we saw some uptick in casting deliveries. So those are some of the green shoots that we saw at the end of the year. But I’ll tell you, it’s not where we need to be, especially for the back half of 2023. The kinds of things that we’re focused on, candidly are the things that we can control. We’ve got the people on site, as you mentioned, and they’re responding to engineering and quality issues, giving us better visibility of what’s going on. We’re leaving bottlenecks and also finding issues earlier than perhaps we were previously giving us more time to react. We qualified some additional suppliers and negotiated additional LTAs. I think we did about 400 agreements last year with about $1.8 billion in annual spend. So again, giving our suppliers better visibility into our demand and what we’re doing. And then candidly, we’re taking some actions in our own house to better enable supply chain performance, small things like reducing the time it takes to place a PO to perhaps more complex things like engineering changes to improve the yields on some of our complex parts and ensuring we’ve got sort of a stable configuration as programs move from development into production. So those are all the things that we’re focused on continue to drive health and supply chain. But you’re right, we’re going to need it to perform to hit these numbers we’ve got here in 2023 and beyond. Greg Hayes: So Sheila, the other question you had there was on inflation. And I think, again, we – the $2 billion of inflation is a real number we saw it last year. We were able to overcome it through cost reduction as well as some additional pricing. And again, we will see pricing benefits again in 2023, especially on the commercial aftermarket side. Keep in mind also on the defense side about 1/3 of our business is cost type, cost reimbursable and so some of that inflation gets passed automatically along to our customer at the Department of Defense. As I think about that $2 billion, right about $1.2 billion I think Chris said is product related and about $800 million of that is people cost. And that is a real number. We’ve got roughly $20 billion in compensation costs across RTX that’s about a 4% increase year-over-year for $800 million. It’s a big number. But again, we’ve got plans in place for cost reduction both in the supply chain and in the factories as well as in the back office. And some of this transformation activity that Chris mentioned with the realignment of the businesses will also present us an opportunity to get after some of that cost. So it’s real, but we’ve got plans and I think we have more than provided for that in the guidance that Neil covered. Sheila Kahyaoglu: Great. Thank you, both. Greg Hayes: Thanks, Sheila. Operator: Thank you. Our next question comes from the line of Ronald Epstein of Bank of America. Your question please, Ronald. Ronald Epstein: Hey, yes. Good morning, everyone. Greg Hayes: Hey Ron, good morning. Ronald Epstein: Good question for you about this restructuring reorganization, I guess, in the defense business in Raytheon. I think we all understand that you’ll get cost synergies out of it. But if you look at RIS in the quarter with the sales down 5%, how does the reorganization boost sales synergies. I think that that’s the first question. And then the second question is, I mean it’s really – I mean, how do you boost that? And then the second question is, is there some restructuring that actually has to go on in that portfolio? Because are there some businesses in there that are just structurally lagging? Chris Calio: Hey Ron, it’s Chris. Maybe I’ll take a crack at the sales synergy. So again, as we kind of said upfront, this is about taking the organization to the next level, right? You got a tremendous defense backlog, something like $70 billion RIS R&D. And this is really about enhancing customer alignment and coordination. We’ve had customer feedback throughout the last couple of years about the need for us to figure out how to better integrate some of our solutions, providing mission solutions to the customers, coming in with a unified narrative and an investment story. All of these things, I think, will enable us to work better and frankly, collaborate better across businesses. In large organizations like ours, you won’t be surprised to hear that sometimes there’s some friction there, and we think this will help remove some of that friction and again, provide better solutions to the customer. So thus far, the customer feedback, those that we’ve spoken to sort of see that potential and it’s up to us to execute on it. As of the portfolio, I think, again, RIS has a very strong portfolio. Book-to-bill was 0.96 not necessarily where we wanted. We had some campaigns push out of the year, but feel really strong again about the portfolio, and we’re going to continue to invest in it. Greg Hayes: Ron, let me just jump in and add to that. As we look at this reorganization, this is not just about putting RIS and RMD together to recreate the old legacy Raytheon Company. We’re going to look to take the entire portfolio of RIS, Collins, RMD and move the pieces where they most appropriately align from a technology and a customer standpoint. So you may well see pieces, especially related to JADC2 moving into the Collins business. We’ll see how all of this evolves over the next several months. I would tell you by the time we get to the end of the first quarter, we should have a really good understanding of what the new organization is going to look like. We’ll share that with everybody at that point. It’s going to take us longer than that to actually do the rewiring that’s why we’re talking about kind of a mid-year. But I agree with Chris. I think the portfolio that we have across the legacy Raytheon and Collins business is really quite strong. And the book-to-bill we’ll be – we’ll get better at some of those legacy RI&S businesses, especially in the Space segment. I would also tell you that the performance in Q4 was not great, but it was really program – legacy programs from many years ago that we still have not completed. So there’s some work to do there. But I would tell you the portfolio is not broken or the business is not broken. Ronald Epstein: Got it. Right. Thank you. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Your question please, Noah. Noah Poponak: Hey, good morning, everybody. Neil Mitchill: Hey Noah, how are you? Good morning. Noah Poponak: Good. Recognizing that there’s multiple top line inputs that are out of your control at the moment, which of the 2025 segment margin targets hold and which do not at this point? Because in the two aerospace segments, the 2024, 2025 incrementals required to get there are a lot better than 2023. And then obviously, on the defense side, it requires a pretty big step up. So help me with that math? And I guess, just what’s the latest medium-term outlook for each of the segment margins? Neil Mitchill: Yes. Noah, let me take a stab at that one for you because as you look out to 2025, clearly, we’ve had in 2022, some supply chain and labor impacts that have kind of caused us to come in a little lower than our initial expectations. However, when you think about that backlog that we’ve been talking about, it’s $175 billion at the company level, $69 billion, $70 billion within the defense. We have a lot to deliver ahead of us. And so I think there’s going to be some puts and takes as we look at the segments on an individual basis as you get out to 2025. But as I step back and look at the totality of RTX and where we projected to be and where we’re aiming to go and with that backlog, we feel confident that we can get there. We can get the sales growth, get the earnings growth and Greg already hit on the cash flow pieces there. So some things have changed since we’ve talked in 2021. We’re certainly dealing with a lot more inflation, but we’ve also got the situation in Ukraine that has given R&D some tailwinds. So when we get to June, we’ll be able to lay out that in more detail. It also be aligned with the format of our new operating segments at that time. But I think there’s going to be some puts and takes, but we’re all focused on driving margin improvements and making the right investments to drive that automation in the factory and digitization. I should add to Greg’s comments earlier about the free cash flow walk. We’ll probably see about $0.5 billion of capital headwind between 2022 and 2023. So making the right investments. I’m really focused on earnings growth and conversion to cash and so we’ll see where the margins land, but I do think we’re going to get that earnings growth. Noah Poponak: Is it your anticipation that you’ll have a few hundred basis points of defense segment margin expansion over the next few years? And is that all cost or is that mix? Or is it not dealing with supply chain? Or how do you do that? Greg Hayes: It’s – I would tell you, it is a combination of all of those things. It’s supply chain getting better, which allows us to see productivity in our factories. It’s also – as we move from these LRIP contracts, initial rates of production on LTAMDS and SPY-6 and others to full rate production to see an improvement in margin on the production side as well as the mix of DoD versus international sales. Today, we’re actually at a low point of about 30% at RMD of international versus DoD sales that actually transitions back towards a more historical level 40%, 45% as we do more exports, especially around LTAMDS and some of these new systems. Noah Poponak: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Your question please, Peter. Peter Arment: Hey, good morning, Greg. Greg Hayes: Good morning, Peter. Peter Arment: Greg, I want to say in RMD. You’ve just up low to mid-single digits on an organic basis. Just in the backdrop, it seems like it should be potentially better than that. Obviously, wondering if you could just kind of parse out how much is being impacted by the supply chain. And if – just when we think about all the DoD potential replenishment activity, plus you’ve got strong demand from NATO allies. Just a lot of opportunities for the space, it feels like you should be having a more potentially sustained top line growth. Maybe just your thoughts on that over the coming next couple of years. Thanks. Greg Hayes: Peter, I think you’re spot on. I think as we look at 2023 and then 2024, there is more growth potential at RMD than there probably is any business outside of Collins just because, again, the backlog is so strong. I would tell you, given the challenges that we saw in supply chain last year and driving material in, I think we’ve taken a more conservative view of 2023 performance there. I think total material inputs at RMD last year were around $6 billion. This year, we’re looking at about $6.5 billion. But quite frankly, the demand is out there for more. So that $6.5 billion should also drive some productivity, $100 million to $150 million. Again, I think that’s actually light by historical standards, but we’re – I hate to say that we’re conservative again and again. But really we set these targets. So we think we can absolutely deliver. We’re not going to have to go back and relook at these in the middle of the year. But there is certainly the demand out there for higher top line and that would result in higher bottom line. But most of that growth, I think, will come in 2024 when we really see supply chain back to where we had seen it pre-pandemic. And that is the key for RMD. They’ve got the orders. We’ve got the capacity. We just have to bring – drive the material in and that $6.5 billion that we see next year is going to have to continue to grow significantly to meet the demand out there that we see. Peter Arment: Appreciate the color. Thanks, Greg. Greg Hayes: Thanks, Peter. Operator: Thank you. Our next question comes from the line of Myles Walton of Wolfe Research. Your question please, Myles. Myles Walton: Thanks. Hey, good morning. And Greg, just a follow-up first. I think you just said RMD might have the fastest growth outside of Collins. And I just wanted to clarify, is Pratt still the faster growing of the two? Or is Collins now faster growing? Greg Hayes: From a bottom line perspective, it’s going to be Collins, right? I think, again, top line, you’re going to see – what is the number, Neil, for 2023 here for Pratt? Neil Mitchill: For 2023, they’ll be up low to mid-teens. So very substantial growth for 2023. And sort of as you look out over the next several years. These – all four businesses are in the same ZIP code of high single-digit type of sales growth on a CAGR basis. Myles Walton: Got it. And maybe a more detailed question on Pratt. If you can just give a little color on where GTF is in the aftermarket composition where legacy higher-margin aftermarket is in that composition? And how those two play out over the next several years? And also how the GTF aftermarket is trending versus your sort of assumptions of profitability on those long-term contracts? Chris Calio: Myles, this is Chris. Maybe just as a step back for a minute on GTF. Demand remains really, really strong. As you know, we continue to do the block upgrades to drive improved time on wing obviously, improve time on wing helps with their contract profitability. We continue to incorporate upgrades to sort of improve the customer experience. On the aftermarket side, in 2022 turned slightly positive. And so from this point, it’s about accelerating those margins. You’re going to see that through some better contract mix as we talked about back in Investor Day in 2021. You’re going to see that through increased time on wing through some of these upgrades. And so the GTF aftermarket profitability is something that is of high focus at frac given the growing installed base, get about 2,500 engines out there and a very large backlog. So GTF aftermarket is a huge driver. Neil Mitchill: And maybe I’ll just put a couple of financial numbers around that to help out a little bit. But at Pratt for 2023, we think the aftermarket there will be up between 20% and 25% from a sales perspective. So think about the legacy shop visits being about 15% to 20% up year-over-year. On the OE side, that would imply about a mid-teens sort of a sales growth there. So we see strong growth, obviously, in the commercial business. And I guess while I’m on Pratt, I’ll just throw out a couple of the Collins numbers just so everyone has them. In their aftermarket business, think about that as being up sort of low double digits to low teens, sequentially kind of growing in the low single-digit percentage kind of range. And on the OE side, up low to mid-teens year-over-year. So again, with all that OE growth that we see across the narrow and wide-body platforms, you’ll see that both at Pratt and Collins. Myles Walton: Thank you. Neil Mitchill: You’re welcome. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Your question please, David. David Strauss: Good morning, everyone. Greg Hayes: Good morning, David. David Strauss: Greg, I guess following up on that. Could you just comment where you are on, I guess, across mainly Collins, but also touching on Pratt, where you are relative to the manufacturer stated rates, I guess, in particular on the MAX in the low 30s, A320 in the mid to high 40s and 787 around two a month. Thanks. Greg Hayes: David, it’s something we focus a lot on. Obviously, we are, I would tell you, at Collins and at Pratt in lockstep with Boeing and Airbus in terms of their production rates. Obviously, some of the challenges that we’ve talked about at Pratt on the supply chain with structural castings is limited, I would say, some of our ability to meet some of the demand out there. That’s starting to ease. And again, we are working very closely with Airbus on the A320 production rate. As far as 737, that’s really a Collins story. And we – the outlook that Neil talked about, that assumes those rates that you talked about around 31 aircraft or so a month on average. I think they were a little light on that in the fourth quarter, but we think we’ll get back to that. They still have roughly 200 aircraft that be delivered that are in inventory, too, from when the line was shut down, which, again, also is part of Collins’ upside for the year. As far as 787, we see that, as you said, I think it’s one a month going to two a month and perhaps up to three. Again, I think that’s – that will all depend upon Boeing’s ability to continue to get the aircraft out the door. But we are working with them on a daily, weekly basis to make sure that we can support them. But we don’t see anything in our supply chain today that would prevent us from delivering either at Boeing or Airbus to the rates that they need. David Strauss: Great. And Greg, could you just comment on the interiors business, how that’s doing? Is that – if you’re starting to see a pickup there from the widebody side? Thanks. Greg Hayes: Yes. It’s – David, it’s one of those things, it is probably the slowest recovery of all of the Collins businesses to your point because it is primarily widebody. And as the airlines were conserving cash for these last couple of years, we saw sales down significantly. We don’t expect a recovery in the interiors business, literally over the next three years. So it gets better, but it’s still not back to what it was pre-pandemic. It’s – it will remain a challenge. Operator: Thank you. Our next question comes from the line of Cai von Rumohr of Cowen. Your question please, Cai. Cai von Rumohr: Yes. Thank you so much. So cash flow – in the fourth quarter, you had a $900 million uptick in payables, a huge uptick in contract liabilities and yet inventory where you normally get a benefit in the fourth quarter were actually up a bit. Maybe comment on some of those trends and how that translates to a flat year in 2023. Neil Mitchill: Thanks, Cai. Good morning. Let me start on 2022 and where we ended the year. You’re right, the inventory was up. I would say most of that was at Pratt and Collins as you think about the backlog, the growth rates we just talked about on the commercial aerospace side and the supply chain issues that we’re all working to overcome. We were pretty strategic in our thinking around making sure we're bringing the materials and so that we can deliver and meet the customer commitments. You pointed out the accounts payable growth there. So not all, but a large portion of that inventory growth was sort of offset by the payables to kind of go along with that. On the advances side or the contract side, really that was driven by some – a couple of large international advances that we received in December. That contributed to our overdrive of free cash flow, which was about $500 million relative to our expectations. That will be a drag on working capital as you get into 2023. And as I look at the 2023 free cash flow, we see a little bit of headwind on the working capital, in part because of some of the advances that we got at the end of 2022. And I'd say in part because we're going to continue to be pretty strategic about making sure that we bring in parts and materials where we need them and where there's constraints and bottlenecks in the supply chain value stream right now. So on balance, we're always targeting to take that inventory balance down, but we want to be smart and make sure we have the products so we can deliver it. We will be seeing improved velocity through our factories as we go through 2023. So I'd expect the turns to improve here. But all eyes on the inventory management for sure, and then managing through the collections as we get into 2023 at our international customer sites. Cai von Rumohr: Thank you very much. Neil Mitchill: You're welcome. Operator: Thank you. Our next question comes from the line of Kristine Liwag of Morgan Stanley. Your question please, Kristine. Kristine Liwag: Hey, good morning everyone. Greg Hayes: Good morning. Kristine Liwag: Greg and Chris, hey, following up on the supply chain what issues did the same versus 2022 versus what issues are different, I mean considering the strengthening visibility on demand, I would have assumed that we've seen a lot more improvement by now. So what's the root of the problem? And can you provide more details on the actions you're taking to get this resolved by the second half of the year? Chris Calio: Hey Kristine its Chris. So I would say the constraints are those that we've talked about previously. I said that we saw some improvement on castings, but it's not where it needs to be, so casting is still there. Rocket Motors continues to be a pacing item at R&D. And microelectronics, while the lead times have stabilized, they haven't come down and back to 2019 historical levels. And so those are sort of the three main areas that I talked about. We've talked about in the past that continue to be a headwind as we're moving into 2023. In terms of the specific actions, I talked about a few of them earlier. But again, some of this is what I would call blocking and tackling in the factories, whether it be ours or our supply chain. And I mentioned that before in some cases, we'll try to make an engineering change to improve producibility and ultimately yield. In other places, we just need to be in with our customer answering quality questions and making sure we can help them relieve bottlenecks. On microelectronics, a lot of that was about really the supply base, understanding our demand and then working some interesting agreements, negotiated agreements on making sure that we had our priority place in line and we made sure that we had our right allocation. With what you're seeing on the consumer side in terms of microelectronics coming down, we expect to see our allocation get better in that area, but again, still not where it needs to be here in 2023. We are assuming a back half recovery. So certainly not all is lost, but it will be the man-to-man defense here to get to that point. Kristine Liwag: Thanks Chris. And Greg, maybe a follow-up; you mentioned on your commentary on commercial large structural casting. It sounded more constructive today than your commentary in previous quarters. I was wondering what changed in the supply chain that you're seeing to make you more confident? How much of that is the OEMs walking away from, like Airbus walking away from the 75 per month versus you're seeing that ease through investments they're making or maybe labor easing? Greg Hayes: Well, I think, Kristine, if you think about the structural casting issue, we're not out of the woods, as Chris said, but it has certainly gotten a lot better from where we were a year ago today. And we continue to work with the suppliers there, primarily around the requirement side, making sure that the specifications that we're flowing down are actually producible in the supply chain. So that's giving us this confidence. But as Chris said, it's going to be the end of 2023 before we see structural castings back to 2019 levels. Again, we've got confidence they have been bringing people on, they have been training people. We have folks out there helping them. But all of that would support the OE rates that we need to support for 2023. Anything you want to add there, Chris? Chris Calio: No. I would just support you said, Greg, that our supply chain is bringing in labor, they're starting to see more success on that front. But in some cases, like take casting, this is a pretty complex process. And there's a learning curve for folks that you bring in and take some time to come down that learning curve to get to a level of productivity that we need to see for the improvements here; but again, focused on that in the back half of 2023. Kristine Liwag: Great. Thank you. Operator: Thank you. Our next question comes from the line of Doug Harned of Bernstein. Please go ahead, Doug. Doug Harned: Thank you. Good morning. On Pratt, you're talking about 15% to 20% growth in the aftermarket and the legacy programs this year. One of the things that we've been concerned about has been capacity constraints just it's taking longer if they get a V2500 into a shop for an overhaul and longer to get it through. When you look at that upside you're forecasting, how are you thinking about the capacity issue labor availability? And is there potentially further upside from that if you can actually get – have more success there? Greg Hayes: Doug, let me start with that, and maybe Chris will add. So as we think about the outlook, you're right to say that we see the large commercial engine – legacy commercial engine shop visits up 15% to 20%. Think about the Vs being up around 20%, and if you think about the math there, we were a little over 700 or so as we exited 2022. So that puts us in the mid-800s, kind of a range expectation for 2023, which is a level we've been at before. So as it relates to capacity, we have that level of capacity for the legacy shop visits. And it really then comes back to the conversation we've been having here for the last hour about ensuring that the supply chain is there and ready to support that level of shop visit inductions, which again, we've been planning. These expectations are in line with the numbers that Chris put out there back in May of 2021. So again, the supply chain, I think expects this level of an uptick in our shops to as well. In terms of – is there upside as you think about retirements of this aircraft, for example, it was 21 aircraft in the last year got retired that V2500 powered. So I'm not going to get ahead of ourselves. But I think that when you look at the dynamics around OE deliveries today of new aircraft, we think the V2500 still has a lot of life left in it. About a third of that fleet has yet to see its first shop visit, and so I'm cautiously optimistic that we will see that fly for a longer period of time at these elevated levels. Chris, I don't know if there's anything else you want to add to that? Chris Calio: Doug, I would add that you're right, turn times have been elevated on V and other platforms. And so we don't see as many supply chain constraints there, perhaps as we do in other areas. I would say the labor is stabilizing. Again, you bring in people off the street to do MRO, there is a learning curve associated with that individual becoming a productive technician and maintenance personnel. But we believe we've got the plan in place there. In terms of upside, I mean, again, if you listen to lessors and others out there today, and Neil kind of referenced this, given the supply chain challenges we're having on perhaps new production, you're seeing airlines hold on to older assets longer, signing up for longer leases. So again, it kind of goes to the life of the V2500 maybe being some upside there. Doug Harned: And just really quick, what was the favorable contract adjustment, the size of that Pratt for the quarter? Neil Mitchill: From an operating profit, think about a few pennies. Doug Harned: Okay. All right. Great. Okay. Thank you. Neil Mitchill: Welcome. Operator: Thank you. Our final question will come from the line of Seth Seifman of JPMorgan. Your question please, Seth. Seth Seifman: Great. Thanks. Thanks for the final question. Guys, I wonder if we could dig in a little bit more on the GTF. And you talked, Chris, a little bit about the time on wing. What we've been reading lately from comments from some of the leasing companies and comments in the press is the time on wing on new generation engines has been falling short of expectations. And so a) kind of to what degree do you share that perception and kind of where does it need to get; b) what specifically in the engine do you need to kind of improve to get it there; and then the last part is, I think you mentioned the GTF aftermarket profits were positive for the first time. And just with a relatively young pool of engines and maybe some time on wing challenges, how do profits get to positive? Chris Calio: So I would say that I generally agree with the sentiment that you're hearing, time on wing, and we've been pretty open about this. And very open dialogue with our customers, a lot of time on wing – on newer platforms, not necessarily being where we wanted them to be when we launched the program. We have done a number of block upgrades. As I said, we've got a block upgrade going in now through MRO that increases time on wing. On average, about 20% just based on the geography that you're in. And we've got some other, I'd say, durability and reliability hardware and software fixes that we put in as well. So we want to – we obviously want to get to the contractual levels that we have promised, and we've got a plan to go do that with these upgrades, Seth. I will tell you, keep in mind, you've got the GTF advantage that's going to start cutting in 2024. As you know, that's the next generation of the GTF, more thrust, better fuel burn, start flight testing in Q4 with Airbus, and we remain on track there in – for 2024 EIS. That takes all of the lessons learned we've had on the, what I call base GTF program and some enhanced testing. And we think that that's the next generation that will get to the levels of performance and time on wing that our customers are anticipating. But even on the – what I'll call the existing fleet today, we've got upgrade plans to continue to push that time on wing higher and higher. Our customers are demanding it, and our contracts are dependent on it. So we're aligned there. Seth Seifman: Okay. Thanks very much. Greg Hayes: Okay. Thanks, Seth, and thank you, everyone, for listening today. As always, Jennifer and her team are going to be available today, tomorrow, the rest of the week to answer any follow-up questions that you have. Thank you for listening, and take care, everyone. Operator: This now concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Third Quarter 2022 Earnings Conference Call. My name is Olivia and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet and there is a presentation available for download from Raytheon Technologies’ 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 risks and uncertainties. Raytheon Technologies’ SEC filings, including its Forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] With that, I will turn the call over to Mr. Hayes. Greg Hayes: Thank you, Olivia, and good morning, everybody. As you can see in the press release this morning, RTX had another solid quarter of growth led by commercial aerospace and extremely strong demand for our products with over $22 billion of awards in the quarter. I think it's important to note our balanced aerospace and defense portfolio, along with operational resiliency, remain the key differentiators which enable us to deliver on our commitments despite some near-term macro challenges and uncertainties. Not sure what that noise is. I think it's also important to note we've overcome some significant headwinds in 2022 from transitioning out of Russia to record inflation and a strained supply chain. I think it's important, those are short-term issues and while we continue the day-to-day work to mitigate those challenges, we also continue to grow our $168 billion backlogs and invest in the future through over $9 billion of R&D, capital expenditures and customer-funded research and development. Those investments, coupled with strong demand for our systems across each of our businesses, positions us for significant growth runway as the near-term headwinds recede. Before we get to the results, let me just spend a few minutes discussing the trends we're seeing in some of our end markets. On the defense side, no surprises. The elevated threat environment has significantly influenced how the U.S. and our allies are thinking about their defense capabilities and readiness. And as a result, this has driven global defense budgets substantially higher, a trend we expect to continue for the foreseeable future. Just as an example, in Europe, Switzerland recently signed a $6.25 billion contract to buy 36 F-35 jets, modernizing their fleet and driving demand, of course, for our F135 engine through the end of the decade. We're also seeing significant global demand for advanced air defense systems, especially in Eastern Europe, as the Russians and Ukraine conflict, unfortunately, continues. This includes 2 of our NASAMS system, which is the short -- surface-to-air missile system that will help protect the people of Ukraine. And we expect more orders beyond those 2 to follow shortly. The heightened threat environment continues to drive strong orders. During the quarter, we saw strong domestic and international demand for our products with a number of significant defense awards, which resulted in a book-to-bill of 1.22 and a backlog that's up about $2 billion sequentially. Of particular note, our Missiles & Defense business was awarded $1 billion to develop the Hypersonic Attack Cruise Missile or HACM for the U.S. Air Force. It's a first-of-its-kind missile that leverages air breathing scramjet propulsion technology and that can travel at hypersonic speeds of Mach 5 or greater. Additionally, R&D completed the systems requirement review for the hypersonic glide phase interceptor program prototype. This is designed to protect the United States from increasing hypersonic missile threats. Both of these accomplishments demonstrate that Raytheon Technologies is a leader in the race to develop and deploy operational hypersonic and importantly, counter-hypersonic systems, a key strategic priority for the Department of Defense. RMD also was awarded about $1 billion from the U.S. Air Force, Navy and international customers for advanced AMRAAM, which is the Advanced Medium-Range Air-to-Air Missile. These missiles have been upgraded with the most sophisticated technology needed to maintain the edge over adversaries of the U.S. and our international allies. At RIS, we saw an additional $1.6 billion in classified awards in the quarter. The team was also awarded $215 million from the FAA to upgrade their wide area augmentation system to enhance safer air travel in support of the national aerospace system. At Pratt & Whitney, the team recently delivered the 1,000th F135 engine and was awarded over $800 million through the quarter -- in the quarter to continue supporting the F135, which is the safest, most capable and best value military jet engine in operation. And we're working on the F135 engine core upgrade known as the Enhanced Engine Package or EEP. This will allow the F135 to provide even more thrust, range and electrification to the aircraft. The EEP offers the most cost-effective and lowest-risk solution to enable the F-35's Block 4 upgrade. At Collins, we received a $583 million IDIQ award for the MAPS Gen II program, which maintains the integrity of positioning and timing in a GPS contested or denied environment. And it's an important award to ensure mission success within a more connected battle space. As you can see, the defense pipeline remains robust, and we expect continued order strength in the future as we continue to win key awards to successfully demonstrate our technology leadership and innovation capabilities. Moving to the commercial side. Air traffic remains strong as third quarter global revenue passenger miles reached 75% of 2019 levels. In the U.S., travelers through TSA checkpoints reached 91% of 2019 levels with Labor Day domestic traffic exceeding 2019. And we continue to see steady improvement in long-haul international traffic with wide-body hours flown up nearly 40% year-over-year. The strong demand -- the strong commercial aerospace recovery was driving demand for our commercial products and services. And we continue to innovate to deliver value for our customers. For example, just a few weeks ago, Pratt began development flight testing of the GTF Advantage engine on the A320neo aircraft in Toulouse, France. The GTF Advantage reduces fuel consumption and CO2 emissions by a total of 17% compared to the prior generation engines, extending the engine's lead as the most efficient power plant for the A320 family. Also during the quarter, Pratt completed the first flight test of the GTF-powered A321XLR or Extra Long Range, 2 significant milestones for the GTF family of engines. So even with some near-term challenges, we continue to invest in innovation for continued growth in air travel and to meet the strong defense demand. Okay. With that as a background, let's turn to Slide 2, some highlights of the quarter. In the quarter, we delivered another strong organic sales growth of 6%. Adjusted EPS was ahead of our expectations at $1.21, and free cash flow is also ahead of our expectations despite a $1.5 billion additional tax payment we made related to the RMD amortization. Sales growth was again led by strong commercial aftermarket sales that were up 24% over the prior year. However, we continue to see challenges related to supply chain and labor availability in each of our businesses. On the capital allocation front, we repurchased over $600 million of shares in the quarter, putting us at $2.4 billion year-to-date. And we remain on track to repurchase at least $2.5 billion for the year. Through the end of the third quarter, we've returned over $12 billion of capital to shareholders since the merger, and we're well on our way to -- our commitment to return at least $20 billion in the first 4 years following the merger. Before I hand it over to Neil, notwithstanding the strength in demand that we're seeing across our businesses, the industry-wide challenges we're facing remain the same. You've heard me talk about them before: supply chain, labor and inflation. But we continue to focus on what we can control by proactively managing the businesses through these dynamic times. Let me give you some examples of what we're doing. On the microelectronics front, we're working closely with our distributors and the OEMs to bring more capacity online. We also have a direct engagement, which has led to higher deliveries and an acceleration of expected recoveries for certain wafers and chips. At RMD, we're working hand in hand with our rocket motor supplier holding daily senior management meetings to track work in progress and solve technical problems real time. We're also leveraging RTX's contract labor agreements to help source labor in our supply base. To mitigate the impacts of inflation, we take multiple -- we've been taking multiple actions. For example, we're leveraging our raw material contracts from the business from RTX to get best prices for our suppliers as well. And while supply chain disruptions are frustrating, we are seeing some stabilization, and we're encouraged by the demand signals across the business. That said, these headwinds continue to pressure the business. So as we finish out the year, just a couple of thoughts. We're going to have to adjust our full year sales outlook slightly to a new range of $67 billion to $67.3 billion. We're going to bring up the bottom of our adjusted EPS range by $0.10, $4.70 to $4.80. And we continue to see free cash flow of about $4 billion for the year. With that, let me turn it over to Neil and Jennifer to take you through the details. Neil? Neil Mitchill: Thank you, Greg. Before I get into the full year, let's look at our Q3 results on Slide 3. Sales of $17 billion grew 6% organically versus the prior year with organic growth at Collins, Pratt and RIS more than offsetting a decline in RMD. The ongoing recovery of commercial air travel and a strong summer travel season drove our aerospace performance while we continue to see challenges in the supply chain, as Greg mentioned. Adjusted earnings per share of $1.21 was down 4% year-over-year but ahead of our expectations on better commercial aero. Segment operating profit growth of 12% was more than offset by the absence of a prior year tax benefit and lower pension income. GAAP earnings per share from continuing operations was $0.94 per share, included $0.27 of acquisition accounting adjustments and restructuring. And free cash flow of $263 million was also ahead of our expectations and included the impact of the $1.5 billion cash payment that Greg just mentioned. On the cost reduction front, we achieved an incremental $105 million of gross merger cost synergies in the quarter, bringing our merger to date total to $1.3 billion of our $1.5 billion commitment in the 4 years following the merger. Before I hand it over to Jennifer, a few comments on our full year outlook. The commercial air recovery remains robust, and we continue to expect that global RPMs will recover to about 90% of 2019 levels as we exit this year. Domestic and short-haul international travel also remained strong, and we continue to see a steady recovery in long-haul international travel. However, as Greg discussed, while we're seeing some stabilization in certain areas of the supply chain and labor market, these constraints continue to put pressure on our businesses. As a result, we're reducing our full year RTX sales outlook to a new range of $67 billion to $67.3 billion, which translates to between 5% and 6% organic sales growth. This is down from our prior range of $67.75 billion to $68.75 billion. However, despite the lower sales outlook, we're raising the bottom end of our adjusted EPS range by $0.10 to $4.70 to $4.80 per share from our prior range of $4.60 to $4.80. Continued aftermarket strength, favorable OE mix and cost containment actions across RTX are partially offsetting lower sales and lower productivity in our defense businesses. You'll also recall that we previously assumed the legislation requiring capitalization of R&D expenses for tax purposes would be repealed or deferred this year. Since that hasn't happened, we realized an EPS benefit of about $0.11 year-to-date and estimate that the full year impact is about $0.15 per share. And on the cash front, we continue to expect free cash flow of about $4 billion for the full year. In the fourth quarter, we're expecting lower tax payments in several large international receipts. And finally, we provided an updated outlook for the segments and some below-the-line items in the Webcast appendix. So with that, let me hand it over to Jennifer to take you through the third quarter segment results and updated outlook. Jennifer? Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on Slide 4. Sales were $5.1 billion in the quarter, up 11% on an adjusted basis and up 13% organically driven primarily by the continued recovery in commercial aerospace end markets. By channel, commercial aftermarket sales were up 25% driven by a 44% increase in provisioning and a 31% increase in parts and repair, while modification and upgrades were up 3% organically in the quarter. Sequentially, commercial aftermarket sales were up 4%. Commercial OE sales were up 16% versus prior year driven principally by the strength in narrowbody. Military sales were down 6% driven primarily by lower material receipts and decreased volume. Adjusted operating profit of $630 million was up $150 million from the prior year. Drop-through on higher commercial aftermarket and OE more than offset lower volume on military programs as well as higher SG&A and R&D expense. Looking ahead, we continue to see Collins’ full year sales up low double digits. And as a result of stronger commercial aftermarket, we're bringing up the low end of Collins’ adjusted operating profit to a new range of up $750 million to $825 million from the prior range of up $700 million to $825 million versus last year. Shifting to Pratt & Whitney on Slide 5. Sales of $5.4 billion were up 14% on an adjusted basis and up 15% organically with sales growth in large commercial engines in Pratt Canada more than offsetting lower military sales. Commercial OE sales were up 26% driven by favorable mix within Pratt's large commercial engine and Pratt Canada's businesses along with higher GTF and Pratt Canada volume. Commercial aftermarket sales were up 23% in the quarter with growth in both legacy large commercial engine and Pratt Canada shop visits. Sequentially, commercial aftermarket sales were up 14%. In the military business, sales were down 2% driven primarily by lower expected F135 production volume that was partially offset by higher F135 sustainment volume. The adjusted operating profit of $318 million was up $129 million from the prior year. The drop-through on higher commercial aftermarket and favorable military and commercial OE sales mix more than offset higher SG&A and R&D expense. Looking ahead, we continue to expect Pratt sales to be up low teens. And we're increasing Pratt's adjusted operating profit to a new range of up $650 million to $700 million from our prior range of up $550 million to $650 million versus 2021, reflecting the strength of the aerospace recovery. Turning now to Slide 6. RIS sales of $3.6 billion were down 3% versus prior year on an adjusted basis driven by the divestiture of the Global Training and Services business. On an organic basis, sales were up 2% versus prior year due to higher classified sales and sensing effects that were partially offset by lower expected sales in command, control and communications, including lower sales in tactical communications programs. Adjusted operating profit in the quarter of $371 million was down $20 million versus prior year. Excluding the impact of the divestiture, operating profit was up $8 million driven primarily by favorable net program efficiencies. RIS had $3.9 billion of bookings in the quarter, resulting in a book-to-bill of 1.18 and a backlog of $17 billion. For the full year, we continue to expect RIS' book-to-bill to be greater than 1. Turning to RIS full year outlook. A result of ongoing material availability delays and the associated productivity impacts as well as anticipated cost reduction actions and award delays, we are reducing RIS sales to the low end of our prior outlook. And now expect RIS sales to be down mid-single digit from our prior outlook of down mid-single digit to down low single digits on a reported basis versus prior year. On an organic basis, we now expect RIS' sales to be down slightly versus our prior outlook of about flat. And as a result of lower sales outlook and program efficiencies, we are reducing RIS' adjusted operating profit to a new range of down $125 million to down $75 million from a prior range of down $50 million to flat versus prior year. Turning now to Slide 7. RMD sales was $3.7 billion, down 6% on an adjusted basis and down 5% organically, primarily driven by continuing delays in material availability and lower volume in land, warfare and Air Defense and Naval Power programs. This was partially offset by higher volume on strategic missile defense programs, including Next-Generation Interceptor development. Adjusted operating profit of $116 million was $74 million lower than prior year driven by unfavorable program mix and lower volume, primarily in Land Warfare and Air Defense programs as well as lower net program efficiencies resulted from continued supply chain and labor constraints. RMD's bookings in the quarter were approximately $5.4 billion, resulting in a book-to-bill of 1.5 and backlog of $32 billion. For the full year, we now expect RMD's book-to-bill to be at or better than 1.2. As a result of ongoing material availability delays and the associated productivity impacts and cost reduction actions, we now expect RMD sales to be down low single digits versus our prior outlook of up slightly versus 2021. And as a result of the lower sales outlook and lower program efficiencies, we are reducing RMD's adjusted operating profit to a new range of down $300 million to down $250 million from the prior range of down $50 million to flat versus 2021. With that, I'll turn it back to Neil. Neil Mitchill: Thank you, Jennifer. A lot to cover there. I'm on Slide 8. While we aren't providing our '23 outlook today, let me tell you how I'm thinking about next year. Overall, we expect another year of organic sales and segment operating profit growth with solid free cash flow generation at RTX. On the positive side, we expect that commercial air traffic will continue to recover and the global demand for our defense products and technologies will remain strong. We expect to exit next year at or above 2019 levels for global air traffic. And the significant defense orders we have won should begin to convert to sales. We will continue to drive operational excellence, and we are focused on improving our cost competitiveness. We're using the core operating system to align goals and drive targeted improvements with technology. The collaboration across RTX has already yielded 180 approved projects with a growing pipeline of over 350 future projects, which are focused on smart factories, automation and machine upgrades that will apply best practices to further reduce our structural costs. We will leverage our scale, these additional cost reduction opportunities and pricing to help address the inflation pressures that we expect to remain elevated well into next year. And while we are working many actions across our businesses every day to mitigate the impacts of supply chain constraints and labor availability, as I said, we do expect these pressures will continue to persist into next year as well. Additionally, as we sit here today, we see pressure from increasing interest rates and market volatility and the anticipate a pension headwind next year that could be about $0.40 on a year-over-year basis due to current market conditions. That said, it's important to note that our U.S. plans remain well funded and have even seen an improvement in their funded status year-to-date. And of course, everyone is watching the geopolitical landscape, energy supply in Europe, the continuing resolution and the global tax environment. So with that, let me hand it back to Greg for some closing remarks. Greg Hayes: Okay. Thanks, Neil. So there's a lot going on, a lot of moving pieces. And I think the key takeaways that I hope people get from this is most importantly, our backlog is up $12 billion since the beginning of the year. And we're investing $9 billion this year to support the growth that's going to come over these next couple of years. The future remains absolutely bright for RTX. The 2025 commitments that we laid out a year ago may remain in sight. And we're not going to back off from any of those, be it top line, bottom line or cash. So Neil laid out 3 challenges that are out there, right, supply chain, right? It's a challenge. There's no doubt about it. We've got 13,000 suppliers. And of those 13,000, about 400 of them are a problem for us. But we've deployed teams to almost all of those suppliers to work with them on a daily basis, getting them raw material, giving them contract labor, giving them technical support, all of the things that you would expect us to be doing. On labor availability, it's a challenge. Everybody sees it, especially in the supply chain. And I think what's interesting for -- at RTX is we have hired 27,000 people in '22. That's about 3,000 a month since the beginning of the year. Our total headcount today is over 180,000. The challenge, though, is we would need about 10,000 more people. So a lot of work yet to do on labor. It's out there. It's a great place to work. And people come to RTX because of the mission. And so we have a, I think, a very good pipeline. We'll continue to hire at this rate. And again, the challenge will be in the supply chain. On inflation, we came into the year expecting about $1.5 billion of cost growth between compensation and then what we saw in the supply chain and energy prices. That $1.5 billion has turned out to be closer to $2 billion, so about $500 million of additional headwind that we didn't expect as we came into the year. You couple that with about $200 million of headwind from the cessation of activities in Russia back in February, and there's about $700 million of headwind that we came into the year that we had to overcome. The good news is we have found ways to save. We have cut costs across the business. We've got about 500 cost-reduction projects that we're currently working. And so despite that $700 million, we've been able to maintain guidance for the year just where we saw it back in January of this year. So it's been a tough year. It's going to be a tough year going forward. We know that. We recognize it. But the fact is we have the tools and the people to make it all happen. So I'll stop there, and we'll turn it back to the operator, and we'll take whatever questions you might have. Operator: [Operator Instructions] And our first question coming from the line of Peter Arment with Baird. Peter Arment: Greg, maybe if you could just, at a high level, how you're thinking about -- I know you're not giving formal 2023 guidance, but just The Street is obviously expecting across-the-board growth. Would you kind of feel that commercial aerospace will continue to recover and obviously, defense, maybe you'll finally start to convert some of these wins and actually showing some top line growth? Just maybe -- just high level how you're thinking about '23. Greg Hayes: Yes. I think, Peter, you're exactly right. We expect strong growth on the commercial aerospace side to continue. RPMs will continue to recover back to the 2019 levels. And so we're going to see strong OE growth as Boeing and Airbus take up production rates. And we expect to see strong aftermarket growth as well, again, as airlines continue to add capacity and try and keep the planes they have flying. So commercial aero, I think it's all good for next year. On the defense side, we will see some growth. It won't be as robust as we would like. I would tell you, it goes back to those challenges that we talked about. Really, it's about labor availability and some of the supply chain challenges. But we should start to -- again, we saw stabilization here in the third quarter in the supply chain. We've gotten a little bit better in terms of bringing material in, but we've got a long way to go. So that will be the governor, I would say. It's not the backlog. It's simply the availability of material coming in to the shops. Neil Mitchill: Yes. Peter, the other points I would add from a sales perspective, everything Greg said, I agree with. And we do expect to see mid- to high single-digit sales growth in 2023. So good top line growth, as Greg mentioned. I do expect most of that to come from our commercial businesses. I think even more importantly, we'll see segment operating profit growth exceed the growth rate of sales. So we do expect margin expansion as well next year. And you heard me mention the pension headwind in my prepared remarks. We'll also have to normalize for a tax rate that will be a little bit higher as we come off of a year where we do expect R&D to be repealed into next year, at least that's our current planning assumption. So more to come on that. But just a few extra points on the 2023 outlook. We'll, of course, come back in January with a much better look at what the segments are going to look like. Operator: [Operator Instructions] And our next question coming from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Can you hear me? Greg Hayes: Yes. Noah Poponak: Obviously, what's happening with your defense top line is a little surprising, but it can largely be explained by industry-wide factors. I think the margins are maybe more surprising. And obviously, there's absorption from that top line impact, and we know there's inflation. But it's an industry where the margins really don't move around that quickly, and your peers aren't really seeing that much margin movement versus this kind of quarterly volatility we're seeing from you. So can you maybe just explain that a little further? And then when we look to next year, should we think about your defense segment margins being closer to the '22 level or closer to your longer-term targets? Neil Mitchill: I'll start with that one. Noah, I'm not going to comment on next year's margins. Right now, we're focused on making sure we get through the rest of this year. But a couple of thoughts on the margin profile. The first thing that's really dragging down the margins this year relative to our initial expectations are the lack of productivity. And that lack of productivity has principally been driven by the delay in material receipts, which is obviously jamming up the production and development cycles within the businesses, and it's most notable at RMD. We've also talked about a mix shift in the products. RMD has gone through a product upgrade really across many of our platforms here. So that has had a negative impact on the margins overall. And certainly, we'll come through that as we turn into more production rate-type contracts. One thing that I'd say was encouraging during the quarter is last quarter, we had net productivity that was actually an expense, whereas sequentially, we're seeing about $140 million of favorability in productivity. So productivity for RIS and RMD was positive albeit nowhere near the levels that we're used to, but we are starting to see some improvement there. We've been adversely affected to your point on absorption as a result of that slowdown and the throughput that's coming through in the rates, which is causing that productivity to be muted from what we're used to seeing. I do expect as the volume starts to fill up the factories when we deliver that $67 billion of defense backlog, we will start to see improvements in productivity as well. Greg, I don't know if there's anything else you wanted to add to that? Greg Hayes: No, I think you pretty well covered it. I mean, the other obvious issue is international sales, which tend to be more profitable on the defense side are down comparatively. And again, some of the newer contracts have much lower margins than what we had on some of the existing -- as we transition from Patriot to LTAMDS production, you're going to see a big mix shift there or margin degradation for a couple of years until we get through the low rate initial production contracts. Operator: [Operator Instructions] And our next question coming from the line of Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: Neil, I want to ask about comms profitability. Guidance implies that margins inflect up 200 bps in Q4 versus about a 12% rate year-to-date on margins. How do you think about the bridge and some of the drivers there as we exit the year? And maybe if you could comment on price and mix actions as well. Neil Mitchill: I'm sorry, the last part, Sheila? Sheila Kahyaoglu: Just price and mix as we head into 2023. Neil Mitchill: Sure. Yes. And so we've already seen substantial Collins margin expansion as we've gone through the first 9 months of the year. And I expect as the wide-body international traffic recovers, we will continue to see a broadening of the margins at Collins. I'm pretty pleased with the trajectory that they're on. They've been doing a great job controlling costs as well, and they'll do more of that here in the fourth quarter. As you look out into next year, we've talked about some of the pricing actions that we've already taken in our Pratt & Whitney business, Collins and our Pratt Canada business. We'll also introduce revised pricing as we usually do at the beginning of the year. So we do expect that to be considerably higher than what we've seen in the past, reflecting the inflation that we're dealing with across the business. So we're attacking both price and cost as we look at the business going forward. So a number of projects in the pipeline that all of the businesses and Collins, in particular, are looking at. And as I think I said a few -- a couple of months ago, many of the projects that we have looked at around footprint consolidation and automation and digitization of our factories are much more attractive with the inflationary pressures that we're seeing today. So those 350 projects that I alluded to, we're ready to move forward on those and make sure that we structurally change the cost profile of our business going forward. Sheila Kahyaoglu: So should we assume it's a 35%, 40% incremental margin business going forward? Neil Mitchill: I think getting out of this year, you'll start to see muted incrementals because the compares get a little more challenging. But clearly, we're on our way back to the 20% margins that we committed to at our Investor Day back in 2021. Operator: [Operator Instructions] And our next question coming from the line of Robert Stallard with Vertical Research Partners. Robert Stallard: Greg, on the defense side of things, particularly RMD, you're in this sort of interesting situation where defense -- sorry, demand is clearly very strong but supply continues to be constrained. How do you see this panning out from here? When will these 2 come into equilibrium? And are you seeing any help from your customers in getting this fixed? Greg Hayes: Yes. Look, I think we're all in this together. And as we sit here in Washington and we're going to be talking to the folks at DoD tomorrow, there is concern about the supply chain challenges as we are. And yeah, they're putting DFAS ratings on many things to try and move up in the queue with the supply chain. But the challenge, and again, it's not just defense. I mean, I go to the -- on Pratt structural castings we've been talking about it all year, still remain a challenge. And it's not necessarily a capacity issue. It's a labor availability. I mean, how do you get trained welders working efficiently. And it's -- that remains a challenge. As I think about this, though, we saw about a 5% incremental improvement in our build or kit efficiencies this quarter. That's -- we had hoped to be about 10 points higher than that. We -- by the end of the year, we hope to be at 80%. We're not going to get there. I think if we're lucky, we'll get to about a 70% kit fill rate by the end of the year, which is the reason why we had to take RMD sales guidance down. I do think as we're looking through this that by the end of next year, we should start to see some of this abate. Again, because the economy is slowing down, more people available in the supply chain to work. But some things like rocket motors, we literally do not see a recovery path there to -- on contract until sometime in the first half of 2024. So this is not a short-term fix. And I think we're fully prepared that next year is going to be kind of a hand to mouth on the supply chain. As I said in the opening comments, we have worked with like the chip manufacturers, the OE, the OEMs to get some assured supply, and that seems to be working. The offset of that, of course, is it's a lot of inventory sitting here. We've added about $1.1 billion of inventory for the year to make sure that we do have the things that we need to build these products. So long-winded answer, it's not over yet, and I think it's going to be most of 2023 before we really get out of the woods on the supply chain. Operator: [Operator Instructions] And our next question coming from the line of Ron Epstein with Bank of America. Ron Epstein: Maybe switching gears a little bit, and I'm sure everybody is going to focus on RMD. Greg, if you could maybe discuss a little bit when you think about aircraft’s propulsion technology, you guys have the geared platform. Your primary competitor is working on an unducted fan. What -- how many -- how much -- what legs does the gear have? I mean, where can we go to from here? How much of a threat is an unducted fan? And then if we go 1 step beyond that to hybrid propulsion, that sort of thing, where do you see all that happening? Greg Hayes: A long time from now. Let's be clear, right? We're just introducing the Advantage engine, the A320 or the 1100 GTF Advantage engine. That will go into service in 2024. That will have a very long life cycle, like 30 years on it. Over the next 20 years, I think what you're going to see, Ron, and you know this, there's going to be an evolution probably towards hybrid electric propulsion at least in regional jet and turboprop markets. We have yet to find a way to make the case for long-range propulsion with anything other than Jet A. And that's the challenge. I mean, we're talking -- we're working with hydrogen. We're working with ammonia. We're working with a number of different things to improve efficiency. SAF is an interesting option. It's not carbon-free really depending upon the feedstocks. So that's -- again, that will help in terms of the emissions mandate, but it's not the solution. So I think we're investing a lot of money today in these advanced technologies. And we've got a project, as you know, between Collins and Pratt to do a hybrid electric demonstrator on a regional turboprop. But again, I think those technologies are 15 or 20 years out. We're going to focus now on kind of incremental improvements in the gear. And the gear is not done, right? I mean, the gear, we've always said that it can scale up, it can scale down. And we've got a great family of engines today. And I think -- as we think about next-generation single aisle whenever that is, probably 2030, we're going to have, I would say, the next evolution of the gear. But it's still going to be jet engine as you see it today with Jet A. Maybe it's all SAF, but it's still the same turbomachinery that we're talking about today. Operator: [Operator Instructions] And our next question coming from the line of David Strauss with Barclays. David Strauss: I wanted to see if you could give some initial thoughts on free cash flow in 2023. It looks like 2022 free cash flow will grow about $1 billion. That's the R&D hit. So I guess, Neil, obviously, you're talking about probably close to $1 billion of EBIT growth. But I think you have a bit of a pension, pension CAS headwind. Not sure what you're expecting for working capital. So maybe some help with the moving pieces on '23 through cash flow. Neil Mitchill: Thanks, David. I'll keep this at a high level, but certainly back -- coming in January, I'll give you a little more details. But with the operating profit growth, we would expect that to convert to free cash flow. I expect a little bit of headwind on capital as that inches up just a tad as we finish off some of these large investments, particularly an upgrade of our facilities in Texas at the RIS business as well as the completion of the Asheville facility for Pratt. However, a couple of other moving pieces. Working capital, I expect we'll see inventory to continue to grow. We'll try to manage that through payables and other parts of our working capital. But certainly, we need the inventory with all the constraints that we faced in supply chain this year. We want to make sure we're prepared to deliver on the growing aftermarket and growing OE business that we'll see. Long story short, I do expect free cash flow to grow organically. We'll also -- we're anticipating a refund of the tax payments that we're making this year. Again, assuming that the -- there is ultimately a repeal of the R&D capitalization provision. So let me leave it at that for now. But certainly, in January, we'll provide a better walk. David Strauss: A quick follow-up on pension, the $0.40. Is that $0.40 incremental versus this year? I think you were already anticipating kind of a $0.10 incremental hit. Is that $0.40 incremental to that or just $0.40 incremental for this year? Neil Mitchill: $0.30 incremental to the $0.10 we had already forecasted. And that's really driven by asset returns being below our ROA as well as rising interest rates causing higher interest expense. So more to come. We obviously threw all those assumptions up at the end of the year, but that's where we see it as of today. I do not expect that to be a major cash issue for us. And if there are any future FAS funding requirements, those will be offset by higher CAS recoveries in the future. So not a cash issue, but a P&L issue right now. Operator: [Operator Instructions] And our next question coming from the line of Seth Seifman with JPMorgan. Seth Seifman: I wonder if you could talk a little bit about Pratt for a second? And strong results in the quarter, been running about $300 million of profit per quarter year-to-date. I think the guidance is basically for a step down to 2.50 or a little bit below that in the fourth quarter. Now I'm sure when I ask about that, you're going to talk about higher engine deliveries. But I mean, I think there was a price increase as well for spares. And so how do we think about that evolution of Pratt, why it comes down so much in the fourth quarter, as well as where it goes from here and how much progress Pratt can make in '23 toward the out-year margin target that you have? Neil Mitchill: So you hit the nail on the head. It's -- as you look sequentially from Q3 into Q4, most of the degradation, if you will, the step down in that profit is higher commercial engine shipments, which, as we've been talking about, have been kind of pushed to the back end of the year. So that's really the major driver of what you see in terms of the walk from Q3 to Q4 on op profit. As we look out a little further, I'm not going to get into specific numbers, but we certainly expect OE deliveries in the large engine business to step up next year aligned with our customer requirements. And I do expect we'll see some movement towards the margin goals that Pratt put out there 1.5 years ago. There's a long ways to go here, but a lot of that will be fueled by a growing aftermarket, the recovery on the V2500s. We've also seen considerable strength in the PW2000s and 4000s. Recall that about 40% of that fleet powers cargo aircraft. So continues to be really strong there. And of course, the GTF will turn to profit. And we will see -- on the aftermarket side, we will see the shop visits begin as we get through next year and into the middle of the decade. So Pratt is positioned to expand the margins. There's still a lot of work to do. Greg talked about some of the incremental cost reduction actions that they're taking. They're going through an exhaustive review of every element of the business in terms of driving out both SG&A as well as structural operational costs in the manufacturing facility. So I find it encouraging, but I'm not going to commit to some numbers today, but we'll get that out there again in January, and you'll see that in full transparency then. Seth Seifman: Great. Just if I could follow up real quickly, the military part of Pratt has been down this year. Can that stabilize or grow again in '23? Neil Mitchill: I think it can. Yes, it's been down as we planned for lower F135 deliveries. That's been partially offset by growing sustainment revenues, and we've talked about that aftermarket for the F135 engine will continue to grow in the future as well. So we should see that stabilize. Similarly, at Collins, military is down mid-single digits for the year. I do expect same phenomena to begin as we turn the page into 2023. Operator: [Operator Instructions] And our next question coming from the line of Myles Walton from Wolfe Research. Myles Walton: Neil, I think you mentioned fourth quarter cash would be driven by lower tax payments in several large international receipts. And I just wonder on the international receipt portion, are you awaiting government approvals? Is there a timing risk here? And is that -- are those international receipts tied to the fourth quarter, mid-13% targeted margin you're looking for at RMD? Neil Mitchill: So great question. The international cash receipts are not tied to the margin in the fourth quarter. However, every international advance is subject to some risk. And there's a couple of very large ones here. I believe that we have line of sight to get them within the year. But if it's not within the year, it's certainly just timing. But certainly a watch item for us, not subject to government approval. But certainly a watch item for us, and hence, the reason I called it out there in the script as we look at the rest of the year. But I do feel good about the rest of our actions to drive free cash flow. We had very, very strong cash flow, notwithstanding the $1.5 billion payment. Tax payments will be less, obviously, in the fourth quarter as we make the rest of the payment we're required to make to meet the new law for R&D. Myles Walton: Okay. And Greg, just a high level, the U.S. review of the U.S.-Saudi relationship, any expectation there in terms of impact on your business? Greg Hayes: Right now, we follow the lead of the DoD and State on sales to Saudi Arabia. We still continue to work with Saudi Arabia and especially on the defensive side. I think it's important, we've had a very long-term relationship with the Saudis. And again, the key for us is providing the Saudi's defensive capabilities. And primarily, that means GEM-T missiles for the Patriot antimissile anti-aircraft battery. So we have not seen any impact from some of the talk in Washington about suspending arm sales. Just to, again, put it in perspective, it's about 1.7% of our total sales go to Saudi Arabia. It's not a big number. But I think it's an important ally. And I believe that we'll get through this difficult time that we're seeing right now in terms of diplomatic relations because ultimately, they are a staunch ally in the Middle East and a key player in Middle Eastern stability. Operator: [Operator Instructions] And our next question coming from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Neil and Greg, you highlighted inflation as a continuing challenge as you look out to 2023. I mean, that said, right, you're also expecting margins to expand next year. Can you provide more color on the moving pieces of how much inflation you're able to pass through to customers, how much you can offset with lower cost and how we should think about that remaining exposure? Neil Mitchill: So Kristine, there's a lot of moving pieces here. And obviously, our crystal ball is not terribly clear as to where inflation is going. But I do think it's going to persist at elevated levels as we go into 2023, and that's what we're planning for. And so we, fortunately, have -- a good portion of our supply base is committed under long-term agreements. But as you know, those continue to roll over. And we're looking at long-term pricing solutions and working with our suppliers to beat back some of those price increase requests. On the top line, I talked about the pricing actions that we've begun to take that we take every year. But they are significantly larger than our historical pricing increases in the commercial aftermarket business. And on the defense side, we're able to pass a lot of that through to our government customer as we set up new contracts with them and update our forward pricing rate. So we're working through all of that. I'm not going to put a number on it, but Greg talked about the level of inflation we've seen this year, and I expect it to be even larger next year. So it's going to require even more projects. We've got all of those in process right now. The teams are working very aggressively to accelerate the savings from those projects. And many of them were started years ago, and they were starting to bear fruit in terms of the digitization that we're undertaking across the company, upgrades of our systems and improvement of information flow around the company. So a lot of actions, a lot of singles, some doubles. But it's going to take a lot of work here for us to mitigate a sustained level of 6%, 7%, 8% types of inflation rates. Greg Hayes: Yes, Kristine, just to add to that. I think the biggest inflationary impact really comes in compensation. So we spend roughly $20 billion a year in compensation. And every year, for the last 10 years, we've targeted somewhere around 3% or 3.5% increases. We're obviously seeing more pressure on compensation, given what's going on in the marketplace today. But the fact is, this is not new. And we are always looking for productivity improvements, productivity improvements in the factories, productivity in the back-office functions and everything that we do. So it's a concerted effort. I'm not, again, terribly concerned about the impact on margins just because I know that we know how to take cost out of the business. Some of it we get to pass on, as Neil said, through our overhead rates to our government customers. And we're also, I think, being aggressive on pricing on the commercial side of the business. So we've got a lot of levers. Inflation, hopefully, it's -- I won't even use the word transitory because I think that's been proven a myth. But it will be here for a while. So we're going to continue to look for ways to drive cost out and to pass cost on. And I think that's just what we do every day. Operator: [Operator Instructions] And our next question coming from the line of Cai von Rumohr from Cowen. Cai von Rumohr: Yes. So you indicated that you're going to do at least $2.5 billion in share repurchase for the year even though the cash flows impacted by Section 174. If 174 is pushed out, you clearly get a windfall to cash flow next -- how should we think about share repurchase, given that your longer-term outlook really looks pretty good. And if you do get 174 pushed out, you're going to have a lot of firepower. Greg Hayes: Yes, Cai, obviously, the second 174 nonsense is a little disconcerting because we're hoping, again, we're going to get a tax law change here at the end of the year with tax extenders which, as you know, will give us a refund of the $1.5 billion that we've already paid sometime in the first quarter of next year -- I guess, April, actually. But the fact is, as we think about share buyback, we are firmly committed to the $20 billion of capital return. This year, we said $2.5 billion plus. I suspect next year that that number will look like a $3 billion plus number. And again, the timing of that will really depend upon when we see the cash if we do from this Section 174 repeal. But again, I think you can count on us to continue to be aggressive in share buyback along with the continue to increase the dividend each year. Cai von Rumohr: But how much of that share of $3 billion plus would you do if Section 174 is not repealed? Greg Hayes: We'd still do $3 billion. We have programmed this in for the next couple of years to hit that $20 billion target. Keep in mind, the Section 174 is a timing issue. And eventually, we do get the deductions back. Next year, we'll get to deduct 20% of what we deferred this year, but it is a timing. And by 2025, most of the impact of this has abated because of the ability to amortize most of this. So again, while it's important, it's not going to really change capital allocation in terms of what we have committed to. Operator: And our last question coming from the line of Ken Herbert with RBC Capital. KenHerbert: I just wanted to see if you could provide a little bit more color on Pratt & Whitney. You have 14% sequentially in the aftermarket. Can you just talk about where that was from? How much was maybe volume versus price? And how should we think about where you are, specifically in the V2500 sort of shop visit recovery? Because I know that's, obviously, a big part of the story this year and next year. And how much growth did you see in the shop visits this year? And how do we think about that in the next year? Neil Mitchill: Thanks, Ken. So a couple of thoughts. Most of what you're seeing at Pratt through the third quarter is really just volume. And we have talked about the shop visits going up about 20% on a full year basis. We saw about a 10% growth here in the third quarter. I think we've got a pretty good line of sight to the fourth quarter at this point. So I think the 20% up year-over-year still sticks. The other element of the aftermarket that Pratt is seeing is higher content per shop visit, which again was expected for us to see that as these aircraft are now flying at much greater and sustained levels than they were over the last couple of years. So good story on the aftermarket, but I don't think any of the pricing actions have yet to kind of flow through in the results reported to date. Ken Herbert: Great. And the pricing actions -- just real quick, I think as those flow through for 2023, if I understand properly, you're looking at a little more step-up in pricing than you realized in '22, correct? Neil Mitchill: That is true. Keep in mind, a number of our customers have contracts in place as well. So some of that increase is muted, but there's a number of them that do not. And you will see that drop through, and that will help to offset some of the headwinds that we're dealing with there as well. Operator: I will now turn the call back over to Mr. Greg Hayes for closing remarks. Greg Hayes: Okay. Thank you, and thank you all for listening in. Just a reminder, Jennifer and team will be available today to take on your questions. Also just a note, this is [Erin Somers'] last earnings call with us. She is moving on to be CFO of our International business for RMD. So congratulations to Erin, if you guys are talking to her later today. Thank you all for listening, and we'll see you soon. Take care. Operator: Thank you. Ladies and gentlemen, this now concludes today's conference. You may now disconnect. Everyone, have a great day.

Operator: Good day, ladies and gentlemen and welcome to the Raytheon Technologies Second Quarter 2022 Earnings Conference Call. My name is Latif and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet and there is a presentation available for download from Raytheon Technologies’ 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 risks and uncertainties. Raytheon Technologies’ SEC filings, including its Forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. With that, I will turn the call over to Mr. Hayes. Greg Hayes: Thank you, Latif and good morning everyone. I hope everyone had a chance to see our press release this morning. From that press release, I think one of the key takeaways is we had a really strong quarter for commercial aerospace and we continue to see very strong demand for our products and services, as evidenced by our defense book-to-bill in the quarter of 1.35, incredible number. We delivered these results in the midst of, I would say, a challenging period across our industry and most of industrial America. Inflation, supply chain and labor availability continue to be near-term constraints. We are working these things relentlessly by leveraging our scale and our portfolio to combat all of these different pressures. Before we get into the results, let me just spend a few minutes on the macro environment. On the defense side, the evolving threat environment, including the ongoing conflict in Ukraine, continues to drive global defense budgets higher. Most of our NATO allies have reaffirmed their commitment to spending at least 2% of GDP on national defense with many countries announcing even higher spending targets over the last several months. For example, Poland has requested accelerated delivery of Patriot missile systems batteries and both Germany and Finland have selected the F-35. As you know, the Department of Defense released its fiscal year ‘23 budget request earlier this year, with modernization spending growing over 4% and with modernization accounts, specifically RDT&E, expected to grow by nearly 10%. We are also encouraged by the markets that we’ve seen in Congress. The House Arm Services Committee has proposed a $37 billion increase to the administration’s request, that’s a 9% increase over fiscal ‘22, excluding the supplementals. On the Senate side, the Senate Arm Services Committee went even higher proposing a $45 billion mark, resulting in a DoD budget increase of 10% over fiscal ‘22, bringing the fiscal year ‘23 budget to over $815 billion. It’s a lot different than what we expected 2 years ago. We are encouraged by the support of our programs with the authorizing committees recommending significant increases in spend over the President’s budget request, including increases for Stingers, Javelins, next-generation jammers, Tomahawk cruise missiles, just to name a few. And as I have said, our key programs in technologies and space cyber, missiles, missile defense and non-kinetic effects are also well aligned with the U.S. and our allies’ defense priorities. We ended the quarter with a defense backlog of $65 billion, that’s up about $2 billion since the beginning of the year, and we expect it to grow even further in the remainder of the year. In the second quarter, we also saw a number of significant awards, including $4 billion to deliver F135 engines for lots 15 and 16, which will power all variants of the F-35 fighter. The total contract value opportunity is about $8 billion for F135 engines across lots 15 through 17. In addition, we received a $408 million contract for sustainment of the F-35 fleet – F135 fleet rather. The F135 engine continues to be the most advanced, and I would say, safest fighter engine ever produced and possesses unrivaled operational capability and mission effectiveness. As the global threats evolve, the F135 can be upgraded to increase its thrust, range and power thermal management to support the needs of the war fighter well into the next decade. We also received a $648 million award to deliver SM-3 missiles to the Missile Defense Agency, a $662 million awarded R&D to replenish 1,300 Stinger missiles as well as awards to replenish Javelin missiles. RIS also had a $1.2 billion bookings of classified programs. During the quarter, RMD was also down selected by the MDA to continue developing our first-of-its-kind counter hypersonic missile, the Glide Phase Interceptor. In a few weeks – just a few weeks ago, RMD along with our industry partner, Northrop Grumman, successfully completed the second flight test of the scramjet-powered Hypersonic Air-breathing Weapon Concept, or HAWC, for DARPA and the U.S. Air Force. The flight test applied the data and lessons learned from the first flight test last September to demonstrate how rapidly we have matured affordable scramjet technology. At the same time, commercial air traffic demand continues to gain momentum with a strong start to the summer travel season. Globally, Q2 revenue passenger miles reached nearly 70% of the pre-pandemic levels. In the U.S., travelers through TSA checkpoints were up 30% year-over-year in the second quarter or nearly 90% of 2019 levels. And with travel restrictions easing around the world, we expect growing demand for international travel in the second half of the year, with international revenue passenger miles growing from over 60% of 2019 levels at the end of Q2 to about 75% to 80% of 2019 levels by the end of the year. That being said, we all know that global supply chain isn’t where it needs to be and we are aggressively managing these issues everyday. Microelectronics, rocket motors, structural castings, all continue to pace manufacturing lines. Today, we have people embedded about 330 of our suppliers to help improve performance. And we are also qualifying second, in some cases, third sources for critical parts as necessary. Inflation also continues to be at elevated levels, no surprise there. However, on the commercial side, we have long-term agreements in place that cover about 80% of our spend and cover multiple years, which provides an inflation buffer at least in the near-term. On the defense side, we can price inflation into annual production contracts and flow through our rate structure. Additionally, we are driving further automation, standardization and process improvement projects throughout the company to mitigate inflation headwinds. And lastly, and perhaps just most importantly, the availability of skilled labor is a real challenge across multiple industries right now and we are seeing it both at our suppliers and within our own shops. It takes time to hire and train new employees. It doesn’t just happen overnight, especially in certain areas such as much of our classified work. Despite these near-term challenges, what differentiates us is our balanced A&D portfolio and our world class technologies that gives us the ability to deliver on our commitments. Okay. I was going to just take a quick look at Q2. And I am on Slide 2, for those of you following along. We delivered another solid quarter, with sales growing 4% organically. Adjusted EPS was a little bit ahead of our expectations at $1.16 and that’s up 13% versus the prior year and free cash flow was essentially in line with our expectations. Growth in the quarter was led by strong commercial aftermarket sales that were up over 26% from the prior year. This strength was partially offset by continued supply chain and labor constraints that principally impacted the defense businesses as well as some delays in expected contract awards. Notwithstanding these challenges, we continue to see full year sales in the range of $67.75 billion to $68.75 billion. And adjusted EPS, we continue to see that in the $4.60 to $4.80 range. However, there are some changes within the segments as strength in the commercial aero will help to offset impacts in our defense businesses that Neil and Jennifer will discuss in just a little bit later in the call. As far as our cash flow outlook, we continue to expect about $6 billion of free cash flow for the year. That’s of course assuming that the R&D tax legislation is repealed. Finally, we repurchased over $1 billion of RTX shares in the quarter, putting us at about $1.8 billion year-to-date and we remain on track to repurchase at least $2.5 billion for the year. Through the end of the second quarter, we have already returned nearly $11 billion of capital to shareowners since the merger in April of 2020 and we are more than halfway to our commitment to return at least $20 billion in the first 4 years following the merger. With that, let me turn it over to Neil and I’ll be back at the end for a wrap up and Q&A. Neil? Neil Mitchill: Thank you, Greg. Before I talk about the full year, let’s look at the second quarter results on Slide 3. As Greg noted, sales of $16.3 billion grew 4% on an organic basis versus the prior year. Our performance in the quarter was driven by the continued recovery of air travel due to the pent-up demand that was partially offset by continued supply chain constraints that, as Greg said, principally impacted our defense businesses. Adjusted earnings per share of $1.16 was up 13% year-over-year and with ahead of our expectations primarily driven by strength in commercial aftermarket at Collins and Pratt and some favorable corporate items, including lower tax expense, which more than offset the impact of lower defense volume and productivity. On a GAAP basis, earnings per share from continuing operations was $0.88 per share and included $0.28 of acquisition accounting adjustments and net significant and/or non-recurring items. And finally, free cash flow of $807 million was generally in line with our expectations for the quarter. So, let me give you some perspective on how we are thinking about the environment as we look ahead to the second half of the year. Let’s turn to Slide 4. I will start with some positives. The recovery in commercial air traffic remains as strong – very strong as airlines entered the summer travel season with leisure travel bookings well above 2019 levels and the active fleet is at its highest level since the beginning of the pandemic. And as you saw our commercial aftermarket sales continue to grow generally in line with our expectations for the quarter. Geographically, U.S. domestic demand has remained strong, while China domestic travel has lagged our expectations so far this year. That said, domestic air traffic in China began to rebound as lockdowns ease throughout the second quarter. On the international front, short-haul international travel or intra-region travel has been quite strong, fueled by a stronger-than-expected European recovery so far this year. And long-haul international travel or trans-regional travel has shown slow, but steady sequential growth. And while this is encouraging, we need to see this segment of the market accelerate in the second half of the year. On the defense side, as Greg mentioned, we are optimistic about the fiscal ‘23 budget request and our continued alignment with the priorities of the United States and our allies. And on the cost reduction front, we remain laser-focused on driving operational excellence and our structural cost reduction projects to deliver further margin expansion. In the second quarter, we achieved about $80 million of incremental cost synergies, keeping us on track to achieve $335 million this year and well on our way to $1.5 billion of total gross cost synergies since the merger. At the same time, we continue to monitor the broader geopolitical landscape as well as the U.S. and global tax environment. And finally, on the challenges side, we continue to see global supply chain and inflationary pressure as well as labor availability constraints. During the second quarter, we saw slower-than-expected recovery in material receipts and the resulting impacts to our shop productivity along with increasing inflationary pressures in labor, freight and other indirect cost areas. And while we remain focused on aggressive mitigation actions, we don’t expect these pressures to ease until next year. So moving on to our outlook on Slide 5, we continue to expect our full year sales to be in the range of $67.75 billion to $68.75 billion. However, due to continued supply chain and labor constraints, we now expect lower sales and operating profit at both RIS and RMD for the full year. Those sales impacts are expected to be largely offset by the stronger commercial aerospace recovery we are seeing at Collins and Pratt. From an earnings perspective, we are holding our adjusted EPS range of $4.60 to $4.80 per share, but expect to be more towards the midpoint of the range as we don’t expect some of the headwinds to fully recover in the year. I should also point out that we continue to work mitigations to offset the impact of ceasing business activities with Russia and minimizing any impact to our customers. I will provide more color on the moving pieces between the businesses in a moment. And on the cash front, we continue to expect free cash flow of about $6 billion for the year. It’s important to mention that our cash flow outlook continues to assume that the legislation requiring R&D capitalization for tax purposes is deferred beyond 2022, which, as I have said before, the free cash flow impact of this legislation is approximately $2 billion for the year. If the legislation isn’t deferred by September 15, we will have to make an incremental cash tax payment of about $1.5 billion here in the third quarter. However, this payment is a timing issue only as we will receive a refund in 2023 for the overpayment if the legislation is ultimately deferred by year end as we continue to expect. So with that, let’s move to Slide 6 for some color on the segment outlooks. At Collins, we continue to expect full year sales to be up low double-digits versus prior year, where we now see a little stronger commercial aftermarket recovery that’s partially offset by supply chain-induced pressures on military sales. As a result of better sales mix and spending containment measures, we are increasing Collins adjusted operating profit from up $650 million to $800 million to a new range of up $700 million to $825 million versus last year. Turning to Pratt & Whitney, we are increasing Pratt & Whitney sales range from up high single to low double-digits to a new range of up low-teens versus prior year and that’s driven by stronger commercial aftermarket and better commercial OE mix. With respect to operating profit at Pratt, we are increasing Pratt’s adjusted operating profit from a range of up $500 million to $600 million to a new range of up $550 million to $650 million versus last year. Turning to RIS, due to the pressures we have discussed along with delays in awards, we are reducing RIS’ reported sales outlook from down slightly to a new range of down mid single-digit to down low single-digit versus prior year. And organically, we are reducing RIS’ outlook from up low single-digit and now see RIS’ organic sales roughly flat versus prior year. And as a result of lower sales outlook and the impact of unfavorable development program adjustments, we are reducing RIS’ full year adjusted operating profit from the prior range of flat to up $50 million to a new range of down $50 million to flat versus prior year. And finally, at RMD, also due to ongoing material availability delays and the associated productivity impact, along with the anticipated cost reduction, we are reducing RMD’s full year sales outlook from the prior range of up low to mid single-digit to a new outlook of up slightly versus prior year. And as a result, we are reducing RMD’s adjusted operating profit from a prior range of up $150 million to $200 million and now expect RMD’s operating profit to be in the range of down $50 million to flat versus prior year. And we also expect some improvement in some corporate spending and a lower full year tax rate. We have included and updated out some of those below-the-line items in the webcast appendix. So with that, let me hand it over to Jennifer to take you through the second quarter segment results. Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on Slide 7, sales were $5 billion in the quarter, up 10% on an adjusted basis and up 11% on an organic basis driven primarily by the continued recovery in commercial aerospace end markets. By channel, commercial aftermarket sales were up 25% driven by a 33% increase in parts and repair, a 20% increase in provisioning and an 8% increase in modification and upgrades. Sequentially, commercial aftermarket sales were up 3%. Commercial OE sales were up 14% versus prior year with strength in narrow-body offsetting expected headwinds from lower 787 deliveries. Military sales were down 6% driven primarily by lower material receipts on military programs and expected declines in F-35 volume. Adjusted operating profit of $617 million was up $99 million from the prior year. Drop-through on higher commercial aftermarket more than offset higher SG&A expense, the absence of favorable contract settlements and lower military sales volume. Looking ahead, as Neil discussed, we continue to see Collins’ full year sales up low double-digits and we now see adjusted operating profit up $700 million to $825 million versus last year. Shifting to Pratt & Whitney on Slide 8, sales of $5 billion were up 16% on an adjusted basis and up 17% on an organic basis, with sales growing across all segments. Commercial aftermarket sales were up 26% in the quarter, with growth in both legacy large commercial engine and Pratt Canada shop visits. Commercial OE sales were up 22% driven by higher GTF deliveries and favorable mix within Pratt’s large commercial engine business. In the military business, sales were up 5% driven primarily by the timing of F135 production contract award in Q2, higher F135 aftermarket volume. Adjusted operating profit of $303 million was up $207 million from the prior year. Drop-through on higher commercial aftermarket, favorable commercial OE mix along with higher military volume were partially offset by higher SG&A and R&D. Looking ahead, we now expect Pratt sales to be up low teens and for adjusted operating profit to be up $550 million to $650 million versus 2021. Turning now to Slide 9, RIS sales of $3.6 billion were down 6% versus prior year on an adjusted basis primarily driven by the divestiture of the global training and services business. Sales were down 1% versus prior year on an organic basis due to lower expected sales in command, control and communications as well as lower sales within sensing and effects that were partially offset by higher sales in classified cyber programs within cyber training and services. The quarter was also impacted by the delay of certain contract awards. Adjusted operating profit in the quarter of $315 million was down $100 million versus prior year primarily driven by lower net program efficiencies, including unfavorable development program adjustments, the impact of the divestiture in the absence of a land sale in the prior year. RIS had $3 billion of bookings in the quarter, resulting in a book-to-bill of 0.92 and a backlog of $16 billion. It’s worth noting that we continue to expect RIS’ full year book-to-bill to be greater than one. Turning to RIS’ full year outlook, as Neil discussed, we now expect RIS sales to be down mid-single digits to down low single digits on a reported basis versus prior year and to be about flat on an organic basis. And we expect RIS adjusted operating profit to be down $50 million to flat versus prior year. Turning now to Slide 10, RMD sales were $3.6 billion down 11% on an adjusted basis and down 10% on an organic basis primarily driven by continuing delays in material availability and expected declines in certain land, warfare and an air defense program that were partially offset by higher volume on SPY-6 production and next-generation interceptor development. Adjusted operating profit of $348 million was $184 million lower than prior year driven primarily by lower net program efficiencies resulting from continued supply chain constraints and unfavorable program mix and lower volume primarily in land, warfare and air defense programs. RMD’s bookings in the quarter were approximately $4.5 billion, resulting in a book-to-bill of 1.3 and a backlog of $30 billion. In addition to the awards that Greg discussed, RMD also booked $423 million on the SPY-6 hardware production and sustainment program and $217 million for Tomahawk production for the U.S. Navy. For the full year, we now expect RMD’s full year book-to-bill to be closer to 1.2. And looking ahead, we now expect RMD sales to be up slightly versus prior year and for adjusted operating profit to be down $50 million to flat versus prior year. With that, I’ll turn it back to Greg to wrap things up. Greg Hayes: Okay. Thank you, Jennifer. I’m on Slide 11 now. We will be just a second for Q&A. So despite some of the macro uncertainties for the remainder of the year, we’re well equipped to mitigate the challenges that we talked about: supply chain, inflation and labor availability. We’re going to do that through our focus on cost reduction, operational excellence, all in order to meet the commitments that we set out to investors earlier this year. And while we continue to make progress, let me just say that we’re certainly not satisfied with the performance in our defense businesses this quarter. There is much to do. Bookings were outstanding; execution, not so much. At the same time, we continue to invest in technology and innovation for our customers as well as execute on our capital allocation strategy to drive significant long-term growth and shareholder value well into the future. With our industry-leading franchises across A&D, we’re prepared to capitalize on the commercial aerospace recovery and growing defense budgets. Balance continues to work. And I think most importantly, we remain confident in our ability to hit the 2025 targets that we set in May of last year at our investor meeting. There is a lot to do. There is always more to do. With that, let’s open up the call for questions. Latif? Operator: First question comes from the line of Ron Epstein of Bank of America. Please go ahead, Ron Epstein. Ron Epstein: Hi, good morning, Greg. Greg Hayes: Good morning, Ron. Ron Epstein: So maybe if we can peel back the onion more on what’s going on in the supply chain and defense. And for RMD, right, you were down 7% in the first quarter, 11% this quarter. You say you’re going to be up during the year, which means you’re going to have a pretty good inflection. How is that going to happen? It’s almost a little hard to believe. And then I guess, another way to ask this, it seems like your commercial businesses right now are run better than your defense businesses, but there are any lessons that the defense businesses can learn from the commercial business? Because it’s really surprising, I mean you guys are a DX-designated company. So you should have full-on ahead of the line right in terms of supply chain. So what’s really going on there? Because it’s surprising that it’s hitting you guys so hard. Greg Hayes: Ron, that is the question of the day. I would tell you. First of all, just to be clear, most of our programs are not DX-rated. In fact, there are very few where we have DFAS ratings that give us priority on in the supply chain. Again, those are very, very few. But I’ll tell you, there is a couple of significant differences between our commercial businesses and the defense side. On the commercial side, you probably say this for about 80% of our supplies suppliers around long-term agreements, right? That long-term agreement allows us the ability to give forecast demand, but it also gives us a priority. And our suppliers as part of those LTAs are required to keep buffer stock in place. Now, all that gives us certainty of cost and certainty of delivery. Now it doesn’t always work. We talked about structural castings at Pratt & Whitney back in Q1. That continues to be a challenge. But for the most part, the commercial businesses have done a better job, I would say, because of the way we structure those long-term agreements. If you look at the defense side of the business, only about 10% of those businesses of RMD and RIS, suppliers are on long-term agreements. And that’s not surprising because of government contracting rules. The problem that we’ve had is as we’ve received all these new awards, we’ve been going out – and once the award is set once the contract is signed, we’re going out and we’re putting – or suppliers on contract, and we’re seeing lead times double and sometimes triple. And we have been, I would say, caught off-guard a little bit by how much pressure there is in the supply chain. And I would tell you, it all goes back to labor availability. Typically, during these – the downturn that we saw in A&D 2 years ago, there was a lot of layoffs. There is a lot of people that were let go. Typically, we get about 75% to 80% of those folks come back off of layoff. In this case, what we’re seeing in our supply chain is only about 25% of the people are coming back. They have found other jobs, similar jobs. Again, because the labor market is so tight in this country, we just don’t have a large pool of resources. The other problem I would tell you again, it’s not just material. It’s also labor availability. I’m thinking about our RIS business, which has over 5,000 programs that we’re executing on, right? That requires engineers and engineers with clearances. If you look at the unemployment rate for engineering talent in the U.S., it’s less than 2%. We started the year with a goal of hiring about 2,000 engineered net of attrition, which means we have to hire probably more than 5,000, and we are struggling in that regard as well. And again, you don’t think about it, but engineers working on programs generate revenue. And so as we think about the issues in Q2 and really the first half of the year, we have seen the supply chain but also a labor availability impact our defense businesses. As you talk about the back half of the year, you’re absolutely right, there is a lot of work to do. Right now, just to give you a couple of statistics, in the second quarter, in our factories, we typically look to provide kits to the shop floor to assemble, and we target somewhere between 90% and 95% kit availability. In other words, all the parts are there, 90% to 95% of the time. In the second quarter, because of all of these supply chain constraints, we saw kit fill rates around 50%, 50%. So you can imagine the amount of rework, the lost productivity in our shops as we are starting things that are not complete. Going back, doing rework, all of that is what’s causing some of these headaches on the defense side. Now as we look at the back half of the year, we’ve had some very deep dive reviews with Chris Calio and Neil Mitchill with the guys going out and making sure that we have line of sight to the supply recovery plans. And we expect kit fill rates, for instance, to go from roughly 50% to about 80% by the end of the year. That’s a big get, but we absolutely have to do that. And again, we are deploying resources. As I said in our comments, we’ve got about 30 suppliers where we have people today working through all this. It is pick-and-shovel work, and it’s also about trying to make sure they have got the right labor – trained labor to get all this done. So it is a hill to climb in the back half of the year, and it is a challenge that we’re going to have to take out in order to – first of all, to meet our customer demands or our customer needs. I mean this is really about making sure we can deliver to our customers on time. And right now, we’re suffering. I don’t know, Neil, anything you want to add to that? Neil Mitchill: Maybe I’ll just put a little color around the kind of hill that we’re looking at for the second half. At RMD, one of the big challenges is the material receipts. We talked in the first quarter about sort of COVID-induced labor issues in the supply chain. We expected that to get better in the second quarter, and it did not. And in fact, it got a little bit worse. When I look at the second half of the year, RMD in particular, needs to see about a 25% volume step-up in dollars in the second half versus the first half. Obviously, our new outlook for RMD reflects that. And at RIS, material is also an important part of their products, and it’s about a 15% step-up in the second half. So those are the metrics that we’re monitoring on a daily and weekly basis. As it relates to their performance, the only other thing, Greg, I would add is productivity. So one of the big reasons, I’d say about half of the drop in the margin at RMD in the second quarter was related to lost productivity, the absence of productivity. And our profit outlook for the remainder of the year for RMD reflects us not catching up on that productivity given the kit fill rate issues that you talked about. Ron Epstein: Great. Thanks. If I can, I mean, going from 50% to 80%, is that even a realistic goal? I mean given – I mean most of the points that you brought up about hiring people that fast turnaround stuff, right? I mean that’s – it’s not something that’s going to change on the dime. If you’re use… Greg Hayes: Let’s be clear, Ron, this does not get solved this year. I think, again, getting to a kit fill rate of 80% is interesting. But literally, we need to be at 95% to be running at I would say, a normal pace. It is a lot of work. We’ve done a lot of, I would say, deep dive reviews on supply chain, going through supplier by supplier. That’s why we’ve got people out of all of these different suppliers, making sure they are meeting their commitments. I think the only thing that’s going to solve labor availability, I hate to say this, is a slowdown in the economy because right now, there just simply aren’t enough people in the workforce for all of our suppliers. And look, we pay a very, very competitive wage at RTX. But as you go down into the second, third and fourth tier of the supply chain, they are struggling to attract workers. But again, we’ve got people out there. I would tell you, as we’ve done these reviews, we have a path to get there. It is not an easy path. It is going to be a challenge throughout the year. And we will see how we do – we’re tracking material receipts day by day, and it’s a big hill. Ron Epstein: Alright. Great, thank you, guys. Greg Hayes: Thanks, Ron. Neil Mitchill: Thank you. Operator: Thank you. Our next question comes from the line of Robert Stallard of Vertical Research Partners. Please go ahead, Robert Stallard. Robert Stallard: Thanks so much. Good morning. Greg Hayes: Good morning, Rob. Robert Stallard: Greg, maybe to follow-up on Ron’s point there on supply chain and labor and the impact of inflation. What do you see as the – your ability to pass this on you? Is there a cap to how much you can pass this, up the chain or it’s going to be different in aerospace versus defense? But is there a point where you have to start biting more of the bullet of these cost increases? Greg Hayes: As we look at it this year, Rob, we’ve got about $200 million of additional inflation headwind that we didn’t anticipate when we started the year. So that $200 million, we’ve had to go out. We’ve done a number of initiatives looking to ways within the supply chain to eliminate that headwind. And so far, we’ve done a pretty good job of that. Keep in mind, that’s on top of about $300 million of headwind from the Russia exit that we had earlier in the year. So I would tell you, the team has done a good job in managing cost and finding ways to overcome some of the headwinds that we’ve seen. On the commercial side, again, the LTA coverage at 80% really provides you a lot of coverage with inflation. Now there is dead bands in there and excess inflation above some levels. Usually 6% or 7% gets shared with the supplier. But for the most part, we’ve been able to manage through that. On the defense side, what we’ve seen – again, we’ve seen labor inflation clearly. We’ve been able to put most of that, though, into our overhead rates, and that gets recovered in the normal contracting process. We’ve also seen, again, just inflation in the supply chain. But again, most – well, I would say, at least 30% of the work that we have is cost type at RMD. And so you’re able to pass that along. And right now, again, I think one of the reasons we continue to push this on the RMD side is to make sure that we can overcome the inflationary impacts that we’re seeing in the supply chain there. So I think, again, we need to learn the lessons of how we manage this from the commercial side. And going to more LTAs, I think, is absolutely essential if we’re going to be able to have some kind of consistency in terms of supply chain going forward. Robert Stallard: That’s great. Thanks, Greg. Greg Hayes: Thanks, Rob. Operator: Thank you. Our next question comes from the line of David Strauss of Barclays. Your question please, David Strauss. David Strauss: Thanks. Good morning. Greg Hayes: Good morning, David. David Strauss: Greg, could you maybe touch on the recovery on the GTF side of things? I think you had missed 70 in Q1. You were saying you were to about 180 – up around 100 deliveries for the full year. Can you just talk about where you are there? And then also talk on the Pratt Canada side. I saw deliveries were down in the quarter. I think you had highlighted previously that titanium was a pretty big issue on the Pratt Canada side? Thanks. Greg Hayes: Yes. Thanks, David. Let me – just on the GTF side. I would tell you, right now, we continue to deliver GTS behind schedule. And we will not catch up, as I think I said back in February until the end of the year. And this is – again, goes back to a single issue around structural castings. We’re not holding up the line at Airbus. That’s the good news with the 1100. We’re not holding up the line on the 1500s either on the C Series or I guess, the A220. So we’re managing this with the customers. We’re managing this with the supply chain. And we really expect – again, you’re going to see a big step-up in the back half of the year on GTF deliveries. As you think about your Pratt had a great first half. Second half, again, even with the recovery in commercial aftermarket, it’s going to be tough because you got a lot more negative engine margin in the back half of the year. So again, that all goes into the calculus of the full year guidance. But I would tell you right now, there is no other surprises on GTF beyond those structural castings. And there is always little things, David, but nothing huge. On the Pratt Canada side, you’re exactly right on titanium. And again, this is primarily around the sanctions and our inability to continue to buy nor our desire to buy anything from Russia. So we have been working to identify second sources, qualify them. I will tell you we will impact production lines at a number of our customers. I’m sure you’re going to hear that from them as well on the biz jet side. We’re just not going to be able to make all the deliveries. Now we’re not talking about dozens and dozens of aircraft, but you’re talking 5 to 10 airplanes at these customers that are going to be without engines because we don’t have the titanium forgings that we had expected to get this year. So again, this will recover sometime in the middle of next year, but there is still a lot of work to do to get these suppliers re-qualified. And I think every single person in commercial aerospace is facing the same problems with Russian titanium. The fact is it wasn’t a huge piece of the supply chain, but it was 20% plus of global titanium and we are all going after those same resources. Interestingly, we were in the Farnborough last week. I had a good conversation with a number of our suppliers on this. People are stepping up. People understand this is a long-term business, and I think the suppliers of titanium see this as a big opportunity to take share. So, we will work through it, but it’s not going to be without a little bit of pain to our customers. David Strauss: Greg, how far along are you in reallocating these titanium supply contracts? Greg Hayes: Well, we are probably – in terms of identifying the sources and the contracts, I would say, we are almost complete. The issue simply is getting the parts qualified. You have got to go through a first article. You got to go through the metallurgical analysis. You got to make sure that the composition of material is exactly the same as what it was prior. And then you got to get the parts certified. So, that’s the part that takes time. It’s not actually identifying the suppliers. We have done that. We have got everything lined up. The same thing on heat exchangers. Recall, we made a number of different commercial heat exchangers in – at our joint venture in Moscow. All that work was discontinued on the 27th of February, and we are still working through the requalification of heat exchangers. And that’s 787s, that’s 777s, that’s Embraer 170. There is a number of issues that are now – we have got coverage for titanium for most of those or for heat exchangers through the end of the year, and we are working through the requal there. But we are not done yet. There is a lot of work to do. David Strauss: Thank you. Operator: Thank you. Our next question comes from the line of Noah Poponak of Goldman Sachs. Your question please. Noah Poponak: Hi. Good morning everyone. Greg Hayes: Good morning Noah. Noah Poponak: Obviously, what’s happening with supply chain labor inflation is – it’s unprecedented and hard to manage and hard to forecast. But I am confused by the pace of deterioration or the narrow window in which the defense forecast have changed because unprecedented and hard to manage and hard to forecast. But I am confused by the pace of deterioration or the narrow window in which the defense forecast have changed because the variances – the negative variances are pretty large. And if I go back to just the first quarter call in April, you are talking about supply chain labor inflation repeatedly, the whole world was. And so you were giving guidance just three months ago and a month into the quarter. And so have supply chain, labor inflation deteriorated that much in just two months to three months’ time, or is it that it’s just that difficult to forecast? And if it’s the latter, if I go back to this discussion of the second half inflection, it’s still really hard to stare at this RMD guidance and see how you can have that much of an acceleration. Maybe you could spend some time on the specific programs that drive that to get us more comfortable. Greg Hayes: Yes. Noah, that is a great point. I would tell you, when we exited the first quarter, and we knew that we had seen supply chain challenges, specifically at RMD, and the thought was, and which turned out to be, of course, incorrect, was that most of the supply chain challenges were related to Omicron, and that’s why we had ones in December or in January, but we really expect it as COVID receded into the background that we would see a quick recovery in the supply chain. And in fact, that was wrong. The labor challenges that we continue to see have not abated. And again, I think that is the challenge, and that’s the reason we continue to struggle in supply chain. Inflation is a challenge, but we can measure it, we can work to overcome it. Not having enough people in the supply chain, that has proven to be much more difficult. And so again, we have gone through this, I would tell you, program-by-program, line item-by-line item in terms of what’s in our MRP schedule. And there are some go-gets out there, but we have commitments from suppliers to hit these numbers. And I think that’s the – that is the challenge is making sure that our suppliers continue to deliver on the recovery plans that they have laid out for us. I don’t know, Neil, anything you want to… Neil Mitchill: Yes, two points because there has been a compounding impact that we have seen in the second quarter and expect to persist. And one is with the slowdown of receipts of material. We got a different mix of output during the quarter, more development program focused, and our lower margin production contracts were the ones that received the materials. So, getting back to that fill rate conversation, you had the stuff that was coming in not being on the more profitable programs. The second piece of that, the knockdown effect of that is the absence of labor productivity in the shops. And so with the fill rates being down in that 50% range, we just did not get the benefit of rolling through labor efficiencies, which is the primary driver of the EAC benefits we typically see in a quarter and RMD has seen. Now in the second half, we expect some, not all of that, to recover. And so it is a tough hill in the second half. I think we have got the right resources to engage with suppliers and within the business and on the shop floors. But we are looking at this every day, and we do need to see a market improvement in productivity in the shops to drive that P&L benefit in the second half of the year. Noah Poponak: Okay. Thank you. Greg Hayes: Thanks Noah. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Your question please, Sheila Kahyaoglu. Sheila Kahyaoglu: Okay. I could I guess that was me. Good morning guys. Greg Hayes: Good morning. Hi Sheila. Sheila Kahyaoglu: Hi. When we think about the U.S. airlines, just pushing gears a little bit, they are finally seeing pricing tailwinds and capacity constraints. So, can you talk a little bit about your aftermarket business? Are you seeing different actions from the airlines? How is pricing trending relative to history? And then can you maybe remind us of your aftermarket guidance expectations for the year with long-haul international expectations for the second half? Neil Mitchill: Sure. Let me start with some of the outlook pieces here. First, at Collins, we now expect aftermarket to be up between 20% and 25% year-over-year. So, we are at the halfway mark of the year. I think it’s important. I have been talking a lot about the uncertainty around the recovery, and we are pleased to see that improving, obviously, and holding. I think Greg will probably want to add a couple of comments here as well. But clearly, the demand for air travel is very strong. We are seeing some encouragement in terms of the wide body routes opening up as well and expect that to continue in the second half. And on the Pratt side, we now see the aftermarket up year-over-year 25%. So, really good performance there. Our customers are giving us good line of sight to shop visit inductions. We are a little over 40% towards our plan for the year in terms of V2500 shop visits. There is still some work to be done in the back half of the year. As you know, China was closed down for the better part of the second quarter, and that is a piece of the back half growth. But we feel pretty confident. We have got a good dialogue with our customers, good line of sight to the third quarter in particular, and I expect that to continue in the fourth quarter. Greg Hayes: Yes. Sheila, all I would say is that it’s an interesting time for the commercial aerospace business. Demand is – unprecedented is the wrong word. I would say the trajectory of the recovery certainly I think caught people by a surprise in terms of the desire to travel again. And you can tell every time you go to an airport today the long lines that we have. And the problem, of course, is it’s not just pilot shortages, but it’s baggage handlers. It’s TSA agents, it’s everybody that supports commercial airlines. They are struggling with the same labor availability that we talked about in the supply chain. So, the recovery is very strong. Pricing, as you know, for the airlines is very strong. Fuel prices, Jet A has doubled in price in the last year. But it’s come off of its eyes a couple of months ago. So, I think again, the airlines financially are doing very well. And the biggest concern they have is aircraft availability. And so we are going to see very strong inductions into the shop. We have seen very strong orders in our aftermarket and getting a little bit stronger than we had anticipated going into the second quarter. And we don’t think there is anything that changes that trajectory in the back half of the year. Absent a huge resurgence in COVID, I think again, people want to travel. China will reopen at some point, which we have seen a quick snapback in demand as soon as China reopens. So, I think it’s all pointing in a positive direction on commercial aero for the back half of the year and into 2023. So, I think again, we are well along the recovery path and no change in trajectory. Sheila Kahyaoglu: Great. Thank you. Operator: Thank you. Our next question comes from the line of Peter Arment of Baird. Please go ahead Peter Arment. Peter Arment: Hey. Good morning Greg, Neil and Jennifer. Greg Hayes: Good morning Peter. Peter Arment: Greg, if I could just come back to kind of the differences between commercial aerospace or your aerospace business, how well it’s performing, but dealing with a lot of the same probably supply chain that overlaps with defense. Maybe if you can just call out maybe some of the differences? Because I think a lot of it is struggling on the defense side, it really seems very complex and trying to get back to kind of the trajectory versus where your commercial aerospace business is. Probably dealing with a lot of the same challenges, but at the same time is performing really well. I mean maybe just call out a couple of differences that would be helpful. Thanks. Greg Hayes: Yes. Look, one of the – one of the benefits on the commercial side is we are not handicapped with government contracting regulations. And to that end, the MMS, material management system, which dictates how much inventory we can drive and how soon we can place things on order, really constrains our ability to be flexible on the defense side. I would tell you the reason that we have been able to be successful on the commercial side is we have driven a lot of inventory in. You look at the inventory, it’s up about $1 billion since the beginning of the year. It’s up about $400 million in the second quarter, primarily on the commercial side to meet the higher demand. So, we have been driving material in faster. We are not constrained on the commercial side by the MMS system. And I think again, that is a lesson learned for us. And what we told the team in defense is bring it in. We don’t have to build it. We had to bring in more inventory sooner rather than within normal lead times, that’s okay. So, we are going to go out and be a little more aggressive with inventory. We are not talking billions of dollars, but the fact is we need to drive inventory in faster and give some surety of supply or surety of demand rather to our supply chain, such as they continue to drive material in. And look, some of the suppliers we know are not going to get better this year. Rocket motors, we have talked about that continually for over a year. We know that’s a recovery that stretches probably into 2024. But that’s only a piece of the problem. I mean it’s again trying to make sure we have got the right chips and microelectronics and really hand-to-mouth there. But again, we have the tools. And again, the folks here at the corporate office and supply chain are off working with the folks on the defense side to help overcome some of these challenges, but it’s not easy. Peter Arment: Appreciate the color. Thanks Greg. Greg Hayes: Thanks Peter. Operator: Thank you. Our next question comes from the line of Robert Spingarn of Melius Research. Your question please, Robert Spingarn. Robert Spingarn: Thank you. Greg, I wanted to go back to the discussion on inflation and labor constraints and ask what the longer term opportunity is to apply automation across the four businesses to mitigate these issues. Does this require brand-new programs or brand-new facilities to implement? And more specifically with Asheville, it seems that, that’s going to be a tough labor situation. It’s an inherently labor-intensive business casting, and you don’t really have an available labor pool there that’s trained in casting. So, how do you staff that plant specifically, or will it be more automated? Greg Hayes: Well, look, it’s – I would tell you, factory automation is something that we have been doing for a number of years. I think about the facility we have at Pratt Canada that went online more than 5 years ago, completely lights out manufacturing. So, we have been making investments, I will call it, an industry 4.0 across all of our factories. We have got the new project down in Dallas, the new factory, automated factory that’s going in down there. You have got Asheville. And Asheville, while it is a large facility, the actual number of employees is only I think about 800 that we are going to be hiring, and we have been actively hiring them today to train them for the opening, which has happened sometime I think at the end of next year. So, look, it will be a challenge. But I would tell you, again, if you work at Pratt & Whitney, work at Collins or anywhere we across the RTX portfolio, we pay very good wages. But labor cost is a very – or direct labor cost, a very small piece of our cost of sales. The bigger challenge I would tell you is on the engineering front. And again, that’s – it’s just trying to find enough qualified engineers with clearances to drive the revenue growth that we have been expecting on all of these programs that we have signed up for. So, inflation is a problem, but we can deal with the inflation. The fact, labor shortages, we can deal with it within our own four walls because we have got really good pay, really good competitive benefits. People come to Raytheon because of our mission. And I think that’s a differentiator that we have in the marketplace. And the hope, of course, is as we see the economy slow down here in the coming months and perhaps year, that we will have the opportunity to continue to drive more folks into both the shop floor as well as into our offices on these programs. As far as automation, we are going to continue to drive automation. It’s what we do to drive cost reduction that we are encouraging suppliers to do the same thing. But it’s all contemplated, I think in the kind of $2.5 billion a year that we spend on CapEx, which is not an insignificant amount. Robert Spingarn: Greg, just one more thing on Asheville. You mentioned structural castings earlier. We know that it’s been a long pole in the tent here. If I remember correctly, Asheville is supposed to be for airfoils, but might you do structural large structures there just to address this single supplier problem. Greg Hayes: Yes. Look, we will take airfoils first. And I think, again, whether we decide later on to go up the supply chain there, that’s a decision in another relatively large investment. The fact is structural castings require huge capital and I would tell you a workforce that is highly skilled. We are going to start with airfoils. It will take us several years to get up to full run rate production there, and then we will see where we go from there. But really no plans to go beyond structural – I am sorry, to go beyond the airfoils at this point. Robert Spingarn: Thank you. Greg Hayes: Thanks. Operator: Thank you. Our final question comes from the line of Seth Seifman of JPMorgan. Please go ahead. Seth Seifman: Yes. Thanks very much. Good morning. Thanks for all the color on the defense situation. Maybe just a quick final question that’s a little more thematic. Greg, how do you think about the role of the company in China over time and the pace at which maybe the U.S. and China are decoupling on aerospace? We see the 737 MAX that it seems to be stuck in some political limbo right now in China, Collins as a supplier on the C919. How fast do you see these two kinds of aviation worlds is splitting up, or is that not the right way to think about it? How do you think about that these days? Greg Hayes: So look, China remains an incredibly large market for commercial aerospace, is an incredibly important market for commercial aerospace growth over the coming decades. Obviously, the Chinese have a desire to have indigenous aircraft. That’s the C919, maybe the C929 at some point. But the fact is, we think we are going to have – we will continue to work with our partners there. We will continue to utilize supply chain out of China that we have thousands and thousands of parts that come out of China for our commercial aerospace, specifically at Collins, but also some for Pratt Canada and some for Pratt & Whitney. So, look, we are going to continue to work with the Chinese. At the same time, I think we understand the geopolitical realities, and we are also making sure that we have assured supply chain. So, we are looking to make sure we have second sources outside of China in the case that the geopolitical tensions were eye to the point where we are not able to access that supply chain there. That’s a process that’s been ongoing for well over 1.5 years and will continue for the next couple of years, again, thousands of part numbers to do that. But again, we don’t see a decoupling of China from the world the way we have seen a decoupling of Russia from the world after the invasion of Ukraine. Again, it’s – the economy of Russia, relatively small, China is the second largest economy in the world. The decoupling between China and the U.S., I think is impractical and almost impossible to imagine the consequences on the U.S. consumer, the U.S. economy, if we really try to decouple. So, again, the hope here is we find a path forward where we can work together at the same time understanding that we have competing interests. But at the same time, we are retaining a very large presence in China for the commercial aerospace, obviously, not on the defense side. But we understand what we need to do to protect our customers long-term. Seth Seifman: Okay. Thank you. Greg Hayes: Okay. So Latif, thank you very much. Appreciate everybody listening in today. Jennifer and team, of course, will be available all day to take your calls and questions, and look forward to seeing you guys sometime early in the fall. Thank you. Operator: This now concludes today’s conference. You may now disconnect.

Operator: Good day, ladies and gentlemen. Welcome to the Raytheon Technologies First Quarter 2022 Earnings Conference Call. My name is Ludie , and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the internet, and there is a presentation available for download from the Raytheon Technologies website at www.rtx.com. Please note, except where otherwise noted, the company will speak the results from continuing operations, excluding acquisition, accounting, adjustments and net nonrecurring 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 forward-looking statements provided in this call are subject to risks and uncertainties. RTC's SEC filings, including its Forms 8-K, 10-Q, and 10-K 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. . With that, I will now turn the call over to Mr. Hayes. Gregory Hayes: Thank you, Ludie, and good morning, everybody. Before I get into the results, I just want to spend a minute to address the Russian invasion of Ukraine. I know it's first in center on everybody's mind. It's obviously been devastating to see these tragic events unfold and our thoughts and prayers are with the Ukrainian people. We, of course, have ceased all of our business activities with Russia in line with global sanctions, and we remain committed to supporting our allies and ensuring the safety of our people around the world. This event, more than any other, demonstrates our unique responsibility as a global company and trusted with supporting our customers as they navigate a difficult and complex geopolitical landscape, and we remain focused on honoring that mission. All right. Let me turn to the first quarter. As you saw from the press release, we're off to a good start for the year. On the commercial aerospace side, we remain optimistic on the market recovery, despite a slower than expected start to the year due to the impact of Omicron and increased geopolitical tensions. That said, air traffic is rebounding again in many markets around the world. In the U.S., passenger traffic through TSA checkpoints remained steady versus Q4 at about 1.8 million passengers per day in the quarter. But importantly, it averaged over 2 million passengers per day in March, a significant increase last year and a nearly -- that's nearly 90% of what we saw in 2019. So recovery is in sight. On the defense side, we're very pleased with the enacted '22 DoD budget, and we're encouraged by the President's most recent fiscal '23 budget request of $773 billion. The proposed budget includes broad-based support across our key programs and technology investments in cyber, space, missiles, missile defense systems and others, and we expect the enacted budget could be even higher to account for inflation and the many unfunded priorities identified by the services. Looking internationally, our allies are also increasingly prioritizing defense spending with a focus on defensive systems, which we are uniquely positioned to support. Resilient commercial air traffic, coupled with growing global defense budgets and our strong backlog continue to support our long-term outlook for our businesses and gives us confidence in our ability to drive top-line growth and margin expansion over the next several years. All right. Turning to Slide 2, this has some highlights for the quarter. As I said, it was a good start to the year, despite the impact of Omicron and continued supply chain constraints. Commercial aftermarket remained strong in the quarter, growing 38% from Q1 of last year. We delivered solid financial performance in the quarter where we exceeded our expectations on both adjusted EPS and free cash flow. That said, as a result of ceasing business activities in Russia, we are going to reduce our full-year sales outlook by $750 million to a new range of $67.75 billion to $68.75 billion. However, we are going to hold our adjusted EPS range of $4.60 to $4.80, and we continue to expect free cash flow of about $6 billion for the year. Neil will give you a little more color on this in just a minute. Our defense backlog remained very strong at $62 billion exiting the quarter and total company backlog was $154 billion. Notable defense awards in the quarter included about $1.2 billion of classified bookings at RMD, including a significant competitive award as well as $650 million for the SPY-6 full rate production contract and RIS booked about $1.1 billion of classified awards. On the capital allocation front, we repurchased $743 million of RTX shares during the quarter, and we remain on track to repurchase at least $2.5 billion of share for the year. Yesterday, of course, you saw we increased our quarterly dividend by nearly 8% from $0.51 per share to $0.55, continuing our long history of growing and paying a dividend. Since completing the merger, we have returned nearly $9 billion to RTX shareowners, and by the end of this year, by the end of '22, that will be in excess of $13 billion. And of course, we remain committed to returning at least $20 billion to shareowners in the first four years following the merger. That shouldn't be an issue at all. On the program execution front, we recently delivered the first LTAMS unit into the U.S. Army test program. It's an important milestone for what will be a franchise program for RMD. And finally, we launched RTX Ventures to accelerate our pipeline of innovative technologies to grow -- to drive future growth and see an ecosystem of groundbreaking technology companies. With that, let me turn it over to Neil, and I'll will be back for the wrap-up and Q&A. Neil? Neil Mitchill: Well, thanks, Greg. I'm on Slide 3. As Greg noted, we delivered adjusted earnings per share and free cash flow that exceeded our expectations for the quarter. Sales of $15.7 billion were in line with our expectations and up 4% organically versus the prior year. Our performance in the quarter was primarily driven by the continued recovery of domestic and short-haul international air travel that was partially offset by continued supply chain constraints across our businesses. Adjusted earnings per share of $1.15 was up 28% year-over-year and ahead of our expectations, primarily driven by commercial aftermarket at Collins, $0.04 of commercial OE timing at Pratt and other corporate items, including lower tax expense, which more than offset the supply chain constraints. On a GAAP basis, EPS from continuing operations was $0.74 per share and included $0.41 of acquisition accounting adjustments and net significant and/or nonrecurring items, which included $0.14 of charges associated with the impact of global sanctions on Russia. And free cash flow of $37 million was better than our expectations of an outflow of $500 million, driven primarily by working capital, most notably the timing of collections during the quarter. And finally, let me give you an update on our synergy progress. During the quarter, we achieved incremental gross cost synergies of about $90 million, putting us on track to achieve $335 million of incremental cost synergies for the full-year. With that, let me hand it over to Jennifer to take you through the segment results, and I'll come back and share our thoughts on the rest of 2022. Jennifer? Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on Slide 4. Sales were $4.8 billion in the quarter, up 10% on an adjusted basis and up 11% on an organic basis, driven primarily by the continued recovery in the commercial aerospace end markets. By channel, commercial aftermarket sales were up 39%, driven by a 73% increase in provisioning, a 43% increase in parts and repair and 11% increase in modification and upgrades. Sequentially, commercial aftermarket sales were up 5%. Commercial OE sales were up 12% with strength in narrow-body, offsetting expected headwinds from lower 787 deliveries. And military sales were down 12%, driven primarily by supply chain constraints and expected declines in F-35 volume. Adjusted operating profit of $584 million was up $252 million from the prior year, drop-through on higher commercial aftermarket and OE volume more than offset lower military sales volume and higher SG&A expense. Looking ahead, as a result of ceasing activities with Russia, we now expect Collins full-year sales to be about $375 million lower than our prior expectations, but still expect their sales to grow low double-digits. However, as a result of better mix and spending containment, we are maintaining Collins full-year operating profit range of up $650 million to $800 million versus 2021. Shifting to Pratt & Whitney on Slide 5. Sales of $4.5 billion were up 12% on an adjusted basis and up 13% on an organic basis, driven primarily by the continued recovery of the commercial aerospace industry. Commercial aftermarket sales were up 37% in the quarter with legacy large commercial engine shop visit inductions up 9% and Pratt Canada shop visits up 22%. Commercial OE sales were up 12%, driven by favorable mix within Pratt's large commercial engine business as well as higher general aviation platforms at Pratt Canada. In the Military business, sales were down 11%, driven by F-135 production contract award timing and lower expected production volume that were partially offset by higher F-135 aftermarket volume. Adjusted operating profit of $308 million was up $268 million from the prior-year. Drop-through on higher commercial aftermarket sales volume, favorable large commercial OE mix and higher Pratt Canada OE volume were partially offset by higher SG&A and E&D as well as lower military sales volume. Looking ahead, as a result of ceasing activities with Russia, we also now expect Pratt's full-year sales to be about $375 million lower than our prior expectations and now expect their sales to grow high single to low double-digits. However, as a result of better mix and spending containment, we are maintaining Pratt's full-year operating profit range of up $500 million to $600 million versus 2021. Turning now to Slide 6. RIS sales of $3.6 billion were down 5% versus prior-year on an adjusted basis, primarily driven by the divestiture of the global training and service business. Sales were in line with prior-year on an organic basis. Adjusted operating profit in the quarter of $378 million was down $10 million versus prior-year, primarily driven by the impact of the divestiture that was partially offset by net productivity across various programs. RIS had $2.6 billion of bookings in the quarter, resulting in a book-to-bill of 0.8 in a backlog of $17 billion. In addition to significant bookings that Greg mentioned, RIS also booked $311 million for the next-generation OPIR Geo. It's worth noting that we continue to expect RIS full-year book-to-bill to be greater than 1. Turning to RIS full-year outlook. We continue to expect RIS sales to be down slightly on a reported basis and to grow low single-digit on an organic basis. We also continue to expect RIS operating profit to be flat to up $50 million versus 2021. Turning now to Slide 7. RMD sales was $3.5 billion, down 7% on both an adjusted and organic basis, primarily driven by the continuing supply chain constraints and decline in certain land, warfare and air defense programs. Adjusted operating profit of $387 million was $109 million lower than prior-year, driven primarily by lower net program efficiencies and unfavorable program mix. RMD's bookings in the quarter were approximately $4.1 billion, resulting in a book-to-bill of 1.18 and a backlog of $29 billion. In addition to the awards that Greg discussed, RMD also booked about $385 million for ex-caliber rapid demo for the U.S. Army, about $220 million for AIM-9X Sidewinder for the U.S. Navy, U.S. Air Force and international customers and about $220 million for Patriot engineering support services for the U.S. Army and international customers. It's worth noting that we now expect RMD's full-year book-to-bill to be at least 1.1. Looking ahead, we continue to expect RMD sales to grow low to mid-single digit and operating profit growth of $150 million to $200 million versus 2021. With that, I'll turn it back to Neil to provide some color on the rest of the year. Neil Mitchill: Thank you, Jennifer. I'm on Slide 8. Let me give you some perspective on how we're thinking about the environment as we look ahead. I'll start with some of the positives. Despite the impact of COVID variants early in the year, we continue to expect that the commercial aerospace recovery will remain resilient and will drive growth in commercial aftermarket and narrow-body OE deliveries this year. Notwithstanding the fact that global RPMs grew roughly four points less than we expected in the first quarter, Commercial aftermarket grew in line with our expectations as operators began preparing their fleets for the summer travel season. At the same time, we're closely monitoring China domestic and international traffic. And as I've said before, our outlook assumes a significant improvement in wide-body traffic during the balance of the year. That said, we continue to expect commercial traffic to return to 2019 levels by the end of next year. On the defense side, as Greg mentioned, we are optimistic about the President's fiscal '23 budget request, which included a 5% base budget increase in the modernization accounts where our investments in technology and innovation are well aligned to the administration's priorities and our major programs are well supported. And while it's too early to quantify today, all of our businesses are positioned to support the expected growth in U.S. and international defense spending. On the cost reduction front, we remain laser-focused on driving operational excellence to deliver further margin expansion, including $1.5 billion of total gross cost synergies. On the challenges side, we continue to see global supply chain, inflation and labor availability pressures across our businesses. And while we saw increasing risk in these areas during the first quarter, we remain focused on mitigating actions and expect supply chain constraints will ease later in the year. And finally, we continue to monitor the broader geopolitical environment, including the impact of global sanctions as well as the U.S. and global tax environment. Turning now to our outlook on Slide 9. As Greg discussed, due to ceasing business activities with Russia, we are reducing our full-year sales outlook by $750 million, which, as we said, is split evenly between Collins and Pratt. We now see full-year sales between $67.75 billion and $68.75 billion for the full-year. However, from an earnings perspective, we continue to expect adjusted earnings per share to be between $4.60 and $4.80 due to improving sales mix and spending containment at both Collins and Pratt. And on the cash front, we continue to expect free cash flow of about $6 billion. It's important to remind everyone that our cash flow outlook continues to assume that the legislation requiring R&D capitalization for tax purposes is deferred beyond 2022, which, as I've said before, the free cash flow impact of this legislation is approximately $2 billion for the year. So with that, let me hand it back to Greg to wrap things up. Gregory Hayes: Okay. Thanks, Neil. Just a couple of thoughts here on our '22 priorities, which remain essentially unchanged. Obviously, we remain focused on supporting our customers, our employees, suppliers and communities so that we can actually execute on our mission of defending democracy and connecting the world, and today's environment reinforces the need for us to invest in innovative technologies to remain competitive, to drive industry leadership and to deliver the right solutions for our customers. We'll do this while driving operational excellence and remaining disciplined with our capital, including meeting our capital return commitments. And of course, we're committed to doing all of this responsibly as evidenced by the publication of our first RTX ESG report yesterday, which builds upon our long history of best practices in this area. And finally, earlier this month, we celebrated the two-year anniversary of our merger. I'm very proud of what we've accomplished together so far, and I want to thank all of our employees for all of their efforts during this very difficult and challenging period. I'm confident in the investment thesis we laid out at the investor conference last May. Our franchises are strong. We operate in resilient markets, and we have great technology. And importantly, we have experienced leadership that is focused on operational excellence and delivering on our long-term commitments. With that, let me open up the call for questions. Ludie? Operator: Thank you. The first question will come from the line of Myles Walton from UBS. Your line is open. Myles Walton: Thanks. Good morning. Greg or Neil, could you comment on the gradients of the supply chain constraints you saw in the first quarter as you look to the second quarter? In particular, the two items of Pratt commercial engines and rocket motors. I know you've talked about recovery by year-end, but have you passed the point of low and you're seeing improvement sequentially? Gregory Hayes: Yes, Myles, thanks for the question. So I think we laid this out last month -- I guess a month and a half ago when we were speaking at the Barclays Investor Conference. But the fact is, we had problem with our structural casting supplier where we were not able to get castings into our MRP schedule. That resulted in about 70 engines moving out of the first quarter. That problem is not behind us, but we are working with that supplier to recover that, and we'll get most of the way there by the end of the year, but it is not without its challenges. Like everybody else, our suppliers are seeing a shortage of labor as well as inflation in their own businesses. So that's the first piece. I think, again, we understand the issue, and we have a plan to recover it. On the rocket motor side, this impacts most of the RMD businesses and that remains problematic. We have a recovery plan that we work with them on every day. We have a number of our folks that are at their facilities every single day working through this, making sure we're being prioritized, but the recovery is not going to happen this year. I think we are so far behind on rocket motors, it will -- it could well stretch into the 2023 timeframe. So again, not a new issue, but one that we have not been able to solve yet. And we're off working with other suppliers to try and requalify other rocket motors, but it is a long process to do that. So we're going to be hand to mouth on rocket motors for a period of time yet. Myles Walton: Okay. Okay. And just a clarification. Did that drive the EAC in the quarter in RMD? Is that the reason to lighter margins? Neil Mitchill: Myles, it's Neil. Good morning. Let me comment a little bit on the margins. There's a couple of things driving the margins year-over-year. I would characterize it in a couple of different buckets. The first one is about 110 basis points I would attribute to lower EACs in the quarter versus a year ago. And I would say that some of that was, in fact, driven by the fact that because of the supply chain delays that we encountered in the first quarter, they pushed key milestones out to the right that we're looking to that would be the indicators of when we could realize productivity. So we expect productivity to return to the RMD business in the second quarter and beyond, and certainly, the first quarter, I think, marks a low point of the year for RMD and the margin, but that was the principal contributor. The second piece, just to kind of finish the thought the other 100 basis points I would attribute to the contract mix. And we've been talking about this for quite some time now about the mix to -- from lower international Patriot and NASAMS production volume and some lower-margin development contracts that are in process right now. So overall, with RMD sales down 7% in the quarter, about half of that was expected and the other half was, I'd say, driven by the supply chain. We also did have one fewer workday in the quarter. That's probably about $50 million for the quarter. But we do expect that to recover as the year goes on. RMD is still expected to be up about 3% year-over-year on a sales basis. Myles Walton: All right. Thanks for the color. Operator: Your next question comes from the line of Robert Spingarn from Melius Research. Your line is open. Robert Spingarn: Well, hi. Good morning. Gregory Hayes: Good morning, Rob. Neil Mitchill: Good morning, Rob. Robert Spingarn: A couple of things on defense. Jennifer talked about, I think it was low to mid single-digit sales growth profile at RMD going forward. Does this embed incremental demand that you talked about expected out of Europe? More specifically, the army -- will the army replace the current 1,400 stingers that were sent to Ukraine? And would that be through a sole source contract or perhaps, a competitive follow-on contract? Gregory Hayes: Yes. Let me start with that. As far as looking at the sales forecast for RMD, that does actually not contemplate any upside that we see from replenishment of stocks. And again, we're working through all that, trying to understand the timing. Clearly, we won't see any of that benefit this year, but as we think about the next couple of years, as we see the budgets continue to increase and we see the replenishment orders come in, we would expect we will see a benefit to the RMD top-line, which will take that that number up somewhat. So again, we're not quite ready to give you a new number, but I would just tell you, it's going to be higher than what we've got there. As far as the stingers, we should keep in mind, we have -- we are currently producing stingers for an international customer, but we have a very limited stock of material for stinger production. We've been working with the DoD for the last couple of weeks. We're actively trying to resource some of the material. But unfortunately, DoD hasn't bought a stinger in about 18 years. And some of the components are no longer commercially available, and so we're going to have to go out and redesign some of the electronics in the missile of the seeker head. That's going to take us a little bit of time. So again, we'll ramp up production what we can this year, but I would expect, again, this is going to be a '23, '24 where we actually see orders come in for the larger replenishments, both on Stinger as well as on Javelin, which has also been very successful in theater. Robert Spingarn: Thanks, Greg. Operator: Your next question comes from the line of Peter Arment from Baird. Your line is open. Peter Arment: Good morning Greg, Neil, Jennifer. Neil Mitchill: Good morning, Peter. Peter Arment: Hey Greg, can you give us maybe some color on just where you are on the narrow-body build rate side? I mean it seems like that's a big part of the positives for this year? And just are you seeing running into any supply chain issues on that front? Thanks. Gregory Hayes: Yes, Peter, I think the biggest supply chain challenge that we're seeing as it relates to the narrow body recovery would go to Pratt & Whitney, obviously, as we think about GTF production. And that's the structural castings issue that we talked about that caused first quarter rates to be lower than what we had expected. So that will get better as we go throughout the year. We actually see supply chain constraints across the commercial portfolio, though. I mean we see it in electronics just like everybody else. We see it in aluminum. We see it in titanium. I think the one of the challenges as we think about Russia, for instance, that was a large source of some of our titanium supplies. And because of the sanctions, we are looking to resource a lot of material, probably not going to impact narrow-body production delivery rates this year, but certainly could going into next year. I would tell you that we're in lockstep with both Airbus and Boeing on their production rates. Obviously, if you talk to the folks at Airbus, they'd like to see a rate of 70 or 75 by 2025. We'll see if we can get there, but we're certainly doing everything we can to support our customers there. But supply chain continues to be an issue, I would say, across the business, especially on the electronics side where we've seen lead times go from three months out to 12 months plus, and we are on allocation for many of those components. So again, nothing dramatic that's going to change our forecast or change our ability. It's just a watch item that we're actively working. Neil Mitchill: Peter, maybe I could add a couple of points here, too. Just from a financial perspective, as you think about the sales impact of the Russia on the narrow-body in particular. At Collins, we expect the commercial OE now to be up mid to high teens year-over-year, still very strong growth. And similarly at Pratt, we now expect commercial OE to be up low teens. I had talked about -- Greg and I talked about OE shipments being up about 200. Think about that now is about up 180 at the Pratt business year-over-year. So just a couple of extra data points for you. Peter Arment: Thanks, Neil. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Your line is open. Robert Stallard: Thanks so much. Good morning. Gregory Hayes: Good morning, Rob. Neil Mitchill: Good morning. Robert Stallard: Neil, maybe just a follow-up on your Russia comment there. I was wondering if you could give us a bit more detail on this hit to revenues that you're anticipating in 2022, because I wouldn't expect Airbus and Boeing to not remarket planes, for example. Is this all coming on the aftermarket and on BizJet? Gregory Hayes: Yes, Rob, I think if you think about that -- so Russia accounts for about 4% of global RPMs, right? So it's not a huge number, but it accounts for about 1.5% of our total sales. So call that $900 million a year. We're going to be able to mitigate some of that through higher sales elsewhere, but you really do lose some sales associated with aftermarket activity into Russia. Also importantly, at Pratt, we're not shipping engines to . We're not shipping engines to Airbus that would otherwise go into Russia. Now Airbus, of course, will remarket some of those so we won't lose those completely, but we will lose the spare sales associated with those engines going into Russia. So again, we've taken a pretty detailed look at this in terms of the sales impact, and what Neil said, importantly, I think, though, there still is a relatively significant hit in terms of earnings around $200 million. Fortunately, we're going to be able to offset that through cost reduction and just cost containment, but it is not a small number for us as we think about the guidance for the year. Neil Mitchill: And Rob, I would also tell you that just to kind of think about the profile of that, think about $225 million a quarter in each of the next three quarters. We actually had about $80 million of sales that did not materialize in the first quarter, because of this impact. And as you think about one other thing to add is, Pratt Canada also was selling engines to -- helicopter engines into Russia. So that will impact the OE. So from a split perspective, Collins about 60% aftermarket, 40% OE. And then at Pratt, about 10% aftermarket, but really heavy on the OE side, 90%. Robert Stallard: That's great. Very helpful. Thank you. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Your line is open. Ronald Epstein: Yes. Good morning Greg. Gregory Hayes: Good morning, Ron. Ronald Epstein: Maybe just following on that supply chain team. How are you guys handling the titanium situation, right? I mean Russia was a somewhat important supplier for you guys. I mean are you just looking to move that all domestic? And how are you thinking about it? Gregory Hayes: Ron, that is a great question. And I think the biggest challenge that we have as we think about these global sanctions on Russia, we did have a relatively significant portion of titanium forgings and castings coming from Russia and many of those are now on the sanctions list. The good news is, as we started looking across the business, and we actually -- we started advanced purchasing back in the fourth quarter when we were able to get ahead of some of the sanctions. So we have inventory for a big chunk of that throughout through the end of this year. I will tell you though that there are some components, especially at Pratt Canada, where it's going to take us some time to resource some of the castings and that's going to impact some of our customer deliveries this year, full stop. And as we think about the sales guidance that Neil was just talking about, obviously, the Pratt Canada piece is directly impacting that in terms of not being able to deliver all the engines that we had hoped to. We'll recover those next year, and we're working on the sourcing. I would tell you, trying to find titanium sourcing today is very difficult. Russia accounted for about 15% of global sponge production. So that's really been taken out of the market. But it's not just the sponge production, it's also the casting and forging facilities that are in Russia that are no longer available to us. So we're working through all of that. I think we've done a pretty good job of identifying what those challenges are and finding second sources. But it's is going to cause us to be late on some deliveries, especially out of Pratt Canada this year, and it's going to take us some time to recover. Ronald Epstein: Got it. And if I may as a follow-on. Are you thinking about just permanently moving it out of Russia? Gregory Hayes: We're done in Russia, full stop. We actually -- we had a joint venture there where we built commercial heat exchangers for Boeing and Embraer. We closed that facility. We sold our share. We aren't going back. I think this is, as they say, crossing the Rubicon here as far as we're concerned for Russia. We're not going to support the airlines. We're not going to support the development programs. We're not going to support any Russian customers going forward, while this is going on. Ronald Epstein: Got it. All right. Thanks, Greg. Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open. Sheila Kahyaoglu: Good morning guys. Thank you for the time. Gregory Hayes: Good morning. Sheila Kahyaoglu: Maybe on a more upbeat note, can we talk about profitability? It was pretty good, 50% incrementals in the quarter and guidance sort of implies is flattish for the rest of the year. What's sort of going on there? Are you just mitigating for risk with supply chain? And then now that the two year log has expired with the merger, how are you thinking about the portfolio overall? Neil Mitchill: Okay. Let me start with the financial piece, and I'll let Greg talk about our portfolio thinking. Good morning, Sheila. So yes, very strong margins for Collins in the quarter, getting a little bit of feedback there. So good margins. The aftermarket, in particular, at Collins, performed quite well with provisioning up 73% year-over-year, and that was really what drove the favorability in the first quarter for us. So I think we don't expect that to sustain itself at quite that level as the year progresses. And also similar to last year, Sheila, you remember that we had phased our expenditures, our E&D, our SG&A. We had furloughs that were still in effect in the first quarter of last year. So those types of items become a headwind as you get a little further into the year. So very strong incrementals in the first quarter. We still expect mid-30s for the next several quarters. For Collins as you see E&D ramp up a little bit. You see the effect of our merit increases take hold on April 1 across the company. But if the aftermarket is stronger, you will surely see that in the margins as well. We're very pleased to see double-digit margins again at Collins. Greg, I'll turn it over to you. Gregory Hayes: Yes, Sheila, just a comment on portfolio rationalization. We obviously haven't been sitting still for the last two years. We've been looking at across the portfolio. But to your point, we were really kind of hamstrung because of the spin transactions and the merger to not really do anything significant with any of our portfolio during that two year period. So we are actively looking across the portfolio today for both acquisitions as well as divestitures. I would tell you, the acquisitions will probably be technology-related and smaller dollar similar to what we did last year with Seeker Engineering or Blue Canyon in the space side. And then we are going to look at the Collins portfolio for potential divestitures. There are certain businesses that do not have the growth profile, the margin profile or the technical footprint that we're looking for in some of these product lines. So I would expect over the next six to nine months, we'll complete those analysis. Obviously, you don't want to be selling any of these businesses in a down aero market, but with the recovery that we're expecting this year and next, I would think we will probably be doing something later this year or early next year. Sheila Kahyaoglu: Thank you. Gregory Hayes: Thanks, Sheila. Operator: Your next question comes from the line of David Strauss from Barclays. Your line is open. David Strauss: Thanks. Good morning. Neil Mitchill: Good morning. Gregory Hayes: Good morning, David. David Strauss: Greg, on the Collins side, any visibility out of Boeing to go above 31 a month on MAX? And where are you today on 87 and the outlook for production to start moving back up again there? Gregory Hayes: That's a great question for the Boeing company tomorrow when they release earnings. I would tell you, we're in lockstep with Boeing in terms of the production schedule on MAX for this year. I know they have talked about 31 a month, and we're clearly able to support that level and even higher as we go into next year, 787 production, I think again, it's -- we have been working with Boeing as they're working through their own issues relative to FAA certification to get the aircraft delivered. Obviously, there's -- we haven't been shipping a lot down to Charleston on the 787 over the last quarter because of some of those issues. But we would expect as the year progresses, we'll start to see that pick up. And I would tell you that Boeing has been very transparent with us in terms of sharing what their delivery and the production forecasts are, and it's all reflected in the guidance that we've given for Collins. So no change to any of that today. David Strauss: All right. Great. Thanks. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Your line is open. Kristine Liwag: Hey, good morning guys. Gregory Hayes: Good morning. Kristine Liwag: On the large commercial engine castings issue at Pratt, is this related to aluminum casting or titanium casting? And also with the raw material and labor inflation, are there threshold limits on how much you're able to pass through to your customers? Gregory Hayes: So those are primarily titanium castings from a -- from our supplier that's impacting it. These are structural castings, which means you can't really build -- start building most of the engine until you get the castings in and that's what's the holdup is there. I'm sorry, was there another part to that question, Kristine? Kristine Liwag: Yes. Greg, on raw material and labor inflation, are there threshold limits on how much you're able to pass through to customers? Gregory Hayes: There are, I think the good news is, as you think about inflation in the supply chain is about 80% of the -- our commercial aerospace supply is on long-term agreements. Obviously, there's -- some of that comes up for renegotiation every year, and we're seeing some cost pressure. Typically, every year, we see maybe $150 million or so of inflation. I would tell you, there's probably an extra $200 million this year of inflation that we're going to have to offset through cost reduction or negotiations with some of the supply chain. In terms of passing it on to the customers, typically, we have dead band pricing within the contracts, which require us to absorb the first tranche of inflation, and beyond that, we can pass on a portion of it. Unfortunately, we're not going to be able to do that this year. That will be a benefit next year as we can increase pricing. We did, of course, increase pricing on the aftermarket through our catalog that was issued, I think, last October. That was roughly a 6% increase year-over-year. So we're able to offset a chunk of the -- of that inflation through pricing, and the rest is going to have to be offset through either cost reduction, redesign or renegotiation. Neil Mitchill: And while we're on the topic of supply chain and the castings, that $0.04 benefit that we realized in the first quarter is likely going to end up being a $0.04 headwind as we go through the second quarter and we get the production back on track. Kristine Liwag: Great, thank you guys. Very helpful. Operator: And your next question comes from the line of Doug Harned from Bernstein. Your line is open. Douglas Harned: Good morning, thanks. Neil Mitchill: Good morning, Doug. Douglas Harned: If we go back to last summer, you all talked about a five-year CAGR for defense in the sort of 3% to 5% range top line. And now we've seen now that we're seeing the issues with the Russian Invasion, we're looking at stronger defense budgets. You talked about this a little bit earlier. How do you see that trajectory now? Is there upside from there? We haven't seen a backlog increase yet, but does this change the way you look at that five-year outlook? Gregory Hayes: Yes, Doug as we think about this, given the President's budget request for '23 of $773 billion did not anticipate the Russian invasion of Ukraine. So we were seeing an increase in defense spending before any of this nonsense in Ukraine with the Russians. So I think, again, the trajectory is better than what we had expected. I mean I will go back two years when the merger first occurred, we thought defense spending was going to be flat to up slightly. And I think everybody recognizes the need for modernization and the need to prepare for -- to deter these folks in a more robust fashion. So clearly, there's going to be upward pressure on sales guidance, but again, you probably won't see any of that until '23 or '24. But as we understand what the implications are of the new defense budget, what we see in terms of the plus-ups as they go through the process on the '23 NDAA, I think, again, we'll have an opportunity to update everybody later this year on our thinking around kind of that three to five year outlook for defense. Douglas Harned: But your sense is that there could potentially be some upside there as we look in the outer years? Gregory Hayes: Yes, absolutely. If you look at just the research and development in the budget, that's up 11% versus what was in the '22 budget. So clearly, there is going to be more spending than what we had anticipated, and importantly, it's in those programs like space and some of the other advanced missions that we have an outsized share of. Douglas Harned: Great, thank you. Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Noah Poponak: Hi, good morning everyone. Gregory Hayes: Good morning, Noah. Noah Poponak: Neil, could you spend a minute on the progression of the margin through the year at the other segments, the way you did at Collins? Because it looks like RIS is fairly steady through the year, but then RMD mathematically needs a pretty big step up to get into the 150 to 200. It looks like a lot sequentially. So I'm assuming that's back-end loaded, but the more back-end loaded, the higher it has to be. And then at Pratt, I assume or clearly, you'll have different mix OE versus aftermarket as you move through the year, but the guidance implies that margin steps down, and I assume that mix change is also back-end loaded. So just be helpful to hear from you on how we should expect those to change as you move through the year? Neil Mitchill: Thanks, Noah. Let me start with RMD. As I said earlier, the 11% in the first quarter we see as the low point of the year. And in order to get to our full-year guide, you're right, we have to be in the 13% to 14% margin range, and that business has been there before. That will come on the back of improved mix. It will also come with productivity realization as we get later in the year and these milestones get realized. So I would expect to see sequential increases in the margin at RMD as we go throughout the year, with Q1 being the low point. I talked about Collins, but just to reiterate, Q1 benefited from the provisioning. I do expect SG&A in E&D to kick in a little bit higher plus we have substantial military growth that's profiled in the latter part of the year, and so that obviously comes with slightly lower margins. And you'll see that kind of come across throughout the quarters as we go ahead. At Pratt, the story really is about the mix of OE versus aftermarket. And as the OE volume continues to grow, particularly in the large commercial engine business, you should see a 250 basis point or so degradation in the margins as that negative engine margin picks up in the next two quarters, in particular. Typically, we see a larger aftermarket mix in the fourth quarter. And then lastly, I expect to see 20, 30 basis point incremental margin improvements in RIS as we go through the year, again, on better volume, better mix, productivity. We saw good productivity in the first quarter there, and I expect that to continue through the rest of the year. Noah Poponak: Very helpful, thank you. Operator: Your next question comes from the line of Mike Maugeri from Wolfe Research. Your line is open. Michael Maugeri: Hey, thank you. Good morning everyone. Gregory Hayes: Good morning. Michael Maugeri: Neil, following on a couple of the prior questions on the slower GTF deliveries at Pratt. With the supply chain issues, is it just Pratt or I think Greg might have mentioned something broader, is it affecting all of A320? And does that change your thinking at all on peak negative engine margin and separately breakeven cash flow on GTF? Neil Mitchill: Good morning, Mike. No, I don't see any change to our thinking around peak negative engine margin or our breakeven on the GTF. I would say that the supply chain issues that we've been talking about and we're seeing aside from the casting issue are more acute in the defense side of our businesses at this time. In particular, January and February of this quarter, this past quarter were particularly light. I think that was driven by our suppliers having a lot of absenteeism and an inability to put the overtime to recover, but we have seen that start to slowly recover in March and again in April. That has really affected Collins as well as RIS and RMD. We've seen that across the board there. At Pratt & Whitney, in the first quarter, in addition to the casting issue on the military side, we did see a delay in getting under contract for the next lots of F-135 engines. We do have a handshake and expect that to be done in the second quarter. So just timing within the year. Operator: Thank you. And your next question comes from the line of Ken Herbert from RBC. Your line is open. Kenneth Herbert: Hi, good morning. Thank you. Gregory Hayes: Thank you, Ken. Kenneth Herbert: Hey, Greg and Neil, I wanted to ask about China. The traffic data and events in China so far in April have not been encouraging. Has -- can you help us think about the full-year assumptions for international travel and sort of what we've seen in China so far this year? Has that changed the outlook specifically on the full-year for the aftermarket? Or how would you talk about the recovery in international travel and the risk in the back half of the year relative to what we were seeing so far in China in particular? Gregory Hayes: Yes. Ken, that's kind of an understatement about China. Obviously, I think China accounts for about 16% of global RPMs. A big chunk of that is their domestic market, which is down more than 80% because of the lockdowns that we've seen because of COVID. Obviously, there is an impact to the aftermarket, but we do expect that, that will recover. And we have seen that several times in the past where the Chinese lockdown their cities. They get passed away within 30 or 60 days and the traffic comes right back. So we don't expect any long-term impacts from this. I would tell you, the aftermarket recovery for wide-body international travels, we're still expecting that to recover to roughly 75% of pre-pandemic levels by the end of this year. China accounts for a piece of that, but a relatively small piece of the international long haul, really what you're going to need to see is traffic picking up to Japan and Australia and Transatlantic throughout the course of the year, which we fully expect. I mean the bookings look very, very solid, and I think while it looks aggressive in terms of that kind of 75% kind of recovery, all indications are that that's exactly what's going to happen. Neil Mitchill: One thing we also will see as we go into the second quarter kind of to that point is, we have an engine center in Shanghai. And so at Pratt, in particular, you'll see relatively flat sequential aftermarket as that shop is currently shut down, but we expect to recover that this year. On the Collins side, sequentially, I think low single-digit type sequential growth. So still growth in aftermarket, but clearly the China market is a watch item. It's an important one for our narrow-body customers in particular. Kenneth Herbert: Great, thank you. Neil Mitchill: You're welcome. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Your line is open. Seth Seifman: Okay, thanks very much and good morning. Greg, you've mentioned in the past that -- expressed some skepticism about Airbus going up to 70 or 75 and indicating that you didn't think that Boeing would really allow them to get to that market share level. When you spoke a little bit earlier today, it sounded like you saw it as more of a supply constraint issue in terms of Airbus getting up to that 70 to 75 per month level. Has your thinking on that topic and on what the market share split could be, has that thinking changed recently? Gregory Hayes: Seth, I would tell you, it is evolving. As we look at the backlog that Airbus has, if you want a slot to take an A320 delivery, you're talking about 2028 at current production rates. So there is pressure to move up to that 70 to 75. We're currently facilitized for rate 63, which is something we had agreed to with Airbus well before the pandemic. So I think again, there is pressure to take the rate up to 70 or 75, and I think Boeing will see its share, will continue to also increase production on the 737, but there is robust demand out there for narrow-body aircraft. And I think again the constraint will be supply chain at the end of the day can not just Pratt and Collins, but the entire supply chain support a rate of 75 a month in Talos and Hamburg, and then 40 or 50 a month for narrow-body at Boeing, the 737. So we'll see. All I would tell you is, we remain in lockstep in terms of what's going on over the next 18 to 24 months with both Boeing and Airbus on the narrow-body, and we're certainly able to meet those demands today, and we'll work with them. If the demand is there, we will find a way to meet it. Seth Seifman: Great, thanks very much. Operator: And your next question comes from the line of Cai von Rumohr from Cowen. Your line is open. Cai Von Rumohr: Yes, thanks so much for taking the call. So Greg, you mentioned 6% aftermarket price hike. You normally do that in October for January, so it hits all at once. But back in October, inflation wasn't quite the threat that it was now. Are you seeing -- were you seeing pushback on that price hike? And secondly, was that across the board or which areas were maybe a little higher than others? Thanks. Gregory Hayes: Yes, Cai, thanks for the question. So obviously, we saw inflation building and that price increase was a little bit stronger than what we would typically push for the catalog. I thought usually 4.5% or 5%. So we took the opportunity to raise prices. We do it obviously with keeping in mind in terms of where the demand signals are coming from the customer. And a big chunk of the aftermarket at both Pratt and Collins is on long-term agreements where you don't see that type of 6% increase. But on the time and material, overhaul and repair work that we do, that we will see the benefit. Obviously, inflation is much worse than what we expected it to be for the year. We were thinking 3% to 4%, not 8.5% like we saw last month, but our hope here is that inflation will moderate as we get to the end of the year. And come October, we'll take another look at the catalog, and if inflation is still there, we will have to address it through the catalog again. Cai Von Rumohr: Thank you. Gregory Hayes: Thanks, Cai. All right. I think -- go ahead, Ludie. Operator: Yes, thank you. And we have reached the end of our Q&A session. I would like to hand the call back to Mr. Greg Hayes for the closing remarks. Thank you. Gregory Hayes: All right. Thanks, Ludie. Thanks all for listening today. As always, Jennifer and the IR team are available all day, answer any and all questions you might have. Thank you. Stay healthy, and we'll see you all soon. Take care. Bye. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Fourth Quarter 2021 Earnings Conference Call. My name is Lisa, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet, and there is a presentation available for download from Raytheon Technologies' website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations excluding acquisitions, 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 the call are subject to risks and uncertainties. RTC's SEC filings, including its Form 8-K, 10-Q and 10-K, 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. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Hayes. Greg Hayes: All right. Thank you, Lisa, and good morning, everybody. Happy Tuesday. Okay. 2021 was an important year for Raytheon Technologies. As we laid out our strategy at the beginning of last year, and that strategy, of course, is to drive top line growth, margin expansion and robust free cash flows through 2025 and beyond, while at the same time, continuing to invest in our businesses and returning significant capital to shareowners. Our continued focus on operational excellence and program execution, along with our industry-leading technologies, positions us well to continue to capitalize on the commercial aerospace recovery and to grow our defense franchises. As you saw from our press release this morning, we delivered another solid quarter with strong full year financial results, with both top and bottom line growth and $5 billion of free cash flow. That's more than double of what we delivered in 2020 on a pro forma basis. Our performance in 2021 gives us confidence in the long-term fundamentals of our businesses and that we're able to -- and that we're on track to deliver to the 2025 targets that we outlined last May at our investor conference. Before I turn to the highlights, let me first provide some comments on the current market environment. During the quarter, commercial air traffic remained resilient despite the Omicron variant, with global available seat miles, ASMs, growing about 1% sequentially in Q4. That's reflecting a continued recovery in air traffic despite the typical seasonal trends. Here, in the U.S., passenger traffic through TSA checkpoints also remained steady at about 1.9 million passengers per day. That's up almost 125% versus the fourth quarter of 2020, a remarkable recovery. On the defense side, we're pleased to see the President signed the bipartisan Defense Authorization bill into law at $740 billion. That's about $25 billion higher than the original Presidential request. And given the global threat environment, we continue to see strong demand internationally for our products and services. Our focused aerospace and defense portfolio, along with our $156 billion backlog gives us confidence in our ability to grow the business in 2022 and beyond. Okay. Turning to slide two, some highlights from the fourth quarter. As I said, we delivered strong financial performance in 2021. Organic sales grew 1%, which is in line with our expectations, while adjusted EPS and free cash flow for the year, were both above our initial expectations. And importantly, we saw margin expansion in all four of our businesses, with strong commercial aftermarket. Our defense backlog remained robust at over $63 billion, where RIS and RMD both ended the year with book-to-bill slightly above 1.0. In addition to several large awards earlier in the year, we also had several notable awards during the fourth quarter, including over $1.3 billion in classified bookings, plus over $670 million for the Electro-Optical Infrared awards at RIS, as well as $730 million in Standard Missile-2 production awards at RMD. We also remain focused on operational excellence and program execution to drive structural cost reduction and productivity in our operations. In 2021, we achieved about $760 million in incremental cost synergies from the RTX merger, bringing us over $1 billion since the completion of the merger in April of 2020. That meets our original merger cost synergy target two years ahead of schedule. And there's always, of course, more to come and more to do there. It's also worth noting that the Rockwell or the Collins Aerospace team achieved over $600 million in total Rockwell Collins synergies since the acquisition in November of 2018. They're meeting their commitment a year ahead of schedule despite the significant downturn in our commercial aerospace business. We also continue to fine-tune our portfolio during the year. As you know, we completed the acquisition of SEAKR Engineering and FlightAware, which will expand and enhance our capabilities in key growth areas. And we completed the divestitures of Forcepoint. And in December, we completed the sale of RIS' Global Training and Services business. On the capital allocation front, we returned $5.3 billion to shareowners in 2021 for a total of $7.4 billion since we closed on the merger. Well on track to the $20 billion-plus that we've committed to in the first four years after the merger. As you saw in December, our Board of Directors also authorized a $6 billion share repurchase program, positioning us to continue returning significant capital to shareowners, including at least $2.5 billion of repurchases that we expect to complete in 2022. In addition to our strong financial performance during the year, we also achieved several notable strategic and operational milestones that I'd like to highlight. Let me start with Collins Aerospace. The business completed more than 750 Lean events in 2021. By utilizing our best practices from our core operating system, the team was able to reduce labor content on the F-18 heat exchanger by over 30%, reducing costs and importantly, creating capacity to support increased demand. At Pratt, the team introduced the GTF Advantage engine, which reduces fuel consumption and CO2 emissions by a total of 17% compared to the prior generation engines. It extends the GTS lead as the most efficient power plant for the A320neo family. The engine will also be compatible with 100% sustainable aviation fuels, supporting the aviation industry's goal to significantly reduce emissions in the coming decades. At both RIS and RMD, they achieved significant program milestones in the quarter ahead of schedule. Through strong program execution in RIS, the Joint Precision Approach and Landing System program completed delivery on the first LRIP units 60 days ahead of schedule. This achievement has given the Navy the confidence to certify JPALS on the CVN carrier and two amphibious ship classes. RMD team also successfully completed the initial integration of the SPY-6 radar and the USS Jack Lucas in the quarter. This is the first time power simultaneously applied to the entire radar system, completing a critical milestone for integration of the ship, its combat system and the SPY-6 radar. So with that, let me turn it over to Neil, and I'll come back at the end for a wrap up in Q&A. Neil? Neil Mitchill: Thanks, Greg. I'm on Slide 3. I'm pleased with how we finished the year as well as our performance in the quarter where we continue to see solid growth in organic sales, adjusted earnings per share and free cash flow. Sales of $17 billion were in line with our expectations and were up 4% organically versus prior year on an adjusted basis. Our performance was primarily driven by the continued recovery of domestic short-haul international air travel, partially offset by continued supply chain pressures and lower 787 OE volume. It's worth noting that the global training and services divestiture at RIS closed in early December, resulting in a sales headwind of about $100 million versus our prior outlook. Adjusted earnings per share of $1.08 was ahead of our expectations, primarily driven by commercial aftermarket strength at both Collins and Pratt as well as favorability in our effective tax rate. On a GAAP basis, EPS from continuing operations was $0.46 per share and included $0.62 of acquisition accounting adjustments and net significant and/or non-recurring items. And finally, free cash flow of $2.2 billion was in line with our expectations and resulted in full year free cash flow of $5 billion, which was $500 million better than our expectations at the beginning of the year, primarily driven by higher net income and lower capex. With that, let me hand it over to Jennifer to take you through the segment results, and I'll come back and share our thoughts on 2022. Jennifer? Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on Slide 4. Sales were $4.9 billion in the quarter, up 13% on both an adjusted and organic basis, driven primarily by the continued recovery in commercial aerospace end markets. By channel, commercial aftermarket sales were up 47%, driven by a 59% increase in parts and repair, a 52% increase in provisioning and a 17% increase in modification and upgrades. Sequentially, commercial aftermarket sales were up 10%, driven by strength in parts and repair. Commercial OE sales were up 4% with strength in narrow-body, offsetting headwinds from lower 787 deliveries. And military sales were down 3% on another tough compare. Recall, Collins military sales were up 7% organically in the same period last year. The decline in the quarter was driven primarily by lower F-35 volume. Adjusted operating profit of $469 million was up $380 million from the prior year. Drop-through on higher commercial aftermarket sales, more than offset higher E&D and SG&A expense. Shifting to Pratt & Whitney on Slide 5. Sales of $5.1 billion were up 14% on an adjusted basis and up 15% on an organic basis, driven primarily by the continued recovery of the commercial aerospace industry. Commercial OE sales were up 32% by higher GTF deliveries within Pratt's large commercial engine business as well as general aviation and biz jet platforms at Pratt Canada. Commercial aftermarket sales were up 28% in the quarter with legacy large commercial engine shop visits up 30% and Pratt Canada shop visits up 37%. Sequentially, commercial aftermarket sales were up 17%. In the military business, sales were down 6% as expected on another difficult compare. Recall, Pratt's military sales were up 18% in the same period last year. The decrease in the quarter was driven by lower spare sales on legacy programs. Adjusted operating profit of $162 million was up $57 million from the prior year. Drop-through on higher commercial aftermarket sales volume more than offset lower military volume, higher SG&A, E&D and the impact of higher commercial OE volume. Turning now to Slide 6. RIS sales of $3.9 billion were down 2% versus prior year on an adjusted basis and down 1% on an organic basis, reflecting four fewer workdays in the fourth quarter of 2021 versus the prior year. Adjusted operating profit in the quarter of $400 million was up $30 million versus prior year, primarily driven by higher net program efficiencies. RIS had $3.4 billion of bookings in the quarter resulting in a book-to-bill of 0.97 and a backlog of $18 billion. In addition to the significant bookings that Greg discussed, RIS also booked $227 million for the next generation Jammer mid-band program in the quarter. RIS book-to-bill for the year was 1.01. Turning now to Slide 7. RMD sales was $3.9 billion, down 10% on an adjusted basis and down 8% on an organic basis, primarily driven by four fewer workdays in the quarter, as well as lower material receipts and expected declines in several international production contracts. Adjusted operating profit of $486 million was $93 million lower than the prior year, driven by lower net program efficiencies and lower sales volume. RMD's bookings in the quarter were approximately $3.2 billion, resulting in a book-to-bill of 0.83 and backlog of $29 billion. In addition to the SM2 bookings Greg mentioned, RMD also booked $269 million for Evolved Seasparrow Missile Block 2. RMD's book-to-bill for the year was 1.02. Before moving on, I would also like to comment on the previously disclosed DOJ investigation into cost accounting matters, at legacy Raytheon's Company's former Integrated Defense Systems business or IDS, which is now part of RMD. As you will see in our upcoming 10-K filing, we have made progress in our internal investigation into the matter. And we now have determined that there is a probable risk of liabilities for damages, interest and penalties. In addition to the amount recorded in the first quarter of 2021 in connection with the finalization of purchase accounting, we recorded an incremental accrual in the amount of $147 million, during the fourth quarter relating to the matter, bringing our total reserve to approximately $290 million. We still do not currently believe the resolution of this matter will result in a material adverse impact to our financial condition, and we will continue to cooperate with the government's investigation. With that, I'll turn it back to Neil to provide some color on the rest of the year. Neil Mitchill: Thank you, Jennifer. I'm on Slide 8. Before I get into the specifics of our '22 financial outlook, let me give you some perspective on how we are thinking about the environment as we look ahead. Let me start with the positives. Despite the impact of COVID variance, we expect the commercial aerospace recovery will continue into 2022 with continued growth in commercial aftermarket and narrow-body OE deliveries driven by further strength in domestic traffic and growth in international traffic. By the end of the year, we are assuming global RPMs recover to about 90% of 2019 levels with domestic travel recovering to be approximately in line with the 2019 levels and international travel recovering to between 75% and 80% of 2019 levels. The reopening of international borders, specifically in the Asia Pacific region and the related wide-body traffic will be a significant factor in the timing and extent of the related aftermarket recovery. Ultimately, the timing and trajectory of the overall recovery this year isn't likely to be linear and it will depend on our customers' fleet decisions and buying behavior. Looking longer term, we continue to expect commercial traffic to return to 2019 levels by the end of next year. On the defense side, we expect continued organic growth in 2022 as we deliver on our $63 billion backlog, continued bipartisan support for the fiscal 2022 defense budget, and international demand for our products and technologies. And across RTX, we remain laser-focused on driving operational excellence to deliver cost reduction and further margin expansion, including $335 million of incremental RTX merger cost synergies during 2022. And this keeps us on track to achieve $1.5 billion in gross cost synergies by Q1 of 2024. On the challenges side, we anticipate that global supply chain and inflation pressures will continue and that 787 build rates will remain low. With respect to the supply chain, we anticipate that COVID-related labor disruptions will persist through the first half of the year, but will ease through the second half of the year. And as we've discussed, a significant portion of our material spend is under long-term agreements. That said, we are assuming a level of inflationary pressure across our businesses and our outlook that will be partially offset by productivity improvements. And of course, we're continuing to monitor the US and global tax environment and the current and potentially protracted continuing resolution. So, with that backdrop, let me tell you how this translates to our financial outlook for the year. Let's turn to slide nine. At the RTX level, we expect full year 2022 sales of between $68.5 billion and $69.5 billion. This represents organic growth of between 7% and 9% year-over-year. Keep in mind, the sale of RIS' global training and services businesses puts about $1 billion of sales headwind year-over-year as well as the associated profit. From an earnings perspective, we expect adjusted EPS of $4.60 to $4.80, up 8% to 12% year-over-year. And we expect to generate free cash flow of about $6 billion. That's up about 20% versus 2021. It's important to note that this free cash flow outlook assumes that the legislation requiring R&D capitalization for tax purposes is deferred beyond 2022, which as we've said before, the free cash flow impact of this legislation is approximately $2 billion. It's also worth noting that if the legislation is not deferred, you would see about a $0.10 EPS benefit as well from the impacts of the R&D capitalization that would have components of our US taxable income. And as Greg mentioned, we expect to buy back at least $2.5 billion of RTX shares over the year, subject to market conditions. With that, let's move to slide 10 for the segment outlooks. At Collins, we expect full year sales to be up low double-digits and adjusted operating profit to grow between $650 million and $800 million versus last year. This is primarily driven by higher narrow-body OE deliveries and growth across all three commercial aftermarket channels, supporting both narrow and wide-body aircraft. And military sales at Collins are expected to be up low single-digit for the year. Turning to Pratt & Whitney, we see full year sales growing low double-digits versus prior year, principally driven by higher OE deliveries in both Pratt's large commercial engine and Pratt Canada businesses, as well as continued growth in legacy large commercial engine and Pratt Canada shop visits. Military sales at Pratt are expected to be down mid-single-digit, driven by lower F135 production inputs partially offset by higher F135 sustainment volume. With respect to operating profit, we see Pratt's adjusted operating profit growing between $500 million and $600 million versus last year, primarily on higher aftermarket volume and partially offset by higher large commercial OE engine deliveries and lower military volumes. Turning to RIS. We expect full year sales to be down slightly versus prior year on a reported basis and to grow low single digit on an organic basis with strength coming from classified programs and production ramps in airborne ISR and EWS. And we expect year-over-year adjusted operating profit at RIS to be flat to up $50 million, driven by higher net program efficiencies and volume. At RMD, we see sales growing low single to mid-single digit, driven by growth across multiple programs and for adjusted operating profit to be up in the range of $150 million to $200 million versus prior year, driven by improved program performance and the volume. It's worth mentioning that we expect both RIS and RMD to again have a book-to-bill greater than 1.0 for the year. And finally, we expect intercompany sales wins to grow in line with total company sales. I will note that we've included in our outlook some of the below-the-line items and pension in the webcast appendices. So turning now to slide 11 for our 2022 adjusted EPS walk. Starting with the segments, we expect the segments to generate about $0.83 of EPS growth at the midpoint of our outlook range. From there, pension will be a headwind, primarily due to lower CAS recovery and higher discount rates. Our tax rate in 2022 is expected to be between 18.5% and 19% versus the 15.5% in 2021, primarily due to one-time tax benefits associated with the prior year optimization of our legal entity and operating structure that we realized in the third quarter that will not repeat. This will result in a $0.19 headwind. We expect corporate expenses to be a $0.06 headwind year-over-year due to higher investment related RTX synergy projects and digital transformation initiatives that are partially offset by lower LTAM spend. And finally, lower share count, interest and other items are expected to be a $0.07 tailwind. All of this brings us to our outlook range of $4.60 to $4.80 per share. Now turning to free cash flow on slide 12. We expect strong operational growth, along with lower restructuring to contribute about $1.5 billion of free cash flow growth in 2022. These will be partially offset by expected pension headwinds and higher cash taxes to get to our free cash flow outlook of about $6 billion. Again, this outlook assumes the legislation requiring RMD capitalization for tax purposes is deferred. And lastly, before turning it back to Greg, a couple of comments on the first quarter. With respect to sales, we expect sales to be up mid-single digit organically versus prior year, driven by the continued commercial aerospace recovery and partially offset by lower defense sales driven by continuing supply chain pressures and the impact of Omicron. And again, just to remind you, the prior year included Q1 sales of about $200 million as well as the associated profit for the divested RIS services business. On the adjusted EPS side, we see low double-digit to mid-teens growth in the quarter versus prior year. And for cash, we expect to see an outflow of about $500 million in the quarter due to typical seasonal factors in the timing of collections. So with that, let me hand it back to Greg to wrap things up. Greg Hayes: Okay. Thanks, Neil. We're on slide 13. So a lot of moving pieces as always. But I would tell you, we actually exited 2021 with really good momentum across the businesses. And we expect to make further progress on our priorities here as we enter into 2022. First and foremost, let me repeat that we're focused on keeping our employees safe, keeping our commercial customers flying and protecting the war fighter while they defend our country and allies and of course, supporting our suppliers. We're also going to continue to invest in differentiated technology and innovation to maintain our industry-leading positions, which will drive growth over the long term, and of course, to capitalize on our growing end markets. At the same time, our leadership team is making significant progress to reduce structural costs, drive operational efficiency through our core operating system and to deliver on our synergy commitments. Finally, we remain disciplined with capital allocation. We have a very strong balance sheet, along with our cash-generating capabilities supports investments in our businesses and our commitment to returning capital to shareowners, including at least $20 billion in the first four years following the merger, as I said earlier. I'm confident in our ability to deliver both top and bottom line growth and margin expansion across our businesses this year, as we continue to leverage the growth opportunities that are in front of us. So with that, let's turn it over to Lisa, and we'll take whatever questions you might have. Thank you. Operator: In the interest of time and to allow for broader participation, you’re asked to limit yourself to one question. The first question will come from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Hi. Good morning, Greg, Neil, Jennifer. Thank you. Greg Hayes: Good morning. Sheila Kahyaoglu: So free cash flow is guided to $6 billion this year, up from $5 billion last year and 20% growth. And you have a pretty consistent cadence of free cash flow growth for your 2025 target of $10 billion despite pension headwind of 1.3. Maybe if you could get into the different buckets and different impacts as we get into that 2025 $10 billion free cash flow number. Neil Mitchill: Thanks, Sheila. Good morning. It's Neil here. As we think about the walk from where we are today to 2025, as we've said before, the majority of that is going to come from the operating profit growth that we'll see in the segments as we continue to go through the recovery here, probably a little bit north of $7 billion. If you were to strike 2021 as a starting point, you'll see there's $1.6 billion of pension headwind. And we'll probably have somewhere in the range of $600 million to $700 million of CapEx headwind. And that will be partially offset by a couple of hundred million of corporate and other items. So still see a clear path to the $10 billion of free cash flow, as we get into 2025, and we get through the recovery here. Feeling very good about that. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: Thanks so much. Good morning. Greg Hayes: Hi, Rob. Neil Mitchill: Good morning, Rob. Robert Stallard: This might be a question for Greg. I was wondering if you could maybe give us some more color on the supply chain situation. Have things got any worse since what you experienced in Q4? And then in relation to that, how are you getting all the supply chain in place for the A320 ramp that's planned for this year? Thank you. Greg Hayes: Yes, Rob, that's a really good question. And I think RTX, just like many other large companies, has seen its share of supply disruptions, I would say. And it's really -- I would bucket it in two different ways. One is, in our supply chain, we see some labor shortages with skilled positions. And I can think of probably the most important one right now is in the casting -- castings, where we see a shortage of welders. And so, we're working with our suppliers to make sure that we can get demand or get supplied back up to demand. It's not going to happen here in the first quarter. We see that we're going to have a slow Q1, as Neil said, primarily at Pratt, that will also impact a little bit at Collins. We're also seeing, I think, as we talked about, a slowdown of receipts on the defense side of the business. We saw that in December. That's gotten a little bit worse than what we had seen at the end of the third quarter. And I would say, again, there's two pieces to that. Obviously, the Omicron variant had a significant impact on our -- not just our workforce, but our suppliers' workforce. But also, again, the labor shortage that we're seeing as well as the need to continue to drive wages up to attract talent. Just to put it in perspective, we've got about 13,000 product suppliers. We are monitoring the supply chain on a daily basis. There are less than 100, I would say out there that are giving us real concern, but it only takes one to make us miss a shipment. So we're actively trying to manage this. I think we're doing a good job, but we certainly will see some impact here in the first quarter from supply chain. Operator: Your next question comes from the line of David Strauss with Barclays. David Strauss: Thanks. Good morning, everyone. Neil Mitchill: Good morning, David. David Strauss: Greg, Neil, maybe could you touch on the moving pieces of the implied incremental margins at Collins and Pratt looks like Collins kind of in the mid-30s, Pratt in the mid-20s. I guess, on Collins, what you're assuming for E&D and kind of what's hitting the range that we might have expected? And then on Pratt, the negative engine margin that you're expecting in 2022 relative to 2021? Thanks. Neil Mitchill: Thank you, David. Let me start with Collins. So you're right on the incrementals. We're expecting incrementals in that mid-30s percent range as we go through the year. Recall, we called out a few onetime items last year that probably helped margins by about 50 basis points. So good strong incrementals there. Just hitting on a few of the components of our Collins outlook. We do expect that our commercial OE will be up sort of high teens on the sales line. Commercial aftermarket, up around 20% or so, probably a little north of that. And military, up low single digits. As you think about Pratt, same thing. The incremental is there in the mid-20s, as you expect -- you said. Commercial OE, expected to be up between 20% and 25%. On the aftermarket side, also between 20% and 25%. And as we said, military, down mid-single digits. So again, great growth at Pratt. We do expect to ship probably about 200 more engines. And as I think about the AEM headwind, it's in the range of $100 million to $150 million. So, we're seeing good absorption as we ramp that volume back up over the course of 2022. And as Greg said, the supply chain issues at Pratt with respect to castings could result in a little bit of lower deliveries here in the first quarter, but we do expect that full year, we will be up a couple of hundred engines. Operator: Your next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Good morning everyone. Neil Mitchill: Good morning Noah. Noah Poponak: Could you spend another minute on sort of how you built the aerospace aftermarket forecast for the year and how you expect it to progress through the year? Obviously, when Omicron lets up, there's a huge question mark and there's a wide range of possible outcomes of where travel could be exiting the year versus starting the year. And Neil last year, you kind of framed what you were expecting for the broader ecosystem and then how you layered your own forecast on top of that and the degree of conservatism or lack thereof. So, it'd be helpful to hear that from you again today. Neil Mitchill: Yes, Noah. Let me give that a shot here. So let me start with the macro outlook here. So we talked about our RPM and ASM assumptions as you get to the end of the year, but a little bit of color on the way we see that coming through the year. So if you think about -- I'll start with ASM sequentially, sort of low single-digit sequential growth in the first quarter, hitting the mid-30s Q1 to Q2. Mid-teens, Q2 to Q3. And then actually down seasonally in the fourth quarter, mid-single digit, call it. So the crux of our outlook as we think about the year really depends on the wide-body recovery. Last year, I would say about 75% of our aftermarket improvement and the improvement that we saw in ASMs came from domestic narrow-body. And this year, we're expecting about 80% of the growth to be driven by international long-haul and about 60% of that driven by long-haul routes. So it's going to be a really important factor as we look at the year. If you think about how that translates to the aftermarket sales assumptions, the compares are getting a little bit more difficult sequentially given where we ended the fourth quarter. I would expect Collins to be in the low to mid-single digits sequentially on the aftermarket growth throughout the course of the year. Pratt, we'll see down in the mid-single -- mid- to high single range here in the first quarter as we come off a traditionally high fourth quarter, and that goes to mid -- up -- I'll call it, high single-digits second quarter and mid-single digits through the rest of the year. So hopefully, that helps give you a little color on what we're seeing. Greg, anything you want to add? Greg Hayes: Yes. Noah, I think that the most important part just to reinforce what Neil said is really the -- our forecast for the aftermarket really is dependent upon a wide-body recovery. And as you know, that is primarily a Pacific reopening. So you have to see China reopening. We have to see all of the countries in the Pacific Rim start to reopen, which will allow traffic to recover. Your guess is as good as mine with the China zero COVID policy that they have, whether or not we'll see that here in the second quarter or the third quarter or the fourth quarter. Right now, we're assuming in the second quarter, we start to see it. And we'll hopefully see that kind of progression throughout the year, which will get us back on track to give wide-body back to 2019 levels, hopefully by the end of 2023. Operator: Your next question comes from the line of Peter Arment with Baird. Peter Arment: Yes. Good morning, Greg, Neil, Jennifer. Hey, Greg, Maybe just switching over to defense. Could you maybe just give us a little bit of some of the things you're expecting for maybe on the international side, historically, Raytheon’s had a lot of international awards, what your expectations might be for a book-to-bill and if you're seeing any kind of increased input from international countries just given the rising tension? Thanks. Greg Hayes: Yes, Peter, it's a good question. And I think the answer is, obviously, we are seeing, I would say, opportunities for international sales. We just have to look to last week where we saw the drone attack in the UAE, which attacked some of their facilities. And of course, the tensions in Eastern Europe, the tensions in the South China Sea, all of those things are putting pressure on some of the defense spending over there. So I fully expect we're going to see some benefit from it. I would say, though, that should there be hostilities, whether it's in the Middle East or whether it's in the Asia Pacific region, you're not going to see an immediate benefit here because what you'll see is a reallocation of inventory that we already have out there with the services. But I fully expect we should see a recovery in the international defense maybe in the book-to-bill, well north of one as we move into 2022 and beyond. One of the biggest drivers, of course, will be LTAMs. And I think, again, that's probably a 2023 benefit. We'll start to see bookings then for LTAMs, which, of course, is the upgrade of the Patriot Missile Defense system. But that will be, again, a couple of years out. Neil Mitchill: Greg, maybe if I could just pile on a little bit, too. We do see some international Gem T awards at RMD. And as we look at the $29 billion backlog of RMD and the sales outlook that we put out there, which is low single-digit to mid-single-digit, think 3% to 4% or so year-over-year at RMD. We're confident that we have the backlog to continue to grow as we get through 2022. Operator: Your next question comes from the line of Ron Epstein with Bank of America. Ron Epstein: Hey, good morning. So, I guess, a question for both of you. A key part of the story is operational improvement as we walk out over the next couple of years, right? That's going to be a big cash flow driver. And a big part of that is GTF. So, a question we've been fielding from investors and maybe you can give us some perspective on this, how can we feel better about the long-term contracts you've put in place to do maintenance on the GTF family of engines, where it seems like time on weighing and the hot section maybe hasn't has performed like we were hoping it would at first. Meaning, how can we feel good that those contracts are priced right be it that they're kind of long-term in nature? Greg Hayes: Let me take a shot at it, Ron, then I'll turn it over to the former CFO at Pratt to answer the actual contract question. Maybe just to put it in perspective, to-date, on the GTF program, we have had more than 12 million flight hours on that. In the last 12 months, dispatch reliability has been 99.96%. So, I know that we had a lot of teething problems back in 2016 and 2017, and we talked ad nauseam about all of those teething problems. And obviously, it impacted some of our time on wing, impacted some of those maintenance support contracts. But given where we are from a reliability standpoint today, those programs will start to generate positive cash flow coming up as the first full shop visits happen in the next year and beyond. And I actually feel pretty good about where we are on those contracts given the robustness of the current engine. Of course, in 2023, we're going to be delivering the advantage engine, which gives again better fuel burn and we think even more durability, which, again, will only benefit those aftermarket contracts. Neil Mitchill: Yes. Thanks, Greg, I'll just add that the average age of those airplanes is still under three. There's plenty of time. These are long-term contracts. We've made significant improvements. You mentioned the durability improvements, and we are factoring that in, obviously, as we look at those contracts. And I would tell you that as we perform warranty-type work under these contracts today, we've been reasonably conservative in our outlook and our bookings on that. So, we are confident that we're able to see the improvement fall through the bottom line as those major overhauls begin. And we're also confident that we're able to demonstrate significant efficiencies and fuel savings that come from that engine, and we're seeing that in the campaign activity that we're engaged in currently with the engine. So, feel well-positioned with the product and the GTF advantage, I think, only gets us in a better place as we go forward. Ron Epstein: Great. Thank you. Operator: Your next question comes from the line of Myles Walton with UBS. Myles Walton: Thanks. Morning. Hey Greg, I was wondering if you could comment on the F-35 engine program progress through the course of 2021. And if you get to a better point towards the end in terms of resolving some of the issues that have been raised over the last 18 months, and importantly, as sort of the NDAA starts building momentum potentially towards opening the door to ATP and GE being second source in the later part of the decade? Greg Hayes: Okay, Myles, it's a good question. And I would just say a couple of things that -- a couple of points I would make. First of all, we did make good progress on OEM deliveries last year. We were on contract as we exited the year for F1-35 deliveries. And we also made good progress, I would tell you, in the shops in terms of supporting the overhauls. I think we had about 80 overhauls of the power modules last year, which is double what we saw in 2020. That number is going to probably double again this year. So again, we feel pretty good about the engine where it is today. Obviously, I think everybody that follows the program understands that you're going to need more power on that engine. You're going to need better fuel efficiency in that engine. And there are two different -- there are two choices, I think, in front of the services today. One is to do an upgrade of the current engine. We call that the EEP program, which is an enhanced version of the F1-35 or you could see a whole new engine, which would be the adaptive engine that both GE and Pratt are currently testing. Of course, those engines are years away. We're talking late in this decade before you would ever see those on the aircraft. Frankly, what we think is, from a risk standpoint, a single-engine fighter, an upgrade of the current engine was probably the most cost effective, lowest risk solution. And again, I think that's something that we're working with the customer on. We think that is a much lower cost than the adaptive engines that we're developing. And the adaptive engines are really targeted for sixth-gen fighter, which again will probably not be fielded until the end of this decade. So again, we've got options. We're working with the customer. The first and most important thing, of course, is to keep the engines that we've got out there flying. And so we're supporting the folks out in the shops around the world making sure that that happens and also continuing to drive OEM productions as we mature in the program. Myles Walton: Thanks Greg. Operator: Your next question comes from the line of Mike Maugeri with Wolfe Research. Mike Maugeri: Hey, good morning. Thank you. Neil, on your cash flow guide, can you break your bridge between 2021 and 2022 down a bit further? Specifically, I’m curious to understand the $1.4 billion figure for operational growth in CapEx. If you can add some more color around working capital as well? Thank you. Neil Mitchill: Yeah, sure. So a couple of comments there. The first thing is if you look at our segment profit guide at the midpoint, that's about $1.4 billion. So think about that being the major driver of that piece of our cash flow walk. And you'll see from our guidance about $400 million or so of capital expenditure headwind year-over-year. So the net of that. That would imply a few hundred million dollars of working capital improvement. I think that remains to be determined as we see the year play out. So that will either turn into higher segment profit. As we get later into the year, if we are able to achieve the higher end of our range, and in particular, given the supply chain issues, we could see a little bit of working capital pressure as we bring inventory in a little bit sooner. And again, the timing of that profit recognition and the timing of collections will all play out in the fourth quarter. But I would characterize those as the three key elements of that piece of our cash walk. Mike Maugeri: Thank you. Neil Mitchill: You’re welcome. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Hey, good morning, everyone. Neil Mitchill: Hey, Kristine. Greg Hayes: Hey, Kristine. Kristine Liwag: Greg, Neil, Jennifer, if we continue to see raw material and labor inflation at elevated levels for longer, how should we think about potential impact on margins? How much will you be able to pass-through with your contracts? And how much would the businesses have to absorb? Greg Hayes: So let me start here. First of all, we have seen inflation, obviously, I think, like everybody else. It has been higher than what we expected, I would say, towards the end of last year. As we think about 2022, we've probably got about $150 million of, I would say, price pressure from unexpected inflation in the supply chain. Now typically, we entered the year, and we'll see about $200 million or so of pricing pressure that we go out and we work to alleviate. I mean, the whole goal here is to keep input costs flat year-over-year. So we go out, we work cost reduction. This year, we got a little more work to do. That $150 million of inflation impact is baked into the guidance that Neil took you all through before. And it's something we're keeping an eye on. The labor inflation, obviously, is also a little trouble. We're seeing it in our own shops. The good news is most of that, we can price it on the government side and pass that along to our customers. But again, there will be pressure. And what we have to do, of course, is figure out ways to continue to reduce costs. That's why we've got the core operating system to let us go out and find efficiencies in the factories so that we can get productivity to offset the continued pressure on wages. But again, our hope here is that we're going to see inflation start to slow down here by the back half of this year. And we'll have to keep an eye on it. And again, I think it's everybody's concern across the country right now when you see 7% inflation, that's a big headline. And we've got to keep after it. Kristine Liwag: Thank you for the color, guys. Greg Hayes: Thanks, Kristine. Operator: Your next question comes from the line of Robert Spingarn with Melius Research. Robert Spingarn: Greg, last week, Secretary of the Air Force, Frank Kendall, was talking about hypersonic strategy and suggesting that maybe because our targets are different than China is we need to rethink the strategy, boost glide versus air breathing. And I wanted to ask you your thoughts on this and how this might change the dynamic between Lockheed on the Boost Glide side and Raytheon on the cruise missile side? Greg Hayes: Yes, that's -- that is a great question, and one I think that we're all wrestling with right now. And I would tell you there is – I would say, several different markets here. Obviously, the Boost Glide is an interesting market as we saw the Chinese demonstrate that capability. We've also -- of course, we've demonstrated our capability to launch a air breathing, which is the hypersonic missile that we did the test on late last year. I think both of those technologies are going to be funded going forward. I think most importantly, however, is what are going to be the defensive systems against hypersonics. And again, I think those are the things that will provide us the biggest opportunity, whether that's going to be directed energy, some anti-hypersonic glide vehicles things that we're working on. There's a lot of money being devoted to this. Unfortunately, most of it, as you can imagine, is classified. We really can't go into what those individual technologies are. But I would tell you that, any defense would be a layered defense where you'd be using ground-based effectors, you'd be using ship-based effectors as well as potentially directed energy. And we're going to continue to work on that with the Air Force this year. And we'll hopefully have some interesting opportunities as the year unfolds. Robert Spingarn: Okay. And just a quick one for Neil, if I'm still here. Neil, I was wondering if you could clarify, maybe I didn't catch it. If there's a full year CR, what would the sensitivity be in the guidance? Neil Mitchill: That's a good question. I didn't put that out there. But couple of pieces here. First, that will expire or set to expire February 18 of this quarter. It will see a lot of impact through the first quarter, if that were to extend through March 31, maybe $50 million to $100 million, $150 million of sales. If it were to persist through the full year, I would see probably between $500 million and $600 million of sales headwind. So I think that underscores the importance of us getting the continuing resolution behind the country. But, yes, that's how I would size it up looking at it today. And I would say that would be relatively evenly spread across our businesses, frankly. Each one of them will have some headwind as it relates to a continuing resolution that persists through the year. Robert Spingarn: Okay. Thanks so much. Neil Mitchill: You bet. Operator: Your next question comes from the line of Cai von Rumohr with Cowen. Cai von Rumohr: Yes. Thanks so much. So there's a fair amount of debate on the profile of recovery in deliveries and production of the 737 and the 787. Could you tell us approximately where your rates are today and the type of profile you're looking for in 2022 and what you've baked into your 2022 guide? Neil Mitchill: Thanks, Cai. Good morning. Let me give you a couple of thoughts there. I don't want to get ahead of Airbus and Boeing, obviously, but let me start with the 737. Obviously, we ended the year sort of in the high teens per month range. We are aligned with Boeing in terms of that growing to that rate 31 in the second half of the year. So I'll leave it at that for now, but we do see obviously growth there in the back half of the year and it kind of gradually grows through the first half. On the 787, as we talked about it last call, we had -- we were shipping very, very little, if any, on the 787. We ended the year in the, call it, low single-digit per month shipset rate. We are anticipating that same type of rate through 2022. Because of inventory that is in the channel, I think a good estimate would be about two per month as you think about the full year for 2022. Cai von Rumohr: Thank you very much. Neil Mitchill: You’re welcome. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: Hey. Thanks very much and good morning. Greg Hayes: Hi, Seth. Neil Mitchill: Hi, Seth. Seth Seifman: I guess, Neil, when you spoke, I think, back in November and kind of talked about the outlook for the segments for the year, did that change very much? I'm thinking specifically about the progression of the aftermarket recovery? Did that change very much as a result of the emergence of Omicron? And, I guess, is there any kind of information or new information kind of underlying a level of confidence that you have about the international travel recovery this year? Neil Mitchill: Yes. Let me start with the first point. So a couple of things have definitely changed since that early November time frame. And I'd say, the first was the variant Omicron clearly came on quick. We hope that it will go away quickly as well. But I think we've factored some of that thinking into the first quarter. As I look at today's outlook relative to where we were thinking a few months ago, we see a little bit slower recovery in the first quarter than we were thinking, but we do see that getting back to where sort of the line we were projecting from Q2 and beyond. So we'll see how that plays out. Again, I said last year, a lot of this depends on airlines getting ready for the summer travel season. So, we are expecting to see an uptick in their behavior for provisioning and parts here in March and April, which sort of gets to your second question there in terms of the support underlying -- the reopening of international borders. We have seen reopenings of some international borders in the fourth quarter, and that's encouraging, in particular, Europe. And as Greg mentioned earlier, the key, I think to us realizing what we've laid out here today is Asia Pacific opening up and the long-haul routes coming back in earnest as we get towards the end of the year here. So we'll have to wait and see. But certainly, sometime in the March and April timeframe is when we would expect to see an uptick that would drive the ranges that we're predicting here for Collins in particular. Seth Seifman: Great. Thanks Neil. Neil Mitchill: Welcome. Operator: Your next question comes from the line of Matt Akers with Wells Fargo. Matt Akers: Hey good morning, guys. I was wondering if you could just comment on the new Ashville facility. And I guess, specifically, how far are we sort of through the investment there? And how do you think of sort of the ramp-up of production at that facility? Neil Mitchill: Make great progress there in Asheville. The building is up. And when I was looking at it the other day, actually I have visibility to that via webcam. And it's in great shape, so we're on track. Some of the CapEx favorability that we saw here in 2021 is the deferral of some of that spend into 2022. But I'd say, we're on-track there to stand up that facility and get the production going as we had planned to do. So it's really a good shape. Matt Akers: Great. Thanks. Neil Mitchill: Welcome. Operator: Your next question comes from the line of Doug Harned with Bernstein. Doug Harned: Good morning. Thank you. Neil Mitchill: Good morning. Doug Harned: I'd like to go back to the geared turbofan and the aftermarket outlook. You've been delivering your turbofans now for about six years. And if we go back to the earlier days of the design, one of the big advantages was going to be because of the year, you have fewer stages and in principle, lower maintenance costs. So that -- the thinking was, as I understood it back then, that could lead to higher margins in the aftermarket as you go forward. First, do you still see it that way? And if so, when should we see margins in the aftermarket for the GTF gets to the levels we've seen on the V2500? Greg Hayes: Doug, that's an interesting question. Obviously, when we originally -- the original design of GTF, there were a couple of different priorities. One, obviously, was fuel burn. That was a 15% benefit over the V2500. We clearly achieved that. What we did not achieve, I would say, in the first few years of delivery was a robust engine. We had teething problems, as we've talked about, primarily around the combustor and primarily in some of the more difficult environment environments like India. And so of course, that impacted the aftermarket as we brought those engines back sometimes within a year or two of shipping them to update the combustor. Right now, I would tell you the combustors there are lasting at least 10,000 hours now, which is good news. And we're starting to see that already in these -- in the aftermarket contracts. As you said though -- as Neil said before, the average age is only about three years on these GTFs. So, we're not seeing the overhaul activity in a significant number yet, but we will in the coming two or three years. And I think you'll start to see margins improve in the aftermarket once we start going through and doing the heavier overhauls. Will they ever get to the same level of profitability as the V2500? Absolutely. It's just going to -- keep in mind, the V2500 has been out there for 30 years. It's not a brand-new engine. It's a very, very durable engine. And it's just it will take us time to get the number of engines out there to drive the kind of efficiencies in the aftermarket. But we fully expect. It's a great design. It gives the fuel burn, and it does, to your earlier point, have fewer moving parts, right about 1,500 fewer blades than the competing engines and that should and will reduce costs over the long-term. Doug Harned: Very good. Thank you. Operator: This does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Greg Hayes for closing remarks. Greg Hayes: Thank you, Lisa and thanks everybody for listening in today. Again, a lot of moving pieces, but we have high confidence in the outlook that Neil and Jennifer took you guys through. Look forward to hearing from many of you in the coming days and weeks. Jennifer and the team will be, of course, available all day today and tomorrow to take whatever follow-up questions you might have. Have a wonderful day and stay healthy. Thank you. Operator: This concludes today's conference. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Third Quarter 2021 earnings conference call. My name is Mistie, and I will be your Operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer. Neil Mitchill, Chief Financial Officer, and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet. And there is a presentation available for download from Raytheon Technologies 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 risks and uncertainties. Our TCS SEC filings including its Form 8-K, 10-Q, and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statement. 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. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Hayes. Greg Hayes: Thank you, Misty, and good morning, everyone. As you saw from our press release this morning, we delivered another solid quarter. A few comments before I turn to the highlights. We continue to feel good about the long-term fundamentals of our business and our ability to drive growth and margin expansion over the next several years. During the quarter, we made great progress on cost reduction, driving operational excellence through our businesses, and achieved some notable milestones which we'll touch on in just a moment. From a market perspective, commercial air traffic continued to recover despite some regional impacts from the COVID variance. The global ASMs are available, SEC miles estimated to have grown about 30% sequentially in Q3. And here in the U.S. passenger traffic through TSA checkpoints averaged about 1.9 million travelers per day in Q3. That's up from about 1.6 million per day in Q2. International borders, as we know, are starting to reopen and that's another positive. And on the Defense side, Fiscal year '22 budget request was in line with our expectations. And as we've said, defense spending is nonpartisan, and we're encouraged to see Congress supporting plus ups to the president's budget that are also aligned with our -- to our business in our investments in new technologies. Overall, we continue to be cautiously optimistic on both the Commercial and Defense trends that we're seeing. Okay. Let's move to slide 2, some highlights from the quarter. Adjusted EPS exceeded our expectations, free cash flow was in line with what we expected. And we delivered another quarter of top and bottom line growth on both a year-over-year and a sequential basis. As we had capitalized on the commercial after-market recovery and our defense portfolio continues to grow. Based on our strong performance year-to-date, we are again increasing and tightening our adjusted EPS outlook for the year to $4.10 to $4.20 a share. That's up from our prior outlook of $3.85 to $4. Neil Mitchill will get you into the details on sales and free cash flow where we were also tightening our outlook in both areas. On the capital allocation front, we repurchased about $1 billion of RTX shares during the quarter, bringing our total for the year to $2 billion, which was our commitment that we talked about back in Q2. Before I turn it over to Neil, couple more details on our results. Let me cover some strategic and operational highlights for the quarter where we continue to execute on our key programs. Starting with strategic highlights, we announce the acquisition of FlightAware, which will become a significant accelerator for Collins connected ecosystem strategy, and enhances our capabilities in growth areas like aviation network services, digital solutions, and aerospace modernization. And we're organizing our business around optimizing these capabilities within Collins Aerospace. We also announced the acquisition of Seeker engineering, a leading provider of advanced Space Electronics Solutions. Seeker strengthens are offerings to solve our customers most complex problems by expanding our space-based capabilities with the integration of Blue Canyon, this also enhances our IRS competitiveness, and reliability of satellite bus hardware, and customized space electronics. At the same time, we continue to divest non-core businesses. During the quarter, we announced an agreement to divest of our global training and services business, which is part of RIS. On the operational side, the missiles and defense team and their industry partners successfully completed the first test of a scram jet powered hypersonic air-breathing weapon concept or HAWC DARPA and the U.S. Air Force, The HAWC successfully sustained hypersonic speeds, offering faster time on target and greater maneuverability. The successful test puts us on track to deliver a prototype system to the U.S. Department of Defense. And lastly at Pratt, the Columbus forge disk business continues to integrate critical operations to drive further quality performance and cost reduction. Utilizing our core operating system tools, the team in Columbus reduced the lead time of forgings by up to 35 days and reduced both cost and inventory. As you can see, driving operational excellence through our organization is a key to our success over the long term. With that, let me turn it over to Neil have you take you through the quarter in detail. Neil. Neil Mitchill: Thanks, Greg. I'm on Slide 3. I'm pleased with our performance in the quarter where we saw strong year-over-year sales growth, adjusted earnings growth, and free cash flow. Sales of 16.2 billion were up 10% organically versus prior year on an adjusted basis. Our performance was driven by the continued recovery of domestic and short-haul international air travel and continued growth in defense. That was partially offset by some supply chain pressures and lower 787 OE volume. And while we expect these headwinds to continue in the near-term, we only see this as a timing issue. Nonetheless, we remain focused on our cost actions and program execution to drive continued earnings and cash flow growth. Adjusted earnings per share of $1.26 was ahead of our expectations, primarily driven by Collins, Pratt and some corporate items. On a GAAP basis, EPS from continuing operations was $0.93 per share and included $0.33 of acquisition accounting adjustments, and net significant and/or non-recurring items. It's worth noting that both GAAP and adjusted earnings per share benefited from about $0.16 of lower tax expense related to previously disclosed actions we took to optimize the Company's legal entity and operating structure in the quarter. As well as pension-related benefit that was worth about $0.05. Free cash flow of $1.5 billion was in line with our expectations, keeping us on track for the full year. Before I hand it over to Jennifer, let me give you a little color on our synergy progress. During the quarter, we achieved about 165 million of incremental merger gross cost synergies. And given our strong performance, we are again increasing our 2021 target, and now expect to achieve over 700 million cost synergies this year. This will bring us to nearly $1 billion in cumulative gross cost synergies since the merger. And we're well on our way to meeting our $1.5 billion commitment. So with that, let me hand it over to Jennifer to take you through the segment results. Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on slide 4. Sales were 4.6 billion in the quarter, up 7% on an adjusted basis, and up 9% on an organic basis, driven primarily by the continued recovery in the commercial aerospace end markets. By channel, commercial aftermarket sales were up 38% driven by a 44% increase in parts and repair, a 43% increase in provisioning, and a 22% increase in modifications and upgrades. Sequentially, commercial aftermarket sales were up 4% roughly in line with our expectations. Commercial OE sales were down 3% with strength in narrow-body more than offset by lower wide body deliveries, primarily 787. And military sales were down 5% on an adjusted basis and down 1% organically on a tough compare. Recall, Collins military sales were up 8% in the same period last year. Adjusted operating profit of 480 million was up 407 million from the prior year. Higher commercial aftermarket sales, favorable mix, and synergy capture more than offset lower military volume. Looking ahead, due to expected supply chain pressures and 787 OE delivery headwinds, we now expect Collins full-year sales to be down mid-single-digit. However, given the continued recovery in the commercial aftermarket and the benefit of cost containment measures, we are increasing Collins full-year operating profit outlook to a new range of up 250 to 300 million versus 2020. Shifting to Pratt & Whitney on Slide 5. Sales of 4.7 billion were up 25% on an adjusted basis, and up 35% on organic basis, primarily driven by the continued recovery of the commercial aerospace industry. Commercial aftermarket sales were up 56% in the quarter with legacy large commercial engine shop visit up 49% and Pratt Canada shop visits up 18%. Sequentially, commercial aftermarket sales were up 17%. Commercial OE sales were up 22% driven by higher GTF deliveries within Pratt, large com -- business. The military business sales were up 2% on another tough compare. Recall, Pratt military sales were up 11% in the same period last year. Growth in the quarter was driven by a continued ramp in F135 sustainment, which was particularly offset through inputs on production and classified development programs. Adjusted operating profit of a 189 million was better than expected and was up 232 million from the prior year. Drop-through on higher commercial aftermarket sales, more than offsets the impact of higher Commercial OE volume and higher SG&A and E&D. Looking ahead, due to the continued commercial aerospace recovery, we now expect Pratt's full-year sales to be up mid-single-digit. In addition, we are increasing Pratt's full-year operating profit outlook to a new range of flat to up 50 million versus 2020. Turning now to slide 6, RIS sales of 3.7 billion were in line with prior year results on an adjusted basis and down 1% on an organic basis, driven primarily by the timing of material input from suppliers. Adjusted operating profit in the quarter of 391 million was in line with expectations and was up 41 million year-over-year on an adjusted basis, driven primarily by higher program efficiencies. RIS had 2.9 billion of bookings in the quarter, resulting in a book-to-build of 0.4 as expected, and a backlog of 18.7 billion. Significant bookings included approximately 1 billion on classified programs. It's worth noting that we expect RIS full year book-to-bill to be greater than 1. Turning to RIS full-year outlook, due to the timing of material inputs from suppliers we now see RIS sales growing low single-digit. However, as a result of improved productivity, we continue to expect RIS 's operational -- operating profit to grow 150 million to 175 million versus adjusted pro forma 2020. Turning now to slide seven. RMD sales were 3.9 billion up 7% on an adjusted basis, and up 5% on an organic basis, driven by liquidations of pre -contract costs on an Amram award received in the quarter, and the expected ramp in our franchise. Adjusted operating profit of 490 million was in line with our expectations and was up 59 million versus the prior year primarily on higher sales volume. RMD's bookings in the quarter were approximately 3.9 billion, resulting in a book-to-bill of 1.02 and a backlog of 29.6 billion. Significant bookings in the quarter included AMRAAM Lot 35 for 570 million, a Patriot GEM-T order for 432 million, as well as several other notable awards. We also expect RMD's full-year book-to-bill to be greater than 1. We remain confident in our full-year outlook for RMD, with sales growing low to mid-single-digit and operating profit growing 50 to 75 million versus adjusted pro forma 2020. And now, I'll turn it back to Neil to provide some color on the rest of the year. Neil Mitchill: Thanks, Jennifer. I'm on Slide 8. As we look ahead at the fourth quarter, we continue to be encouraged by the recovery of commercial air travel that has driven sequential aftermarket growth so far this year. However, the recovery of long-haul international traffic continues to lag expectations. And on the OE side, 787 build rates have come down more than we had expected, resulting in a significant impact to our top-line outlook for the year. Additionally, we aren't immune to the global supply chain pressures that are seeing some isolated impacts from the supply chain, primarily at Collins and RIS. However, we are working with our suppliers to mitigate these timing issues. And finally, while we anticipate the pending vaccine mandate may put further pressure on the supply chain in the near-term, higher vaccination rates will continue to build confidence in the safety of air travel going forward. With that backdrop, we're adjusting our sales outlook and now see full-year sales of about $65 billion slightly higher than the low end of our prior outlook. However, given the strong performance on cost control, synergy capture, and program execution, we are raising and tightening our adjusted EPS range to $4.10 to $4.20 per share, or up about $0.22 from the midpoint of our prior outlook. About $0.07 of the increase comes from the segments, Collins and Pratt and the remainder comes from improvements in corporate items. And on the cash side, we are also raising the low-end of our free cash flow outlook and now see free cash flow of approximately $5 billion for the full year. It's worth mentioning that we've included an updated outlook for the segments and some below the line items in the webcast appendix. With that, I'll hand it back to Greg to wrap things up. Greg Hayes: Okay. Thank you, Neil. We're on slide nine and this is just kind of our view of the operating environment that we're facing going into 2022. We're not going to give specific guidance on 2020 to today, other than to say that the trends that we talked about in our May Investor Conference are proving to be pretty much on track with what we're seeing for next year. On the positive side, obviously, we expect the commercial aerospace recovery to continue and we feel good about our ability to grow our Defense franchises with our robust $65 billion backlog in the bipartisan support for the Fiscal 22 -- Fiscal year 22 budget. And of course, the international demand for our products and technologies continues to be strong. We're also laser-focused in driving operational excellence to deliver cost reduction and further margin -- This is really a part of our core operating system roll out. Again, it gives us confidence that we can continue to grow the margins along the trajectory that we talked about. On the challenges side, no real surprises here. We anticipate the global supply chain pressure will continue, and that lower 787 build rates will carry into next year. Again, none of these are, I guess, new to us. We'll manage through them but something I think everybody is going to face in the industry. And of course, we are watching, monitoring if you will, the reopening of international borders. It all looks to be positive so far, but again, the COVID variance can change that in a hurry. Global tax and inflationary environment are also a concern of -- as we think about next year. And lastly, the impact of the COVID vaccine mandate. As you know, all federal contractors are required by December 8th to have all of our employees vaccinated. We certainly expect that there will be some disruption in both the supply chain and with our customers as a result of this, but we're going to work our way through it. All right. So before we get to the Q&A, let me just close by saying that I'm really pleased with our performance in the quarter. And I'm confident in the strength of our businesses as we look ahead. I want to reiterate, we remain focused on supporting our employees, customers, suppliers, and our communities, but our most important mission is keeping our employees safe. And finally, the strength of our Balance Sheet along with the cash-generating capabilities of our business will continue to provide us with financial flexibility to support investments in our business while still returning capital to shareowners, including our commitment to return at least $20 billion to shareowners in the first four years following the merger. With that Mistie, let's open it up for questions. Operator: At this time if you would like to ask a question, . Your first question comes from the line of Peter Arment with . Peter Arment: Good morning, Greg, Neil, Jennifer. Nice report. Hey, Greg, maybe you could just talk a little bit about the lost sales in Defense. Maybe how you're thinking about how that recovers and do we expect to get all that back in 2022 and maybe just any color about the supply chain challenges that you're seeing in Defense. Thanks. Greg Hayes: So the lost sales on the Defense side, I would category -- 3 categories of issues there, 1, I think the pullout in Afghanistan, there's about $75 million impact to full-year revenue. Not huge, but meaningful. That will not recover obviously. Those are services that we were providing to the U.S Government or the Afghan Government prior to the pullout so 75 kind of goes away. You've got another probably 275 million of actual supply chain and people issues. And then by people issues, I mean, our -- the fact is we haven't been able to bring enough people on board to generate the revenue that we were expecting. That's that the other is actual supply chain pressure where we're not getting the material in. As you know, Peter, when we get the material in on the Defense side, we -- that gets billed right away to the customer and we recognize the revenue. So that piece will come back, the hiring piece will come back, the Afghanistan piece won't come back. So think about that 275 million. I don't expect -- we're not going to see it clearly in the fourth quarter, but we're not going to lose of next year. I can't tell you what quarter it's going to be in, but we'll get that back. Peter Arment: I appreciate all the color and thanks, Greg. Operator: The next question is from the line of David Strauss with Barclays. David Strauss: Thanks. Good morning. Neil Mitchill: Good morning. David Strauss: Greg, want to ask you a couple of questions on the error rates. I guess, first of all, on that. This year you talked about 161, are you actually going to hit that? On 77 where are you exactly today? Are you actually producing anything? And on A320, I know Airbus is talking about a big ramp up there, but if you look at their deliveries, it doesn't look like much is actually happening. Can you talk about where you are on A320 rates as well? Thanks. Greg Hayes: Go. All right, David. Let's just try to unpack that. Let's start with 737. We still believe Boeing is going to deliver those aircraft. Keep in mind for the first half of this year, we were not really delivering material to Boeing because they had it in their inventory. And so, we've just really started to ramp up the OE deliveries out of Collins again and keep in mind that's about $2.5 million roughly the ship set of revenue on 737. So we still fully expect Boeing will be taking production up there, on 737 here as they work through their backlog of undelivered aircraft and they go through the ramp-up process. As far as 787, that I think, is maybe the big question that we have right now. We are not shipping anything today on 787. We had expected to be delivering about five a month. And keep in mind that's a $10 million revenue per aircraft impact. So you think about the -- part of the problem at Collins in Q4 will be 787 deliveries. Now, again, they'll catch back up, but probably not this year. As it relates to the A-320, again, we -- I think they're probably building at a rate of what? 43 a month going up, we think a little bit next year. And continuing on towards goal, I believe of rate 75. Not clear we're going to get all the way to rate 75, but clearly we see demand strengthening for the A320. It's a great aircraft and it's got great performance characteristics. And keep in mind -- so the GTF -- today we've got just over 900 aircraft delivered. We've flown about 9.5 million hours. We've got a 99.9 dispatch reliability rate. The engine's great and we continue to see opportunities to grow our market position on the A320. But we don't see any shortage of demand in the near-term on the A320. David Strauss: Thanks very much. Operator: Your next question is from the line of Ron Epstein with Bank of America. Ron Epstein: Hey, good morning. Greg Hayes: Hey, Ron. Neil Mitchill: Good morning, Ron. Ron Epstein: Can you guys talk a little bit about the F35 re - engining? There has been a lot of, I guess, noise and discussion in the Defense community around the re - engining, the adaptive engine transition program. There has been some talk on it on the hill. Where are you guys on that? And how do you defend yourself against the GE offering? Greg Hayes: Okay, Ron. So let's go through that. So the adaptive engine GE and Pratt Whitney both have adaptive engines on test. We're going into -- we did ground tests this summer, we'll be doing flight test early next year. There is a thought of re-engineering the A, I'm sorry, the F-35 sometime in the 2027, 2028 time frame, which is extremely aggressive. The issue right now with the adaptive engine is it does not fit on the carrier-based version, the navy version, or the marine corps version, the shortlist . The Air Force would have to fund the entire development cost of the new engine. The other issue we've got with the adaptive venture, this is brand-new technology. Unlike the F135, which has millions of flight hours on it on the core. And you're talking about a single-engine fighter. I think it's going to be a tough part to think about putting a brand-new paper engine on the F-35 in the near-term. We have to talk to the about the enhanced engine offering of the 135, or we can upgrade the current F135 to provide more cooling and more thrust, and at a significantly lower cost than a brand-new centerline engine. So we're going to continue to work with the services on this. Again, I think it's the thought of a brand-new engine that's going to be a tough putt. It's not to say we're not going to look for ways to improve the current version. I think that's just a question of finding the funding because as the Block-4 gets introduced, we are going to need more cooling, we are going to need more thrust. But we have a plan to address that with the JPO. Ron Epstein: All right. Great. Thank you. Operator: Your next question is from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Hey. Good morning, guys. Thank you so much for the time, Greg, Neil, and Jennifer. I want to maybe ask about the aftermarket. When we look at the two-year stack basis, Pratt aftermarket seems to be at 76% of 2019 levels. And Collins is that 66%, also at a lower growth rate. Can you talk about what's driving some of that growth differential? Is it just engines versus air-frame and overall program mix? Neil Mitchill: Sheila, let me start. Good morning. We're very pleased obviously with the aftermarket performance in the quarter. You saw Pratt up 56% year-over-year, 17% sequentially, and Collins at 38% also in line with our expectations sequentially almost 5% -- 4%. The difference, I think, comes down to the product mix of offerings and frankly as we've talked about, Collins has a fair share of wide-body and that hasn't yet recovered. As we all know, we do expect that to be the next growth driver for Collins as we get into next year and the international routes start to reopen. Neil Mitchill: On the Pratt side, very good shop visit induction. We saw a 49% year-over-year legacy shop visits come in. That's a little higher than the 30%, 35% that we thought we would see. So that upside probably about $75 million of sales is contributing to a full year $100-million increase in the Pratt outlook for the rest of this year. So pleased with the narrow-body recovery. As we look to fourth quarter, we'll continue to see shop visits at Pratt on the legacy side up year-over-year, probably in the neighborhood of 20%. Down a little bit sequentially, because we had some pull ahead into the third quarter, but still very solid there. We're well-positioned to support those inductions with parts and aftermarket. And then at Collins, same thing, we will continue to see the narrow body perform quite well. As Greg just talked about, 737 MAX stepping up. Probably by the middle of next year, we'll start to align the rates of our deliveries with Boeing's deliveries. and that will come with aftermarket as well, and then we'll see the wide-body. Sheila Kahyaoglu: Thanks so much for the detail. Neil Mitchill: You bet. Operator: The next question is from the line of Seth Seifman with JPMorgan. Seth Seifman: Hey, thanks very much, and good morning everyone. Maybe I'll continue along the aftermarket line of questioning. The sequential growth at Collins was in line with the outlook, but I think Greg, you've spoken in September and I think, correctly or not, people came away with maybe a little bit more optimism. And was the pace of growth, did it kind of slow towards the end of the quarter? And then if you could give us at Collins, are you still looking for that mid-single-digit in the fourth quarter? Is there any kind of provisioning ahead of international travel returning in the U.S. that might help the way that domestic did earlier this year or any kind of update on how much the trends in Collins aftermarket improvement are being affected by both demand and supply issues? Greg Hayes: Yes. Let me -- so as Neil said, I think sequentially, Collins was up about 4%. We were expecting 5%. So it was a little bit slower than what we had expected. And I think I would attribute that mostly to that kind of slowdown in the middle of the summer. That we saw in August and September is the Delta variant of COVID. became more problematic. Again, as we closed out the quarter and as we move into October, we see that kind of low single-digit 4% -- 5% growth again, sequentially, that is in Q4. I think the real issue at Collins and Neil hit on this is their exposure to wide-body. That's 40% to 45% of their aftermarket. And we were hoping we were going to see a faster reopening of the international markets. They are reopening I would say at a rather tepid pace. And so that's really the governor I would tell you on Collins aftermarket growth. Narrow-body is all good. That's operating -- 320 fleet out there is operated about 80% of pre - COVID similar, it's like 70% on the V2500 fleet. that's all good. The real issue is wide-body and until we see a pro -- a reopening of the international routes, and right now we're seeing North Atlantic opening up, which is great, but we're still not seeing the Asia routes. And that is the thing that we really don't expect to see until 2023, which means you're not going to get a full recovery until probably the end of 2023 back to '19 levels at Collins. Seth Seifman: All right. Thanks very much. Operator: Your next question is from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Good morning, everybody. Greg Hayes: Morning, Noah. Neil Mitchill: Hi, Noah. Noah Poponak: Neil, the updated full-year '21 guidance, I think has the margin -- the segment margin down sequentially in every segment. Just sort of wondering broadly how much of that is conservatism versus specific headwinds. And I guess in Collins in particular, the margin and the EBITDA dollars have to be down a decent amount in 4Q, even with revenues still up. Notwithstanding the headwinds you've cited here. If you could walk us through why that happens. Neil Mitchill: Sure. Thanks. Not conservatism, I don't believe. I think we've got this reasonably calibrated, but let me take you through each business unit. At Collins, if you are doing the math, which it looks like you've done Noah, you'll see margins in the 9% range in the fourth quarter. There were a couple items in the third quarter that helped Collins to the tune of about $0.02. We had a land sale, we also had a worker's comp adjustment that was favorable. Those two items, if you adjust form would get Collins' Third Quarter Ross in the neighborhood of 9%. So I think we see flattest margins for Collins between Q3 and Q4. Recall we've been talking about the ramp in R&D and some of the discretionary spend. We saw some of that happen in the third quarter. We'll see more of that in the fourth quarter. So that's the Collins story. At Pratt, it's a different story. The margins are sequentially down. That's largely on higher A320 neo. In fact, all of our GTF deliveries will be higher in the fourth quarter than the third quarter. So the negative engine margin headwind will persist. And then similarly, we'll see continued E& D and SG&A grow just a little bit. Both those companies, Collins and Pratt have done a really nice job to control the spending, but it was back and loaded as we positioned ourselves to adjust depending on how the year turned out. For RIS, we'll see margins around 10%. We should see continued productivity there. So no major changes there. And R&D, they will exit the year around 12%, pretty much in line with the third quarter. I'll point out for both RIS and RMD, there are four fewer days in the fourth quarter of this year than there were last year. And so that will give us a little bit of just headwind but of course, that's just timing. Noah Poponak: Given your comments on wide-body, and then what's happening with the A320, do we need to all be calibrated to -- with respect to the aerospace business margins, do we need to be calibrated to a non-linear path to the 2025 targets, I guess specifically next year, if wide-body is still a bit slow in the A320's ramping in Pratt? Neil Mitchill: Noah, I think we've been talking about this for almost 2 years now since the pandemic started, that the recovery is going to be, I'll call it lumpy, in fact, and that depends on the routes, the airlines including wide body is going to be a big piece of that. So I do think there will be a little lumpiness to the margin trajectory. Keep in mind that Greg just talked about the 787 that's a huge revenue contributor, not a big margin contributor, until you get into the aftermarket. So I think that's a fair assumption. We'll certainly be back here in January to give a little more color on what '22 looks like for us based on what we see during the fourth quarter. Noah Poponak: Okay. Thanks so much. Neil Mitchill: You bet. Operator: The next question is from the line of Robert Stallard with Vertical Research. Robert Stallard: Morning. Greg Hayes: Good morning, Rob. Neil Mitchill: Good morning. Robert Stallard: Greg, a couple of months ago, you sounded perhaps a little bit skeptical about Airbus A320 ramp plans, but today you sound a bit happy about it. So I was wondering if you could maybe elaborate on your latest thoughts on this and whether you do feel more comfortable on the A320 now. Greg Hayes: Rob, I would tell you, I remain somewhat skeptical about rate 75. I think that's just natural. I think you'll hear it from the leasing companies out there that there's probably not demand unless it comes up of Boeing's. And again, as Airbus ramps up production, Boeing will ramp up production, question is, are we really going to see a market that will support? I call it, 50 737s and 75 A320s on a monthly basis or 125 airplanes a month. Again, it's -- it could happen. We'll be ready to support Airbus, our customer, if indeed it does. But I would tell you that our plans -- our 5-year plans do not anticipate getting to that kind of rate and by 2024, 2025. Again, we -- maybe we're being conservative. But again, we will support the customer if the demand is there. Robert Stallard: That's great. Thank you very much. Operator: Your next question is from the line of Doug Harned with Bernstein. Doug Harned: Good morning. Thank you. Greg Hayes: Hi, Doug. Doug Harned: I just -- I wanted to follow up on what Rob was talking about there because if you look at the A-320 family, I guess there are two things here. You said -- expressed some skepticism about the planned rate increase. Your CFM counterparts have also done that. Some in the customer community have. Boeing has. Everybody could have different motivations here. But when you go forward, they are -- they have holding fast to this production plan. How does this break? In other words, when do you or your counterparts say, okay, we will facilities for 70-a-month and make that investment. How does this process move forward? Greg Hayes: So keep in mind though the A320 family, it is a shared platform between CFM and Pratt & Whitney, and so our goal here is to make sure that we have the most profitable piece share of that business. And so again, we will continue to sell the engines where we think we can make the most money. But again, we're not going to chase every last engine campaign just to get to a higher rate. So we want to be disciplined on pricing. And again, if the demand is really there, it's -- we're out talking to customers every single day. If the demand is there, if Gilman Airbus are correct, we will get our fair share. Maybe it won't be 50%, maybe it will be 45%, maybe it will be 40%, but we'll get our fair share of whatever the ultimate demand is. Doug Harned: And if I can just follow on that because, one other thing that's going on right now is that Airbus deliveries are lagging production today and they probably a 130 plus airplanes parked and majority would be in the A-320 family. How does that affect you if you have this gap in deliveries and production in Airbus in terms of your deliveries of engines to them, and then you're planning for the next few quarters? Neil Mitchill: We do not foresee a gap in our delivery profile for the Airbus engines. We're continuing to produce, and, in fact, as I just said, in the fourth quarter I expect them to go up sequentially. As you know, Airbus has a huge backlog for the A320 and they are working with their customers as we are to make sure they take delivery. Not going to get into predicting how many they will deliver, but we don't foresee any gaps in our engine delivery profile. Greg Hayes: If you think about that though, Doug, we've got thousands of 7 or A320s in backlog and the fact that there's a few parked, that's just really the state of the airline industry today that some of the airlines looking for financing. But we don't see any interruption in the production rate. And as Neil said, it'll it will continue to go up both this year and next. Doug Harned: Okay. Very good. Thank you. Operator: Our next question is from the line of Myles Walton with UBS. Myles Walton: Thanks. Good morning. Greg or Neil, I was wondering how are you quantifying the -- sort of risk around the vaccine mandate, booking your operation and in the supply chain. And also, I guess what's the bigger supply chain issue that's hitting you now? Is it people? Is it raw material? Is it the chips? And sort of what's the growing risk and what's the fading risk? Thanks. Greg Hayes: So Myles, in that $275 million number we throughout before in terms of supply chain impact to the year, the people part of it is about a third. And so that's -- we are expecting some level of disruption, some level of challenge in the supply chain, just because they're -- keep in mind it's not just the prime contractors, but it's also all of our subcontractors that need to follow the mandate as well. So we are expecting some minor level of disruption. Now this is not huge in the grand scheme of $64.5 billion of revenue, but there will be some expected impact. And as we get closer to the deadline date of December 8th, this could pick up. So we're monitoring it, we're out talking to all of our key suppliers, we're talking to our customers, and we're just trying to stay on top of that. As far as shortages, people are a piece of it. But I would tell you there's -- it's also raw materials and while it we have good coverage under long-term agreements, we've seen lead times double on some of these raw materials. Chips, not a huge issue for us, I think again, we've got adequate supply, but it's always a watch item out there. The logistics, getting trucks to pick up material, getting material in is also proving to be a challenge. But looking at in the grand scheme of RTX. I just don't think that's -- there's going to be a meaningful or material impact on us for the year. We're managing it pretty well. We've got a robust team in supply chain and operations that are all over this, and we'll just -- we will keep managing through it. Myles Walton: All right. Thank you. Operator: The next question comes from the line of MIke Maugeri with Wolfe Research. MIke Maugeri: Hey, good morning, and thank you for the time. Neil, can you spend a little bit more time on cash flow and working capital through the end of the year. And then how that sets up for your working capital into next year. And then related on the Capex trim this year, is that pushing Capex or is that Capex going away? Neil Mitchill: Good morning. Thanks for the question. Let me just share a couple of thoughts around the free cash flow. We obviously took the range up the bottom end by $0.5 billion on a couple of things. One, improved profit and two, slightly lower capex as you pointed out. Year-to-date working capital has been an outflow. And that's pretty typical for us. So we're expecting the fourth quarter at least a billion-and-a-half of positive working capital. Again, a lot of that comes from the defense side of the business as we receive receipts from our customers, cash receipts that is. So we feel pretty good that we'll continue to see a net working capital and . It could be a little than the number we talked about at the beginning of year as we make sure we have an appropriate amount of buffer stock in some places for the issues Greg just talked about, but all-in-all really good progress. Just to give you a couple of thoughts, inventory has been a real bright spot, frankly. Collins, sequentially, their inventory was only up $30 million from Q3 or Q2 to Q3. And Pratt is in fact down nearly $100 million sequentially. So the teams are doing a fantastic job of managing inventory as we recover through this cycle. So I'm very happy with that. In terms of the timing of the Capex. we've got a big ramp in the fourth quarter, which is also typical for us. I do think that some of the savings we're seeing this year could slip into next year particularly, around our large structural projects. But the good news is we're completing those projects within budget so it's all kind of contained in our cash outlooks. I won't get into where we see free cash flow next year, but I do expect it to grow as we've talked about back at the Investor Day. And we'll be back in January with more details on how that's expected to unfold. MIke Maugeri: Thank you. Neil Mitchill: You bet. Operator: Your next question is from the line of Matt Akers with Wells Fargo. Matt Akers: Hey. Thanks. Good morning. Neil Mitchill: Good morning. Matt Akers: Just to comment a little bit about fuel prices and just put the uptick year-to-date. Is that starting to flow through it all into your customer behavior on a commercial side, either kind of flying some of the older aircrafts differently or maybe potential demand for new aircraft to kind of get the fuel efficiency savings? Is there anything you're seeing from your customers there? Greg Hayes: Matt, not really any impact except we have seen pricing going up. And I think if you're out buying a ticket today to fly any place, you're going to see the prices have gone up significantly somewhat from what we saw this summer. So while fuel prices are up, oil North of $80 a barrel, We believe that the airlines are being -- are able to pass along those higher fuel costs in the form of higher ticket prices. Obviously, if it's a prolonged increase, it does drive demand for next-generation aircraft. And right now, of course, there's a lot of aircraft out there still sitting on the ground, so I wouldn't expect there would be a near-term impact like that, but clearly, the airlines are raising prices to compensate for the higher fuel costs. Matt Akers: Got it. Thank you. Operator: Your next question comes from the line of Cai Von Rumohr with Cowen. Cai Von Rumohr: Yes. Thank you very much. Great results. So the F-35 peak production target, as you know, has been brought down and supply chain has emerged as a bigger issue recently, you mentioned 275. But maybe could you give us color on A, where the supply chain issues are the biggest worry. And secondly, what the F-35 rate impact does to you because clearly it looks like it does quite a bit to the prime. Greg Hayes: Yes, Cai. So as we think about going down from roughly, what, 16 engines a month down to 13 engines a month, it will have an impact on Pratt. But again, it's a -- so I think about the 135, it's a small piece of our overall defense budget. It's not, when you're talking, let's call it $10 million in engine so you're going to lose 30 million a month. So you may lose 350, $360 million dollars of revenue going forward. Again, on the defense backlog of 65 billion is just not that significant. Obviously, it's a much more important to the prime on that parti -- you see those kinds of Greg Hayes: reductions. In terms of specifics on supply chain, I don't know that I could point to a single supplier that is -- other than -- again, it's components, it's raw materials. Think about aluminum prices going up, thinking of steel, all of the basic raw materials, lead times pushing out. And it's just harder to get material in the door on time. And we're also seeing, of course, labor shortages in our supply chain, which is also slowing down input. And I think that's going to be a continuing problem into next year. And the vaccine mandate, probably not going to help that. Although a vaccine mandate probably will help us on the commercial aerospace side if everybody gets vaccinated. So we're all for that. Neil Mitchill: Cai, let me just add one thing on F135 rates. Keep in mind that there's the production engines, but there's also power mods and pieces that Pratt makes, that support the aftermarket. And so you'll get 1, 1.5 equivalent engines per month on top of so production rate. So it'll be a little below the 16 a month and all of that has been calibrated in our long-term outlooks that we talked about earlier this year. So certainly a little bit lower on the production side, but not a full drop. So I just wanted to add that extra point there for you. Cai Von Rumohr: Terrific. And then on the supply chain, Greg, you mentioned raw materials. To what extent do you have raw material price escalators in your contracts? Greg Hayes: So typically, as you know, Cai, we've got protection from say, abnormal escalation in our contracts. So there's a dead-band in terms of inflation for most of the contracts. But we also, for most of those raw materials, we also have long-term supply agreements which cover us for the vast majority of the material. So we're not seeing the impact today of all of the, I would say, spot prices for materials that, say, you might otherwise be thinking about. Most of that's coming in under LTA. If these prices persist long term, then we will see So, an impact. And again, we'll extent -- to the extent that that is greater than these dead-bands will be able to pass that on and recover that through our contracts. Neil Mitchill: Put some numbers on that that, Cai, 90% of Pratt 's products are under LTA, probably 70% at Collins and so on average, we're about 80% protected. So again, as Greg said in the near-term, it's not a major issue for us. Cai Von Rumohr: Terrific. Thank you very much. Neil Mitchill: You're welcome. Operator: Your next question is from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Hey, good afternoon, guys. Good morning. Greg Hayes: Good morning. Kristine Liwag: With Defense stable and Aerospace recovery coming along nicely, can you discuss your capital deployment priorities? And how are you thinking about the portfolio and M&A at this point in time? Greg Hayes: Sure. I think for us right now, there is no news and there is no change I would say in the focus on -- of the portfolio. We're going to continue to look for investments like Seakr Engineering and like FlightAware that can enhance the offerings that we already have. especially in software and in the space business. At the same time, we're going to continue to look at lower margin, lower growth businesses for divestiture. And nothing to announce today. We'll keep looking at the portfolio as we always do. As far as capital allocation, I think first and foremost, we're going to invest in E&D and Capex. And you should think about that number this year, it will be about $5 billion. Next year will probably be closer to $6 billion of investments between Capex and E &D. That is the first priority is to invest for the future of the business. At the same time, we'll continue to take up share buyback over the next couple of years. We've got to do another $6 billion of share buyback to hit that $20 billion target that we've got out there. And we fully expect to be able to do that, if not a little bit more. And then again, we've got a lot of flexibility with the Balance Sheet. We got $7.5 billion of cash to be in there at the end of the third quarter. And we've got plenty of liquidity if we decide we want to make some other investments. But for the time being, we're going to focus on generating cash, investing in E&D, investing in the business, and growing it. Kristine Liwag: Great. Thanks, Greg. Greg Hayes: Thank you. Operator: I will now like to turn the call back over to Mr. Hayes for closing remarks. Greg Hayes: Okay. Thank you, Mistie and thank you, everyone for listening in. A good quarter, I hope everyone would agree. Neil and Jennifer and the team will be available all day today to take your questions. So thanks very much for listening and take care. Bye. Neil Mitchill: Bye. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Operator: Good day, ladies and gentlemen, and welcome to the Raytheon Technologies Second Quarter 2021 Earnings Conference Call. My name is Tabitha, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chairman and Chief Executive Officer, Neil Mitchill, Chief Financial Officer, and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the internet and there is a presentation available for download from Raytheon Technologies’ website at www.rtx.com. Greg Hayes: Thank you, Tabitha, and good morning, everyone. I'm on Slide 2 of the deck for those of you following along. So a couple of months ago, we held our first Investor Day as Raytheon Technologies. And that day, we laid out our 2025 goals to deliver strong top-line growth, margin expansion, and at least $10 billion in free cash flow by 2025, all while continuing to invest in our businesses and return significant cash to our shareholders. We continue to be confident in the future because of our strong franchises, the resilient markets in which we operate, our innovative technologies and our relentless focus on operational excellence and cost reduction, which will drive margin expansion and strong cash flows into the future. And we continue to see encouraging trends across our market. Our confidence and our ability to achieve these targets remain strong. And as you saw at the end of May, the Department of Defense released the fiscal year ‘22 budget request, which was generally in line with our expectations with respect to our portfolio of products and the investments we’re making in differentiated technologies, including missile defense, space-to-base systems, next generation propulsion and hypersonics. Major RTX programs fared well overall as modernization funding remains at near historic highs. Requested funding for these programs is favorable to the overall do DoD modernization request, when compared to last year's plan for fiscal year ‘22. It's also worth noting that the overall classified funding request, which supports a significant part of our intelligence and space portfolio was also very well supported. So, I'd say we're well-positioned with the administration's priorities, driven by our innovative technologies and capabilities to address the evolving threat environment. This is demonstrated of course by the significant awards we received this quarter, which included over a $1 billion in classified bookings at RIS, and two important franchise wins at our missile and defense business, where we are awarded almost $2 billion for the long-range standoff weapon or LRSO, and $1.3 billion for the next generation interceptor. Neil Mitchill: Thanks, Greg. I'm on Slide 4, as you could expect, I'm pleased with where we landed for the quarter. We exceeded our expectations for both adjusted earnings per share and free cash flow. Sales were $15.9 billion, which was at the high-end of our outlook range, and up 10% organically versus prior year on an adjusted pro forma basis, and up 4% sequentially. Our strong performance was driven by the momentum in commercial aerospace and continued growth in defense. Adjusted earnings per share of $1.03 was ahead of our expectations, primarily driven by commercial aftermarket and contract-related settlements at Collins, but also better than expected performance at Pratt RIS and RMD. On a GAAP basis, earnings per share from continuing operations was $0.69 per share, and included $0.34 of acquisition accounting adjustments, and net significant and/or non-recurring items. Free cash flow of $966 million exceeded our expectations, primarily due to the continuation of better than expected collections, and lower than expected capital expenditures. Jennifer Reed: Thanks, Neil. Starting with Collins Aerospace on Slide 5, sales were $4.5 billion in the quarter up 6% on an adjusted basis, driven primarily by the recovery of the commercial aerospace industry, and up 11% on an organic basis. By channel, commercial aftermarket sales were up 24% driven by 30% increase in parts and repair, a 16% increase in modifications and upgrades, and a 15% increase in provisioning. Sequentially, commercial aftermarket sales were up 15% with growth in all three channels. Most notably, provisioning, which grew at 40% and parts and repair which grew 14%. Commercial OE sales were up 8% from the prior year, driven principally by the recovery of the commercial aerospace industry. Growth in narrow-body, regional and business jets was particularly offset by expected declines in wide-body sales. And military sales were down 7% on an adjusted basis to the prior year divestitures, and down 1% organically on a tough compare. Recall, Collins military sales were up 10% in the same period last year. Adjusted operating profit of $518 million was better than expected and was up $494 million from the prior year, driven primarily by higher commercial aftermarket and OE sales, the benefit of continued cost reduction actions, as well as favorable contract settlements that were worth about $50 million. Looking ahead, we continue to expect Collins full year sales to be down mid- to down low single digit, with higher expected commercial aftermarket volumes offsetting slightly less than expected OE deliveries. And given the favorable mix in the first-half of the year, the commercial recovery and the benefit of cost containment measures, we are increasing Collins full year operating profit outlook to a new range of up $100 million to $275 million versus prior year. Neil Mitchill: Thanks, Jennifer. I’m on Slide 9, let me update you on how we see the current environment as we look to the second-half of the year. Starting with our commercial end markets, as I've discussed many times before, the shape of the commercial recovery remains critical to our outlook. That said, we are encouraged by the pace of the vaccine distribution, and continued signs of improving air travel demand in many domestic markets. However, we continue to see international air traffic and border reopenings recover slower than we had expected around the world. Keep in mind about 65% of 2019 air travel was international. While the first-half of the year was a little stronger than expected, and we're seeing signs of strong summer travel, we still need to see the reopening of international borders and the return of long haul routes to drive continued sequential aftermarket growth in the second-half of the year. Looking longer-term, we continue to expect commercial air traffic to return to 2019 levels by the end of 2023, with domestic and narrow-body fleets recovering before international and wide-body fleets. Moving to our defense end markets, we were pleased with what we saw in the fiscal year ‘22 defense budget requests. And we remain confident in our ability to grow our defense businesses as we look ahead. Shifting to operational excellence, as Greg mentioned, we're increasing our gross merger cost synergy target to $1.5 billion. And that's driven by higher savings from the corporate segment consolidations, as well as additional procurement and supply chain savings. At the same time, we're maintaining a focus on implementing our core operating system and driving structural cost reduction across the businesses. And finally, our financial flexibility is underpinned by our strong balance sheet which supports our investments in the business and our capital deployment commitments. So, let's turn to Slide 10, following our strong first-half, we're confident in our full year outlook. As Greg discussed, we're bringing up the low-end of our sales range by $500 million, and we're raising our adjusted earnings per share range to $3.85 to $4 per share, or up about $0.33 from the midpoint of our prior outlook. About half of the increase comes from the segments, primarily Collins, and the other half is from $0.13 of tax improvement and about $0.03 of lower corporate tax items. The $0.13 tax benefit is driven by the ongoing optimization of the company's legal and financing structure that we expect to realize discreetly in the third quarter. On the cash side, given the improved earnings outlook, we now expect free cash flow in the range of $4.5 billion to $5 billion for the year. And finally, it's worth mentioning that we've included an updated segment outlook, as well as an updated outlook for some of the below the line items in the webcast dependencies. With that, I'll hand it back to Greg to wrap things up. Greg Hayes: Okay. Thanks, Neil. So we're on the final slide here, Slide 11. I just want to reiterate our priorities for 2021, and again, no surprises here. These priorities remain the same that is first and foremost, to continue to support our employees, our customers, and our suppliers and communities during the pandemic, and to keep our employees safe. Our team is dedicated to solving our customers’ most complex problems by investing in differentiated technologies to capitalize on our strong franchises. At the same time, we're going to continue to execute on the integration and deliver the cost synergies, and we're committed to operational excellence to drive further structural cost reduction across all of our businesses. And finally, as Neil said, we have a very strong balance sheet, combined with our cash generating capabilities, provides financial flexibility to support investments in our business, and our commitment to returning capital to shareholders, including at least $20 billion to share owners in the first four years following the merger. So with that, let me go ahead and open it up for questions. Tabitha? Operator: First question comes from the line of Myles Walton with UBS. Myles Walton: Hey, good morning. Greg, you mentioned the GTF improvement that you're doing on the cost side, I was just curious. Could you talk about the losses that you're currently incurring per unit? How much of an improvement the cost reduction efforts are actually translating into unit costs? And then, maybe just as you look at the glide slope of losses on the engine, I think the prior comments were around peaking in 2025, and maybe size how far off you are from that peak? Thanks. Neil Mitchill: Sure, Myles. Thanks. I'll take this one. It's Neil. Good morning. First of all, if you think about the second quarter, the Pratt and Whitney large commercial engine business saw a very slight year-over-year decline in the OE operating profits. So we're making really good progress driving costs out of the engine in spite of much lower volumes than we had previously expected. So I feel good about that. As you look at the rest of the year, the team continues to drive down the cost curve. And we'll see slight cost improvement year-over-year, and again, in spite of some significant absorption headwind that we're dealing with relative to today's volumes versus what we were expecting pre-pandemic. Looking a little bit further out, we do continue to see some upward pressure on negative engine margin as the volumes increase. But we do see that as a positive sign, frankly, those are investments we're making in the future aftermarket, not going to get into quantifying that today. But we do see OE volumes going up in the 2025 time period. And the Pratt and Whitney team is aggressively working cost reduction actions to contain that negative engine margin at an appropriate level. Operator: Okay. Your next question comes from the line of Ron Epstein with Bank of America. Ron Epstein: Hey, good morning. How are you? Can you speak a bit about what you're thinking on mid-term growth on defense for the business? I mean, we saw in the quarter in particular, in Europe, foreign military sales for the industry did well, you guys did well with the order on the Patriot. But what do you think in mid-term for the defense business growth? So, if we step out a couple of years from now, not just next year, but if we go out maybe three, four years from now. Greg Hayes: I think it's pretty much what we had talked about back in May, Ron, which is, we're going to probably see low to mid-single digit organic growth across all the defense businesses. And, as you know, that's a mix of both U.S. defense spending as well as international. And obviously, on the international side, we've seen a little bit of an impact this year with the pandemic and the havoc that we’ve done on budgets. But at the same time, I think we continue to see strong backlog there. I mean, interestingly, in Switzerland, both F-35s and the Patriot defense system. So defense business internationally remains good. The backlog, as we said remain strong over $66 billion at the end of the quarter. So I think, we easily see that kind of 3% to 5% growth. Of the mid-term, I'll call it out through 2025, because who knows beyond that, but again, it's all about having the right technology for, I would say the next conflict, not the last conflict. And that means having space-based technologies, it means hypersonic weapons, it means cyber weapons. All of those things are going to enable us to help the warfighter in whatever that next conflict might be. Ron Epstein: Thank you. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Good morning, guys. Thank you for the time. So the better outlook at Collins $225 million of it of the $275 million seems to be core productivity. How do we think about what drove that, given the top-line that really hasn't changed? And just on first-half margins, ex-contract settlements are about 9% and it implies second-half margins are 8%. So, why the contraction in the second-half? And how do we think about the improvement off that base? Neil Mitchill: Sheila, I'll start. First of all, I think on the Collins side, the way I would think about the second quarter profit was really driven by higher aftermarket drop through in part, I'd say substantially, it was due to that. We also did realize about $35 million of cost reduction, that dropped to the bottom line combined with about the same number from productivity and mix. So those are really the key drivers. The reason you're not seeing the overall sales go up for RTX is recall, we had a very, very broad range on the sales coming into the year, most of that range was attributed to aftermarket risk. We're halfway through the year now. We're de risking that. We've taken up the bottom and a $1 billion six months into the year. As you think about that $500 million increase, about $200 million of that I would attribute to Collins, a little bit less than that to Pratt and Whitney. And then we also are seeing some improvement on the bottom end, probably $30 million or so at RIS and the rest at RMD. So, as I look at the rest of the year, and you think about the margins, there's a couple things I just want to highlight for you. We had about $0.05 of I'd call it one-time items in the second quarter that I don't expect to repeat in the second-half of the year. $0.03 of those were at Collins those contract settlements that we called out. We also had about a penny in RIS related to a land sale, and then another penny within our RMD as well, given some pre-contract liquidations that went through driving about 70 basis points in margin expansion at RMD. So, as you think about the second-half of the year and Collins, in particular, probably $75 million to $100 million of EMD headwind in the second-half. Remember, we have been cautious in terms of the phasing of our discretionary spending. We'll see that ramp up, now that we're seeing the strength in the aftermarket. And we had furloughs in place for the first-half of the year at Collins. Those are now expired and so they'll have that incremental cost as we head into the second-half of the year. Sheila Kahyaoglu: Thanks so much. Neil Mitchill: You're welcome. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: Thanks so much. Good morning. Greg Hayes: Good morning, Rob. Robert Stallard: Maybe just a follow-up on Sheila's question. You did see a very big sequential increase in the Collins aftermarket in Q2 compared to Q1. But it seems like you're a little bit cautious about extrapolating that going forward. So maybe, if you go into a little bit more color of what you actually saw in Q2, and why you're perhaps a little bit squishy about this continuing in the second-half? Greg Hayes: Excuse me, let me start there, Rob. I think, what surprised us in Q2 was how quickly the commercial aftermarket came back, especially in China and in the U.S. And you've heard us talk historically about expecting typically a six month delay from the time, we start seeing RPMs recover until the time we start seeing the aftermarket recover. The anomaly this year is the airlines are actually spending money ahead of the recovery in anticipation of a resurgence in demand, which was exactly what they have been seeing. And so the second quarter was much, much better, I think than anybody had expected going into this, especially as we think back to January is really putting the plans together for the year. So as we think about the back-half of the year, a lot of that pent-up demand we think has already been satisfied here in Q2. But I would also tell you the bigger part on Collins you got to remember its 40% to 45% of their aftermarket is wide-body. And that is the piece that we do not see recovering here in the back-half. Again, you'll see some reopenings, we hope some transatlantic routes reopen here in the third quarter and into the fourth quarter. The transpacific is pretty well still shut down. The inner Asia, long haul routes are pretty well still shut down. And so that's kind of the governor, I would tell you on the back-half at Collins is the long haul wide-body marketplace. So again, strong domestic demand in the U.S., strong domestic demand in China, starting to see some of that in Europe now. But it's really the wide-body that is, I would say the overall governor on the back-half. Neil Mitchill: Yeah, and let me just add a couple of other points too. I think one of the things that was very notable in the second quarter was the 40% sequential growth and provisioning. So again, I think that's all the airlines getting ready for the expected increase in demand here in the second-half of the year. So that's a watch item as we kind of think about the back-half. On the aftermarket side and I'm talking Collins in particular, we had 15% sequential growth, as you pointed out, really strong growth here in the second quarter. As we look at the next two quarters, think more about 5% sequential growth. And again, that's off of a higher base here in the second quarter, I mean still ahead of what we were talking about back in January. So we're seeing that improvement, but that's sort of what we're calibrating in our forecasting as we look at things today. Robert Stallard: That's very helpful. Thank you. Operator: Your next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Hey, good morning, everybody. Greg Hayes: Good morning, Noah. Noah Poponak: Hey, just in the legacy Raytheon defense segment margins, those have improved, notably over the last few quarters. I understand you had the acquisition accounting reset there, we can see that they were higher in the past before that, and we can see what your future targets are. We're just wondering how linear that improvement can continue to be. The guidance implies they stepped down in the back-half versus the second quarter. But given what you're doing on the cost side, and given the steady recovery from the acquisition accounting input, and again, where that long-term target is, it's not clear to me why that would happen. Neil Mitchill: So Noah, let me try to share a little bit of perspective on that. First, I think as we think about the first-half of the year, the margins, both in RIS and RMD are strong, stronger than we had expected. You'll recall in the first quarter, I commented on a couple of items in RMD, we had the pension tailwind, we also had some international mix. We also here in the second quarter in RMD had some contracts that were awarded that resulted in us liquidating some costs that had accumulated on the balance sheet. Now we can recognize revenue and profit on that. So those couple of things our RMD are providing some uplift in the first-half of the year that we don't expect to repeat in the second-half of the year. And at RIS, I pointed out that asset sale that we had in the second quarter as well. If you take that out for RIS, you'll see margins in the back-half of the year that are fairly consistent with what we just saw in the second quarter. Now, from a productivity perspective, we are seeing improved productivity, and it's about $50 million each in those two segments. So where that goes, as the year continues, we will see that's a function of hundreds of the EACs being done each quarter, but we are seeing that improvement in the underlying productivity in a net favorable way. But, keep in mind at RMD, as we've talked about back at our Investor Day, you will see a mix shift in the products and the margins in the second-half of the year, as we get into more DoD FMS sales. So that's sort of the margin story. I mean, feds business, we’re very pleased with where they're heading, and still see longer-term the targets that we set out in May achieving those. Noah Poponak: Thank you. Operator: Your next question comes from the line of Carter Copeland with Melius Research. Carter Copeland: Hey, good morning, gentlemen. Hey, Neil, just so I can make sure we're all speaking the same language here. When you refer to productivity across the two segments the $50 million, are you saying that the gross or excuse me, the net cumulative adjustments to the EACs were $50 million in each of those two segments? Neil Mitchill: On a year-over-year basis, yes. Net EAC year-over-year, yep. Carter Copeland: And is the big driver of that you up the synergy target, you realized it's some incremental cost out for all the reasons you stated earlier. And you're just putting that into the EACs and we're just getting that flowing into Q2, because that's when we sort of put in the plan. Neil Mitchill: Yeah, that's right. And, you're seeing sort of that play through and then the natural evolution of us getting further along the percent complete, since we had to reset that back in April of 2020. But that goodness, neck goodness, is dropping through in the form of EAC favorability. There's a lot of EACs that get done every quarter and so sort of that's the net effect of everything. But generally speaking, we're seeing good productivity in both RIS and RMDs businesses. Carter Copeland: Okay, great. Thank you for the clarification. I’ll stick to one. Operator: Your next question comes from the line of Doug Harned with Bernstein. Doug Harned: Thank you. Good morning. When you talk about how you're looking at how you're modeling traffic trends, and I think you said, by the end of 2023 for traffic to be back. How do you think about your aftermarket recovery in Pratt and Collins with respect to that trend? In other words, how do you see those lining up on that traffic recovery? And perhaps in Collins, maybe if you could break it down by what I would say, traditional UTAS Collins avionics and interiors that would be really helpful. Greg Hayes: Well, I guess if you think about it, Doug, originally -- well, our forecast would say that we don't see a complete return of air traffic to pre-COVID levels until 2024. We had expected pretty much just to see as we have historically, that kind of six months delay from that with aftermarket recovery tracking RPM recovery. That's obviously not the way we've seen it play out this year, again, because people have been come back, there's a lot of pent-up demand. And I expect, we will see the aftermarket pretty much line on line with RPM growth here over the next couple of years, as we see that recovery. Again, I think the various pieces of the business will see I would say a different trajectory. If you think about the interiors business, for instance, while it's still up sequentially, a little bit, that business is still suffering from the dearth of wide-body departures. And so we're not seeing great traction in interiors. On the avionics front, though, we're seeing kind of a normal as expected recovery. The same with I would say some of the legacy UTAS businesses as you call them, our power and controls business, landing gear, wheels and brakes, all of those things recovering pretty much in line with what we're seeing for traffic. So again, if I think about the weakest link in the Collins business is probably interiors, but it will come back. We're convinced that we're going to see wide-body traffic recover, it’s just going to take some time. And again, that's a relatively high margin business, it's all customer furnished equipment. So that will play out into the recovery of the margins at Collins as well, probably into that ’23, ‘24 timeframe. Neil Mitchill: Yeah, let me add a little more color to, Greg, I agree with all that. Maybe making some comments about 2021 year what we see for the rest of the year. And I'll focus on ASMs. I mean, we saw about a 22% increase in ASMs from Q1 to Q2. And as I think about, going from Q2 to Q3, that's probably more in the 30%, 35% range. And that's starting to level out, call it mid-single digit 5% kind of growth from Q3 to Q4. Getting back to what Greg said, our aftermarket should start to trend with those ASMs, as we look further out through the recovery. Operator: Your next question will come from the line of Peter Arment with Baird. Peter Arment: Good morning, everyone. Nice results. Hey, on working capital can you maybe just talk about the progress you're making on the kind of inventory levels at Collins and Pratt? I believe that's kind of the best opportunity for you to show gains going forward? And is there any kind of change here in your thinking on long-term goals, and then maybe just expectations around free cash flow cadence in the second-half? Thanks. Neil Mitchill: Yeah. Thanks, Peter. So actually, I'm very pleased with what we're doing on inventory in both Pratt and Collins. With the significant increase in sales that we're seeing a known ramp that we're facing, inventory levels have stayed pretty much in line. At the company level, up $50 million higher than we exited the first quarter with. And obviously, some work to do to drive that down in the back-half of the year. As we see the markets strengthen here, we'll be making sure that we have that inventory in place. Could there'll be a little bit of pressure on that? I suppose, but I'm very happy to see that we're still forecasting inventory turn improvements as we exit the year, and good focus on working capital management. As you think about our $4.5 billion to $5 billion of free cash flow at the midpoint of that range, I'd say that increment comes from the improved profit, if we're able to get to the higher end that will likely be on slightly improved CapEx. And we'll be watching the working capital, but we got the right focus on it. We want to make sure we're ready for the recovery, ready for our customers, but at the same time, not bringing in inventory that we don't need. In terms of calendarization for the second-half of the year, as I think about the third quarter profile, probably about the same increase in free cash flow that we saw from Q1 to Q2. So again, we're very happy with the collections that we're seeing. And, right now, that's sort of how I see third quarter playing out. Peter Arment: Appreciate the color. Thanks. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Hi, good morning, guys. Neil, earlier you mentioned the variable $75 million to $100 million EMD in Collins for the back-half of the year. Can you provide more details on what that is? And how much more flexibility you have in deferring to spend? Neil Mitchill: Sure. That really is across the Collins portfolio. We did a very deep dive last year, as you probably expect on where we were spending our EMD, and especially through the pandemic, we wanted to make sure that we're focused on the next generation technologies where we can insert our upgrades into the existing Collins platforms. I'd say there's always flexibility around the allocation of those dollars to specific investments, but it's really in our interest to make sure that we spend the money. We want to make sure that we do not starve any of our businesses. I think we're a long ways from doing that. You've heard Steve Tim talk about investing about 6% of sales over the next several years. And I think our spending is about right, we're poised to invest about $6 billion of our own money between capital and EMD over the each of the next four years. So, there's some flexibility Kristine there, but I do know that we've got a long list of important projects that Collins team is aggressively working. Kristine Liwag: Thanks, Neil. Neil Mitchill: You bet. Operator: Your next question comes from the line of David Strauss with Barclays. David Strauss: Thanks. Good morning, everyone. Neil, you highlighted the sequential ASK growth that you're expecting in Q3. I guess, in light of that, maybe talk about what you're seeing so far in terms of July on the aftermarket side? And then Greg, since the Investor Day, Airbus came out with much higher potential narrow-body production rates as we look out ’23, ’24, ’25. I guess, what do you think of those potential rates? And how could that change when you've guided Collins and Pratt to look like out in 2025? Thanks. Neil Mitchill: Sure, I'll start. Obviously, we haven't even closed the month of July yet, but we do look at that data regularly. We're seeing continued growth, as we head into July consistent with the forecast that we've got baked into our outlook. What I would say, as we think about Pratt, for example, I think a big piece of the second-half is in the shop visits. We were really happy to see 56% year-over-year large legacy shop visits. As I think about Q3, we will be probably north of 30%, 35% and even over 20% growth year-over-year in the fourth quarter. So some good indicators there, we've got pretty good line of sight, as we look at the back-half of the year, particularly on the Pratt shop visit side. Greg Hayes: So David, as we think about the narrow-body ramp, if you will, I think you'll see both Boeing and Airbus are starting to ramp up production. We were a little surprised, I would tell you, but we have been talking to Airbus. I know Guillaume and company are laser focused on trying to take some market share and so they're being pretty aggressive by showing that 70 to 75 aircraft a month figure out in 2025. I would tell you, while we're working with Airbus, that remains a challenge for us to get to those levels. Right now we're capacitized to, I think it was rate 63 was the latest high point. Obviously, we will do whatever we need to, to support our customers. Now, whether or not that rate actually materializes, I guess will be the question. Obviously, with the XLR coming along as A321 XLR, I think Airbus got a great aircraft. And they want to take advantage of that in the marketplace. But, we'll see. Again, as I think about this, the air traffic is going to grow 4% or 5% a year. So you're going to continue to see plenty of demand out there for narrow-body. And the question will be, is it A320s? Or, is it 737s? We're positioned on both, obviously a little bit different content on the A320 with the neo engines, but we're keeping an eye on all of this. And I think, we'll work with a supply chain, we'll make sure that we're adequately capacitized to be able to serve our customer there. And we'll see what happens. But there's plenty of time between now and then to get ready if the ramp actually occurs as quickly as what Airbus hopes. David Strauss: Thanks very much. Operator: Your next question comes from the line of Robert Spingarn with Credit Suisse. Robert Spingarn: Hi, good morning. Greg, you talked about the surprising second quarter narrow-body aftermarket demand. And you also talked about the lagging wide-body recovery. But maybe a year from now or even sooner, if we end up with the vaccines getting traction, and we see more long haul traffic strength, could we have a surge in demand both for maybe wide-body and narrow-body at the same time? And, given the headcount reductions, do you have the capacity to address it? In other words, could the demand curve turn into a sine wave at some point here? Greg Hayes: From your lips to God's ears. I think in fact, we are optimistic that we could see a faster recovery, should we get a more robust vaccine rollout. And keep in mind, in the U.S., about half of the population is vaccinated, it's getting to be the same in Europe. China, vaccine is also taking hold. But globally, it's only about 9%. So we've got a long way to go I think. The good news is most of the air traffic, of course, is between China and the U.S. and in Europe. So we could see a quicker recovery. I would tell you that we are more than adequately capacitized to take advantage of that recovery from an aftermarket perspective. As we took all those cost cuts last year, that kind of $2 billion of cost takeout, what we didn't do was close a lot of factories or eliminate a lot of capacity. As Neil mentioned before, one of the overhangs of course at Pratt from a cost standpoint is you get all this unabsorbed overhead. Well, that's because we still have the facilities. We're still facilitized to do 1,000 Vs if we saw that kind of a ramp. This year, we'll probably do 550 V's overhauls, but the capacity still exists. It's the same on the GTF. It's really the same across the Collins portfolio. We haven't closed factories and we can bring folks back, we can work extra shifts to pick up on the demand. So I'm not actually worried if we were to see that kind of a recovery. It would be good. Certainly, not what we expect today, but we are ready for it. Robert Spingarn: Thank you. Operator: Your next question comes from the line of Seth Seifman with JP Morgan. Seth Seifman: Hey, thanks very much. And good morning, everyone. Greg, I was wondering if you could maybe put on your business roundtable hat and talk a little bit about where getting into the second-half of the year. And there's still no resolution on the R&D tax issue for next year. And so, I wonder if you could talk about A the prospects for that in the Congress? And B the prospects to get some relief from that outside of Congress, maybe with some kind of IRS interpretation of the law that removes customer funded R&D from the equation? Greg Hayes: Yeah, that's a great question, Seth. We were very hopeful, I would say three or four months ago, as we were thinking about the infrastructure bill as it was winding its way through Congress. And clearly, we were having discussions on the hill, both the Senate and the House side. People are very sympathetic to the fact that this R&D amortization language that was in the 2017 Jobs Act is not helpful in terms of driving the kind of investments that we want to see in technology. And so we have been pressing folks to include relief on the R&D amortization formula in any infrastructure bill that's out there. Obviously, there's pressure to take the corporate rate up. We'll see where that goes. But I think we're still hopeful that we will see some type of relief. And maybe it comes in December, as is typical with the tax extenders that we get some relief here. It's just hard to imagine you want to stop folks from investing in R&D, as the academy comes back from the pandemic. So, again, we're still hopeful, folks at business roundtable are doing a good job educating the Congress on this, and we'll see where it goes. But we're not going to give up hope. I think this is something we just have to get done. Seth Seifman: Right. And anything outside of Congress? Greg Hayes: We haven't actually explored a regulatory role. And I haven't seen a pathway for IRS or Treasury to change the statutory language of the 2017 Jobs Act. So right now, I think it's going to require an act of Congress. Seth Seifman: Thank you very much. Operator: Your next question comes from the line of Cai Von Rumohr with Cowen. Cai Von Rumohr: Yes. Thanks so much. So could you comment on bizjet trends at Legacy UTX? And also, you didn't have much of an uptick in commercial OE at Collins. What do you see going forward for the pickup in rates on the MAX and the 787 where Boeing's been having their own problems? Thanks. Neil Mitchill: Yeah, let me start with some bizjet context. Cai, how you doing today? Obviously, bizjet has rebounded very quickly. And so, whether that's at the affecting the Collins business, or the Pratt Canada business, we're seeing very good performance there, that I'd say combined with general aviation, both are at or near or even slightly above where we were in 2019. So that is a major contributor here to part of the Collins. Q2 performance, we're seeing it within the Pratt aftermarket as well. As I think about OE, we are certainly seeing that OE growth at both Collins and Pratt. And as I think about the back-half of the year, we will start to see 737 MAX start to be a bigger contributor. We've talked about being aligned with Boeing's production schedule, but having delivered about a third of their requirements for this year already. And so, as we pick up on that second, third, if you will, or two-thirds rather, that'll start to ramp up as we go through the third quarter and more heavily into the fourth quarter. And then, of course, another step as we get into ‘22, which we'll talk more about later in the fall. Greg Hayes: You obviously picked also Cai, the 787 that's down to I think five a month. In fact, it's because of some of these production delays, we think it might be even a little bit slower than that. So there's some impact there. You recall, revenue on that's about $10 million a ship set for the Collins business. So there is a little bit of a governor, I would say on Collins OE, even here into the third quarter. And we expect again, as Neil said, once 737 production rates pick up here, as well as we get some of these production issues behind this at the Boeing line on 787 that should that should help the towards the end of the year and into next year. Cai Von Rumohr: Thank you. Operator: Your next question comes from the line of Mike Maugeri with Wolfe Research. Mike Maugeri: Hey, good morning, everyone. Thanks for the time. Greg, you mentioned having the right technology for the next conflict. So can you talk about the longer-term sort of supply demand balance in your missile business as the DoD customers priorities shift back towards peer adversaries from asymmetric threats? Greg Hayes: Yeah, Mike, it's an interesting discussion. If you think about what the -- as we talk about having the right technologies for the next conflict. As we see this right, the next war and I’ve said this before, it gets fought in cyberspace in outer space initially. You aren't going to see land wars in Asia or tank battles across Europe. What you are going to see is cyber-attacks, you're going to see attacks against strategic assets in space to compromise communications and sensing systems, and being able to defend those assets, being able to project and to replenish those assets is really what we're focused on across the RTX portfolio. And the other piece of this of course, is how do you have assured communications. And you'll hear a lot about JADC2 this Joint All-Domain Command and Control. Having assured communications, having reliable, replenishable comp systems is also part of this. And again, we played in that really across the business from the sensing systems at our RMD to the processing that we do at RIS to some of the communication systems that come out of Collins. We think we were uniquely positioned there as well. So look, it's a complex battlefield as we think about it. There's no one single answer. It's not like we're going to replace all of the missiles we have with high powered microwaves or high powered lasers. It's going to be a layered defense, where you're still going to see SM3s and SM6s, and you're still going to need AMRAAM missiles, as well as some things to deal with, I would say the emerging threat of hypersonics, which we think is primarily going to be high powered microwaves. So, a lot to pull apart there, but, I think again, we have technologies in all of those spaces that can differentiate us. Mike Maugeri: Thank you. Operator: And our last question will come from the line of Matt Akers with Wells Fargo. Matt Akers: Thanks. Good morning. Could you just touch on sort of the military engine outlook? And kind of specifically in light of some of the F-35 kind of disruptions we've seen on the aircraft side last year, this year. And Lockheed’s comments about maybe a little bit of a slower growth profile here going forward. Just how we should think about that kind of trending going forward? Neil Mitchill: Yeah, I'll take that. As we look at the rest of the year for Pratt on the military engine business pretty steady. And we're at or near sort of the rate, we need to be on the F-135 engine. And, we're clipping along. We're not quite halfway through our delivery schedule for the year, but we're pretty close to it. So I'd expect the back-half of our year to look pretty similar to what the first-half did, in terms of engine deliveries. And as we've talked in the past, we pretty much see that kind of rate holding steady for the foreseeable future there. Greg Hayes: And keep in mind too, Matt it’s not just F-35 right, we're also on the KC-46 the tanker. We're going to be on the next generation B-21 as that goes into flight test, and then into production in the next couple of years. So there's more than just JSF out there. And the F-100 and the S-16 remains opportunities for us to continue to utilize a platform that literally is 40-years old. So there's more to the military engine business than just JSF. Obviously, it’s the biggest piece, but those other pieces are important as well. Matt Akers: Got it. Thanks, guys. Greg Hayes: Thanks, Matt. All right. Well, thank you, everyone, for listening in today. As always, Jennifer and team are prepared and ready to take all of your questions. So, thanks for listening in and we'll see you guys soon. Take care and be well. Bye-bye. Neil Mitchill: Bye. Operator: Thank you, ladies and gentlemen. That concludes the conference call. You may now disconnect.

Operator: Good day ladies and gentlemen and welcome to the Raytheon Technologies first quarter 2021 earnings conference call. My name is Deborah and I will be your operator today. As a reminder, this conference is being recorded for replay purposes. On the call today are Greg Hayes, Chief Executive Officer, and Neil Mitchill, Chief Financial Officer. This call is being carried live on the internet and there is a presentation available for download from Raytheon Technologies’ website at www.rtx.com. Please note except where otherwise noted, the company will speak to results from continuing operations excluding net, non-recurring and/or significant items and acquisition accounting adjustments, 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 risks and uncertainties. RTC’s SEC filings, including its Forms 8-K, 10-Q and 10-K, 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. You may ask further questions by reinserting yourself into the queue as time permits. With that, I will turn the call over to Mr. Hayes. Greg Hayes: Okay, thank you Deborah, and good morning everyone. Before we jump in, I’d just like to take a couple of minutes to acknowledge the news that most of you saw yesterday of Dr. Kennedy’s retirement as Executive Chairman of the Board, effective June 1 of this year. As you all heard me tell the story, it was just over two years ago that Dr. Kennedy called me to suggest that we merge our two companies. He could see then that in combining our talent, technologies and capabilities that we would have the breadth and scale to meet any industry challenge in aerospace and defense. Little did either of us realize then, of course, how quickly a global pandemic would put that value proposition to the test, and yet here we stand today one year post merger and we’ve made substantial progress not only in integrating the two heritage companies but also managing through an unprecedented downturn in commercial aerospace, all the while identifying new technology synergies and establish an operational rhythm that allows us to meet many of the goals sooner than what we had expected just a year ago. I want to thank Dr. Kennedy for his leadership, partnership and stewardship throughout this merger and congratulate him on a distinguished 38-year career with Raytheon. We wish you well, Tom. I’d also like to officially welcome Neil Mitchill in his new role as Chief Financial Officer, though most of you of course already know Neil - he’s not new to the call. Toby O’Brien stepped down earlier this month and we thank him for all of his contribution as we formed Raytheon Technologies. Many on this call also know that Neil was our interim CFO at UTC prior to the merger and since then, he’s led the IR and financial planning functions. I’m very pleased to have him as our CFO and look forward to working together as we continue the integration and cost initiatives that will capture the full value of the Raytheon Technologies company. Lastly, I’d also like to welcome our new Head of Investor Relations, Jennifer Reed. Jennifer for the past year has led our integration team. As Vice President of Integration, she was responsible for the financial and operational planning activities related to the merger and did a wonderful job, and we’ll hear more about that later. I think that completes the HR section of the call. Let me move on to the numbers. Let’s take a look at Slide 2, please. As I mentioned, earlier this month marked the one-year anniversary of the merger’s closing, and I’m proud of the major accomplishments and progress made by our employees and business leaders, who came together from across our businesses to execute as a single team. Our ability to adjust to the unique circumstances and stay nimble in this very dynamic operating environment has served us and our investors and customers well. With that, let me take you through the performance and some highlights from the quarter. I’m pleased to say that we’ve had a really strong start to the year and we’re seeing continued momentum with signs of economic recovery and incremental improvements in domestic aerospace markets, with international markets of course remaining challenged. As you saw from the press release this morning, we delivered strong quarterly sales, adjusted EPS and free cash flow, all of which exceeded our expectations from earlier this year. While it is still early in the year, the rate of vaccine distribution and signs of travel recovery within key domestic markets, specifically the U.S. and China, are better than what we expected just three months ago. In the U.S., daily TSA traffic has averaged about 1.4 million people a day since the beginning of April, nearly double the levels of January of this year, so we’re headed in the right direction with key metrics improving but we continue to monitor recovery indications around the world and engage with our customers as they prepare for this recovery. On the defense side, I’m happy to say our backlog remains robust at more than $65 billion. These encouraging trends in commercial aerospace and our Q1 performance give us confidence to raise the low end of our full year sales range by half a billion dollars to $63.9 billion, bringing our new sales range for the year at $63.9 billion to $65.4 billion. We’re also going to raise the low end of our full year adjusted EPS range by a dime to $3.50 - that’s up from $3.40, so the new range that we expect for the year is somewhere between $3.50 and $3.70. We’re going to also maintain our free cash flow outlook for the year of at least $4.5 billion, and Neil will give you a little color on all this later in the call. On the capital deployment front, after a better than expected start to earnings and cash in Q1, we’re also going to increase our share buyback plan by half a billion dollars - that will take it up to $2 billion for the year. During the first quarter, of course, we did resume our share buyback and we repurchased about $375 million of our stock, giving us a good start to our full year commitment. You also probably saw yesterday that we increased our dividend by more than 7% yesterday to $0.51 from $0.475. Since the merger last April, we’ve already returned over $3.2 billion to share owners between share buybacks and dividends, and we remain on track to return at least $18 billion to $20 billion to share owners in the first four years following the merger. We also continued to execute well on our synergy programs during the quarter. We achieved nearly $200 million of incremental RTX merger synergies, bringing the total since the merger up to $440 million. Given our strong synergy capture to date and the growing opportunities that we see in the pipeline, we’re going to increase our cost synergy target by $300 million from $1 billion to $1.3 billion, and I don’t think we’re done yet. Collins importantly also achieved an incremental $40 million in acquisition cost synergies in the quarter, bringing their total acquisition-related savings to $510 million since the deal closed in November 2018. Lastly, we continued to strategically shape our portfolio with a focus on higher growth, higher technology businesses. We did close on the Forcepoint divestiture earlier this year - that brought in about $1.1 billion in gross proceeds without the tax benefit, and we’ll continue to be disciplined in M&A as we evaluate both strategic acquisitions as well as strategic divestitures. With that, let me turn it over to Neil. Mr. Mitchill? Neil Mitchill: Thank you Greg. I’m happy to be on the call today in my new capacity as CFO, and I look forward to our continued partnership as we continue to capture the full value of RTX. With that, I’m on Slide 3. Let me take you through our financial results. I’m pleased with where we landed for the quarter, exceeding expectations on our key metrics, and as we’ve mentioned previously, Q1 will be the last quarter of tough compares for our commercial aero businesses resulting from the onset of the pandemic last year. Q1 sales were $15.3 billion, above the midpoint of the outlook we provided in January. Adjusted EPS was $0.90 per share, ahead of our expectations driven by better than expected operating profit at all four of our businesses, as well as favorability in some corporate items. On a GAAP basis, EPS from continuing operations was $0.51 per share and included $0.39 of net non-recurring and/or significant items and acquisition accounting adjustments. Free cash flow of $336 million exceeded our expectations primarily due to better than expected working capital timing, most notably the timing of collections across the businesses. With that, let me take you through the segment results. Starting with Collins Aerospace on Slide 4, sales were $4.4 billion in the quarter, down 32% on an adjusted basis and down 31% on an organic basis, driven primarily by the expected adverse impact of COVID-19 on the commercial aerospace industry. By channel, commercial OE sales were down 45%, again driven principally by the impact of the current environment. Commercial aftermarket sales were down 43% driven by a 39% decline in parts and repair, a 66% decline in provisioning, and a 32% decline in modifications and upgrades. Sequentially however, commercial aftermarket sales were up 11% driven by growth in parts and repair and modifications and upgrades. Defense sales were down 3% on an adjusted basis but up 4% organically. Organic growth was driven by F-35 as well as growth in several avionics product lines. Adjusted operating profit of $332 million was down $952 million from prior year and better than our expectations for the quarter, driven by continued cost control and favorable sales mix. On a year-over-year basis, cost control as well as lower E&D and SG&A were more than offset by lower commercial aftermarket and OE sales volume. Looking ahead to the rest of the year, with a solid start in Q1 and improving trends on the commercial side, we are increasing the low end of Collins sales outlook from a prior range of down high to low single digit, to a new range of down low to mid single digit, and based on our first quarter cost containment measures and those improving trends on the commercial side, we’re also increasing the low end of Collins operating profit outlook by $75 million to a new range of down $200 million to up $25 million. Shifting to Pratt & Whitney on Slide 5, sales of $4 billion were in line with expectations. Year-over-year sales were down 24% on an adjusted basis and down 25% on an organic basis, also driven by the expected adverse impact of the current environment on the industry. Commercial OEM sales were down 40% driven by lower deliveries across most of Pratt’s large commercial engine and Pratt Canada platforms. Commercial aftermarket sales were down 35% in the quarter driven by an expected decline in shop visits, but growth in the GTF aftermarket volume was more than offset by the impact of a reduction in legacy large commercial engine shop visits of 38% and a 28% reduction in Pratt Canada shop visits. In our military business, sales were up 1% on higher F135 aftermarket partially offset by lower volume across certain development programs. Pratt’s adjusted operating profit of $40 million was down $475 million from the prior year. Significant aftermarket volume reductions and fixed cost headwinds more than offset continued cost containment measures, including reductions in G&A and E&D. Looking ahead, with a solid start in Q1 and improving trends on the commercial side of the business here too, we are also increasing the low end of Pratt’s full year sales outlook from a prior range of flat to up mid single digit, to a new range of up low to mid single digits, and we are increasing the low end of Pratt’s operating profit outlook by $50 million to a new range of down $75 million to up $25 million. Turning now to Slide 6, first I’ll remind everyone that the percentage of completion reset at the merger date continues to impact the comparable sales and operating profit at the legacy Raytheon businesses. With that, Raytheon intelligence and space sales were $3.8 billion, up 2% versus the prior year on an adjusted pro forma basis and better than our expectations for the quarter, driven by higher volume in sensing and effects, particularly airborne ISR. Operating profit in the quarter was $388 million, down $11 million year over year on an adjusted pro forma basis and a little better than expected due to higher sales volume. It’s worth noting that sequentially, the ROS at RAS improved 110 basis points to 10.3%. RAS had bookings in the quarter of $3.7 billion, resulting in a backlog of $19.2 billion. Significant bookings included approximately $1.4 billion on classified programs as well as several other notable awards. Our Q1 book to bill was 1.08, and looking ahead we remain confident in our full year outlook for RAS with sales growing low to mid single digits and operating profit growing $125 million to $175 million versus adjusted pro forma 2020. Turning now to Slide 7, Raytheon missile and defense sales were $3.8 billion, up 3% versus prior on an adjusted pro forma basis and better than expected due to higher volume across multiple mission areas. Adjusted operating profit was $496 million, also better than expected and down $43 million year-over-year on an adjusted pro forma basis due to the absence of a favorable prior year contract settlement and the EAC reset impact that I mentioned. RMD’s bookings in the quarter were approximately $2.5 billion, resulting in a backlog of $27.7 billion. Significant bookings in the quarter included an award of approximately $520 million for AMRAAM for the U.S. Air Force, the Navy, and international customers, and an award of about $250 million to provide Patriot engineering services support for the U.S. Army and international customers. It’s also worth noting that RMD’s industry team was down selected for the next generation Interceptor award, and we expect to book that award in the second quarter for over $1 billion. Book to bill was 0.68 in the quarter, as expected, as we continue to deliver against a previously awarded multi-year production contract. Before moving on, I’d also like to make a comment on the previously disclosed ongoing DoJ investigation into cost accounting matters at legacy Raytheon Company’s former integrated defense systems business, or IDS, which is now part of RMD. As you’ll see in our upcoming 10-Q filing later today, the investigation includes potential civil liability for defective pricing for three contracts entered into between 2011 and 2013 by IDS. We provided for our best estimate related to this matter in connection with the finalization of purchase accounting during the quarter. Additionally, as part of the same investigation, we recently received a second subpoena relating to a different IDS contract from 2017, and we do not currently believe the resolution of this matter will result in a material impact to our financial condition and we will continue to cooperate fully with the government’s investigation. Turning back to RMD’s full year outlook, we continue to expect RMD sales to grow low to mid single digits and operating profit to grow $25 million to $75 million versus adjusted pro forma 2020. Finally for your reference, we’ve included an updated outlook for each segment in the webcast appendix. With that, moving to Slide 8, let me update you on how we see the current environment as we look ahead at the rest of the year. Starting with our merger synergies, as Greg said, we are increasing our gross merger cost synergy target to $1.3 billion, and that’s due to higher expected synergy capture in our corporate office and segment consolidation, as well as additional opportunities we’ve identified in the supply chain and footprint consolidation and in IT. Keep in mind that’s on top of $600 million of Rockwell Collins acquisition synergies. Additionally, we continue to see the benefits of the cost actions we took last year. We’re making solid progress on the structural cost reduction actions we’ve previously announced while at the same time working additional opportunities to drive further cost out of the business. Moving to the commercial side of the business, the shape of the commercial aero recovery remains critical to our outlook. As Greg mentioned, we’re encouraged by the pace of the vaccine distribution and we’re seeing signs of increasing travel demand, particularly on many domestic routes; however, we continue to watch Europe and international border reopening. While we’ve seen slightly better than expected results to start the year, particularly at Collins as customers prepare for a strong summer travel season, as well as evidence of increasing future travel demand, we still need to see this demand translate to strong sequential growth in RPMs and ASMs as we head into and through the peak summer travel season. As such, the second quarter remains a critical period in determining the recovery profile for the rest of the year. Looking longer term, we continue to expect that it will take until at least 2023 for commercial traffic to return to 2019 levels. For the defense side of our business, we continue to expect both domestic and international program growth to remain robust, as evidenced by our over $65 billion defense backlog. Our strength with international customers, our innovative technologies, and our positions in high growth areas gives us confidence in our ability to grow these businesses even in the current domestic budget environment. Finally, our financial strength is underpinned by the strength of our balance sheet and supports our capital deployment commitments. Moving to Slide 9, following our strong start to the year, we remain confidence in our full year outlook, and as Greg mentioned, we are bringing up the low end of our sales range by $500 million and bringing up the low end of our adjusted EPS range by $0.10, with about $0.06 coming from the segments and the remainder coming from improvement in some corporate items. Now let me just give you a little color on Q1. At the company level, we see sales in the range of $15.5 billion to $16 billion, adjusted EPS in the range of $0.90 to $0.95 per share, and we see sequential improvement in free cash flow. It’s also worth mentioning that we’ve included an updated outlook for some of the below the line items and an updated pension outlook that includes the impact of the latest COVID relief bill in the webcast appendix. With that, I’ll hand it back to Greg to wrap things up. Greg Hayes: Okay, thanks Neil. No surprise here - as we think about our 2021 priorities, first and foremost it’s going to be to continue to support our employees, our customers, suppliers, and communities, all the while continuing to invest in new technology and innovation to drive industry leadership for the long term. I am confident in the outlook for our company. RTX is well positioned to deliver strong sales, earnings growth, and cash flow for not just this but for the foreseeable future. Before we get to Q&A, just a note. We are going to have an investor day coming up on May 18 where you’ll get a chance to hear from our business unit leaders as well as on our transformation initiatives from Mike Dumais. I look forward to sharing a lot of information also on our revenue synergies and our long term growth strategies with you at that meeting. With that, let’s turn it over to Q&A. Deborah? Operator: [Operator instructions] The first question comes from the line of Carter Copeland with Melius Research. Carter Copeland: Gentlemen. Greg Hayes: Hey Carter. Carter Copeland: Greg, I’m going to resist the urge to ask a numerical question and instead ask you about-- Greg Hayes: I’m good with numbers, Carter. Carter Copeland: I know, I know - I’m going to take you away from there. In light of Toby’s departure and Tom’s announced retirement, and we’re on a year into the merger, this is the biggest integration in the history of aerospace and defense mergers and you’ve been obviously trying to do a lot of that virtually. With respect to what still needs to be done and what has yet to be accomplished, where do things stand in that regard and where do you want them to go? Have things surprised you along the way that have led to any change relative to where the plan was? Just anything you can give us to help us understand where that is in its process, aside from cost synergies and some of the numerical pieces but more the integration of the two companies culturally. Greg Hayes: Yes Carter, it’s something that we have spent a lot of time on over these past 12 months. We’re fortunate I’ve got Jen Reed sitting here with me, who has been leading that integration effort. I would tell you we’ve realized over $400 million of cost synergies, but there is a lot of work yet to do. We’ve done many of the hard things in terms of reducing staff, making sure the policies are consistent, but again not done with that. I think the biggest opportunities we still have are on the digital front, where we have a lot of work to do to reduce the number of data centers. We’ve just made a big investment to try and reduce the data centers from more than 30 to less than a dozen. We’re also working on what we call the digital thread - that is, how do you connect everything from product development through operations, supply chain and sustainment. Lastly, I would tell you it is rolling out our common operating system. You’ll hear more about this in May, but we do need a common operating system. We have 178 manufacturing facilities around the world, and we have work to do to consolidate those yet. We’re making good progress, but it is going to take us some time. It will take us a full four years to realize the $1.3 billion of synergy savings. We made good progress on identifying savings related to procurement, both product and non-product, cost reduction. All of those things are on track, but I would just remind you it’s too early to declare victory. Just like Collins has got now over $500 million of synergies on their way to $600 million, there’s still work to do there. We’re not going to declare victory. Carter Copeland: Did you find anything in the process that has, I guess, surprised you? I’m just thinking about some of the charges in the legacy Raytheon defense segments and the comments you made around the DoJ subpoena regarding the pricing. Are these things surprising to you? Greg Hayes: Well look, first of all just to be clear, these are contracts from 2011 through 2013, so there is always surprises like that out there when the DoJ suggested that we defectively priced some contracts. We’ve been doing an investigation, we’ve been working with the DoJ, and I think we appropriately provided for those exposures, as Neil mentioned. I wouldn’t call that a big surprise. What I would tell you, people think about the culture, and it was not that different between the aerospace businesses at legacy UTC and the defense business at Raytheon. The fact is many of our customers on the defense side were the same and the cultures were the same. I think again that has been a pleasant surprise in terms of how easily we have been able to integrate the two businesses culturally and that process will continue, but I would tell you it is going remarkably well for what is probably the largest aerospace and defense merger ever. Carter Copeland: Great, thanks for the color, Greg. Operator: Your next question comes from the line of Robert Spingarn with Credit Suisse. Robert Spingarn: Hi, good morning Greg, Neil, Jennifer. Neil, for you, you’re essentially guiding to EPS around $0.90 in each quarter this year, at least if I think about what you’ve said for Q2 against Q1. Why isn’t there more improvement from the first half to the second, especially given the buyback and maybe even a slightly lower tax rate? You mentioned Q2 is going to be key for assessing the pace of the recovery, so could you elaborate a little bit on what you’re expecting, or is this just a conservative second half guide? Neil Mitchill: No, I don’t think it’s that. I think there’s still three quarters ahead of us, so I need you keep that in mind as we look at the rest of the year. We did see some promising uptick as we were in March of first quarter at Collins and Pratt - you know, some pre-buy, I would call it, for the airlines ahead of the summer travel season, but let me give you a little bit more color on Q2 specifically. We do see segment operating profit growth somewhere between $0.03 and $0.07 for Q2 if you think about that sequentially. We do have some headwinds on the corporate side, so one of the things that we benefited from in the first quarter was reduced corporate expenses in part on interest as we had better than expected cash flow, and so that will lower our interest for the year, as well as we are being more efficient with our synergy investment spend. But that spending on the synergy investment will pick up here in the second quarter, so you’ve got a few--you know, $0.02, $0.03 of headwind on that front in the second quarter as well. As it relates to the second half of the year, we’ll have to wait and see a bit, but certainly the back end of our plan contemplated a real strong summer travel season, and that’s why I think Q2 is going to be so important. Robert Spingarn: And then just on the cash flow cadence throughout the year, you touched on it there, but if you could just go into perhaps a little bit more detail. Neil Mitchill: Sure. As you know, our cash flow tends to be back end loaded as we ramp and then deliver through the year. As I think about the first quarter, our free cash flow was better than we expected, probably by about $600 million, all of that attributable to improved working capital. If I break that down for you, think about $300 million of that coming from better than expected customer collections. We were happy to see some customers pay early at the end of the quarter. We had a couple hundred million dollars of improvement in disbursements timing and $100 million better improvement--better than expected performance on inventory. Still a long ways to go to get to our full year $400 million working capital improvement, but good progress. As I think about Q2, I would expect to see clearly some sequential growth, probably at least doubling, and then more of that in the back half of the year as the sales continue to ramp and collections, as they seasonally do, ramp up. Robert Spingarn: Thank you. Neil Mitchill: You’re welcome. Operator: Your next question comes from the line of John Raviv with Citi. Neil Mitchill: Hey John. John Raviv: Hey, good morning everyone. On the [indiscernible] going back to DoJ items, can you clarify the [estimates that we’ll see] [ph] in the 10-Q, those are not material and the second subpoena, you do not expect to be material either, and just any kind of color on any connective tissue or any narrative or rhythm or theme, I’d say, between these items - for instance, are they all FMS or tied to a particular person or team or incentive structure? And then any comments around what the functional impact of those settlements is going to be on the ongoing business for which--you know, on those contracts referenced, the ’11 to ’13 and also the ’17 item. Thank you. Greg Hayes: John, I appreciate the question. I’m not sure we can really answer it. I will say this is an ongoing investigation by DoJ. We have begun our own investigation and as we discover facts, we have been sharing all of those facts with the DoJ. I would tell you again, the dollar amounts are not going to be material in our view today. Again, these are older contracts where it was alleged that we defectively priced some contracts. Again, I can’t get into much more detail than that, but we’ve looked into it, we think there is potential liability for defective pricing clearly, we’re provided for that this quarter, and we’re going to continue to work with DoJ to bring these things to a resolution. I would tell you, these investigations take time. We’re still going through doing some work, but we don’t believe there’s going to be any ongoing impact to any of the businesses as a result of these investigations. We think there were one-off events that occurred--should not have occurred, but they did, and we’re going to clean it up and move on. John Raviv: Okay, thank you Greg for that. I’ll stick to the one. Operator: Your next question comes from the line of Ron Epstein with Bank of America. Ron Epstein: Hey, good morning guys. Just maybe on Pratt, I think in the hearing on Thursday on F-35, Pratt was mentioned 39 times, so I guess the question is this. How are you guys remedying the issues that the Air Force has with the F135 engine, and do you fear that all this rhetoric around the engine could offer an entrée for GE to try to get a second engine in there, because they’ve been raising their rhetoric on that, at least they have been with the investment community. Greg Hayes: Well Ron, first of all, it’s nice to be mentioned 39 times - all publicity is good in some respects. But I would tell you the issues--and I think Matthew Bromberg, who is President of our Military Engine Business, explained this pretty well. We’ve actually done a good job on the production or the OEM front in terms of delivering engines. We ended the year on contract; in fact, there were about 50 engines sitting at the final assembly line for the F-35 today. Unfortunately where we didn’t do a great job was at the sustainment center, and we did not provision enough in terms of test equipment and personnel to deal with the volumes that we saw coming into the shop. As a result, there are about 20 aircraft today that are sitting there that do not have a serviceable engine. Now, one of the solutions--I think Matthew pointed this out last week in his testimony, we could take some of those engines from the final assembly line and put them over at the sustainment center and solve this problem tomorrow, but as you know, the color of money for procurement is different than it is for operations and maintenance, so it’s not that easy. But we have committed in working with the customer, with the JPO to put the equipment in place necessary to service the engines such that we get back on, I’ll say contract performance levels by the end of this year. A lot of work to do, but again we were caught by surprise in terms of the amount of hours that were being flown. We were surprised at the scope of the work that was required on some of these, but we will catch up. As far as does this give an entrée to GE to build the F-136 engine, I can’t answer that question completely. I would tell you, though, that is a multi-billion dollar, multi-year effort to bring that engine back in line, and I think again given the cost challenges on the program, it seems unlikely that any of the services are going to spend that kind of money for an extra engine, when in fact our engine is actually performing quite well in service and meeting the reliability targets, meeting the fuel burn targets. The issue with the F-35 is not capability, it’s sustainment cost, and that is the other thing that we’ve committed to work with the JPO on, is how do we reduce, working with Lockheed, the sustainment cost because that will ultimately be the bigger cost than the initial procurement. Ron Epstein: Great, thanks guys. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Good morning guys, thank you. Maybe I’ll ask one on Collins. Decrementals are still in the 40% range. What are the moving pieces of that, and how do we think about the trajectory of margin improvement in that business, just given commercial OE start-stops on 787 and the Max? Neil Mitchill: Thanks Sheila, I’ll take that one. You saw the decrementals today - 47% at Collins, slightly better than what we were seeing last year, so that’s good. The cost containment actions that we’ve implemented are taking hold and continuing. As you think about the rest of the year, we continue to see the incrementals being very strong, probably in the 75% range if you’d average Q2 to Q4, but as you look at Q2, they should be in excess of 100% because you’ll recall that last year, Q2 was our deepest quarter. I’m happy with what the team’s doing there in terms of maintaining that cost control around E&D, SG&A in the factories. They took some difficult steps last year, as you know, and as we started the year, the Collins team has done a nice job of containing the growth in those costs. We will see a little bit of that come back in the second half of the year as Collins as we reinstate merits and furloughs are reduced and volume picks up, but it should be a really good story for the back three quarters of the year. Sheila Kahyaoglu: Neil, can you just comment on what’s going on with the Max and the ’87, what kind of rates you expect for the year? Neil Mitchill: Sure, so starting with the 787, we are aligned with the Boeing production schedule, so you can think about that being around five ship sets per month. On 737, also aligned with Boeing. I think they’re out there with 161 deliveries expected for the year. As we’ve talked about, Sheila, we have produced and delivered a fair amount of that, a third to a half of that, so the uptick in the 737 OE deliveries will start in the back half of the year. Sheila Kahyaoglu: Thank you. Operator: Your next question comes from the line of Seth Seifman with JP Morgan. Seth Seifman: Thanks very much, good morning. Maybe just to follow up on Sheila’s last question, the guidance for Collins would seem to imply kind of this continuation of the mid-7s margin that we saw in the first quarter, but there’s potential for an era recovery and continued efforts on efficiencies, and so why wouldn’t we see that margin expand off of that level as we move through the year? Neil Mitchill: Yes, thanks Seth, I’ll take that. You’re right - as you think about the guide for the rest of the year for Collins, particularly given some of the strength we saw here in the first quarter, those margins are contained in that range; however, I will say we’re being really smart about the timing of when we spend our E&D and when we reinstate some of the discretionary spending. Those will be natural offsets to what we expect to see in terms of aftermarket growth, but as that aftermarket growth comes, I would expect if it’s better than our plan, then you’ll see it drop through. Seth Seifman: Okay, and then just on that, I think you mentioned the sequential aftermarket growth in the quarter, 11%. Can you talk about what pieces of the aftermarket are showing the most strength right now and where you expect that at Collins for the remainder of the year? Neil Mitchill: Sure, yes. It’s coming from the two places you’d expect it - parts and repair, and mods and upgrades. Provisioning is lagging a little bit, but again that tracks more closely to the commercial OE deliveries, so I’m not surprised to see that. But we are seeing, I’ll call it cautiously encouraging signs as we exited March and started April on the repair intake in particular. Seth Seifman: Great, thanks very much. Operator: Your next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Hi, good morning everybody. Neil, could you just add a little more color to that last question there, just with all of these questions about how the guidance implies some flattish things through the year despite some signposts for improvement, with the aftermarket being the shorter cycle lever? How did you tackle how to decide what to include for the aerospace aftermarket, given the signposts are positive but it is still uncertain? Then could you also tackle what happened with your pension cash flow inputs? It looks like those changed less than maybe we thought, based on how the inputs were revised there. Neil Mitchill: Sure. Let me try to build upon the aftermarket. As I think about the year and we think about the recent IOTA data on RPMs, January and February were a little bit of a slow start. That definitely picked up in March. When I think about the change in the RPM forecast that we and the industry are looking at today, I think we’re pretty well aligned. It looks a little bit different today than it did three months ago. Clearly the domestic routes, U.S. and China in particular, are much stronger, so that’s helping us; but on the international side, it’s a little slower than we thought. On the ASK or ASM side, the available seat miles, those are tracking pretty consistently with what we saw in January, or thought we would see in January. I think the thinking that we’ve had as we look at the rest of the year, and there’s still a long way to go, is that we really need to see those ASMs and corresponding RPMs increase here in the second quarter, and we’re thinking about a 40% sequential growth in RPMs from 1Q21 to Q2 and then again Q2 to Q3, and then corresponding on the ASM side think about 25% to 30% sequential growth between Q1 and Q2, and Q2 and Q3. If we see that kind of growth, then we will likely see a stronger second half, but I think at this point it’s just too early to call that. That’s how I’m thinking about that a little bit more Shifting to-- Noah Poponak: If I could just interject there really quickly, just to make sure I have it correctly, your guidance does not imply those types of sequential moves, or really close, so am I hearing you correctly that the signposts are saying that could be what happens, but just given how much uncertainty there still is with the virus and the vaccine rollout and restrictions to travel, you’re feeling the need to keep the guidance fairly conservative in case things are more volatile than that? Greg Hayes: Yes, I think you said that exactly correctly, Noah. The fact is there’s still a lot that has to go right in the back half of the year, in these next eight months of the year, so while we’re optimistic based upon the vaccine rollout here and what we’ve seen in China, there is still a tremendous--I mean, keep in mind 40% of Collins’ aftermarket is wide body, and that market is down significantly and it’s not recovering nearly as fast as what we thought it was going to. So domestic markets better, international markets worse, overall though still confident in the full year guidance, and to Neil’s point, if the recovery happens faster, if the vaccine rollout and we start to see travel to Europe, for instance, in the summer season start to improve, these numbers could be better and you’ll see that in the bottom line. Again, we debated--you know, there could be upside on the top line and bottom line, but it’s April, and so when we see you guys in May, we’ll talk about it again. You’ll have a chance to talk to Steve Timm and to Chris Calio to see what they’re seeing in the marketplace, and then we’ll have a better view obviously by the end of the second quarter. Right now, we’re optimistic but still cautious. Noah Poponak: Sensible, okay. Neil Mitchill: Yes, and let me take the pension question too. Thanks for bringing it up. Yes, we did put out some new numbers there. As you know, the relief bill that was passed reduced pension funding. We currently don’t see the need to do any domestic funding in the near term as a result of that bill. You’ll recall that we pre-funded $800 million in 2020 that would have been our 2021 contribution, so there’s nothing in ’21 that changed as a result of the bill. However, looking forward we do get a little bit of improvement, so we’ll have to fund a little bit less into our pension plans. We’ll get a little bit less on the CAS recovery - it’s about $75 million next year and, I think, $50 million in 2023, so good news. The last thing I’ll add is we got a little bit of a P&L benefit here in Q1 as we’ve rolled this lower CAS cost into our forward pricing. Probably about 70 basis points of margin improvement at the RMD segment is where it really showed up. Going forward for the rest of the year, I don’t expect to see much more of that, and we’ve rolled that into our forward pricing. Noah Poponak: How far into the future did it take down the domestic funding? Neil Mitchill: It’s pretty far out. I would say for the next three to five years right now, and of course that depends on a lot of other assumptions that could change. But all things equal, for the next several years at least. Noah Poponak: Okay, thank you. Operator: Your next question comes from Myles Walton with UBS. Myles Walton: Thanks, good morning. I was wondering if I could pick up where we left off on RMD - it outperformed on margins, and Neil, thanks for the clarity on the pension contribution there, but still I think it was running hot, and obviously no change to the full year. Then maybe talk about the bookings trends there, which obviously look lighter, and when you think that could turn around and give more confidence to at least stability in the segment from a revenue perspective run rate. Neil Mitchill: Sure, no problem. Yes, as you saw, 13.1% RMD margins in the quarter, we were very happy with that, as I mentioned just a minute ago. Think about 70 basis points of that as a pension tailwind that won’t repeat. We also had about 40 basis points, I’d say, of international mix, some acceleration of award timing that came through with the CFR liquidation. That helped RMD here in the first quarter. If you kind of adjust for those two items, you’ll see continued margin progression, again as the productivity improves through the year, so we’re still seeing that margin growth that we would expect absent those couple of items. Myles Walton: And I’m sorry, bookings trends? Neil Mitchill: The bookings trends, yes. You know, listen - a year ago, and in the past 18 months RMS has had some significant multi-year buys, so as we burned down the backlog there, our book to bill is a little bit lower. But later this year, we do expect next generation Interceptor - we talked about that, that will be over a billion dollar booking that we’ll book here in the second quarter, LRSO and some other international Patriot awards that are forthcoming later in the year. So all in all, I still expect on a full year basis a book to bill of about 1.0 for RMD and RIS, for that matter. Myles Walton: Okay, all right. Thank you. Operator: Your next question comes from the line of Peter Arment with Baird. Peter Arment: Hey Greg, good sequential improvement from Pratt & Whitney on the large engine inductions. How are you thinking about, at least planning or visibility wise in the second half or at least as we move forward on the recovery, and then also maybe you could just highlight how Pratt Canada is doing, just given that we’re seeing a resurgence in biz jet flying activity. Thanks. Greg Hayes: Yes Peter, so if you think about engine inductions, Vs, I think we had about 118 Vs into the shop in the first quarter, which is exactly on plan, and we expect that will accelerate, we think, throughout the year as domestic travel recovers. Right now, only about 60% of the V fleet is flying - again, it will come back, and compare that to the GTF powered fleet, which is in the high 80s. So again, there is a little bit of a lag in demand, but we fully expect we’re going to see a big sequential--or a sequential improvement. We’re not going to get back to 1,000 engines this year, probably not for two more years on the V, but we’re clearly going to trend that way as people need more lift in these domestic markets. That’s actually very encouraging. As far as the rest of the aftermarket, talking about Pratt Canada, again good traction in their aftermarket. We’re seeing biz jet flying hours are up, as you would imagine, significantly, and that’s translating into some higher aftermarket. Keep in mind most of the engines that we have out there are on a power-by-the-hour arrangement, so we don’t actually recognize the revenue or the cost until we see those engines come back. So flight hours are up, aftermarket is up, but it’s not as much as you might think just because of the nature of the contracts. The one area at Pratt Canada that continues to be a challenge is in the regional marketplace - you know, the PW100, the PW150 for regional transport. That market has been slower to recover. It’s again something we expect to see next year, but certainly not a big uptick this year. Biz jet deliveries, engines are very solid, helicopter engine deliveries solid. It’s really just the regionals that are the challenge right now for Pratt Canada. Peter Arment: Appreciate the color. Neil Mitchill: Peter, it’s Neil. Just to go back on the Pratt shop visits, we still expect Q2 to Q4 shop visit growth in the 25% to 30% range, so all that’s holding, as Greg mentioned - you know, good start to the first quarter, and then we’ll see that back half growth. The other point I would throw out there is we’re watching Europe obviously, but the majority of that V fleet and our planning around those shop visits, I’d say 80% or more, 85% or more is not in the Europe region, so feel pretty good about that outlook. Peter Arment: Appreciate those comments, thanks Neil. Operator: Your next question comes from the line of David Strauss with Barclays. David Strauss: Thanks, good morning. I think you mentioned that the Collins aftermarket was up 11% sequentially. I would imagine January and February weren’t very good. Can you talk about what you saw in March in terms of how quickly the airlines can turn it back on, and then maybe also what you’re seeing in April? Greg Hayes: David, I don’t know that we want to get into month by month compares. I would say that directionally, that is absolutely correct. January and February were a little scary because, again, we saw an uptick in China in the virus and the U.S. was going through the last wave, and so air traffic was not picking up as fast as what we had expected it to. That all turned around in March. With the vaccine rollout, with China getting the pandemic under control, things got remarkably better, and what surprised us a little bit was typically when we see a recovery in RPMs, it’s usually three to six months before we see a recovery in demand for parts and repair, but in this case, because you’ve got so many parked aircraft out there - think about 11,000 out of 30,000 around the world are parked today, and yet demand is coming back very quickly in the U.S. and in China. The airlines are actually being proactive in getting the aircraft ready for service in the summer selling season, and that’s really what drove March, what’s driving April, and I think which will benefit second quarter as the airlines are not waiting to see the RPMs. They see it in their advanced bookings and they know they need the lift. This is a very different kind of recovery than what we have seen in the past. David Strauss: Okay, and I wanted to ask about the legacy Raytheon businesses and the margin expectation there. Those businesses were around 13% on average blended together pre the accounting adjustments and all of that. Is there anything structurally in terms of anything different about how we should think about where those margins can get to as you’re able to start booking EACs again? Neil Mitchill: Yes, let me give you a couple of thoughts. First of all, we’ve got to keep in mind that as we implement all these synergies, which are great, they do come with a give-back to our customer, which is great because it also makes us more competitive, so that’s a factor that you’ve got to think about in the margins. But both those businesses are laser focused on driving productivity and cost reduction throughout their businesses. We do see the opportunity for margin expansion. It’s going to be a great question for Wes and Roy at our upcoming investor day in May, where they’ll talk a little bit more about that. We’ve talked about the EAC reset. We do expect that to be--that issue to be largely behind us as we exit the year, so you could see a little bit more margin expansion throughout this year. But these are great businesses as we get into longer term production contracts. On the RMD side in particular, you’ll see margin expansion there, but you do have a replenishing of some of the programs, so we’ve had the Patriot missile program, very good program for us that will get replaced with the LTAMDS in the future, so there will be a little bit of a mix shift as the margin sort of transitions between those early LRIP contracts when you get into late ’23 and ’24, and we get out of the more mature programs that we’ve been in today. A lot of potential there. David Strauss: All right, thanks very much, Neil and Greg. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard : Thanks very much, good morning. I just wanted to follow up on Peter’s question about Pratt & Whitney and the other side of the engine portfolio there. I was wondering if you could tell us what you’ve been seeing on some of the older aircraft variants, engine variants that are out there and how freight has perhaps been helping those older aircraft out. Thank you. Greg Hayes: Yes, so if you think about the--so the freighters, if you think about Pratt’s installed base of 11,000-plus engines or so, about 10% of that is freighters. Those were old PW4000s, those are the 94-inch 767s and 747s. That has actually been a pleasant surprise, I would tell you, because freighter traffic, as everybody knows, is up significantly year over year, given the push of ecommerce and global supply chain. As we think about the aftermarket for Pratt, it’s not all bad news. Freighter traffic is good. At the same time, we’re starting to see some retirements of some of the older engines out there, not a significant number this year but pretty much in line with what we had expected, especially I think on the 112-inch - that’s the 777. We saw JAL retiring their fleet - not a surprise. It’s 12 months before we thought they were going to retire it, but that will be putting those aircraft down, but those engines will still end up in service someplace else, probably in a freighter configuration. So again, the older stuff is still out there, it’s still a meaningful piece of the aftermarket. I think it’s about 20-- Neil Mitchill: About 25%, yes, so it’s still very significant and, frankly, that cargo traffic that you all know is considerably higher than it was even pre-pandemic has helped the shop visits at Pratt in ’21. Robert Stallard: And a quick follow-up, if I may, this may be a tough question, but how sustainable do you think this freight demand is likely to be? Greg Hayes: Look, as I look at how sustainable is ecommerce and this trend towards global supply chains, I think this is here to stay. The fact is global supply chains are stretched thin today, and freighters are the most efficient way to get parts from Point A to Point B, so I think this is not just a temporary phenomenon. Robert Stallard: That’s great, thanks Greg. Neil Mitchill: Deborah, we’ll take one more question, please. Thank you. Operator: Your final question comes from the line of Cai Von Rumohr with Cowen. Cai Von Rumohr: Yes, thanks so much. At our conference in February, Toby talked of 15% to 30% growth in commercial aftermarket at Collins over Q2 to Q4. That kind of seems like it fits with your full year guide, but it implies that commercial aftermarket moves up from the first quarter by something like $250 million, if there’s an orderly build. Could you give us some more color on maybe the margin headwinds we look at, because you had this huge profit gain at Collins on basically lower volume sequentially from Q4 to Q1, and as Seth brought out, your guide for the rest of the year assumes basically not much margin improvement at all sequentially, and yet you should have very strong growth in your more lucrative part of your business. Neil Mitchill: Thanks Cai. Just a couple thoughts here. As I think about the sequential growth in commercial aftermarket, Collins commercial aftermarket for the rest of the year, it’s a little bit lower than what we talked about in the first quarter, and that’s because we’ve de-risked that a bit by the performance we’ve seen. Think about 5% in Q1 to Q2, maybe 10% Q2 to Q3, and another 5% or 8% in Q3 to Q4 in terms of growth. In terms of thinking about the strength that you saw in the first quarter, a lot of really good work on the cost containment, E&D and SG&A combined about $60 million of improvement, and that will come back because the team is phasing that investment during the year because we’re trying to be very prudent about the discretionary element of our spending until we see the recovery take a strong hold. That’s what I can share with you there. Appreciate the question. Cai Von Rumohr: Thanks so much. Neil Mitchill: You bet. Operator: I would now like to turn the conference back over to Mr. Hayes for closing remarks. Greg Hayes: Okay, thank you everyone for listening in today. I know it’s a busy earnings day out there, but appreciate everybody’s time. Jennifer and Neil and the whole IR team will be available all day today to answer your questions, and we look forward to seeing you or talking to you on May 18. Take care. Bye bye. Operator: This does conclude today’s conference call. Thank you for participating. You may now disconnect your lines.