TXT - Textron Inc.

Operator: Good morning, ladies and gentlemen, and welcome to the Textron Third Quarter 2025 Earnings Release. [Operator Instructions] I would now like to turn the conference over to Scott Hegstrom. Please go ahead, sir. Scott Hegstrom: Thanks, Rob, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.6 billion, up 5% or $175 million from last year's third quarter. Segment profit in the quarter was $357 million, up 26% or $73 million from the third quarter of 2024. Adjusted income from continuing operations was $1.55 per share compared to $1.40 per share in last year's third quarter. Manufacturing cash flow before pension contributions totaled $281 million in the quarter compared to $147 million in last year's third quarter. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Scott. Good morning, everybody. Let me just start with yesterday's announcement. I'm sure you've all read by now that yesterday, we elected Lisa Atherton to become our new President and CEO, effective at the beginning of January. At that point in time, I'll transition to be the Executive Chair. This is the result of a long, thorough process that we worked with on the Board. I think Lisa, who's been with our company for about 18 years is an outstanding leader. She's had a number of really important roles in the company over the years. She was the President and CEO of our Textron Systems business for about 5 years. Most recently, obviously, she's the President and CEO of Bell, where she's been very involved in both the capture, the win and now the execution of the ramp on MV-75. She's a fabulous leader. She knows the team. She's surrounded by a great team at the business level across the company. So we're proud of the fact that we had a great internal promotion, and I think she'll just do a fabulous job leading the company into the future. So with that, let me go ahead and talk about the quarter. Overall, revenue was higher, driven by strong growth across our aerospace and defense businesses. Aviation had higher segment revenues and profit compared to the third quarter of last year. We delivered 42 jets and 39 commercial turboprops compared to 41 jets and 25 commercial turboprops in last year's third quarter. Textron Aviation's fleet utilization remained strong in the quarter, contributing to an aftermarket revenue growth of 5% as compared to last year's third quarter. Aviation backlog ended the third quarter at $7.7 billion as demand remains strong. Earlier this month, Textron Aviation completed the certification of the CJ3 Gen2 and autothrottles on the M2 Gen2. Also this month, the Citation Ascend made a debut as it landed in Las Vegas for the NBAA exhibition. We are nearing completion of the certification process and continue to expect deliveries this quarter. During the quarter, the Latitude received FAA certification for new features of the Garmin 5000 avionics suite. These features include Synthetic Vision Guidance Systems and for improved approach capabilities down to 150 feet and a new taxiway routing feature. We continue to implement Starlink high-speed Internet connectivity onto our aircraft. With the recent announcement of the Latitude and Longitude supplemental type certifications, Starlink is now available on 14 platforms across Aviation's product portfolio. On the defense side, Aviation announced a partnership with Leonardo to launch the Beechcraft M-346N as a solution for the United States Navy Undergraduate Jet Training System competition. Throughout the quarter, Aviation participated in a nationwide demo tour to highlight the capabilities of this aircraft. At Bell, increased revenues were driven by higher military volume, reflecting the continued ramp and acceleration of the MV-75 program. In the quarter, Bell exceeded their 90% engineering release milestone, enabling continued fabrication and procurement activity for the prototype aircraft. Fabrication and assembly work on the program is continuing across numerous sites, including wing assembly at our Amarillo, Texas site, fuselage assembly at our Wichita, Kansas site, in addition to ongoing fabrication of critical rotor and drive system components in our Fort Worth operations. On the commercial side of Bell, we delivered 30 helicopters, down from 44 in last year's third quarter. Bell continues to see strong demand across its commercial product portfolio. Bell announced a purchase agreement with Global Medical Response for 7 429s and an option for 8 additional helicopters with deliveries expected to begin in 2026. Moving to Systems. Revenues were up as compared to last year. During the quarter, Systems received new contract awards for several programs, leading to an increase in backlog of about $1 billion in the quarter. These awards included ATAC awards for both the United States Navy and the United States Marine Corps, a new contract award for the U.S. Army to provide 65 mobile strike force vehicles in support of the Ukraine Security Systems Initiative and increased quantities for the Ship-to-Shore Connector program. In the weapons business, Systems completed delivery of the first production lot of XM204 anti-vehicle terrain shaping systems to the U.S. Army in support of operations in Europe. Moving to Industrial. We saw lower revenues, reflecting the divestiture of the Powersports business. At Aviation, we continue to make progress on several of our core development efforts. The team completed the Hover flight test envelope for the Nuuva V300 and set the stage for Air Vehicle 2 to enter the flight test program. As disclosed in our 8-K filing, Textron will be eliminating the Textron Aviation segment as a separate reporting segment, realigning the eAviation business activities across Textron Aviation and Textron Systems to leverage our existing sales and business development capabilities. This change will be effective at the beginning of fiscal year 2026. With that, I'll turn the call over to David. David Rosenberg: Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were up 10% or $138 million from the third quarter of 2024, reflecting higher aircraft revenues of $116 million and higher aftermarket parts and service revenues of $22 million. The increase in aircraft revenues were largely due to higher volume mix, which included higher Citation jet and commercial turboprop volume, partially offset by lower defense volume. Segment profit was $179 million in the third quarter, up 40% or $51 million from a year ago, largely due to higher volume and mix. Backlog in the segment ended the quarter at $7.7 billion. Moving to Bell. Revenues were $1 billion, up 10% or $97 million from the third quarter of 2024. The revenue increase was driven by higher military revenues of $128 million, primarily due to higher volume from the U.S. Army's MV-75 program, partially offset by lower commercial volume of $31 million. Segment profit of $92 million was down $6 million from last year's third quarter. Backlog in the segment ended the quarter at $8.2 billion, an increase of $1.3 billion from the prior quarter, primarily reflecting the award for the prototype testing and evaluation phase of the MV-75 program. At Textron Systems, revenues were $307 million, up 2% or $6 million from last year's third quarter, which included higher volume on the Ship-to-Shore Connector program. Segment profit of $52 million was up $13 million compared with the third quarter of 2024, largely due to a gain resulting from the early termination of a vendor contract. Backlog in the segment ended the quarter at $3.2 billion, an increase of $980 million from the prior quarter, reflecting new contract awards for the Ship-to-Shore Connector land vehicles in the adversary air business. Industrial revenues were $761 million, down $79 million from last year's third quarter, driven by Textron Specialized Vehicles. This reflects $88 million in lower revenues related to the divestiture of the Powersports business. Segment profit of $31 million was down $1 million from the third quarter of 2024. Textron eAviation segment revenues were $5 million in the third quarter of 2025 as compared to $6 million in last year's third quarter, and segment loss was $15 million as compared with a segment loss of $18 million in the third quarter of 2024. Finance segment revenues were $26 million and profit was $18 million in the third quarter of 2025 as compared to segment revenues of $12 million and profit of $5 million in the third quarter of 2024. The increase in revenues and segment profit was largely due to gains on the disposition of noncaptive assets. Moving below segment profit. Corporate expense were $26 million. Net interest expense for the manufacturing group was $26 million. LIFO inventory provision was $48 million. Intangible asset amortization was $8 million and the non-service components of pension and postretirement income were $67 million. As expected, our adjusted effective tax rate for the third quarter of 2025 was 25.5%, largely reflecting the impact of the One Big Beautiful Bill Act. We now expect our full year adjusted effective tax rate to be approximately 21%. During the quarter, we repurchased approximately 2.6 million shares, returning $206 million in cash to shareholders. Year-to-date, we have repurchased approximately 8.4 million shares, returning $635 million to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in the range of $6 to $6.20 and maintaining our expected full year manufacturing cash flow before pension contributions to be in the range of $900 million to $1 billion. That concludes our prepared remarks. So operator, we can open the line for questions. Operator: [Operator Instructions] And your first question today comes from the line of Peter Arment from Baird. Peter Arment: Congratulations, Scott. I appreciate all the help over the years. On the MV-75, could you guys give us -- there was an announcement by the Army here recently regarding accelerating the fielding of the Version 2. Just how that would impact any the cost profile? Or does it change anything? Scott Donnelly: It won't change anything in the near term, Peter. I mean, obviously, part of the strategy on the program, which has been there all along was to start with a very basic aircraft and focus on the critical parameters around speed and range and basic aerostructure. But as you know, part of the incorporation of MOSA in terms of the architecture of this aircraft allows you to do that and then build out variants and derivatives and capabilities in different variants going forward. So our focus, obviously, right now is very much around the acceleration, getting the first prototype aircraft going. Those will be the first variant. So -- but there's already a lot of work clearly going on in the Army around what future capabilities they'll want to put on the aircraft, but that's enabled by the MOSA architecture. So it doesn't affect or impact the work that's going on around the basic aircraft today. Peter Arment: That's helpful. And then just a quick one on -- just on Aviation, you talked about the demand remains strong. Just maybe any highlights you would call out just regarding whether it's regionally or just in general on the biz jet market. Scott Donnelly: It's really across the whole portfolio, Peter. I mean we continue to see strong retail demand. People are flying. The end market industry remains robust, I would say, everywhere that we see it. The performance of the business is improving, obviously, as we talked about every quarter, improving margins. We had a lot of certification activity in the quarter. We would have originally planned probably to get the M2, the CJ3 and the Ascend in Q3. It's turned out. Of course, we now have the M2 and the CJ3, but those happened right at the beginning of Q4. And Ascend, we should have wrapped up here by the end of the month. The FAA, despite the shutdown is supporting us in that effort, which is great. So I think the market is strong. Our product portfolio is in a good place. So we feel pretty good about where things are. Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: Congratulations, Scott, on a great run and promoting both Dave and Lisa internally. I think that says a lot. Maybe if I could follow up on the MV-75 question, if that's okay, for Peter. Can you provide additional color on like where -- what's the update on the program? You've completed 215 flight hours. I think you're scheduled to deliver 6 test articles over the next 1.5 years. What happens from there with the Army? And how do we think about a contract being signed on? Scott Donnelly: Sure. So I mean, the current program, it's -- Sheila, it's a good question. I think there are some misunderstandings about this program and sort of where it is and what's going on. I've heard a lot of people said, hey, is this going to be one of these programs as we've seen with a lot of defense contractors around these big fixed price programs. We're familiar with those. We had that, as you know, on Ship-to-Shore Connector. It's a healthy program today, but went through a very difficult phase given the nature of the fixed price development and production at the beginning. As you know, we don't have that. This is a very large program, obviously. It's mostly cost-plus development. There are some fixed price elements. We've already put the fixed price LUT aircraft into our program estimates to complete. We will, at some point, add the LRIP 8 once that is exercised by the government. But I think that the program as it's laid out today covers all of that development, which is largely cost plus. It does have LUT as a fixed price. It does have LRIP as a fixed price. And that's kind of where that -- where the current program stops. So the discussions around acceleration are really bringing forward that LRIP. We collectively with the Army, believe this is something that we can do with low risk. That's in part by, as you referenced, the fact that we flew 200 and some 300 hours on the V-280. The team is already building a lot of the key components and fabrications, getting ready to build the first prototype test aircraft. There will be 6 of those and then the 2 LUTs. So the risk of bringing that LRIP in rather than having a big gap is pretty minimal. People need to keep in mind that, that first LRIP aircraft is really sort of serial # 10, if you count the initial V-280 plus the 6 EMDs, which are cost plus and then those first 2 LUTs that are fixed price. So I think the team is doing a great job on executing. Obviously, we work very, very closely with the Army on the acceleration process. It's going very well. We're building wings. We're building fuselages. We're building gearboxes. It's all going quite well. And again, I think there is a little bit of a misconception around how this works. It is a big performance obligation. We will -- as you guys saw last year, when we did the LUTs and added those to the mix, we took our booking rate down, and that will result in a [ cume catch ]. It did result in a cume catch that was a bad guy. On the other hand, this quarter, they exercised one of the large cleanse for the cost-plus side. We actually increased our booking rate and took a modest cume catch good guy. So this is something to expect through the course of the program. But unlike these big fixed-price development, fixed-price production programs, we certainly don't see this thing entering into lost territory. It will continue to book at a low margin, which we've said from the beginning. But I think we're, again, in a pretty good place, and it's a program, I think, that's executing well and obviously is hugely important to the future of the company. Operator: Your next question comes from the line of Gavin Parsons from UBS. João Santos: This is João Santos on behalf of Gavin Parsons. You have talked before about improving Aviation profitability. What is the long-term margin target that you are aiming for? And what are the main levers to get there? Is it volume, pricing or more of mix? Scott Donnelly: Well, I mean, obviously, these dynamics are different in each one of the businesses. But generally speaking, across all of our product lines, we have good gross margins. So the biggest lever is around volume and what that does in terms of conversion to the bottom line in terms of performance. So that's -- most of the investments that we make around product are around making sure that we have products that have high demand and can command good volume and obviously, solid pricing, which, again, we've seen that in the last number of years where we've had very positive price feedback as well. João Santos: Great. And then in Aviation bookings have been fairly steady each quarter this year, even through the 2Q tariff uncertainty. Do you think long lead times are holding back new orders? And if production ramps, could that actually drive bookings higher? Scott Donnelly: Well, look, it's -- there is some connection between news. There's no doubt if you get out too far out in time line that it's difficult for people to make that commitment. But as you said, look, I think that the market demand remains strong. It has been pretty steady. We've guided a 1:1 book-to-bill through the course of the year. I still feel good about that. And certainly, we do have plans where you'll see incremental volume in 2026 as opposed to 2025. So we're not obviously quite ready to guide 2026 here, but we certainly expect, as manufacturing continues to ramp, we will see additional output in terms of the number of aircraft. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard: Congratulations, Scott, on the move up. But my first question is actually in relation to that and how you and Lisa expect to divide the role going forward because you will be Executive Chairman. Scott Donnelly: Sure, Robert. Look, I mean, this is, I think, a fairly standard transition in our business. I've been working with Lisa for a very long time in her capacity and key program jobs. She worked for me directly for the last 8 years running the Systems business and then the Bell business. So I want to be really clear, she becomes the President and CEO. She's running the company. That's -- and she's ready to do that, by the way. So I'll be there to help with some of the processes that we just haven't gone through around regulatory stuff and closing out the year and things like that. But I fully expect she's ready to run the company, and she'll start doing that on January 4, and I'll be there to help and do whatever it is that she needs me to do and obviously run the Board. But I think it will be a normal transition. I expect it will be very, very smooth. Again, we've been working together for a very long time. So I'll be around, but no one should have any questions, she's going to be running the company. Robert Stallard: Okay. And then as a follow-up on Aviation, we've seen some recent signs of biz jet activity actually picking up in terms of year-on-year growth. Are you starting to see this flow through in terms of your aftermarket activity? Scott Donnelly: Yes. We had a good quarter on the aftermarket side. There's no doubt utilization is strong. People are flying, which is a great indicator. Obviously, it's really important in terms of helping to continue to drive growth in the aftermarket side of the business. But I think it also bodes well just for demand for aircraft, which again, we're seeing the retail, the level of interest, inquiries, orders, bookings remain strong. So I think the industry right now probably is as healthy as we've ever seen it. Operator: Your next question comes from the line of Myles Walton from Wolfe Research. Myles Walton: Scott, on the retirement or move to Executive Chairman. You're not retired yet. Work to do. On the Aviation side, can you comment on the supply chain and how that's coming along and whether or not that's an impediment to hitting the $6.1 billion rev placeholder within the forecast? Scott Donnelly: No, look, I mean, there are still supply chain issues as we've kind of talked about, it's not as many part numbers, for instance, as it used to be, but there are still some critical suppliers that are struggling. And yes, it does impact us on different models at different times. It continues to create a little more problem in just some production efficiencies and flow doing out-of-station work. Again, it's not as bad as it was. And so we are seeing improvements in that area. But there's some critical things that are sort of a little bit of hand to mouth and that we keep a close eye on with a relatively small number of suppliers, but they're critical suppliers. So again, overall, it's improved, but it's one that we -- I mean the team works this stuff every day. There are still some problem children out there, and that's been the sort of the nature of where we are. But I don't believe -- just to be clear, I think everything we look at today, getting to that $6.1 billion, we clearly feel good about our path to get there. Myles Walton: Okay. Great. And then just a follow-up on Systems, great bookings. Is this the point of inflection for growth after a long time of relatively flat revenue? Scott Donnelly: Yes. Look, I think so. The bookings were very strong. You guys know we started the year with a bit of a challenge with things like RCV and FTUAS getting restructured and changed. I do still think there's opportunities there in our participation in those kinds of programs. There's a lot of interest in a lot of the technology we developed around FTUAS. And so that stuff will play out. But for sure, what you're seeing, despite not getting those bookings, the growth in the rest of the business has kind of overcome that. Our ATAC business is just doing great. Those guys are performing really, really well. They've won a ton of new programs. Ship-to-Shore continues to grow. And as I said earlier, with Sheila, the program is healthy. Volumes are there. The team is executing really well. We continue to see growth in the Sentinel program. So I think when you look across that business, despite some of the challenges around a couple of those programs, it's good growth. And absolutely, we feel good about sort of that inflection point you referred to. this business has been executing, performing really, really well for a number of years. The only thing that's lacked, as you guys know, is growth. And I do think we're hitting that inflection point where we'll start to see it growing here as we go forward. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Seth Seifman: Congratulations, Scott. Just wanted to ask, starting off about Aviation, and you just spoke to kind of the revenue. When we think about the margin, it's a pretty significant uptick in profitability in the fourth quarter and kind of what enables that. Scott Donnelly: Yes. I mean, look, I think as we've talked about, Seth, we expected to see a progression as we go through the course of the year. The fourth quarter will be strong on the volume side, which it normally is. I think we -- I mean, there are still challenges, but the team is performing better and better every quarter around getting flow. And largely, we'll see a nice significant bump in volume in the quarter, and that will drive good margin with it. Seth Seifman: Okay. Okay. Excellent. And then maybe one more on MV-75. When we think about the LRIP units and bringing those forward, are there kind of additional contractual provisions that you can get to protect the company from concurrency risk? Scott Donnelly: Well, so the LRIP have always been laid in there. So I don't think there's anything that would change contractually on that. To be honest, we're not that worried about the risk of that. Again, the base configuration of the aircraft is really solid. Obviously, it's a derivative off of what we did on V-280. There are changes, but we know what those are. We are fabricating right now the first of the prototype aircraft. So again, by the time we are building that first LRIP aircraft, we will have built, obviously, the original V-280, but we will have built 8 aircraft, the 6 EMD aircraft and the 2 LUT aircraft. So -- and certainly, there's an enormous amount of ground testing, component level testing, stuff that we already are fabricating and building parts. So I think we feel very good about the things we need to learn, any issues that we run into -- we're going to run into here on these initial EMD aircraft long before we get to where we're building that first LRIP aircraft. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Ronald Epstein: Yes. Maybe just circling back on Systems. How is the unmanned portfolio doing when you look across the -- you've got unmanned land system stuff and Shadow and Aerosonde and some other stuff. We've seen such kind of surging demand for unmanned stuff. Just curious how that's going for you guys? And do you have anything in the pipeline that you're working on developing to kind of expand in that market? Scott Donnelly: So I would say that, Ron, the Aerosonde program is going well, right? You know we went through a bit of a challenge as Afghanistan came out. We had a lot of aircraft that were deployed over there. Those have largely been redeployed to other theaters, other applications, a lot of marine applications. So that business is doing very well. That is where the next significant tranche really was going to be around FTUAS with that program not happening at least in the way it was envisioned. That was a hit. But look, the reality is these brigades need ISR. And so what really changed on FTUAS is that you understandably frustrated over how long it was taking to get stuff out there has basically said, look, you got to take these systems directly to the brigades and they'll drive that demand. So that's what we're doing right now. And that's why I say, while FTUAS didn't happen as a program, I do think that we will see a number of opportunities as we go out and sell that technology directly out to the war fighter. So there's also been some international opportunities. There's things out there with customs and border patrol. So in terms of our core platform today from Aerosonde and then transitioning into what was basically the FTUAS configuration, I believe we're going to start to see some nice growth in there. In terms of new platforms under development, part of what we did with the eAviation segment is that team in Pipistrel has been developing this unmanned cargo aircraft, what we call the Nuuva 300. That's now into flight test. We've already done the flight testing on Article 1. We're about to do the final build-out on Article 2, which has our own flight control fly-by-wire systems and such. And so part of the change here in the segment is that our Textron Systems business, which has always been the developer and sort of leading the business development on Aerosonde and Shadow and those other unmanned platforms, we will basically have responsibility to take that kind of product to market. And so it's the Nuuva unmanned cargo. We also have a nice niche that we've -- Pipistrel has for a long time and in high altitude unmanned sort of long-duration surveillance products. That's a product we already have today. We have some new developments in process there for very long duration aircraft. And again, those will now start to largely go to market through our Textron Systems business, augmenting our strength in unmanned aircraft. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: Scott, congrats on your next chapter. I guess over the years, there's always been discussions and conversations with you about the broader Textron portfolio and if it should all belong together or if there are other ways to unlock shareholder value. At this point, all reporting segments are fairly stable. The balance sheet is very strong and the company generates solid free cash flow. I wanted to check with you to see if this management change also signals a reevaluation of the portfolio once again and how you think about it now? Scott Donnelly: Well, I don't know that we would say that the change is drive that. I do think we are always looking at the portfolio. I think to your point, look, we don't have a burning platform, but would we look at either disposing or acquiring? Of course, we would. So that's a process that has been ongoing for some time. Obviously, we just did the dispositions around the Powersports business earlier this year. That was something we thought we really needed to do and wanted to do to help position the company going forward. But we're -- we continue to look at other opportunities, and I expect we'll continue to do that regardless of the leadership change. Operator: Your next question comes from the line of Doug Harned from Bernstein. Douglas Harned: If you look at the mix of deliveries across business jets, it's been pretty stable over the last 2 years. I mean I would have expected more of a shift toward the Latitude and Longitude, although that might have been an incorrect assumption. Are you seeing demand shifts across your portfolio? Is that -- and is that -- is the mix in there constrained more by where demand is or where your capacity is? Scott Donnelly: Look, it is right now probably more of a capacity issue. I would say in terms of the end market demand, it has been steady, right? The demand or whether it's a Longitude or Latitude, whatever has been pretty stable, these things are often influenced by new products. So I would say, for instance, when we launched the new CJ4 Gen2, we saw a very strong spike in order activity, which kind of puts that lead time well out there because people were pretty excited in that piece of the market about that product. And we've seen the same things with things like the CJ3 Gen2s, certainly the Ascend. So there's -- I would say the end market is stable. Demand is pretty strong across all the pieces of the product portfolio. Usually, you see some of these spikes of order activity demand that can be affected by the launch of new product, of which we've had quite a bit. Douglas Harned: Yes. And then when you look -- you've talked a little bit today about the strength of the demand environment. But if you look back to the beginning of the year and then where you are today, how would you characterize demand mix in terms of corporate versus high net worth individuals? Have you seen any shift there? Because obviously, there's been a lot of -- it's been a very dynamic sort of economic outlook over the last 9 months. Scott Donnelly: Yes. It's actually pretty remarkable despite all of the noise of which there's plenty for sure, we're not seeing it impact that market. We haven't seen any piece or segment or interest that has changed because of what's going on. And I think part of that is the fact that you're out there, whether it's 18 months or 2 years, people are kind of looking beyond what current noise is in the marketplace, because they're not going to take delivery of that new aircraft for 18 months or so. So I think it's had a little bit of a muting effect on that. So -- but yes, remarkably, despite all of the noise that's going around, it's -- the demand is stable. Operator: Ladies and gentlemen, this concludes the Textron Third Quarter 2025 Earnings Call. Thank you for joining us today. You may now disconnect.

Operator: Hello, everyone, and welcome to the Textron Second Quarter 2025 Earnings Call. My name is Emily, and I'll be moderating your call today. [Operator Instructions] I will now hand over to Scott Hegstrom, Vice President of Investor Relations and Treasurer, to begin. Please go ahead. Scott P. Hegstrom: Thanks, Emily, and good morning, everyone. Before we begin, I'd like to mention that we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.7 billion, up 5.4% or $189 million from last year's second quarter. Segment profit in the quarter was $346 million, up $3 million from the second quarter of 2024. Adjusted income from continuing operations was $1.55 per share compared to $1.54 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $336 million in the quarter compared to $320 million in last year's second quarter. With that, I'll turn the call over to Scott. Scott C. Donnelly: Thanks, Scott, and good morning, everyone. Second quarter was a good quarter for Textron with revenue growth in both our commercial aircraft and helicopter businesses as well as in Bell's FLRAA program, which is now known as the MV-75. Aviation had segment revenues of $1.5 billion, up 2.8% from the second quarter of 2024, reflecting higher sales for both aircraft and aftermarket. And the factory operations continue to improve as we ramp production. We delivered 49 jets and 34 commercial turboprops compared to 42 jets and 44 commercial turboprops in last year's second quarter. Aviation continued to see solid demand across all products with backlog ending the quarter at $7.85 billion. In the quarter, Aviation announced a purchase agreement with the customer in Mexico for 4 Citation jets and an option for 8 additional jets with deliveries expected to begin in 2026. Also during the quarter, the SkyCourier hit a number of important milestones, including the first delivery in South America, the first aero-medical order, which is also our first order in Africa and as we marked our fifth anniversary of the first flight. On the new product front, we continue to make progress on certification for the M2 Gen2, CJ3 Gen 2 and the Ascend with deliveries of these aircraft expected to begin in the second half of this year. Bell revenues were up $222 million or 28% compared to last year's second quarter, driven by growth in both the MV-75 program and our commercial helicopter business. On the military side, the U.S. Army announced its intention to accelerate the MV-75 program and also announced that the 101st Airborne will be the first division to operate the MV-75. In the quarter, Bell delivered 2 MV-75 virtual prototypes to the Army which are advanced simulators based on a digital twin of the MV-75. These simulators will be used to support training and development of tactics, techniques and procedures, leveraging the tiltrotor significant performance benefits in advance of fielding aircraft. We continue to have ongoing dialogue with the Army on specifics related to the acceleration of the MV-75 program. This includes acceleration of the development program, pull forward of initial low rate production and rapid fielding of units to the warfighter. That was recently down selected as the sole company for the next phase of DARPA's Speed and Runway Independent Technologies X- Plane program. During this next phase, Bell will design, construct and perform ground testing of an X-Plane demonstrator. On the commercial side of the business, revenues increased $73 million, primarily due to the mix of aircraft sold at Bell, as Bell delivered 32 helicopters in both the second quarter of '25 and '24. During the quarter, Bell received an order for 12 Bell 412EPX's from the Tunisian Air Force with deliveries expected to begin in early 2027. In June, Bell signed a 5-year contract with United Auto Workers for its operations in Fort Worth, Texas. Moving to systems. Revenues in the quarter were slightly lower as compared to last year, while segment profit margin was 12.5%, up 170 basis points. Earlier this month, systems received a $354 million contract modification from the U.S. Navy to add 3 Ship-to-Shore Connector craft. In addition, the Ship-to-Shore Connector program received $300 million through the recently enacted reconciliation bill. During the quarter, the U.S. Army announced approval of Milestone B for the XM30 program and transition the program to the engineering and manufacturing development phase. Also in the second quarter, Systems sold the first TSUNAMI craft to the U.S. Navy. TSUNAMI is an attributable rapidly deployable autonomous unmanned surface vehicle. Moving to Industrial. We saw lower revenues in the quarter compared to last year's second quarter, reflecting the impact of the disposition of Textron Specialized Vehicles power sports business and lower volume. At Kautex, we recently received a Pentatonic award from a leading European automotive OEM for a battery electric vehicle composite lower battery housing unit. This marks the second OEM platform for Pentatonic, and this win secures a major foothold on what is anticipated to become one of the leading global BEV platforms. Segment profit margin was 6.4%, up 180 basis points. Aviation, the Nuuva V300, a long-range large-capacity hybrid- electric VTOL unmanned aircraft continued its flight test program and made its debut at the Paris Air Show in June. With that, I'll turn the call over to David. David Rosenberg: Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were up $42 million from the second quarter of 2024, reflecting higher aircraft revenues of $35 million and higher aftermarket parts and service revenues of $7 million. Segment profit was $180 million in the second quarter, down $15 million from a year ago, primarily due to the mix of aircraft sold and higher warranty costs, partially offset by the favorable impact of manufacturing efficiencies and higher pricing net of inflation. Backlog in the segment ended the quarter at $7.85 billion. Moving to Bell, revenues were $1 billion, up $222 million from the second quarter of 2024. The revenue increase in the quarter was driven by higher military revenues of $149 million, primarily due to higher volume from MV-75 and higher commercial revenues of $73 million, primarily due to the mix of aircraft sold. Segment profit of $80 million was down $2 million from last year's second quarter primarily reflecting higher research and development costs, partially offset by higher volume and mix. Backlog in the segment ended the quarter at $6.9 billion. At Textron Systems, revenues were $321 million, down $2 million from last year's second quarter. Segment profit of $40 million was up $5 million compared with the second quarter of 2024, primarily due to lower selling and administrative expense. Backlog in the segment ended the quarter at $2.2 billion. Industrial revenues were $839 million, down $75 million from last year's second quarter. Largely at Textron Specialized Vehicles, where revenues decreased $66 million reflecting the impact from the disposition of the Powersports business and lower volume primarily in Golf products. Segment profit of $54 million was up $12 million from the second quarter of 2024, primarily reflecting the impact from the disposition of the Powersports business and the benefit of cost reductions from restructuring activities, partially offset by lower volume and mix. Textron eAviation segment revenues were $8 million in the second quarter of 2025 as compared to $9 million in last year's second quarter and segment loss was $16 million as compared with a segment loss of $18 million in the second quarter of 2024. Finance segment revenues were $15 million, and profit was $8 million in the second quarter of 2025 as compared to segment revenues of $12 million and profit of $7 million in the second quarter of 2024. Moving below segment profit. Corporate expenses were $36 million. Net interest expense for the manufacturing group was $26 million. LIFO inventory provision was $38 million and intangible asset amortization was $8 billion. Net special charges were $4 million and the nonservice component of pension and postretirement income were $67 million. Our adjusted effective tax rate for the second quarter of 2025 was 20%. During the quarter, we repurchased approximately 2.9 million shares, returning $214 million in cash to shareholders. Year-to-date, we have repurchased approximately 5.8 million shares, returning $429 million to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in the range of $6 to $6.20. We are increasing our expected full year manufacturing cash flow before pension contributions to be in the range of $900 million to $1 billion, up from our previous range of $800 million to $900 million. This reiterated adjusted EPS outlook and increased cash outlook incorporates the estimated impact associated with recently enacted tax legislation. The One Big Beautiful Bill Act that was signed into law includes several provisions that benefit cash flow and has some elements that impact our adjusted effective tax rate for the year. As a result, we now expect an adjusted effective tax rate in the range of 20% to 21% for the year. Our adjusted EPS outlook of $6 to $6.20 incorporates a higher adjusted effective tax rate. That concludes our prepared remarks. So operator, we can open the line for questions. Operator: [Operator Instructions] Our first question today comes from David Strauss With Barclays. Please go ahead. David Egon Strauss: Scott, I wanted to ask you about the potential acceleration on MV-75. What that could look like, what that could mean for your numbers? And if you could remind us of the contract structure as you move into LRIP. Scott C. Donnelly: Sure. So David, I mean, this is very much a work in process. I would say on the development side, we already have very good visibility around that, I suppose, in agreement with the Army on how to proceed on accelerating EMD. That's partly why you're seeing the increased EMD revenue here in 2025. And certainly, we will see an acceleration of that in 2026 as we try to get that first aircraft completed and turned over and ready for tests. So I think on the EMD front, it's pretty clear. We know what we've got to go do. And both we and the Army are working to execute against that. In terms of the production acceleration, the -- you may recall the LRIP, which was 8 aircraft, which was bid in the initial contract production of that wouldn't have started until really triggering all milestones C. So that was going to reflect probably about an 18 month or so gap between the last of the EMD delivered aircraft and LRIP. We're now pulling that forward. And the intent is to basically be able to smoothly transition from that last EMD aircraft into the first of the LRIP. So that will probably pull in something on the order of 18 months and then we're also working on talking about what does the ramp look like. So it's not just going to be those 8, but what do you think about in terms of the next lot right behind that. And so those discussions are still ongoing with the Army. I think what you're seeing primarily in the FY '26 budget ask is the increased dollars to support that acceleration of EMD, and you would expect to see increase in additional production dollars in the FY '27 budget ask to support what I just talked about an acceleration of that first lot but also lining up the second and the third lots of production. David Egon Strauss: And Dave, could you touch on maybe what some of the offsets were to the higher tax rate to hold the guidance? It seems like Bell is maybe coming in better than you expected? David Rosenberg: So as we sit right now, the biggest offset is the timing of our share repurchase this year has been a little ahead of what we originally planned. So from an average share count perspective, we should be better than what we -- where we started the year at. So that, in essence, gave us the ability to hold the guide with the while at the same time taking this 200 to 300 basis point increase in the effective tax rate. Operator: Our next question comes from Peter Arment with Baird. Peter J. Arment: Scott and Dave, nice results. Scott, could you maybe give us a little -- your thoughts around just kind of the margins at Aviation. I know that you had kind of talked to us about some of the pricing that was going to be lingering from last year flowing through. How do we think about that as we move forward in the second half? Scott C. Donnelly: Sure. Look, I think we're right on track with where we expected to be on Aviation as we guided at the beginning of the year with the recovery kind of coming off of the strike and some of those issues, as you mentioned, pricing of aircraft that moved into this year, we knew we would be a little more margin challenged in the first half than the second half. So I think we're right on track with that. I think the production ramp is going well. King Airs is probably the only one where we've been a little behind. That's a tougher line to get going and picking back up. The good news is I think that's now running well. So we're certainly in line with what we expected, we'll see good jet deliveries in the back half of the year, but also much stronger turboprop deliveries in the back half of the year. So in all those dynamics that we were kind of factoring into our plan are playing out exactly as we expected. So we certainly expect to see nice volume increases here through Q3 and Q4 with that margin step-ups that will put us right on our target for the full year. Peter J. Arment: I appreciate that color, Scott. And just maybe just as a follow-up and staying within Aviation. Just talk about, I guess, the demand environment continue to have very good bookings and just what you're seeing in terms of customer interest in the new models. Scott C. Donnelly: Yes. The demand has been strong. So we're seeing good order flow. I think customers are very excited about the Gen2s of both the M2 and the CJ3 coming out. Ascend also getting close to certification here, and we have a good backlog on that as well. So I think the aircraft portfolio is doing really well in the market. Operator: Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila Karin Kahyaoglu: Maybe let's stick to Aviation, Scott, on that last point. Are you seeing any changes given the tariffs on competitors and yourselves, how are you thinking about tariffs? And what were the higher warranty costs you mentioned for the Aviation margins? Scott C. Donnelly: So we haven't really seen an impact yet on the tariff front. I would say that there are certainly some customers in, let's say, particularly in some Latin American countries that are concerned, but we'll see how that plays out. I guess our view of these things at the moment is to sort of not panic and give a little time to let things settle out. So we'll continue to kind of watch it and see. But we haven't certainly have not yet seen any kind of dramatic impact. And as you know, Sheila, the bulk of our deliveries are U.S., the bulk of our manufacturing is U.S. So I think in the grand scheme of things, while the tariff stuff can create some concerns and some noise, I think we're actually pretty well positioned with our large North American manufacturing base and our largely North American-based delivery. So I think in that respect, we're in pretty good shape. But on the warranty, there's always a few things moving around in there. We have had an issue that we've been dealing with probably for a couple of years that we feel like some of the work we're doing in the shops is coming in a little higher than what we originally expected, and we felt it was appropriate at this point just to sort of true up the reserves on that to make sure we can cover the balance of work that needs to be done there. Sheila Karin Kahyaoglu: Got it. And maybe if I could ask one on Bell margins. They fell below 8% in the quarter. You called out R&D cost. How should we expect that to progress through the remainder of the year? Scott C. Donnelly: Well, look, I mean I do think we saw the -- as we talked about much higher revenue than we originally had in there on the EMD side of FLRAA, which is obviously a fantastic program for us, but a little more margin challenged. So I think we'll see the balance of the year up a little bit from where we are certainly this quarter. To be honest, given the fact that we're going to have probably higher than our revenue guide, largely driven by the EMV piece of FLRAA. We'll have higher revenues, but we'll probably be towards the lower end of the Bell range driven by that. Operator: Our next question comes from Seth Seifman with JPMorgan. Seth Michael Seifman: Wanted to ask about Systems. And I think 2 of the competitions that you've been looking at for decisions this year programs either canceled or under review, but there's maybe some other opportunities emerging that you talked about. So how are you thinking about the systems outlook and the opportunities for growth there? Scott C. Donnelly: Yes, Seth, look, I think the -- obviously, we were surprised by the situation on RCV and FTUAS to see those programs be terminated in both those cases, I don't think it's the end. I mean certainly, the Army is going to continue to invest in robotics, and we will look for ways to participate in those future activities. The same is true on FTUAS, while the program, the FTUAS's itself program was terminated, the Army again, is putting more money into tactical UAS system. So it's going to be acquired in a different way, different competition. And clearly, we will compete for our -- with our products in those opportunities. So it certainly impacted us in terms of what we would have expected timing of those programs, which we kind of had in the win column, but there's other opportunities that we'll pursue in both those spaces. What is happening in the year is that we're seeing nice growth and a number of big wins in other portions of the Systems portfolio that I think will effectively offset the terminations this year of RCV and FTUAS. So there's been a number of things, competitions that are already awarded. Obviously, the Ship-to-Shore Connector program continues to grow. The Sentinel program continues to grow and I think we'll see some nice wins in other pieces of the portfolio as well as we go through the balance of the year. Seth Michael Seifman: And then this was the -- I think this was probably the highest earnings quarter for industrial in a little while. Is there -- do you feel like there's potentially some upside there versus the initial outlook? Scott C. Donnelly: Well, look, it's -- we're probably not revising our guides at the time. But I think the industrial business, as you know, we've done a fair bit on post Powersports, taking cost out of the business and restructuring. This is a year where you have the cyclical low on the Golf side. That's a very -- that's actually a very predictable cycle and totally consistent with our plan. But I think the team is executing well here post Powersports and we're certainly feeling good about being in the range, despite taking the revenue loss on the disposition of the business. Operator: Our next question comes from Robert Stallard with Vertical Research. Robert Alan Stallard: Scott, first of all, on FLRAA, which I should call MV-75. With the acceleration plan, would this require Textron to put in more capital to enable this 18-month acceleration? Scott C. Donnelly: Yes, Robert, I would say sure. I mean we've always had a capital plan that ties in with the production program and ramping that. So certainly, in terms of how we were thinking about the long term, this would accelerate those plans, let's say, on the order of around 18 months. So we've always anticipated that this was coming, but it's a manageable number, and it's something that we factor into our long-range plan. And that's -- that would be a fantastic outcome if we have to spend more capital sooner to ramp this program. Robert Alan Stallard: And secondly, on Aviation, you've seen some of your peers signing up to new big fleet purchases. Is this something you'd be interested in doing more of going forward? Scott C. Donnelly: Look, I think we're only interested in fleet business if it's good business. I mean, our demand continues to be strong. Our retail demand is strong. So we're always happy to look at fleet deals. As you know, we do some fleet deals, but it needs to make economic sense for us to participate in those. In the meantime, we're very happy with our retail business. The demand is there. The backlog is there. So we always look at every opportunity, whether it's a one-off aircraft or a fleet. Operator: Our next question comes from Myles Walton with Wolfe Research. Myles Alexander Walton: Scott, I was wondering, given your experience in the Group 3 UAS market, is there any interest given the attention of the administration and the [ Sec Def ] on the smaller drone market for higher levels of investment at Textron more broadly? Scott C. Donnelly: Well, the Group 3 has obviously been our strong suit. So there are opportunities. There's R&D work going on, looking at some of the smaller classes or frankly, places where we might participate in some of these programs, but nothing that we would announce or specifically comment on at this time, I guess. Myles Alexander Walton: Good enough. And then I guess from a perspective of the 525. Is there any update you can offer on that certification? It does seem like the FAA maybe is moving along with things and maybe there's more adjudication that's being done. Scott C. Donnelly: Well, look, I mean, it's hard for us to comment. I mean, obviously, that's very much an FAA process at this stage of the game. I'd like to think we're in kind of the last stages here and obviously, a lot of documentation going back and forth and trying to get through final test criteria, and we're just going to continue to work that with the FAA. Operator: Our next question comes from Ronald Epstein with Bank of America. Samantha Stiroh: This is Samantha Stiroh on for Ron today. I just wanted to ask about capital deployment. You did about $200 million of share repurchases in the quarter. How are you thinking about that going forward and then M&A opportunities? Scott C. Donnelly: Sure. Look, as we've said, I think our primary focus on capital deployment is opportunistic share buyback. Obviously, that's certainly what we did in the first half of the year, and I would expect we will continue that through the second half of the year. From an acquisition standpoint, if something made sense, I think we have plenty of capacity to be able to do something like that. So in the meantime, the most logical thing for us to do, and I think the best return for our shareholders in terms of where we are is to continue to focus capital in redeployment via share buyback. Operator: Our next question comes from Doug Harned with Bernstein. Douglas Stuart Harned: Going back to demand, you've talked about it, it looks strong. We've heard some of that from others. But when you consider your -- how -- could you describe your discussions with corporate customers? Because on one hand, they've got uncertainty in this environment, this tariff environment on when to make capital investments. On the other hand, you've got bonus depreciation. How do you see these different factors playing into those decisions at your corporate customers? Scott C. Donnelly: I think net of everything is positive. I think the corporate world is healthy right now. Sure, everybody -- obviously depending on companies have a lot of different exposures or not relative to the tariff situation, but the demand, the dialogues are good. flying is very strong, right, which helps to drive our aftermarket. So it's sure appears to us that the corporate world is flying and buying, and managing their fleets as you expect and pretty good times. Douglas Stuart Harned: And then separately at Bell, you had higher R&D in the quarter. Where are you directing that? Is that connected at all to MV25? Or is that on the commercial side? What are you looking at in terms of investment there? Scott C. Donnelly: So MV25 is primarily contracted now, right? So that's all under the EMD phase. The R&D spending, obviously, it looked lighter, I mean, in the quarter. A year ago, that was largely because of the termination of the FLRAA program and sort of the close out of that contract and whatnot. But when you look at and think about the balance of our year, we will have higher R&D spending and the R&D spending on the commercial side is largely focused around the 525 and completing that program. On the military side, it's really focused around the R&D programs that we need to execute to support the development of the high- speed VTOL program. So especially now with having been selected for the DARPA's SPRINT program. So that's sort of -- I would expect R&D to be fairly flat on a quarter-to-quarter, certainly up over last year, again, largely because of the increased spend on R&D associated with the high-speed VTOL program. Operator: Our next question comes from Noah Poponak from Goldman Sachs. Noah Poponak: On MV-75 when you put the pieces together of movement in timing of EMD and LRIP, does total program revenue grow each of the next few years or does it decline at any point in the window as you're shifting from development to LRIP in before you make it to full- rate production? Scott C. Donnelly: Well, we don't know the exact answer to that yet, Noah. I think we have to continue to work on what the production acceleration looks like. EMD clearly is up here in the next couple of years, the pull forward of the LRIP volumes would obviously add to that. So I mean, I guess, I feel fairly confident saying it's going to continue to grow over the next couple of years, but we've got to get that. I mean from an Army budgeting standpoint, this is very much a work in process, right, as they look at their '27, '28 and on program budget. Certainly, what the Secretary and the chief would like to go do when they talk about the volumes and getting things delivered out to the 101st would drive incremental volume here for the next several years. Noah Poponak: And Scott, the industry has had these other examples of programs that fixed the LRIP pricing at the time of the bid where by the time you get to LRIP, there's been cost creep, so your LRIPs are breakeven or loss making. Can you talk about where you see price cost right now on the LRIPs compared to when you bid? Scott C. Donnelly: Well, I'm not sure we go into that level of detail, no. I mean we expect -- and like you know, the 8 LRIP aircraft were bid at a fixed price as part of the original contract. And so you wouldn't expect margins to be very good there. I think part of what you see in our margin rates is pretty conservative assumptions on our part o have the appropriate amount of MR to support those programs. But those haven't been definitized yet. Supplier pricing has been locked in. So I don't have specific numbers for you, but we would expect those and always have expected those to be pretty challenging for those first 8 aircraft. Noah Poponak: And then just last one, I was hoping to ask you about Scott, just how you're thinking about setting supply and deliveries at Cessna for the rest of this year and into next year, just we've had this window with the strike and supply chain. It's a little tricky to sort of have a sense for where you think supply should be, I guess, on a run rate basis from here? Scott C. Donnelly: Yes. Well, look, I mean, obviously, as we got all the way back to the beginning of the year, we certainly have a production plan that has a ramp going through the course of the year. That's been well communicated to all of our suppliers, obviously. And as you know, we're probably -- a lot of our stuff is in that 2-year for some of that long cycle material. So certainly, those suppliers are understanding with where we are on the ramp this year and even out through 2026 as well. So I think supplier communication and recognition of what that supply chain ramp needs to look like is pretty well understood. Not everybody is totally there, obviously, in the supply chain, I would say, is in much better condition than it was going back a couple of years ago, but you still have issues that pop up. And as we always say, it's good not to have too many supplier problems, but every supplier part is an important part, right? So it's I think it's not because of a lack of understanding of what the ramp needs to be. It's execution. And obviously, we work through that every day. Noah Poponak: Should we still be thinking about the 2019, just over 200 units being recovered in the medium term? Scott C. Donnelly: I'm not sure we're prepared to give guidance for 2026 just yet. Operator: Our next question comes from Gautam Khanna with TD Cowen. Gautam J. Khanna: I was wondering if you could elaborate a little bit on commercial helicopter demand, how that's trending? Scott C. Donnelly: I'd say it's strong, actually across all the models, everything from 412s all the way down to the 505s. I think the commercial helicopter business is in good shape. We had strong delivery on a year-over-year basis here in Q1, Q2. Q3, Q4 was much stronger last year. So I think we'll have more comparable comps on a year-over-year basis. But certainly, for the total year, helicopter deliveries are looking good and order activity is very good. So I think that business is in good shape. Gautam J. Khanna: And just stepping back broadly, would you say that you haven't really seen much demand erosion due to tariffs and all the trade policy uncertainty across the portfolio? Or have you seen... Scott C. Donnelly: Not at this point. No, we have not seen evidence of that yet. I'm not saying it can't happen, but I think most customers are sort of -- taking sort of a wait and see with some of these things or just assuming that things are going to get resolved. And again, if you look at a lot of our stuff, particularly the fixed-wing world and business jets, we are largely North American. Anyway, a lot of our international helicopter things end up being either FMS or some foreign military and I think that, that activity, that order rate seems to be continuing despite a lot of the tariff dialogue. Operator: Our next question comes from Kristine Liwag with Morgan Stanley. Kristine T. Liwag: Scott, maybe on tariffs and aviation. I mean tariffs are increasing the cost for your European and Brazilian competitors. As these things shake out and some of the tariffs stick, ultimately, they'll probably see an incremental higher cost for U.S. customers. So when we think about this shaking out in the next few years, do you see this as an opportunity to gain market share? Or is this an opportunity to get more price and also get more margin? Scott C. Donnelly: Well, look, Kristine, I think, again, I think we got to need to give this time and see where all the tariff dialogues settle out. So I'm a little reluctant to think about a year, 2 years, 3 years down the road on these things. But I mean, there are certainly cases where we have foreign competition that just has a lower cost basis and tends to be more aggressive on price. And we kind of hold the line in there and they've tried to be focused on making sure we're running a profitable business and the business can afford to keep reinvesting in product lines, and we'll continue to do that. Does that do long-term tariffs start to play a little more of a normalizing in terms of some of the cost and pricing that we see? And that could be, but it's -- I'd say it's too early in the process to really know the answer to that question. Kristine T. Liwag: So maybe switching gears to eAviation. Earlier this year, you had the Nuuva V300 get its first flight. How has been the customer reception of this aircraft? And are you expecting this to enter into service this year? And should it enter into service this year, what kind of customer milestones or production rate are you thinking about for an aircraft like this? Scott C. Donnelly: So the flight test program continues. So there's a lot of work going on as we continue to fly regularly. It's obviously, we've done a fair bit of hover flying. We do need to go into conversion mode. And look, I think, Kristine, in terms of terms of certifications of aircraft of this class, that's just something I don't see in the near term. I do think we see some interest on some military applications. I mean, given the range and the payload capability of this craft compared to others. I think we could have a real advantage there. And so -- but we're in early dialogues with those prospective customers as they start to see what this aircraft can really do from a performance standpoint. But I mean, right now, on a commercial basis, I see no pathway to how you certify these kinds of aircraft. So I certainly wouldn't expect something that could happen anywhere near this year or next year. Operator: Our next question comes from Gavin Parsons with UBS. Gavin Eric Parsons: I guess it's been kind of 4 quarters now that Aviation margins have been pretty disrupted. Is the second half of this year pretty normal? So as we think about going beyond '25, is that a good baseline? Scott C. Donnelly: Well, as I said, I think our progression of margin through the course of the year is playing out as we expected. And so I think the issues that we had around the impacts of the strike and what that meant to our shift in our production to the right and a lot of disruption and things of that nature are fairly well behind us. And so I think we're very much on plan to hit the guide numbers that we gave you guys. And so certainly, with those disruptions behind us, you would expect to see good margins for the business as we go on into 2026. So we're not going to guide yet. But obviously, you guys will definitely see the kind of margins that we expected for the full year to come in well within that range that we guided. So -- and look, I think considering all the disruptions and challenges from the strike and the holdover and ongoing supply chain issues to be posting about 12% margins. I think the business is doing pretty well. But certainly, we expect that margin rate to expand over the course of the year. Gavin Eric Parsons: And then once you get through Denali, any categories where you see the opportunity for new aircraft in aviation? Scott C. Donnelly: Not that we are prepared to announce at this time. Operator: Our next question comes from David Strauss with Barclays. David Egon Strauss: Scott, what's the outlook for King Air? I mean the volumes have come down a fair amount there. Where could that settle out for the year? Scott C. Donnelly: Sure, David. Look, I think the King Airline, as I commented earlier, is one of the more challenging lines. I mean it's just an older product line in terms of tooling and documentation. I mean, it's always been a great product, but it probably was impacted more than anything else in terms of just the challenges are going through the strike and all the COVID turnovers and all that kind of stuff. I think that line has stabilized and is running much better than it was. And so look, I think we'll have strong deliveries in Q3 and Q4 on the King Airline. So as I said, it's probably the last line to recover from a lot of the disruptions. It is now flowing well. And like I say, I think it supports considerably higher deliveries in Q3 and Q4. David Egon Strauss: And Kautex, was that flat or maybe just down a little bit in the quarter? Scott C. Donnelly: It was down a little bit in the quarter, which, again, is what we expected. I think the global automotive markets are more or less behaving as had been inspected. And that team continues to do a nice job in terms of managing cost and capital deployment and all that kind of stuff. So I'd say on the positive side there, we've been investing, as you guys know, for a number of years around Pentatonic to make sure that we have a good play in the pure battery electric vehicle market. We do continue to see nice momentum shift in hybrid, which is an important piece of the tank business for us and not just the tank piece but also the opportunity to participate in the battery portion of a hybrid vehicle and the win this past quarter with a major OEM on their EV platforms, I think, is encouraging for the future of that business. David Egon Strauss: And then last one, Dave, on the tax rate step up, is that -- is that fairly ratable Q3, Q4? Or is there a big catch-up in Q3? David Rosenberg: You're right, David. It's going to be a big catch-up in Q3, reflecting the cumulative impact to date for the year. So the -- it will be Q3 skewed. Scott C. Donnelly: So I think on the tax thing, guys, everybody -- I mean, I know there's a dialogue with a lot of companies, right? The tax bill is a very good thing, right? I mean, it's going to give us a significant impact on cash for the next several years. The bonus depreciation is clearly positive for our customers who buy our large capital assets. It's also good for us because we do deploy capital. So I think there's -- this is mostly good. We are going to take this near-term perturbation of a tax rate increase, which, as David said, is probably 200, 300 basis points that it is where it is. But I think net of everything, the tax bill is a good thing for our company. David Egon Strauss: Sorry, on the back of that, I got to ask one more. So on Section 174, I thought the benefit might be larger than the $100 million that you took cash flow up by. Is there any offset to that running through the numbers? David Rosenberg: That's the way we see it right now. It's a relatively complicated bill. So we're continuing to evaluate it, and we'll continue to try to drive additional opportunity, but that's how we see the impact at least for this year at this point. But as Scott mentioned, overall, it's a significant positive on cash flow as we go forward. Operator: Our next question comes from Pete Skibitski with Alembic Global. Peter John Skibitski: Scott, just one quick one for me. In the second quarter, one of your engine suppliers, Williams International announced a pretty sizable, I think they're calling a $1 billion expansion into Florida and some of their other facilities as well. And obviously, they have other customers, but I was wondering if you could give us any color at all in terms of what that might mean for Citation and just the visibility to continue to grow maybe beyond the near term? Scott C. Donnelly: Well, I mean obviously, I won't comment on their particular expansion works. But look, Williams is a very important supplier to us. They've been a very good supplier to us. We deliver a great product. It has a history of delivering great performance. And it's a good relationship and one that I expect to see to continue to grow into the future. Williams does a great job of supporting our new product programs and expect they'll continue so in the future as well. Operator: At this time, we have no further questions. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.

Emily: Good morning, everyone, and a warm welcome to the Textron Inc. Q1 2025 Earnings Call. My name is Emily, and I'll be moderating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so at any time by pressing star followed by the number one on your telephone. I will now hand over to Scott Hegstrom, Vice President of Investor Relations, to begin. Scott, please go ahead. Scott Hegstrom: Thank you, Emily, and good morning, everyone. Before we begin, I'd like to mention that we'll be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. The call today will have Scott Donnelly, Textron Inc.'s Chairman and CEO, and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.3 billion, up $171 million from last year's first quarter. Segment profit in the quarter was $280 million, down $10 million from the first quarter of 2024. During this year's first quarter, adjusted income from continuing operations was $1.28 per share, compared to $1.20 per share in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $158 million compared to a use of cash of $81 million in last year's first quarter. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Scott, and good morning, everyone. Overall, revenues were up 5%, led by Bell, partially offset by lower revenues in industrial. During the quarter, aviation delivered 31 jets and 30 commercial turboprops compared to 36 jets and 20 commercial turboprops in last year's first quarter. Aviation operations continue to improve as the factory progressed toward pre-strike performance levels while ramping production. Textron Aviation's fleet utilization remained strong in the quarter, leading to aftermarket revenue growth of 6%, as compared to last year's first quarter. Aviation announced the sale of seven King Air 260 training aircraft that will be used to train pilots for the Royal Canadian Air Force. In February, the FAA announced certification of the GE Aerospace Catalyst turboprop engine, marking an important milestone for the Beechcraft Denali program. To date, the program has amassed more than 2,700 flight hours and crossed 1,000 flights with three test articles. At Bell, revenues were up $256 million or 35% compared to last year's first quarter, driven by strong growth in both military and commercial product lines. On the military side, execution of the FLARA and strengthened military support programs contributed to significant growth from last year's first quarter. As we progress through the FLARA program, the focus this year includes design maturation and deliverables towards sub and weapon system critical design review, our next major program milestone. On the commercial side, Bell delivered 29 helicopters, up from 18 in last year's first quarter. During the quarter, Bell was awarded a contract for five additional CMV-22 aircraft. This award extends production through 2027. Bell announced a purchase agreement with Air Methods for 15 IFR-configured 407 GXIs and an option for 12 additional aircraft, with deliveries expected to begin later this year. Moving to systems, revenues in the quarter were slightly lower as compared to the prior year, largely resulting from the cancellation of the Shadow program in 2024. Strong execution in the quarter drove a 13.5% segment profit margin, up 10 basis points as compared to last year's first quarter. During the first quarter, systems received a contract valued at up to $100 million from the U.S. Navy for support software development updates for its unmanned mine sweeping operations. Also during the quarter, systems delivered the thirteenth ship-to-shore connector craft to the U.S. Navy. Moving to industrial, we saw lower revenues in the quarter compared to last year's first quarter, consistent with our expectations. The segment profit was essentially unchanged as cost savings from our previous restructuring activities offset the impact of lower revenues on segment profit. Within Specialized Vehicles, we have completed the previously announced strategic review of the Power Sports product line, resulting in the sale of the powersports business, including the Arctic Cat brand and its operations. Also during the quarter, Aviation successfully completed the first hover flight of the Nuva V300, a long-range, large-capacity hybrid-electric VTOL unmanned aircraft. This milestone marks an advancement in the development of sustainable and versatile unmanned aerial systems. With that, I'll turn the call over to David. David Rosenberg: Thank you, Scott, and good morning, everyone. I'll review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.2 billion were up $24 million from February, largely reflecting higher aftermarket revenue of $27 million. Profit was $127 million in the first quarter, down $16 million from a year ago, primarily reflecting the mix of aircraft sold, partially offset by higher aftermarket volume. Backlog in the segment ended the quarter at $7.9 billion. Moving to Bell, revenues were $983 million, up $256 million from February. The revenue increase in the quarter was driven by higher military revenues of $154 million, primarily due to higher volume from the U.S. Army's FLARA program and military sustainment programs, and higher commercial revenues of $102 million, primarily due to higher volume and mix. Segment profit of $90 million was up $10 million from a year ago, primarily due to higher volume mix of products and services. Backlog in the segment ended the quarter at $7.1 billion. At Textron Systems, revenues were $290 million, down $10 million from last year's first quarter, largely due to lower volume, which included the impact of the cancellation of the Shadow program in February 2024, partially offset by higher volume for the ship-to-shore connector program. Segment profit of $40 million was up $2 million from last year's first quarter, primarily due to lower research and development costs, partially offset by lower volume. Backlog in the segment ended the quarter at $2.3 billion. Industrial revenues were $792 million, down $100 million from last year's first quarter, largely due to lower volume and mix. Textron Specialized Vehicles revenues decreased $62 million, reflecting lower volume and mix, primarily in golf, and Kautex revenues decreased $38 million, largely due to lower volume. Segment profit of $30 million was essentially unchanged from the first quarter of 2024, as the impact of lower volume and mix was offset by the benefit of cost reductions from restructuring activities. Textron eAviation segment revenues were $7 million in February. Segment loss was $17 million as compared with a segment loss of $18 million in the first quarter of 2024. Finance segment revenues were $16 million and profit was $10 million in the first quarter of 2025, as compared to segment revenues of $15 million and profit of $18 million in the first quarter of 2024. Moving below segment profit, corporate expenses were $43 million. Net interest expense for the manufacturing group was $25 million. LIFO inventory provision was $29 million. Intangible asset amortization was $8 million. And the non-service component of pension and postretirement income was $66 million. Our adjusted effective tax rate for February was 15.3%. For the full year, we still expect a rate of 18%. During the quarter, we repurchased approximately 2.9 million shares, returning $215 million in cash to shareholders. To wrap up with guidance, we are reaffirming our expected full-year adjusted earnings per share to be in a range of $6 to $6.20. We also expect full-year manufacturing cash flow before pension contributions to be $800 to $900 million. That concludes our prepared remarks. So, operator, we can open the line for questions. Emily: Thank you. To ask a question today, you may do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by the number two to withdraw yourself from the queue. Our first question today comes from the line of Robert Stallard with Vertical Research. Robert, please go ahead. Robert Stallard: Thanks so much. Good morning. Scott, let me start with you. On the Arctic Cat disposal, congrats on getting that done. Are you considering any further portfolio actions here? Scott Donnelly: Nothing that we're announcing, Rob. We always look at the portfolio, but we certainly would never pre-announce. Robert Stallard: Yeah. Okay. And then the other major issue, of course, at the moment is tariffs and the trade war. And I was wondering if you've given any consideration to what the impact could be on the Textron Inc. businesses going forward from here. Scott Donnelly: Sure. Look, I think the tariff issue is one that everybody's talking about. I would say that when you look at our businesses, first of all, our largest businesses in the aviation space, whether it's fixed-wing or rotorcraft, and we are principally a North American manufacturer. The vast majority of that manufacturing is in the United States. Certainly, we have operations in Mexico and in Canada. The good news is that with USMCA compliance, we're not having tariffs as things are crossing over that border. We do have quite a process that we're sort of in the middle of just going through and validating USMCA compliance. I think so far we've seen to be in very good shape. We haven't seen a tariff impact in terms of anything moving amongst our North American operations. You look at the Kautex business, as you know, we have manufacturing operations all around the world. You need to be close to those OEMs. But as a result, all those products that we manufacture in different regions around the world are consumed in those regions around the world. So we're not subjected to tariffs on any of that. Certainly, in all of our businesses, we do have some parts and suppliers that are either in Europe or in Asia. But so far, the impact of that has been pretty de minimis. And I think we'll just continue to monitor that as the situation evolves. But at this point, we certainly don't see it as being something that's a material impact to the company. Robert Stallard: That's great. Excellent. Emily: Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila, please go ahead. Sheila Kahyaoglu: Thank you. Morning, Scott and David. And, David, I just want to say congratulations on keeping up with the eight-minute typescript that Scott and Frank have. So congrats on that. David Rosenberg: Thank you. Sheila Kahyaoglu: Scott, maybe first one on Bell, just really outstanding performance there. Revenue is up 35% equally split between military and commercial. You think about the puts and takes on maybe the FLARA revenue contribution and profitability from here? Scott Donnelly: Sure. So, Sheila, I think we had a very big increase obviously on a Q1 to Q1 basis. We did have very strong performance in terms of deliveries on the commercial helicopter side, but we also had a very large increase on the FLARA program. Q1 was sort of still early in the program. Obviously, we're full run at this point. It's not only our internal level of activity, but a lot more suppliers on board as we're starting to issue drawings and get things on purchase authorizations and actually start to build first parts in many cases. So we're seeing a real step function. I do still believe if you look at FLARA on a year-over-year basis, it's probably going to be up 20% or so. So it will be a contributor through the course of the year. I think the margins are roughly in line with where we guided. I think that'll be relatively consistent through the course of the year. As we see a large mix of the FLARA program driving a lot of the growth and commercial helicopters. OEM deliveries, as you know, tend to be a little bit dilutive to our overall margin rate. But I think all in all, Bell had a great quarter, and we would expect to continue to see nice growth and solid performance through the balance of the year. Sheila Kahyaoglu: Can I also ask on industrial how the Arctic Cat and certain product line sales impact revenues and profitability for the remainder of the year? Scott Donnelly: Yeah. So we'll be down a little bit on revenue. When we did the guide, we assumed first quarter, which obviously revenue in line with what we expected here in Q1. We did have some revenue through the balance of the year in expectation that we would need to run this as an aftermarket business. Obviously, as a result of the sale, which was really our desired outcome, we won't have that revenue in the next three quarters, but it's pretty de minimis. So I think we'll still be in the guide range on the revenue side and probably have a little bit movement towards the upper end of the guide in terms of margin. Sheila Kahyaoglu: Great. Thank you. Emily: Thank you. Our next question comes from Noah Poponak with Goldman Sachs. Noah, please go ahead. Noah Poponak: Hey. Good morning, everyone. Scott Donnelly: Morning, Noah. Noah Poponak: Scott, maybe you could just talk about the demand environment in the private jet market. Obviously, it's hard to predict the future, but in the past when we've had macro concerns, we've at least seen some pause in orders. Your Q1 book-to-bill was still pretty healthy even though the equity market highs were early March. But, you know, April 2 was the quarter ended. So I know it's never super useful to break it apart month by month, but just curious to what you're seeing and hearing from your customers. Scott Donnelly: No. I mean, look, I think as you point out, anytime there's a great deal of uncertainty in the world, you can see some folks pause a little bit. And we're not seeing a dramatic impact. There's still order activity in flow that's happening, which I think is encouraging. And I do think part of it, Noah, is the fact that, unlike the last decade or so when you have uncertainty or a ripple in the system, it's easy for people to say, well, just I'll wait till next quarter. I think the backlog situation helps people say, okay. Look. I'm talking about an aircraft. It's going to deliver eighteen months from now. So I think that's, you know, it's a different dynamic, you know, when you're thinking about deliveries that are out eighteen months to two years even, as opposed to, you know, do I do it this quarter or next quarter? So yes, some customers are taking a pause, but other customers are continuing with order activity. And I think we still feel like the demand environment is solid and we continue to press on. Noah Poponak: Okay. And then maybe you could just give us your updated plan on production and delivery growth through the rest of the year as you continue to recover from the strike but have demand to deliver more airplanes? Scott Donnelly: Sure. Look, I think we will see the ramp continue as we guided originally. We expected the first half to be a little bit lighter on the margin rate because you had a lot of disruption still kind of working its way through. And, you know, aircraft that were part built last year and still getting delivered through the first half of this year. So I still think we're very confident in where we guided and we'll see these couple of hundred basis points below our guide here in the early part of the year and make up for that in the back half. The encouraging part is, as we leave the quarter, the metrics that our teams track around productivity and attrition and earned hours and, you know, all those sorts of metrics that Ron and his guys drive every day. You know, leaving the quarter, you know, we're getting back to kind of where we were in the pre-strike. So I would say that we do feel very comfortable that we've recovered from that disruption. And those aircraft that we're now manufacturing, you know, largely which will deliver in, you know, in the half of the year are seeing the impacts of the productivity and efficiencies that we expected. So that model of sort of a ramp through the course of the year and improving margins, particularly in the back half, I think, is going to be what we're going to see. Noah Poponak: Okay. Thank you. Emily: Thank you. Our next question comes from Peter Arment with Baird. Please go ahead, Peter. Peter Arment: Yeah. Yeah. Thanks. Good morning, Scott and Dave. Scott Donnelly: Hey, Scott. Good to hear from you. Peter Arment: On the continuing resolution, I know you had limited new starts in the first half, but now we've got a full-year CR. Any impacts from that on systems or any of the other businesses? Scott Donnelly: Well, you know, that's a good question, Peter. I would say that in general, no. So when you look at this full-year CR, which is obviously a very unusual situation, there were quite a few so-called amendments to that that provided specific guidance that allowed programs to increase. FLARA is a good example. That was in there at the number that we always expected in terms of the appropriation process. So that's why you're seeing this ramp on the FLARA side. I think we're in good shape there. Similarly, on ship-to-shore connector, the next tranche of craft was in that number. And so that's, you know, we're in the process of getting that added to the contract, working with the Navy in sort of real-time here. Other programs, look, money was appropriated in that FY '25, so it's there. So we're hoping to understand final resolution here on things like RCV and FQAS later on in the year. But the good news is, generally speaking, order flow contract activity in systems has been looking pretty good so far. Peter Arment: That's great to hear. And then just a quick follow-up on aviation, just the latest on Denali. I saw the GE engine, you know, certainly certified in February. How's the rest of the program going? Scott Donnelly: Yeah. I'd say the rest of the program is going very well, Peter. The last milestone of getting the engine certified is hugely important to us. You know, as you guys know, as we saw delays on that side of the program, it would always continue to reflect this program. But in terms of all the formalities, we would kind of put other things in front of it, like send some of these, you know, Gen 2s on CJ3s and things like that. So I would say we have Denali back in the queue here in terms of working through the balance of certification. As always said, the good news is this issue around the engine with a certification challenging, but the performance has been very, very good. So the aircraft is flying really, really well. We're thrilled with it. And, you know, we're sort of back in the queue now with the FAA, and we'll be working through the aircraft level certification. Peter Arment: Appreciate the details. Thanks. Emily: Thank you. Our next question comes from David Strauss with Barclays. David, please go ahead. David Strauss: Thanks. Good morning. Scott Donnelly: Morning. David Strauss: Hey, Scott. You talked about the Kautex, no real tariff impact given the localized production. But how do you think about the demand environment for Kautex given what's going on with tariffs? Scott Donnelly: Yeah, David. Like, that's a good question. And, you know, if there's any risk to a lot of the stuff in general, economically, it's more snow than tariffs. It is what happens to macro demand. We try not to, we don't generally, you know, forecast on that. We kind of follow IHS. As you know, it's one of the only business really where we're not the end market guy. So I don't have any crystal ball to pontificate on what's going to happen to the global automotive markets. But the Q1 numbers were in line consistent with what we have expected. So far that's true in Q2, but what happens to global automotive demand is, you know, I suppose anybody's guess. And we obviously will roll with that one way or the other. David Strauss: Okay. And, Dave, I mean, can you, it sounds like industrial margin may be a little bit higher. Can you maybe just walk us through if there are any other moving pieces relative to the original guide, maybe corporate to the corporate's a little bit lower than what you thought for the year. If there's anything else we should know. David Rosenberg: No. I mean, I think we would still expect corporate expense to normalize through the year, so we'll maintain our guide of $160 million. Interest expense will continue to trend up slightly throughout the year as we expected. Just based on the turnover of our debt at a higher interest rate and we expect a lower cash on hand, which generates interest income. On industrial, you know, I'd say the sequencing remains the same. We talked about, you know, as the year went on, you know, the restructuring impact will continue to take effect, and we're starting to see that. So you'll see, you know, some sequential growth in the overall industrial number as we go through the rest of the year. And then as Scott said, you know, a slight benefit as a result of the transaction with Arctic Cat that we announced today. David Strauss: Okay. Are there any proceeds from the Power Sports divestiture? And are you holding on to that aftermarket piece? Or did that go as well? David Rosenberg: The aftermarket piece went with the business and there were some small proceeds that were immaterial. That will be in the Q2 results. David Strauss: Thank you. David Rosenberg: Sure. Emily: Thank you. Our next question comes from Seth Seifman with JPMorgan. Please go ahead, Seth. Alex: Yeah. Hey, guys. This is Alex on for Seth. You know, maybe I wanted to kind of ask a follow-up, you know, regarding demand that you guys have kind of seen in aviation. You know, I understand you guys kind of pointed to that there hasn't really been any major changes, but, you know, maybe to put a finer point on it and kind of address, I guess, the fractional slash, you know, NetJets sides of things. Curious if you guys kind of have any color you could add on that, whether you've maybe seen any changes in kind of data customer behavior. You know, typically, think of them as a little bit more macro sensitive. So, you know, curious if you guys could kind of maybe provide, you know, some color there. Scott Donnelly: No. I guess we don't normally try to provide NetJets guide. I mean, we're still, I mean, NetJets is still taking deliveries of aircraft and NetJets is still putting, you know, new aircraft on order. So I guess I probably won't give a lot of color as far as the NetJets, you know, fractional end market, but certainly order activity continues, deliveries continue. So I wouldn't break that out as a specific, you know, item one way or the other. Alex: Okay. Understood. And then maybe as a quick follow-up, maybe if we could get kind of an update on how things are trending more recently in the supply chain with regards to aviation? I know you guys talked about, you know, an expected improvement in labor productivity following the strike as well. Is everything there kind of trending towards expectations? Scott Donnelly: Yeah. I would say that we still feel very good about where the supply chain side is at aviation. I think that certainly that's one of the factors driving the improvements in productivity. We don't see nearly as much out-of-station work. Parts are there, so the flow is much cleaner. That clearly helps to drive the productivity side. Our attrition rates are also down. So, you know, in terms of training and disruption, new people coming in, we're about the level of employment that we need to, you know, to execute on the plan. I mean, obviously, there's always a certain amount of hiring going on with retirements and things of that nature. But, yeah, I would say that the parts situation at aviation is where we expect it to be. It's in much, much better shape than it's been in a long time. There are always, as you can imagine, supply chain issues that pop up. There always have been. Issues that pop up periodically. But I'd say at a macro level, supply chain at aviation is in good shape. And our workforce situation is in good shape. And that's what I think will help to drive that improvement in both the volume and the productivity efficiencies and therefore margins as we go through the balance of the year. Alex: Cool. Thank you, guys. Emily: Sure. Thank you. Our next question comes from Myles Walton with Wolfe Research. Myles, please go ahead. Myles Walton: Thanks. Good morning. I'm wondering on systems backlog, it looks like it declined sequentially about in line with your sales. And so maybe, Scott, back to Rob's question or maybe it was Peter's question on the demand in the defense complex. What, if anything, was ordered there, and did you have any debook that caused the decline? Scott Donnelly: No. There were no debooks, guys. I mean, we don't usually go into much detail on the systems backlog. It tends to be very lumpy. Right? Because it aligns with, you know, contract awards. You know, so I mean, I talked frankly about, you know, ship-to-shore is a good example. Right? I mean, that was in the CR. We're in the process of negotiating with the Navy, but that number that won't go into backlog until, you know, we've definitized, you know, that contract. So it tends to be very lumpy, and I wouldn't read anything, you know, one way or the other into that system's backlog. Myles Walton: Okay. On the cash flow statement, could you give some color as to the larger use of cash and operating cash flow from the other category? What was that? David Rosenberg: Yeah. There's really two components. Some additional inventory build at Aviation that will normalize throughout the year and then just some payment timing at Bell from Q1 to Q2 around some government programs. But nothing really unexpected in either of those. And we will look at on the payment timing with Bell, we'll get those receipts in Q2. Myles Walton: Okay. Got it. Thank you. Emily: Our next question comes from the line of Jason Gursky with Citigroup. Please go ahead, Jason. Jason Gursky: Yeah. Good morning, Scott. I wanted to ask you a quick question about the defense businesses. Both at Bell and Navy Systems. You know, we're clearly hearing a lot from DOD that the future is going to include a lot more unmanned autonomous and attritable systems. I'm just kind of curious what you're seeing, both on the demand side and whether there are new programs of record that are being stood up or whether there's an increased usage of OTAs and we've got some nontraditional actors that are coming in and garnering some wins, you know, utilizing some products that they've developed that are unmanned, autonomous, and attritable, and kind of how your company is responding to this new vector in demand and what that means for R&D and contract types that you might be working on in the future? I'm just kind of curious if there's going to be a bit more IRAD here and for fixed-price contracts going forward. Thanks. Scott Donnelly: Sure. So I guess I would say with respect to unmanned, without a doubt, there's a continued focus in that area. Obviously, things like FQAS are on the horizon, which is all unmanned. I would say that even when you look at FLARA, you know, it's a manned platform, but there are certainly missions where you don't want 12 guys in the back going into an assault insertion, but relocations and different missions, there might be places where they want that. So certainly, one of the requirements on a new platform like that is that it needs to have the capability to perform autonomously. You may recall, good news is we flew the actual original V-280, you know, with safety pilots, obviously. But we flew that on an autonomous mission many years ago. So ensuring that the capabilities in these platforms for either optionally or unmanned capabilities are just becoming very, very standard. In terms of other activities out there, look, we've talked in the past about our high-speed VTOL program. I think we're working with the military, sort of what are the next steps of that. So certainly, when you look at technology that's still in that DARPA, you know, slash, you know, sort of special operations, there's activity there, which again is very focused on unmanned capability, you know, whether that's in the CCAs or contested logistics, continue to be a focus, and we're participating in that area. So there's no question that unmanned platforms of all types are going to continue to be a focus area. When you look at remote combat vehicle, right, again, there's an area where we've invested for the better part of a decade for, you know, autonomous land vehicles as well. And, of course, we have our custody programs and, you know, things which we continue to support and unmanned mine sweeping. So as a company, we have a lot of different programs everywhere from production to, you know, working, you know, with the DARPAs of the world on unmanned platforms. So it will be a continued focal point, and I think we're in a very good place. In terms of contract type, I guess I would say that I continue to see the trend being that when you're in production, that the military will lean towards fixed-price contracts and frankly, we're fine with that. You know, when you have a crushing product, you understand it. You know what? I think it's in everyone's interest to try to drive fixed-price contracting. But in most development activity, FLARA is a good example, when you're in the EMD phase, you know, you're largely cost-plus. Most of these other contract types, you know, where you're working with, you know, earlier development even if it's developmental, they're tending to stay to the cost-plus, you know, or best effort, you know, kinds of contracting. Jason Gursky: Right. Okay. That's helpful. I just kind of as a follow-up, one of the things you didn't mention there is attritable systems. I'm just kind of curious on the munitions side or, you know, attritable mass seems to be a phrase that we hear quite a bit coming out of DOD these days. I'm just from a product perspective, what does that mean to you, and is it an area that's of interest to you? Scott Donnelly: Well, we have some areas in the classified space and IRAD space that are looking at, you know, attritable. I guess most of the stuff for sure that I just mentioned are sort of platforms or derivations of platforms that are certainly much higher dollar value. So those would not fall into desire for those to be attritable. But that's not been our historical focus, but for sure, there are some smaller programs that we're executing that would be more along that attritable line. Jason Gursky: Great. Appreciate the color. Emily: Thank you. Our next question comes from Kristine Liwag with Morgan Stanley. Please go ahead, Kristine. Kristine Liwag: Hey. Good morning, everyone. On Bell, we saw a nice positive uptick in commercial helicopter deliveries in the quarter. Can you talk about the demand environment, customer profile, pricing, and whether you'd expect this strength to continue? Scott Donnelly: Look, I would say on the Bell commercial side, the demand is solid. I mean, our order activity is good. It's across pretty much all of our models, all of our product lines, everything from the 505 up through the 412s. As you know, we have our initial 525s booked. We just signed a deal with Omni to get 525 out into their routes to do route proving. So I would say pretty much across the board, whether it's paramilitary, border patrol, medical, oil and gas, you know, we're seeing strong demand across pretty much all of the helicopter product lines. Kristine Liwag: Great. Thanks. And, Scott, if I could add another one on business jets, I mean, on aviation. Historically, we've seen a strong correlation of US investment spending and demand for medium-sized business jets. And with this administration focused on bringing manufacturing back to the US, are you seeing any early indication of increased demand from corporate clients who may want to reshore manufacturing or anything like that? Scott Donnelly: No, as I said, I think we're, you know, we continue to see a strong, you know, demand environment. I don't know if I know how to correlate that to, you know, a company that's bringing reshoring per se. But I would say, you know, in general, despite, you know, despite the fact that there's a great deal of uncertainty and without a doubt, the tariff situation is helping create some uncertainty. But I think most companies in the mid to long term feel pretty good about, you know, where things are and, I mean, what tax policy obviously is hugely important. That doesn't get talked about here a lot just because of all the other things that are going on. But I think most people view the mid to long term as a favorable environment. So I think that's part probably what's driving that is reshoring and growth, you know, in the US. Helping that? It could be. I know that I have any, you know, anecdotal that would say, hey. This particular company who's reshoring is talking about a jet. But it's a good environment. Kristine Liwag: Great. Thank you. Emily: Thank you. Our next question comes from Gavin Parsons with UBS. Please go ahead. Joel Santos: Hi, Scott and David. This is Joel Santos for Gavin Parsons from UBS. Given the current demand environment for business jets, can you give us some more color on how net pricing and performance have been year to date? And if those align with your expectation for 2025? Scott Donnelly: Well, as I said, I think the environment for biz jets, you know, remains solid. Our order activity, you know, continues to flow. You saw that in the first quarter in terms of book-to-bill. And as I said earlier, I think you'll have some people that will take a brief pause here just for some of the uncertainty, but given the nature of the backlog and the overall, I think people's longer-term economic outlook, we continue to see, you know, good order activity. Joel Santos: And on aviation aftermarket, can you guys give us some more color on the strategy in place for continuing to grow the segment? And how that's impacting the overall profitability? Scott Donnelly: Oh, okay. The aftermarket business was up 6%, you know, in the quarter, which is good growth. So we see flying hours, you know, stays robust. So our service centers are busy. Parts flow into the aftermarket is obviously strong. So, you know, that's a really important part of our overall company. As you guys know, we serve in a huge installed base. And that's largely driven by, you know, by flying and people are flying. Joel Santos: Perfect. Thank you. Emily: Our next question comes from Ron Epstein with Bank of America. Ron Epstein: Yeah. Hey. Good morning, guys. Changing gears a little bit. With the electric aviation segment, is there opportunity to take some of the technology you guys are developing in there and, like, moving it over to some of your other aircraft, like, for example, an electrified caravan? Scott Donnelly: Well, Ron, you know, there's a number of companies out there that are electrifying caravans. It's been sort of one of the preferred choices frankly for folks, you know, that are working in that space because it has just such a huge useful load. Right? So to the extent that you have a penalty in terms of battery weight and stuff like that, a caravan can absorb an awful lot of weight and still provide, you know, really good performance with a good payload and still, you know, hundreds of miles of range even with a lot of battery load. So caravans have actually been used by a lot of companies as test beds for this activity. So now again, where that goes and, you know, is it the right answer or do you have a hybridized version of it? You know, that, I think, is all still, you know, to be determined. But, you know, for sure, Caravan is one where, you know, you can electrify. People have electrified caravans, and we work to support those companies. We're not doing that ourselves. We're working, you know, with those guys to support their efforts, you know, towards ultimately, hopefully, certification where you would have an electrified caravan. Ron Epstein: Now if there's meat on that bone, is that a market you'd want to get into? I guess that's what I'm getting at. Right? Like, given that you have in-house technology anyway. Scott Donnelly: Yeah. I mean, we're, well, I mean, I won't run all the gory details here. But, I mean, you know, a couple of companies we've worked with, you know, we do have arrangements where, you know, let's say, they're doing the work. We're supporting them and providing information. They would own, let's say, a supplemental type certification that would let you take a caravan and modify it, you know, to put it into service as an electrified aircraft. And, you know, and we have the ability to take that and incorporate that, you know, STC basically into our production line. So if we see sufficient volume, sufficient demand, we would absolutely look at incorporating that and turning that into a production product. Ron Epstein: Got it. Got it. And then maybe just one last one changing gears. Nobody's really asked much about the M&A front. Is there much out there? I mean, you guys are looking at stuff. Defense tech seems to be a space where there's a lot of interest in kind of, you know, software-driven hardware and that kind of thing. Are you guys thinking about anything like that? Or if you just give us a broader feel about how you're thinking about the current M&A environment? Scott Donnelly: Sure, Ron. Look. I mean, we continue to look all the time. You know, we've been in a number of deals, but, you know, we do look at what are the multiples look like, you know, what are the earnings look like, and is it something that we can do that would be accretive? And if it's something that we thought we could get a price point where it's accretive, we would absolutely, you know, entertain adding things like that. You know, obviously, particularly in our A&D space. But, you know, look, I mean, things maybe here are a little rocky with some of the uncertainty in the world, but, you know, jeez, a lot of these deals were just kind of a little bit on the nutty side in terms of, you know, multiples and not something that we thought could be accretive for our shareholder. Ron Epstein: Got it. Very cool. Thank you. Emily: Thank you. Our next question comes from Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Good morning, guys. Hey, Scott. The release stated that and I think you might have mentioned that Bell military sustainment volume was up year over year. Can you talk about where that's coming from? I assume maybe it's H1 and V22. I don't know if weighted one way or another. But can you talk about that and maybe if that's sustainable or if it was just a timing thing? Scott Donnelly: Sure, Pete. Now look. You're right. I mean, it is the legacy platforms. So H1 and V22, you know, we continue to have ongoing contracting activity with parts, with PBLs, and, you know, things of that nature. So, you know, that, as you know, is always also a little bit lumpy. Right? We often find ourselves in a situation, you know, where we're out there building, you know, because we know the demand is there, and then just contracting takes a while. And so, you know, when those contracts get definitized, you know, stuff that we have that would move from, you know, company-funded, you know, long lead gets put up against that, you know, that contract. So you always do have a little bit of lumpiness, but, yes, it's related to H1 and V22 programs, but I expect that to continue to be there. You know, these aircraft are flown, you know, every day, and they generate a lot of aftermarket demand, and we expect to continue to support that for many, many, many years to come. Pete Skibitski: Okay. And then just I just want to follow-up on Jason's comment earlier question earlier about unmanned but sticking kind of to the unmanned surface vehicle area where you've participated in the past with the CUSB, and I think you guys announced the Tsunami family. I just want to ask, you know, is this a marketplace on the USB side that's really, you know, growing rapidly? You mentioned you dropped in classified earlier in your comments, and I ask because I think there's been a couple of startups that have emerged out of stealth mode fairly recently with some money behind them. And so I'm just wondering if this is an area on the surface side that's really kind of poised to grow or if you're, you know, maybe more balanced type of a view and you think it's going to be a few more years of experimentation before we see something bear out there. Scott Donnelly: Well, look. Yeah. I do think it's growing. I think, you know, the analogy I would go back to when you think about early days of unmanned aircraft systems. The proliferation of those missions and different types and whatnot has grown dramatically from just ISR to weaponization. Obviously, you've got very long-range, high-alpha stuff. You got very tactical all the way down to almost micro, you know, versions of these systems. So I think you're seeing the same thing happen in the unmanned surface vessel area. Obviously, we've been a player in this from the very, very early days of it. With CUSB, it's not surprising that the first applications, you know, that everyone knows of that are out there are around mine hunting. It's just a place you'd like not to be as a person when you're out there doing mine hunting operations. So, you know, whether it's sweeping or an addiction, you know, that's an area that we've played. We continue to do that. We work very closely with the Navy and have for quite some time in supporting that mission and also supporting now, you know, the integration of new platforms onto those sorts of craft. I think they have a roadmap that shows more craft of different types and different missions going into the future. We're working with them on that. All the way to the extreme. And, you know, you mentioned a few, you know, as something like Tsunami, right, which is sort of in that attritable, you know, higher volume, lower cost, again, with different, you know, mission payloads, you know, going forward. And that's a good example. Everybody talks about sort of these new companies. Well, putting money behind it. We've been putting money behind this for a very long time, and we have programs to show for it. So, you know, these things do take investment upfront for sure. But I think Tsunami is a good example. It shows, you know, you can go compete with all these new upstart companies and we actually won because we too have put a lot of money behind this and invested, you know, in future applications. Pete Skibitski: Great. Thanks for the color. Emily: Sure. Thank you. We have no further questions, and so this concludes today's call. Thank you, everyone, for your participation. A replay will be available until Thursday, May 1 at 11:59 PM Eastern Time. You can access the replay by dialing the United States local number (929) 458-6194 and use the access code 826596. Thank you, everyone, for joining us today. You may now disconnect your lines.

Operator: Good morning, everyone. Welcome to the Textron Q4 2024 Earnings Release Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Now, at this time, I'll turn things over to Mr. Dave Rosenberg, Vice President, Investor Relations. Please go ahead, sir. Dave Rosenberg: Thanks, Bo, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.6 billion, down from $3.9 billion in last year's fourth quarter. Segment profit in the quarter was $283 million, down $101 million from the fourth quarter of 2023. During this year's fourth quarter, adjusted income from continuing operations was $1.34 per share compared to $1.60 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled $306 million in the quarter, down $74 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $19 million from last year. In 2024, segment profit was $1.2 billion, down $127 million from 2023. Adjusted income from continuing operations was $5.48 per share as compared to $5.59 per share in 2023. Manufacturing cash flow before pension contributions was $692 million, down $239 million from 2023. With that, I will turn the call over to Scott. Scott Donnelly: Thanks, David. Good morning, everyone. 2024 results were impacted by work stoppage at Aviation and difficult end markets in our Industrial segment. During the quarter, Aviation reached an agreement with the IAM on a new five-year contract. While the strike was unfortunate, we did take this opportunity to significantly improve our parts flow to the production line which we expect will reduce our out-of-station work and improve efficiency going forward. Aviation saw steady customer demand continue in the quarter, supported by our new product launches and our portfolio resulted in a year-end backlog of $7.8 billion, an increase of $676 million from 2023. In December, Aviation secured an order from Naval Air Systems Command for an additional 26 multi-engine training system, Beechcraft King Air 260s. Also in the quarter, Aviation continued to expand the global market for its versatile twin-engine large utility turboprop, the Cessna SkyCourier, achieving type certification by the Transport Canada Civil Aviation. During 2024, steady aircraft utilization within the Textron Aviation product portfolio resulted in a 6.3% growth in aftermarket revenues. At Bell, in 2024, we saw significant growth with the continued expansion of the FLRAA program, largely driving a 13.7% increase in revenues for the year. During the quarter, Bell received a follow on award for the FLRAA program as the US Army exercised Option 2, an option for two limited user test aircraft. On the commercial side, Bell continued to see steady order activity in 2024. For the year, Bell delivered 172 commercial helicopters compared to 171 in 2023. Moving to Systems, the team delivered another strong quarter with a 13.5% segment profit margin. During the quarter, Systems completed Options 3 and 4 of the Future Tactical Uncrewed Aircraft System Program with the delivery of a production representative system to the US Army in December. Also during the quarter, Systems received an award from the Naval Sea Systems Command for the next production lot of nine ship-to-shore connector crafts with a total contract value of $960 million. Systems was also awarded a contract value of up to $106 million for Mine Sweeping Payload Delivery Systems from the US Navy to support its minesweeping operations. At Industrial, the segment experienced lower revenues and operating profit in the quarter, primarily driven by the ongoing softness in specialized vehicles and markets. We are in the process of conducting a strategic review of our PowerSports product line. At eAviation, Pipistrel delivered 42 aircraft during the fourth quarter and 120 aircraft for the full year while continuing our investment in electric and hybrid aviation platforms. Despite the challenges faced in 2024 at Aviation and Industrial, the company exited the year well positioned for future growth in the Aerospace and Defense businesses with strong order activity generating total company backlog of $17.9 billion, up $4 billion from 2023. On the new product front at NBAA in October, Aviation announced a significant advancement in aviation technology with the Gen3 platform upgrades to the M2, CJ3, and CJ4 aircraft, adding Garmin Emergency Autoland along with other avionics and aircraft enhancements. During the year, we continued to make progress on the Citation Ascend and Beechcraft Denali development programs. Ascend has logged over 700 hours of flight testing, while Denali finished the year having logged over 2,500 hours of flight testing. At Bell, the US Army announced approval of Milestone B in August for the FLRAA program. Bell is now executing on the engineering and manufacturing development phase of the program and progressing towards the first prototype aircraft build. Bell's H1 and V22 military program highlights include an FMS award for the production and delivery of 12 AH-1 Zulu helicopters to Nigeria and over $1 billion in sustainment awards on the H1 and V22 programs. On the commercial side, Bell saw steady demand throughout the year, including its first 525 helicopter order for 10 units to Equinor, the Norwegian state energy company. In 2024, Textron Systems made significant progress on several key pursuits. On the US Army's Robotic Command Vehicle development program, Systems announced the delivery of two Ripsaw M3 prototype vehicles to the Army for Phase 1 of the competitive development effort, ahead of a downselect expected in the first half of 2025. As part of the XM-30 program, Team Lynx advanced to the detailed design phase that is expected to conclude with a critical design review in the first half of 2025. On the Advanced Reconnaissance Vehicle program, Systems continued its development work as one of two vendors selected to design, develop, and manufacture a 30-millimeter autocannon prototype variant for expected delivery in 2025. Moving to FTUAS, Systems has fulfilled its contractual delivery commitments as waiting -- awaiting decision on a final downselect for a production award on the competitive program by the US Army in the second half of 2025. Systems also secured the next production contract award for the Ship-to-Shore Connector and expanded maritime airside operations with the US Navy. Moving to Industrial, throughout the year, we continued to focus on our cost structure to offset challenging end markets. At eAviation, Pipistrel was granted an airworthiness exemption by the FAA for its Velis Electro Trainer, which allows US flight schools to use the aircraft in certified pilot training programs. During the year, eAviation acquired Amazilia Aerospace, the developer of digital flight controls, flight guidance, and vehicle management systems for both manned and unmanned aircraft. Looking to 2025, at Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume with improved productivity and manufacturing efficiency. Moving to Bell, we expect revenue growth driven by the FLRAA program and higher commercial volume. At Systems, we expect low single-digit revenue growth with strong margins as we continue to pursue new program opportunities. In our Industrial segment, we are projecting lower revenues, largely driven by the suspension of powersports production at TSV and lower automotive volume at Caltex and expect cost reductions to drive improvement in segment profit margin for 2025. At eAviation, we plan to continue our investment in the development of new hybrid and electric technologies for manned and unmanned aviation platforms. With this overall backdrop, we're projecting revenues of about $14.7 billion, up 7% from 2024 for Textron's 2025 fiscal year. We're projecting adjusted EPS in the range of $6 to $6.20. Manufacturing cash flow before pension contributions is expected to be in the range of $800 million to $900 million. With that, I'll turn the call over to Frank. Frank Connor: Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.3 billion were down $242 million from the fourth quarter of 2023, reflecting lower volume and mix of $282 million, which was principally a result of production disruptions related to the strike. Segment profit was $100 million in the fourth quarter, down $93 million from a year ago, primarily due to lower volume mix and manufacturing inefficiencies, which included idle facility costs and higher costs associated with the labor disruption resulting from the strike. Backlog in the segment ended the quarter at $7.8 billion, up $219 million from the prior quarter. Moving to Bell. Revenues were $1.1 billion, up $58 million from last year's fourth quarter, reflecting higher military and support program revenues of $67 million, primarily due to higher volume on the FLRAA program, partially offset by lower volume on the V-22 program. Segment profit of $110 million was down $8 million from a year ago, primarily driven by mix as lower volume on the V-22 program offset higher volume on the FLRAA program. Backlog in the segment ended the quarter at $7.5 billion. At Textron Systems, revenues were $311 million, down $3 million from last year's fourth quarter. Segment profit of $42 million was up $7 million from last year's fourth quarter. Backlog in this segment ended the quarter at $2.6 billion. Industrial revenues were $869 million, down $92 million from last year's fourth quarter, largely reflecting lower volume. Segment profit of $48 million was down $9 million from the fourth quarter of 2023, reflecting lower volume and mix and inflation, partially offset by manufacturing efficiencies and lower selling and administrative expense, largely due to cost reduction activities. Textron eAviation segment revenues were $11 million in the fourth quarter of 2024, with a segment loss of $22 million, largely associated with research and development expense on new products. Finance segment revenues were $11 million and the profit was $5 million in the fourth quarter of 2024. Moving below segment profit, corporate expenses were $17 million. Net interest expense for the manufacturing group was $21 million. LIFO inventory provision was $80 million. And tangible asset amortization was $8 million. And the non-service components of pension and post-retirement income were $65 million. In December, we announced a strategic review of our PowerSports product line within the industrial segment that resulted in additional restructuring actions. With these actions, we recorded total pre-tax special charges of $53 million and an inventory valuation charge of $38 million in the fourth quarter. Our manufacturing cash flow before pension contributions was $306 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $692 million, down $239 million from the prior year. In the quarter, we repurchased approximately 2.8 million shares, returning $232 million in cash to shareholders. For the full year, we repurchased approximately 12.9 million shares, returning $1.1 billion in cash to shareholders. With that, I'll turn the call over to David. Dave Rosenberg: Thank you, Frank. Turning now to our 2025 outlook on Slide 7. We're expecting adjusted earnings per share to be in a range of $6 to $6.20. We're also expecting manufacturing cash flow before pension contributions to be about $800 million to $900 million. Moving to segment outlook on Slide 8 and beginning with Textron Aviation. We're expecting revenues of about $6.1 billion. Segment margin is expected to be in a range of 12% to 13%. Looking to Bell, we expect revenues of about $4 billion. We're forecasting a margin in a range of 8.5% to 9.5%. At Systems, we're estimating revenues of about $1.3 billion with a margin in a range of 12% to 13%. At Industrial, we are expecting segment revenues of about $3.2 billion and margin to be in a range of about 4.5% to 5.5%. At eAviation, we expect revenues of $45 million and a segment loss of $70 million, reflecting our continued investment in sustainable aviation solutions. At Finance, we are forecasting segment profit of about $25 million. Looking at Slide 9, we're projecting about $160 million of corporate expense. We're also projecting about $130 million of net interest expense for the manufacturing group, $165 million of LIFO inventory provision, $35 million of intangible asset amortization, and $265 million of non-service pension income. We expect a full-year effective tax rate of approximately 18%. Turning to Slide 10, R&D is expected to be about $500 million, up from $491 million last year. We're estimating CapEx will be about $425 million, up from $364 million in 2024. Our outlook assumes an average share count of about 184 million shares in 2025. That concludes our prepared remarks. So, operator, we can open the line for questions. Operator: [Operator Instructions] And we'll go first this morning to Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Good morning, Scott, Frank, and David. Maybe, Scott, if you could start off with the Aviation guidance. Can we talk about the 2025 deliveries? I think it's implied around 190 deliveries versus 151 in 2024. Can you talk about the quarterly cadence of jet deliveries as well as maybe turboprops just given the Q4 delivery number? Scott Donnelly: Well, I do think that the numbers obviously will ramp up through the course of the year. Sheila, we're recovering. I'd say the factors are getting back to -- towards full operation coming out of the strike. We will continue as we have been for some time, expanding our production capacity as we go through the year. And that's largely driven by parts, which I think were in fairly good shape, and ramping up the workforce. And again, I would say early signs coming out of the contract agreement, we're seeing a little more stability in the workforce, which is good, and that should enable us to see that ramp on the -- over the course of the year. As we talked about in the last call, we're probably going to see also a significant progression in terms of margins as we go through the year. We will have a lot of deliveries here in the first quarter that would have been 2024 deliveries. So obviously, they're priced at 2024 levels. So, I would expect to see both volume and margin progress through the course of the year. Sheila Kahyaoglu: Maybe if I could just follow up on the margin ramp, can you talk about that bridge as we think about the 7.8% exit rate for Q4 for Aviation, how we think about that progressing, and the contributors to that? Scott Donnelly: Well, for sure the 7.8% is an anomaly, right? I mean we had obviously unusually low volumes with the strike affecting a third or more of the quarter, And certainly we took an inefficient current period expense with all of our overhead that wasn't burdened. We couldn't burden on volume. So, 7.8% is certainly an anomaly. I would expect, as you think about us going through the year, it will see progression. If you look at the guide, obviously we're probably 1 to 200 basis points probably below the guide and probably finishing up more like 100 basis points to 200 basis points above the guide as you progress through the year to get to that average. Sheila Kahyaoglu: Great. Thank you. Scott Donnelly: Sure. Operator: Thank you. We go next now to Peter Arment of Baird. Peter Arment: Yes. Good morning, Scott, David and Frank. Frank, good luck with your retirement. Thanks for all your help over the years. Frank Connor: Thank you. Peter Arment: Could you talk a little bit about the, Scott, just, or David, maybe you want to weigh in on just the, your outlook for cash flow for the year, just given the earnings you're projecting, which is obviously a pretty nice snapback. Just some of the moving parts, it seems, maybe it was a little lower than we were estimating, but maybe we didn't have all the inputs, but thanks? Scott Donnelly: Well, again, it will progress through the year. The cash was obviously in Q4 lighter than we normally have. That's largely reflective of a lot of inventory that was at Aviation for jets that didn't deliver in Q4. So we'll see our normal relatively light cash in Q1 and that will grow over the course of the year, but I think we're pretty confident we'll be in that $800 million -- $900 million range, but as is normal, it will be more back-end loaded. Peter Arment: Okay. Appreciate that. And then maybe just, Scott, in general, I know Sheila talked about Aviation. And maybe you just talk about, I mean, you obviously have very strong bookings in refreshed product lines, obviously drawing a lot of new interest. Just -- maybe just if you want to highlight just what you're seeing on the demand environment, whether it's broad-based or any particular markets that are stronger than others? Thanks. Scott Donnelly: Thanks, Peter. Look, it's been pretty much across the product line. I think we feel like we're in pretty good shape. The demand and order activity across every model has been good. We saw some very strong demand, obviously in that light jet with the Gen3 announcements. So that was very, very well received by customers. So we, in particular, had a very strong quarter in sort of that CJ3, CJ4 product line. But again, it's been pretty strong in most of the portfolio. And I think we, just given where customers are and the level of activity and the level of dialog, I think we'll continue to see a sustained demand through the course of the year. Again, we're probably looking at a one-to-one book-to-bill just because we think that's about where things ought to land, given the lead times of where most availabilities are for our different products. So one-to-one is what we're baked into our basic plan. Peter Arment: Appreciate all the color. Thanks, Scott. Operator: Thank you. We go next now to Robert Stallard of Vertical Research. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Good morning, Rob. Robert Stallard: And, Frank, yeah, best of luck for your retirement. It's been quite a ride. Let's start off with Bell. I was wondering if you could talk about what the risks and opportunities could be within that 2025 guidance, both for revenues and margin. Scott Donnelly: Robert, I don't think there's a whole lot. I mean, this is all mostly backlog business. Obviously, the FLRAA program, the ramp that we have baked into there is supported by what's in the sort of the pending '25 appropriations budgets and all the guidance we're receiving from the customer. So I don't think there's risk around that. Most of the commercial business is well booked. Certainly, sustainment around V-22 and H1 is very predictable business and again, largely booked. So I think as we work our way through the course of the year, we're in -- I don't think there's a lot of risk to the downside of where we are on the Bell numbers. Robert Stallard: Okay. And then as a follow-up, I was wondering if you've seen any sign of demand changing at Aviation or Industrial since we've had the US election? Scott Donnelly: No, no, we really didn't Robert. It's actually kind of interesting. I mean, normally, we see more of a slowdown a little bit before the election just because people don't like a lot of uncertainty. I think probably largely in part as a result of the size of the backlog and the stuff that aircraft that are available well out past that period, obviously that we didn't see quite the drop and pop that we often see around our Presidential election. So, I would say it was relatively steady and we really haven't seen any change that I'm aware of in the demand environment in terms of the industrial side. Robert Stallard: Okay. That's great. Thank you. Operator: Thank you. We go next now to Noah Poponak at Goldman Sachs. Noah Poponak: Hey, good morning, everyone. Scott Donnelly: Good morning, Noah. Frank Connor: Good morning. Noah Poponak: Hey, just back to the cash flow guidance, I guess, it would be lower than 2023 and the conversion from net income or the free cash margin, I think a little light of where you've talked about being over time, and I would have expected you'd be recovering some inventory from '24 that would help. So is there a net negative working capital assumption still in '25, or what else are we all missing in that bridge? Frank Connor: Yeah. There's a -- on the working capital side, there's a little bit of headwind associated with the timing of some military payments. From an inventory standpoint, obviously, we are -- we'll be ramping production through the year as we talked about. So even though we had some higher inventory levels going into the end of '24 than we would have originally anticipated, we do need to have some higher inventory levels at the end of '25 for anticipated ramp. So you won't see a lot of inventory benefit. There is some military payment timing, as I said. And then we are expecting higher capital expenditures relative to what you saw back in the '23 timeframe associated with just the growth of the business and in particular, kind of FLRAA prep activities at Bell. Noah Poponak: Okay, that makes sense. And then I just was hoping to get a little more detail on the Bell margin. That's been quite resilient as you've ramped the early stages of FLRAA rapidly, which we had all anticipated would dilute that margin. But so far it hasn't. So maybe just walk us through the pieces that would bring the Bell margin down that much in 2025? Scott Donnelly: Well, I think if you look at the Bell through 2024, we were helped by a little bit of improvement on some of the H1 side, obviously with the Nigerian deal that allowed us to maintain some more of that H1 volume, which is better volume for us. But you still -- at a macro level, we do have V-22 coming down, H1 will start to come down. We did have strong aftermarket in 2024. I think we'll still have strong aftermarket in 2025, but it's going to be flatter from where it was in 2024. So you really see a ton of the growth coming from the FLRAA ramp and commercial OEM deliveries. And as you know, commercial OEM deliveries tend to be dilutive to our margins. They generate a lot of aftermarket, so long term, very good for the business, but the two real growth drivers in 2025 are that ramp on FLRAA and increased commercial deliveries, both of which are obviously dilutive. So as we've said, we have always expected that this margin will come down somewhat based on that mix, but we're trying to target not having that be a dilution or problem at the EPS level. So, I think we're still more or less in that range of holding the operating profit dollars. It's a little pressured year-over-year just because we sort of outperformed on 2024 and that kind of raises the bar on that 2025 target. But I still think we're going to be in that range of being able to at least hold not dollars even as we grow the revenue on lower-margin business. Noah Poponak: Okay, great. I'll add my congrats and to Frank and Dave on the retirement and the new appointments. And thanks so much for working with us over the years, Frank, and thanks for taking my questions. Frank Connor: Thanks, Noah. Dave Rosenberg: Thanks, Noah. Operator: Thank you. We go next now to Seth Seifman at JPMorgan. Seth Seifman: Hey, thanks very much, and good morning and congratulations, Frank. Just to maybe come at Bell from the other side, it was strong performance through most of the year and certainly at the high-end relative to the initial guide. But I think the guide went up in Q3 to about 10.5% to 11%, I think and came in slightly lower. Was there something that changed in Q4 at Bell that led to that shortfall? Scott Donnelly: Well, we -- I mean, we had -- we did have some program adjustments in Q4 that weren't favorable at Bell that largely had to do around FLRAA. I mean, we did exercise the limited user test. That is a fixed-priced option that was exercised. And as we would expect, the fixed price options are not a great margin, so that did create some dilution, which when you do the program accounting did put a little bit of a drag in Q4 for us. Seth Seifman: Okay. Thanks. And maybe to follow up just at Aviation, the orders have been quite steady through the year. When we think about the composition of those orders in terms of NetJets versus retail, is that a pretty steady composition? Is it a pretty, both in terms of how it's been trending versus itself and then how it's been trending versus the level of deliveries that we're seeing? Scott Donnelly: Well, in general, it holds about flat, right, because as you guys know, we put these into the backlog based on sort of a 12-year forward. NetJets puts orders in, generally speaking, every month. It's usually fairly linear, but not always. And so, there can be from quarter-to-quarter some variation based on how many delivers we have to make in that quarter versus how many new exercises they happen to put. So it's not a perfectly linear process, but it generates a little bit of variability from quarter-to-quarter, but over the course of the year, it's been pretty stable. Seth Seifman: Okay. Great. Thanks very much. Operator: Thank you. We go next now to Myles Walton with Wolfe Research. Myles Walton: Thanks. Good morning. On R&D, I know you started off the year with a $550 million number for R&D, it came in at $490 million. I'm curious to the underrun there. And this would be a few years in a row of declines on the R&D front. I imagine, much of it from Bell. It looks like you're looking for a stable outlook for '25 to $500 million. Is that a good number going forward? And also what was the cause of the underrun in '24? Scott Donnelly: I think it's a good number going forward. Look, I think the Bell dynamic with the end of the FLRAA program is certainly what drove a significant change in the R&D on a year-over-year basis as that program was wrapped up. And so, I think on a go-forward basis, we'll see more normalized R&D spending at Bell, as well as across the rest of the businesses. So for sure, part of what drove the lower R&D in the year and drove some of the higher margin frankly at Bell was that we did see a step-down associated with the funding that we were having to put in net to the FLRAA program. Myles Walton: Okay. And then relative to systems, I know the decisions on FTUAS and maybe RCV are kind of sort of dictate how the year goes and maybe how '26 goes. How sensitive to this year are the outcomes on those programs for your outlook for systems top line of $1.3 billion? Scott Donnelly: Well, I don't think there's a huge sensitivity to it. Obviously, the RCV program, we expect to be in the first half of 2025. FTUAS is probably more of the second half latter in the year. And of course, those programs have to ramp up. So in the early phases, they're not huge numbers. And particularly in the case of FTUAS because it's late in the year, there's not a huge sensitivity to them. They're certainly much more important to us from a standpoint of what growth looks like as we go into '26 and beyond. So I guess I think of them as important milestones for us in the course of 2025, but not having a huge impact on revenue and margin in the year Myles Walton: All right. Thank you. Scott Donnelly: Sure. Operator: We'll go next now to David Strauss at Barclays. David Strauss: Thanks. Good morning, everyone. Scott Donnelly: Good morning, David. David Strauss: Scott, aviation revenues in the fourth quarter, they came in a little bit light, I assume, looks like maybe you missed relative to what you're thinking 10 to 15 jet deliveries. What happened there? Was that supply chain or was that more on kind of your own in terms of getting the factory restarted post the strike? Scott Donnelly: Well, certainly versus our original guidance for the year, yeah, it was probably more in that mid-teens in terms of aircraft and that was largely driven by the fact that, I mean, we didn't -- we really didn't get the factory running again until really the beginning of October, so -- or I'm sorry, the beginning of November. So we've really lost a third of the quarter with having the workforce out. So, as I said earlier, I think the good news is the folks are back. It's good to have a contract agreement in place for five years. And I think the workforce is pleased with the outcome, we're fine with the outcome. Everybody is ramping up. But we're really -- we did for sure lose a third of the quarter with not having a production operation in place. David Strauss: Yeah, I was just looking at it. You took down the revenue forecast of 5.5% and you were a little short of that. I guess just following up there, how do you feel about the Aviation supply chain in terms of the ramp you're looking at in terms of deliveries for 2025? Scott Donnelly: Look, David, I think we feel good about it. I mean, that's where we're guiding where we are. I would say that the third-party parts, supply chain pieces coming into the factory are certainly in a much better position than they were throughout the course of 2024. So that feels very good. The other critical part is obviously stability of our workforce and retention. And again, since the contract has been signed, we were very happy with the number of people that came back, even folks that had been with us for a very short period of time before the strike hung in there and came back once the agreement was put in place. And the attrition numbers we're seeing are certainly improved from where they had been through the course of the rest of 2024. So, I think the momentum is in the right direction. Now we got a lot of work in front of us here to get deliveries that were supposed to be in '24 done and ramp it up. But I'd say the early look in terms of aircraft coming out of the production lines, attack times, which clearly have to improve over the course of the year are operating as we would expect. So I think we're at this point feeling pretty good that we're going to be able to make that ramp and deliver on the guide at the $6.1 billion. David Strauss: Okay. And timing for Ascend certification, what are you looking at? And is the Aviation guide sensitive at all to that timing? Scott Donnelly: Well, look, I mean, obviously, we're expecting it to be in the course of the year. We got to work this through the FAA. If there's not an issue or a problem, it's going well. But clearly the actual certification is an FAA action. I think we feel great about the flight testing. The program is going very well. We do have a few aircraft in the year. So, yes, it's part of our guide, but certainly not material, but we would certainly expect to get the first few aircraft delivered late this year. David Strauss: Great. Thanks very much. Operator: Thank you. We go next now to Ron Epstein of Bank of America. Ron Epstein: Hey, good morning, guys. Scott Donnelly: Good morning, Ron. Ron Epstein: Is there anything, Scott, you've seen with maybe the change in administration that could be like an added little tailwind for private Aviation. So as an example, have you heard any discussion around some form of accelerated depreciation coming back or something like that historically has been a nice catalyst for private Aviation? Scott Donnelly: Yeah. I don't know specifically that the accelerated depreciation impact, but I would have to say, Ron, I think in general, as you know, most of our customers are small to mid-sized businesses, entrepreneurial, high net wealth, I mean, it's a broad range of customers, obviously. But I think that in general, tax policy, regulatory policy is encouraging to them and therefore, they feel-good about their businesses. Their businesses are likely to be successful in growing and that certainly is nothing but helpful in terms of how they get their head around CapEx expenditures like new aircraft. So, I would say, I wouldn't point out one particular item and it's obviously it's quite early here and we don't know, how all the tax stuff is going to work its way out. But I think in general, just the nature of our kinds of customers that they think the outlook for business is good and that's good for the prospects of private Aviation. Ron Epstein: Yeah, that makes a ton of sense. And if I can, a follow-up that change in directions just a little bit. A while ago, right, you guys did Scorpion, and I always thought that was kind of cool. And the DoD at the time didn't seem to have a big appetite for that. It does seem, however, there does maybe potentially seem to be a change in more -- maybe a push towards more commercial terms contracting, contractors taking more risk. Do you see any opportunities for you guys with maybe like a Scorpion 2.0 parenthetically, something like that with maybe the changing environment with potentially more commercial type contracting? Scott Donnelly: Well, I don't know about a specific around a Scorpion, Ron. I will -- I would say that in this administration four years ago, eight years ago to four years ago, however you want to think about it, there was certainly a mindset that we have to find ways to go faster, right? And so our acquisition system, this was according to the OTAs and the MTAs and the Army's creation of things like Futures Command that frankly help to accelerate and drive a lot of the things that we're working on today. So again, it's very early, obviously. Everybody talks about acquisition reform and I wouldn't say I expect huge things in terms of real change to policy, but expectations that what's good for the warfighter, good for the taxpayer is to figure out how to accelerate programs. And so again, it's early, we don't have any data yet, but I'm certainly hopeful that the incoming administration and within the building is interested in figuring out how to accelerate things. Commerciality is certainly a part of that, but just frankly, how do you make the process run faster and get things out-of-the warfighter quicker. And I think we would clearly be a beneficiary of that. We have a bunch of great programs that I think the warfighter side of the military would love to see them get out into the hands in the actual combatant commands and hopefully, we'll see some of that happen. Ron Epstein: Yeah. Thanks. Thanks a lot, Scott. Thank you. Operator: Thank you. We go next now to Gavin Parsons of UBS. Gavin Parsons: Thanks. Good morning. Scott Donnelly: Good morning. Gavin Parsons: Just maybe two questions on the Aviation margin. You mentioned still having some impact of the disrupted '24 deliveries slipping into '25. Just I was hoping you could give us some sense of how much of that excess cost you're absorbing in that 12% to 13% margin guide? Scott Donnelly: Well, we're not. It was a big driver, Gavin, of the Q4 number because we did take and period expense, a lot of overhead, which otherwise would have been into our sort of base cost spread across aircraft deliveries. And given that we were light, we did take a pretty significant hit on period expense, but as we think about the go-forward number, we expect -- have built a plan around margin rates and normal volumes of aircraft delivery. So, I wouldn't expect to see any significant period expense thing associated back with the lower volumes in 2024. Gavin Parsons: And then anything you can give us on what you're expecting on net price and performance for '25? Scott Donnelly: No, look, I mean, as I said, we certainly expect performance and factory efficiencies to be up significantly versus 2024 and that's a driver of a lot of where we're -- where we think we'll end-up with the margin that we have guided. In terms of price, look, price is still good in the industry, but there's also inflation out there. So as we've talked about before, I don't expect a huge spread on the net of that. I think most of our performance improvement, most of our margin improvement getting back to where we should be here in 2025 is a result of much better factory performance. Gavin Parsons: Thank you. Scott Donnelly: Sure. Operator: And we'll take our final question this morning from Pete Skibitski of Alembic Global. Pete Skibitski: Hey, good morning, guys. Congrats, Frank. Scott Donnelly: Hi, Pete. Pete Skibitski: Guys, this longer fiscal ‘25 continuing resolution, is that impacting your military programs at all? Scott Donnelly: Pete, I have not seen it have a big impact. I mean, we hate the uncertainty of it, and I think our -- certainly our customer hates it because they're constantly in, I mean, they're trying to analogy 2026 budgets when they haven't been allowed to finalize 2025. But I think, the expectations, the customer appears to be executing to what they expect their 2025 budget to be and has sort of been appropriated and sitting on the shelf waiting for the final action. So it's very disruptive, I think. It's a horrible process, obviously, and it takes a lot of time and energy away from the customer who could be focused on other things. But the good news is most of our programs are already funded programs. They're not new starts. There are some things, as you get further into the year that will become new starts, but we certainly expect that the CR will be resolved, have an actual budget before that becomes a problem. Pete Skibitski: Got it. Okay, Thank you. Just one last one for me. Across the whole company, in terms of the new administration, is there anything on your radar in terms of new regulations or policies or the tariff issue that could be either positive or negative for the business that's on your radar? I think maybe one thing in terms of if we get tariffs towards Canada, does that impact Bell commercial at all? Is there anything on your radar that you can share with us? Thanks. Scott Donnelly: Yeah, sure. Look, Pete, I think on the positive side, again, we talked about just sort of what our expectations are for the overall business climate, less regulation, probably a better tax resolution than maybe otherwise could have happened. So I think from an overall business environment standpoint, those -- that's very positive on the tax front, on the regulatory front, on the military front. As I said, I think we have an administration coming in that has in the past been pro, how do we figure out how to accelerate, how do we go faster, which would be, again, net good for us. Look, the tariff is very much a wild card. I mean, we don't know the specifics. Clearly, we have operations in Mexico. We have, as you noted, a pretty significant operation in Canada, particularly on the Bell commercial side. A lot of the value of the dollars are things that go over from the US into Canada and then back. Assume those don't get hit. But we do have some big important suppliers like Pratt Canada, that sell a lot of engines to us in both rotor and fixed wing. And we do have our Bell, Mirabel operations on the commercial side of Bell. So, look it's an unknown and so we're not really taking position one way on the other. I think we've got to see how this plays out and again I think a lot of this is around negotiations and working on how do you deal with the free trade agreements on a go-forward basis. So we're just going to kind of hang in there and see how it plays out. Pete Skibitski: Got it. Got it. Helpful. Thanks, guys. Scott Donnelly: Thank you. Operator: Thank you. And ladies and gentlemen, that will bring us to the conclusion of today's Textron Q4 2024 earnings release call. We'd like to thank you all so much for joining us today and wish you all a great remainder of your day. Just a reminder, today's call will be available for replay beginning later today by calling 1 (800) 839-5125 or (402) 220-1502. Again, thanks for joining us, everyone. We wish you all a great day. Goodbye.

Operator: Welcome to the Textron Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] This conference is being recorded for digitized replay and will be available after 10 AM Eastern Time today running through October 24, 2025. You may access the replay by dialing 866-207-1041 and entering the access code of 148-0019. I would now like to turn the conference over to David Rosenberg, Vice President, Investor Relations. Please go ahead. David Rosenberg: Thanks, Kiely, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.4 billion, up from $3.3 billion in last year's third quarter. During this year's third quarter, adjusted income from continuing operations was $1.40 per share compared to $1.49 per share in last year's third quarter. Manufacturing cash flow before pension contributions totaled $147 million in the quarter compared to $205 million in the third quarter of 2023. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, David, and good morning, everyone. During the quarter, Aviation experienced a strike on the expiration of its existing labor agreement with the IAM. Work stoppage caused disruption to our aircraft production and service in our Wichita facilities. On October 20, the IAM ratified a new five-year contract ending a four-week strike. As employees return to work and production and delivery activities recover, resulting disruptions will impact our 2024 financial results. In the quarter, Aviation delivered 41 jets, up from 39 last year, and 25 commercial turboprops, down from 38 in last year's third quarter. Aftermarket revenues grew 5% for the third quarter of 2023 -- versus 2023, and our year-to-date aftermarket revenues were up 8% as compared to prior year. Aviation continued to see strong demand in the quarter, booking over $1 billion in new orders. Backlog grew $162 million, ending the third quarter at $7.6 billion. During the quarter, Aviation delivered the 400th Cessna Citation Latitude. Latitude has been the best-selling aircraft in the midsize jet segment since it was introduced into service in 2015. At NBAA this week, Aviation also announced the Gen3 updates of the Citation M2, CJ3 and CJ4, reflecting continued investments in this product portfolio. At Bell, revenues were $929 million, up $175 million over last year, and segment profit was $98 million, up $21 million as compared to the third quarter last year. During the quarter, the U.S. Army announced approval of Milestone B for the FLRAA program. This significant milestone establishes FLRAA as a program of record and transition the program to the engineering and manufacturing development phase. This phase includes continued digital modeling, detailed hardware and software design, and fabrication of hardware as Bell proceeds to critical design review and the first flight planned for 2026. As a result of Milestone B and the subsequent EMD award, Bell's backlog grew by $2.3 billion in the quarter, now totaling $6.5 billion. On the commercial side, Bell saw increased order activity in the quarter. Bell delivered 44 helicopters, up from 23 in last year's third quarter. Textron Systems revenues and profits were slightly lower compared to last year. In the quarter, Systems completed two major milestones in the Army's FTUAS program, a modular open systems approach conformance evaluation, and a prototype aircraft flight demonstration. The team will now proceed to option four of the competitive program, which includes delivery of a production representative aircraft system for Army testing and evaluation. Systems expanded its U.S. Navy Aerosonde operations with awards for two new land-based sites and three new maritime sites. Also in the quarter, Systems delivered two prototype Ripsaw M3 Robotic Vehicles to the U.S. Army for testing as part of Phase 1 of the Robotic Combat Vehicle program. The Army is expected to downselect the Phase 2 for production represented prototype in mid-2025. Moving to Industrial, the segment experienced lower revenues and operating profit in the quarter, driven by continuing softness in Specialized Vehicles end markets. Specialized Vehicles continue to take cost actions to align with lower production volumes. Moving to eAviation, the [Nuuva 300] (ph) continued integration testing, including a full system power on and flight simulation run conducted this quarter. The team is now focused on preparations for the aircraft's first hover flight, which is expected in Q4 of this year. Also during the quarter, the Nexus eVTOL program continued to progress on the wing and empennage assemblies and outfitting of the ground control station, preparation for the start of flight testing, which is expected to begin in 2025. Finally, as we announced yesterday, we're making some important executive changes at Textron. Our CFO, Frank Connor, has notified us that he intends to retire from the company on February 28, 2025. Dave Rosenberg, our current Vice President of Investor Relations, has been elected as our new Executive Vice President and Chief Financial Officer succeeding Frank. Dave has more than 24 years of experience in the aviation industry and has served in a series of finance and strategy positions at Textron Aviation, Beechcraft and its predecessor companies. In addition, Scott Hegstrom has been elected Vice President of Investor Relations, replacing Dave. Both elections are effective March 1, 2025. I want to thank Frank for his outstanding leadership and significant contributions to Textron during his 15 years and to congratulate Dave and Scott on their new appointments. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. In the third quarter of 2024, delayed aircraft deliveries along with unfavorable performance resulting from the IAM strike lowered Textron Aviation's revenues by about $50 million and segment profit by around $30 million. Revenue at Textron Aviation of $1.3 billion were essentially flat with the third quarter of 2023 with higher pricing of $36 million, mostly offset by lower volume and mix of $35 million. Segment profit was $128 million in the third quarter, down $32 million from a year ago, largely due to lower volume and mix of $29 million. Backlog in the segment ended the quarter at $7.6 billion, up $162 million from the second quarter. Moving to Bell, revenues were $929 million, up $175 million from last year, largely reflecting higher volume and mix of $148 million. Volume and mix included higher military volume of $81 million, primarily related to the FLRAA program and higher commercial volume and mix of $67 million, reflecting an increase in deliveries. Segment profit of $98 million was up $21 million from last year's third quarter, largely due to a favorable impact from performance of $17 million and favorable pricing, net of inflation, of $12 million. Backlog in the segment ended the quarter at $6.5 billion. At Textron Systems, revenues were $301 million, down $8 million from last year's third quarter, largely due to lower volume. Segment profit of $39 million was down $2 million from a year ago. Backlog in this segment ended the quarter at $1.9 billion. Industrial revenues were $840 million, down $82 million from last year's third quarter, mainly due to lower volume and mix of $86 million, principally in the Specialized Vehicles product line. Segment profit of $32 million was down $19 million from the third quarter of 2023, primarily due to lower volume and mix. Textron eAviation segment revenues were $6 million and segment loss was $18 million in the third quarter of 2024 compared with a segment loss of $19 million in the third quarter of 2023. Finance segment revenues were $12 million and profit was $5 million. Moving below segment profit, corporate expenses were $20 million, net interest expense from the manufacturing group was $22 million, LIFO inventory provision was $49 million, intangible asset amortization was $9 million, and the non-service components of pension and post-retirement income were $66 million. In the quarter, we repurchased approximately 2.4 million shares, returning $215 million in cash to shareholders. Year-to-date, we have repurchased approximately 10.1 million shares, returning $890 million in cash to shareholders. Textron is adjusting its full year outlook to include the expected impact of the aviation strike on its financial results. Textron now expects 2024 adjusted earnings per share from continuing operations to be in a range of $5.40 to $5.60 per share, down from its previous outlook of $6.20 to $6.40 per share. Manufacturing cash flow before pension contributions is now expected to be in a range of $650 million to $750 million as compared to its previous outlook of $900 million to $1 billion, with planned pension contributions of about $50 million. Looking to Aviation, we now expect total year revenue of about $5.5 billion, with an expected segment margin of around 11%. At Bell, while total year revenue outlook is unchanged, we expect an improved segment margin in the range of 10.5% to 11%. At Systems, the revenue outlook is unchanged, with a segment margin estimated at the top end or slightly above our original guidance range of 11% to 12%. Looking to Industrial, we now expect revenues to be about $3.5 billion, with an expected segment margin of around 4%. At eAviation, we now expect revenue to be about $35 million, with segment margin unchanged at a loss of around $75 million. At Finance, we now expect revenue to be about $50 million, with segment margin of around $30 million. Below segment profit, we now expect corporate expenses to be around $135 million, interest expense to be about $85 million and a tax rate of 17.5%. That concludes our prepared remarks. So, operator, we can open the line for questions. Operator: Thank you. [Operator Instructions] And we'll go to the line of David Strauss with Barclays. David Strauss: Good morning. Thanks, and congrats, Frank and Dave. Frank Connor: Thank you. David Strauss: Scott, could you just maybe touch on, how things are going at Aviation in terms of restarting production and kind of what have you assumed in the updated forecast for Aviation, I think, and get $5.5 billion in revenue in terms of jet deliveries? Thanks. Scott Donnelly: Sure, David. So, look, I mean, obviously, we got the ratification last weekend, which was very important. Under the terms of the contract, the workforce has up to five days to come back in. So, we are starting to ramp and get things back in place. I think I talked to Ron yesterday, we probably had about 60% of the workforce was back in yesterday. We expect that to continue to ramp and clearly expect to be at full representation on Monday. So, when we factor in the numbers, we kind of think about that. That's why the $0.5 billion revenue drop, it's not really four weeks, it's more like a five-week strike, and then we've got to get all the ramping and get the line back up and running here as we get into fourth quarter. I guess I'd say, David, the good news is that's what we're focused on, right? We have a five-year deal in place that's good for employees, it's good for us. Our total focus right now is getting things ramped up. We've spent, obviously, a lot of time here over the last four or five weeks continuing to work with our supply chains, make sure that parts are coming in and suppliers who have been late to PO are getting back to current. So, our complete focus right now is getting everybody back in the door and getting the factory up and running and hopefully more efficient than it's been over the past few years as we get better part full. David Strauss: Okay. Thanks for that, color. And Frank, in terms of the lower forecast for free cash flow for the year, it looks like, maybe you're losing about $125 million from lower earnings. CapEx, I think, is a little bit lower than you had previously forecast. What accounts for -- it looks like, $200 million of -- the additional $200 million hit on the free cash flow side? Frank Connor: Yeah, we're going to have some inventory headwinds associated with kind of the slower kind of ramp up here and the impact of the production. As Scott said, it's kind of a five-week impact. We want to get healthy from a supply chain standpoint. So, we certainly looked at kind of mitigating the cash impact of strike, but we also want to make sure that we were healthy as we come out of this. So that's really the impact and we'll then have that inventory obviously to burn through and sell in '25. David Strauss: Thanks very much. Operator: We'll go next to the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Good morning, Scott, Frank and Dave, and congratulations, Frank, of course. So, just going back to the EPS cut of $0.80, I think Industrial is about $0.30, that's a headwind, but Bell is the $0.10 offset. How do we think about, I guess, Aviation into 2024 exiting Q4, and then also Industrial, just given a 4% margin to exit the year? Scott Donnelly: So, on the Industrial front, Sheila, we've been -- we've seen softness all year. We've talked about that each quarter. So, I think as we've revised the guidance, beyond just giving color, we're trying to give you guys some specific in each one of the segments. And so, I think our expectation right now is that those softnesses in that end market are going to continue. As we've talked about in previous quarters, we're just cutting way back on production volume. We don't want to put stuff out in the channel. I don't think deal is one thing is in the channel until we get better perspective and view on where things are going in terms of interest rates and their end market. So, I think this was just -- we're just kind of firming up our view on the total guide on that segment. The bigger issue for us, obviously, is we've got to get the Aviation business ramped back up again here. As Frank talked about, given the sort of delays in some of these deliveries, we're going to certainly carry out more inventory through the end of the year of work in process than we would normally have coming out of the Q4. But I guess, it's important to note these sales aren't lost, right? I mean, these are pushed and we're going to ultimately deliver these aircrafts. So, as we think about 2025, we clearly expect we're going to see revenue progression over what our original 2024 guide was. We're continuing to ramp. And I think now with the contract behind us, we're optimistic about seeing more stability in the workforce, clearly a better position on supplier parts. And it's tough to recover all that in one quarter, but I think we'll have good momentum as we go into 2025. Sheila Kahyaoglu: And just on the contract, how do we think about the headwind in 2025 as we factor in the wage increase? Scott Donnelly: Well, that was largely baked into our plans. The deal was a little bit more than we expected, but it's -- direct labor is about 10% of our costs. So, I mean our focus at this point will be making sure we can drive the right productivity and efficiency to compensate for that. But I think it's a fair deal. It's good for our employees. And our view is we want these to be the best jobs in town. We think this is a hugely important workforce. We need good people. We need to retain them, and we'd like to be that best job. And I think this makes us the best job in town. So, it's a good trade for us. Sheila Kahyaoglu: Thank you. Operator: We'll go next to the line of Robert Stallard with Vertical Research. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Good morning. Frank Connor: Good morning. Robert Stallard: Just want to follow-up on David's question really and the recovery plan. It sounds like you've taken a fairly proactive approach to managing the supply chain that you haven't turned anyone off. In fact, you just kept things going and you've built up this inventory. Is that a fair analysis? Scott Donnelly: Yeah. Look, I mean, in part shortages, while it has improved over the last few years, has still been problematic, I think, for everybody in the industry. It's gotten to be a smaller number of part numbers that are a problem, but they're still a problem. And that was continuing to drive a lot of out-of-station work and just significant inefficiencies in the factory. So, our view was, look, nobody wins a strike. A strike is not a good thing, but we certainly, during the period of the strike, were committed to go continue to work with those suppliers and try to resolve that problem. So, again, from our perspective, this is all about how you move forward and expecting we'll get the workforce back in, which is now happening, that we would put ourselves in a better situation in terms of parts and back shops and these things so that we can be more efficient going forward. So, yeah, that's going to cost a little bit of inventory, but all that inventory is going to turn into airplanes. So, I'm not particularly worried about that. Robert Stallard: Okay. And then, as a follow-up on Industrial, you mentioned that Specialty Vehicles have been having some demand challenges. What about at Kautex? Have you seen any softening on the European auto front? Scott Donnelly: Well, for sure, we have. I mean, auto is down around the world. European is probably the most challenged market, so the volumes are somewhat below where we would like them to be, but frankly, that team does a really good job of managing through and dealing with that and offsetting with productivity and pricing. And so, I think the Kautex guys actually have been performing quite well. Robert Stallard: Okay. That's great. Thank you. Operator: And next, we'll go to the line of Peter Arment with Baird. Peter Arment: Yeah. Thanks. Good morning, Scott. Congrats, Frank and Dave. Hey, Scott, maybe just to talk about, just on the heels of NBAA, you guys obviously saw some nice bookings this quarter. Can you talk maybe just about what you're seeing on the demand environment? It still seems obviously very favorable for a lot of your models. Scott Donnelly: Yeah, Peter, I think it has. I mean, we had over $1 billion here in Q3. As you know, Q3 is usually historically one of the lighter ones, right? The summer, July, August is kind of usually quieter. I think it was a good quarter of order activity. We're very encouraged, the refreshes that the team is putting out in both M2, CJ3, the new CJ4. Of course, we have the Ascend, which we announced too long. That's coming along very well. So, the number of updates, which are pretty significant in terms of capability of the aircraft and safety, particularly with launching Autoland across all those single pilot jet platforms is driving strong demand. So, I think the end market continues to feel good. Order activity is -- flow is good. So, I think we're still feeling good about where the industry is. Peter Arment: Yeah. And just as a follow-up, on pricing, I guess, net of inflation, you guys have done pretty well all year. What's the latest there, I just -- I assume, given that the demand environment is healthy? Scott Donnelly: Yeah. Pricing is still good, Peter, in the marketplace, but as we've talked about, I think the price inflation number is compressing, right? I mean, so I would not expect to see big contributions in necessarily price over inflation. What we really got to be doing is driving productivity and efficiency in the factories to continue to maintain that momentum. So, the pricing dynamic is good, that's not a problem, but you had these pretty significant price inflation spreads. And again, that will -- as we talked about before, that will be coming down, but we're not banking on that to drive the kind of margin and performance that we need to see going forward. We've really got to drive good fashion productivity and efficiencies on that volume. Frank Connor: The only thing I'd add on that is for this quarter and next quarter with the lower volume, which is where price comes through and essentially inflation across all aspects of the cost structure, not just the aircraft, but SG&A and other things, that puts pressure on price versus net of inflation. So, for this quarter, it's net zero price, but that is certainly impacted by the lower volume associated with the strike and that will have an impact on the price versus inflation on a net basis in the fourth quarter as well. Peter Arment: Appreciate all the color. Thanks, guys. Operator: We'll go next to the line of Noah Poponak with Goldman Sachs. Noah Poponak: Hey. Good morning, everybody. Frank Connor: Good morning. Scott Donnelly: Good morning, Noah. Noah Poponak: Frank, congrats on the retirement. Thanks for all the help and the relationship over the years. And David, congrats on the move to the CFO. David Rosenberg: Thanks. Noah Poponak: How many Cessna jet deliveries are we expecting in the fourth quarter given the abnormal backdrop with the strike and the recovery? Scott Donnelly: Well, Noah, I mean, we've never given a number of jets. So, I think we'll probably just stick to revenue at this stage of the game. But I mean, it's $0.5 billion of revenue obviously adjustment, which is pretty significant, but yeah, I think that accounts for what's turning out to be really a kind of a five-week strike duration and then just the inefficiencies and just the time of getting it ramped back up and going. Noah Poponak: Okay. And, Scott, I guess, in 2025, should we anticipate that Jan 1, when you're starting a year, you're pretty much recovered and it's a clean run rate production line, or could there be disruption that bleeds into the beginning of the year? And then, should we expect the aircraft that slip out of '24 to add what you previously had planned for '25, or does it kind of smooth out over a longer period of time? Scott Donnelly: Well, so first of all, we certainly expect by January 1, we're running at normal productivity and a smooth rate. I mean, we're here in kind of late October, we've got November, December here to get things ramped and operating smoothly. So, I certainly expect by the start of the year, the factory will be stable and doing well. I guess, it will -- I mean, we're kind of probably not ready to guide 2025 yet, but as I said, no, I do think if you look at what we're doing in production ramp and our expectations in terms of where we're going to be in 2025, while the 2024 is obviously an issue and impacted, we certainly expect to see good healthy revenue growth in '25 above what we had originally guided in '24. Noah Poponak: Okay. And then, just lastly on the margin, at Aviation, should we all just continue to contemplate the incremental margin framework you've referenced in the past, or is cost now different enough, or is there still a lot of opportunity on the productivity front? How should we be thinking about that over the medium term? Scott Donnelly: Look, we still think about this business as converting at 20%-plus in terms of revenue given the kind of the mix of gross margin across the business. So that's still, I think, an appropriate long-term guide. Noah Poponak: Okay. Thank you. Operator: Next, we'll go to the line of Myles Walton with Wolfe Research. Myles Walton: Thanks. Good morning. I was wondering if you could talk to Systems, and you mentioned the two contracts that are being decided next year, FTUAS and the Robotic Combat Vehicle. Is an outcome on those basically going to dictate whether or not Systems can start a real growth profile? It's been obviously flattish here for a long, long time. And how critical are those two programs? Scott Donnelly: Yeah, absolutely. Look, I mean, these are programs that we've been investing for a long time to position ourselves. They are key factors of driving growth for the business in the future. There's other programs, obviously. In fact, I think, frankly, if you look at 2024, that business is performing extraordinarily well. We did take a hit at the beginning of the year, which we did not anticipate around Machado getting pulled out of service. Other businesses within systems over the course of the year have grown to help to offset that. And as we said, even with that hit, which was not trivial to us, the businesses are hitting their original guide in terms of revenue, and they're going to be on the high side of their margin. So, I think the Systems team is performing very well. But yeah, absolutely, those programs like FTUAS and like RCV and of course, there's ARV in the year out and such are key drivers of growth in the future. Myles Walton: Okay. And just one quick one. Is the 525 still on track for 4Q cert, or is that slipping into '25? Scott Donnelly: We're actually just down there yesterday. Look, the flight test program is continuing. I hate to put dates out there because we don't certify that, right? I mean, it's -- I'd say the relationship and the work going on with FAA is good. Flight test program is going well. Whether it gets this year, if I were to guess, I would probably say it would slip into 2025 just because of just the sheer amount of documentation and paperwork and number of approvals that need to flow through -- before the official TC gets put on there. So, we continue to do the work on the flight test and all the work that we have to do on our side. And of course, we're already moving a lot of resource into various kits and capabilities that need to be added on to the aircraft over its life cycle. So -- and that work will go on in parallel with this certification process. Myles Walton: All right. Thanks for the color. Operator: Thank you. And we'll go next to the line of Seth Seifman for -- with JPMorgan. Seth Seifman: Hey. Thanks very much, and good morning. Scott Donnelly: Good morning. Seth Seifman: And congratulations, Frank and Dave. Wanted to ask about the margin in Aviation. And so, ex the strike, it looks like it was kind of in the mid-11% range, which was kind of below the guidance range for the year. I know there's variability quarter to quarter and you talked about Q2 being exceptionally strong, but just anything to point out there with regard to why we saw kind of a step down there versus what we've become accustomed to seeing in recent quarters? Scott Donnelly: Well, look, I mean the strikes are a bit messy, right, when you go back and you look at idle facility and impacts and total year volumes and assumed overhead rates and liquidation rates. So, part of what you're seeing in the quarter and the year is you've got to factor in a lot of significantly lower volume all of a sudden with a lot of cost, which some of which is not variable. And so that's part of why you see that drag in the -- in both Q3 as well as in our updated guidance for the full year. Seth Seifman: Okay. Got it. And then, I guess, maybe thinking about the margin at Bell and profitability coming in ahead of expectations this year, as FLRAA continues to grow, is this something where you can kind of continue to maybe see some improvement here, given performance elsewhere, or should we still be thinking about maybe profit dollar growth but margin rate declines? Scott Donnelly: Yeah, look, we're still trying to drive the profit dollar growth. The FLRAA program is growing and will continue to grow next year fairly significantly, which is great obviously, but that is, as you know, had a lower margin mix. But the commercial market is strong, so that's helpful to us. The win in Nigeria, which is actually going to grow the H1 original equipment volumes here over the next couple of two, three years is obviously helpful. So, there are some things in there mix wise that are helping. But again, I still think given the significant growth of the FLRAA program, our focus really is how do we continue to be accretive and make sure that we're growing the margin dollars in these subsequent years. Seth Seifman: Excellent. Thanks very much. Operator: And we'll go next to the line of Doug Harned with Bernstein. Doug Harned: Good morning. Thank you. And also congrats to Frank and Dave. If you look forward from here, say over the next five years, and thinking about what you're going to be investing in on the Aviation side with respect to R&D and CapEx, how do you see that profile evolving? And are there specific areas where you really intend to be focusing there? Scott Donnelly: Well, look, I mean, I think that I don't see us making a big change. I think what we've been doing for the last number of years and I would expect we continue to do in the future is a nice mix of upgrade programs to our existing portfolio, which, as we talked about earlier, drives healthy growth and is very well received, I'd say, on the customer front, with an occasional new product clean sheet that drops in. So that piece of formula that has worked for us, and I think we'll continue to make that. From an R&D perspective, we've talked about kind of making this at or a slight tailwind in terms of on a percent of sales basis. Part of our margin challenge towards the end of the year is we've -- you assume that you're -- what you're doing on the R&D front is fairly fixed over the course of the year. So, if you lose a big chunk of revenue, obviously, on a strike, that kind of hurts you a little bit, but I mean, that's an unusual circumstance, obviously. So, I think we'll see fairly stable R&D, and we'll raise appropriately when we have the right programs to invest, but I'd say, generally speaking, we view that it should be a tailwind in terms of percent of sales for the business while making the right investments to keep growing the business. Doug Harned: And then separately, when we go into 2025 and if we put the strike aside for the moment, you said that during the strike you've been able to make some progress with respect to the supply chain. It seemed that really the limiting factor for you in Aviation is not demand, it is really -- it may be really just the supply chain. So, if you've been able to narrow some -- the issues within the supply chain, can you describe where the bottlenecks are now, the principal bottlenecks? And if there's a point you see where you think you can get back to a world where the limiting factor is no longer dealing with the supplier issues? Scott Donnelly: Well, I think the limiting factor -- I mean, there has been some critical supply things. It's been our own resourcing and staffing and the ramp, but as I said, I think when I think about how you look at 2025, despite the interruptions that we've had here in 2024, I think our plans in terms of expanding capacity and delivering more product, increasing our revenue that, that thesis is still on track. You'll see that in 2025 despite the fact that we have an interruption in production here in 2024. So, we have had a ramp plan that was coordinated with suppliers and our own internal resourcing and staffing. And I think that's still in place and that's why you should expect that we'll see revenue growth in '25 above the '24 original guidance. Doug Harned: Very good. Thank you. Operator: We'll go next to the line of Jason Gursky with Citi. Jason Gursky: Hey, good morning. Frank, congrats on -- and good luck with the next phase. And, Dave, congratulations. Well deserved. I look forward to working with you more closely in that role. Scott, couple of quick questions for you. You mentioned labor productivity earlier as a way to offset maybe some of the higher costs associated with the strike. I'm just curious if you can make some bigger picture generalized comments about labor productivity maybe now versus where we were prior to the pandemic and kind of the things that you are doing to drive labor productivity back to maybe where we were if it was better back then, and how much longer do you think it takes for labor productivity to kind of return to historic levels? Scott Donnelly: Well, look, there were two major contributors to the inefficiencies, which certainly manifest themselves largely in productivity in the factory. Part of it was certainly supplier parts. When you're looking at running a production line, you've got lots of holes in your part bin, you start doing stuff that's out of sequence and having to rework things and swap things between aircraft and there's a lot of disruption that comes from that. As I said, I think while it won't be perfect, what we did work through the strike period to try to get the on time to PO and supplier delivery to where we have many, many, many fewer of these instances where we don't have the part available at the time that we need to consume that part in the various stages of the production line. The other, frankly, is just sheer labor, right? I mean, like most companies, coming out of COVID, we saw a lot of turnover. We have a lot of hiring of new people, so there's been a lot of training, and clearly that drives a lot of inefficiencies. It's not just that new person, it's our senior people who participate in helping to train and develop these new people. So, I do think that the labor contract and getting that behind us, and yeah, it's a significant GWI, but it makes these jobs even more attractive in that market, which we think is -- makes us as an employer more attractive and hopefully stronger on the retention side. So, stabilizing that, not just adding the numbers of people, but getting it towards a stable number, and it's the same people that are coming in, is a huge part of that. So, I think the parts thing, I feel much better about. We worked out really hard over the last month or so to get that in a much healthier place. And again, I think with the GWIs that are out there, these are the best jobs in town. And I think that will help us not just attract, but also retain that hourly workforce that builds these aircraft, which is critical to driving that efficiency and productivity in our factory. Jason Gursky: Okay. Great. That's helpful. And then, the second question was, just more of a maybe a philosophical one. If you could waive a magic wand, and always have this be the case, I know this is difficult to control, but kind of months of backlog in the Aviation business, what is the North Star for you all? What do you -- where would you like to try to manage the business to on a pretty consistent basis over the longer term? Scott Donnelly: Well, look, if you look at, it's a little bit different across different products in our product portfolio, but I would say, generally speaking, being out there 18, 24 months is a very healthy place for us to be for a couple of reasons. One, many of our customers already own aircraft and their ability to remarket their aircraft and manage and have a -- know what their timeline is and when a window of time to go sell their aircraft is important. And it also gives us the right amount of time to specify aircraft and interiors and go through a very smooth process where we know when that aircraft hit the line, what is that aircraft, right? What's the configuration? A lot of stuff is standard, obviously, but there are customizations that happen towards the latter part of the process. And having that all set and well understood, being able to signal and have a consistent volume and delivery dates with our suppliers, I mean, it really helps to make a business where it can run smoothly when you can see out that 18 to 24 months on volumes and product mix and product configuration. Jason Gursky: Great. That's helpful. Appreciate it, guys. Operator: And we'll go next to the line of Gavin Parsons with UBS. Gavin Parsons: Thanks. Good morning. And Frank and Dave, congrats. Frank Connor: Thanks. Gavin Parsons: Just wanted to ask a couple of margin questions. On Industrial, are you still seeing some benefit of the restructuring, or is that largely already in place at this point? Scott Donnelly: Well, I mean, I think, clearly, we've been restructuring through the course of the year, but I'd say there's more restructuring to come, for sure. I think the end markets, and particularly in a couple of segments of the business, are continuing to be soft, and I think they're going to be soft for a little while. So, we'll continue to do what we think is appropriate to restructure and maximize our performance in each of those business segments. Gavin Parsons: Got it. And on Aviation, can you just remind us how the performance accounting line works? If you have cost on aircraft this year that deliver next year, do we expect some margin headwind there? Scott Donnelly: The performance line is -- there's a lot of stuff in performance line. I don't know if I could walk through it. I mean, clearly, this quarter and for the full year, you've got unusual things in there, right? I mean, factory inefficiency, period expensing, idle factory costs, which is not a normal thing for us, obviously, manufacturing variances go through that, there's a lot of moving parts in that so-called performance line. Gavin Parsons: Understood. Thank you. Operator: And we'll go next to the line of Pete Skibitski of Alembic. Please go ahead. Pete Skibitski: Hey, good morning, guys. Scott Donnelly: Good morning. Pete Skibitski: I was wondering if we go back to FLRAA now that you had the Milestone B approval, I just wonder if you could put a finer point on the revenue line since it's so substantial. I think last I recall, you were thinking about $900 million in revenue this year. And Scott, you're talking about substantial increase next year. Is there any way to put a finer point on that? Scott Donnelly: Pete, I think $900 million is probably around the right number this year. It's probably going to be $100 million to $200 million higher than that next year, just based on what's in the budget. So, I mean, I'm a little bit -- I always try to be a little careful here, Pete. I mean, these things are appropriated, right? They're not appropriated yet. I mean, we don't actually have a budget. So -- but I -- if you look at what's in the appropriations process, I guess, once they pass the budget, I would expect that we'll see some additional ramp as we go into next year. So -- and I think there's talk to the Army, there's full support for this. I mean, obviously, the criticality of getting through CDR is huge. And so, I think the customer is just as committed as we are to keep driving this thing forward, and that will -- that only happens with some increased funding next year, and I think everybody is on board with that. Pete Skibitski: Okay. No, I appreciate it. And then just the decision to in-source the cabin from Spirit, what's the right way to think about sort of the technical and the schedule risk there? Obviously, it's probably easier than if you were kind of midstream in production, but can you give us a sense of how you guys are viewing that decision? Scott Donnelly: Well, look, I think that the -- as you kind of know, Peter, given the status of where that was, right, kind of just starting EMD, made it a fairly low risk, easy process to execute. The Spirit team was highly collaborative and worked very, very closely with us in that process, and it's done. So, we're focused on going forward. We're executing to that. And so far, so good. Pete Skibitski: Thank you. Operator: Thank you. We have no further questions in queue at this time. And today's conference is being recorded for digitized replay and will be available after 10 AM Easter Time today through October 24, 2025. You may access the replay by dialing 866-207-1041 and entering the access code of 148-0019. This does conclude the conference for today. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Textron Second Quarter 2024 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Vice President, Investor Relations, Mr. David Rosenberg. Please go ahead. David Rosenberg: Thanks, Greg, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.5 billion, up from $3.4 billion in last year's second quarter. During this year's second quarter, adjusted income from continuing operations was $1.54 per share, compared to $1.46 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $320 million in the quarter, compared to $242 million in the second quarter of 2023. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, David, and good morning, everyone. Aviation has higher segment revenues of $1.5 billion, generating a profit of $195 million, up $24 million from the second quarter of 2023. We delivered 44 commercial turboprops, up from 37 last year and 42 jets down from 44 in last year's second quarter, while aftermarket revenues grew 13%. Aviation continued to see strong demand across all product lines. Backlog ended the quarter at $7.5 billion, up $118 million from the first quarter of this year. In the quarter, Aviation began deliveries of the King Air 260 under the multi-engine training systems contract for the US Navy. To-date, we've been awarded 35 aircraft to a possible 64 on the program. Also during the quarter, Aviation certified a third variant of the Cessna SkyCourier, the combi version allows operators to transport passengers and cargo simultaneously. Combined with the previously certified passenger and cargo variants, this latest variant continues to demonstrate the versatility of the aircraft to our customers. In June, Aviation completed the first flight of Cessna Citation Ascend. The aircraft is the first conforming production flight test aircraft and represents a significant milestone for the program. To-date, we have completed over 400 hours of flight testing. The Bell revenues and profit in the quarter were up as compared to the second quarter of last year. On the commercial side, Bell delivered 32 helicopters, down from 35 in last year's second quarter. Moving to military. Bell completed the FLRAA preliminary design review, while also continuing to release engineering drawings and place orders for long new material as the program continues to ramp. In the quarter, Bell was now selected as one of two companies for the next phase of DARPA's Speed and Runway Independent Technologies X-Plane program to create a prototype high speed vertical takeoff and landing aircraft for the US military. This program builds on Bell's success as the leader in tiltrotor technology. Textron Systems realized higher revenues. We're continuing to pursue new program opportunities in the quarter. Systems was awarded Options 3 and 4 for the FTUAS program in the second quarter. This award includes the delivery of an Aerosonde Hybrid Quad System to the U.S. Army for test evaluation. As part of the army's robotic combat vehicle competition, we announced a collaboration with Kodiak Robotics. Kodiak will integrate its industry-leading autonomous system into a Textron Systems purpose-built uncrewed military vehicle to demonstrate the autonomous operations later in 2024. Moving to industrial. We experienced lower revenues and operating profit in the quarter. As expected, we continue to see softer demand in our consumer and automotive end markets. We continue to execute on our cost reduction plan to position the cost structure for lower volume environment. As a result, we saw sequential margin improvement in Q2 and expect to see this improvement in the second half of 2024. Moving to Aviation. During the quarter, we completed the acquisition of Amazilia Aerospace. The Amazilia team has expertise in digital flight controls, flight guidance and vehicle management systems for manned and unmanned aircraft. We plan on integrating their products and capabilities into our new platforms, such as the Nuuva and Surveyor. Nuuva program reached a significant milestone with the completion of vehicle one assembly. The prototype vehicle has entered ground testing, which supports anticipated hover flight later this year. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were up $113 million from the second quarter of 2023, reflecting higher pricing of $57 million and higher volume and mix of $56 million. Segment profit was $195 million in the second quarter, up $24 million from a year ago, due to higher volume and mix of $35 million and favorable pricing net of inflation of $22 million, partially offset by an unfavorable impact from performance of $33 million. Backlog in the segment ended the quarter at $7.5 billion, up $118 million from the first quarter. Moving to Bell. Revenues were $794 million, up $93 million from last year, primarily due to higher military volume of $104 million as we continue to ramp the FLRAA program. Segment profit of $82 million was up $17 million from last year's second quarter, largely due to a favorable impact from performance of $39 million, which included lower research and development costs, partially offset by mix. Backlog in the segment ended the quarter at $4.2 billion. At Textron Systems, revenues were $323 million, up $17 million from last year's second quarter, largely due to higher volume of $14 million. Segment profit of $35 million was down $2 million from a year ago. Backlog in the segment ended the quarter at $1.7 billion. Industrial revenues were $914 million, down $112 million from last year's second quarter, mainly due to lower volume and mix of $119 million. Segment profit of $42 million was down $37 million from the second quarter of 2023, primarily due to lower volume and mix. Textron eAviation segment revenues were $9 million, and segment loss was $18 million in the second quarter of 2024, compared to a segment loss of $12 million in the second quarter of 2023. Finance segment revenues were $12 million, and profit was $7 million. Moving below segment profit. Corporate expenses were $17 million. Net interest expense for the manufacturing group was $20 million. LIFO inventory provision was $27 million. Intangible asset amortization was $9 million. Special charges related to the previously announced restructuring were $13 million, and the non-service components of pension and post-retirement income were $66 million. In the quarter, we repurchased approximately 4.1 million shares, returning $358 million in cash to shareholders. Year-to-date, we have repurchased approximately 7.7 million shares, returning $675 million in cash to shareholders. That concludes our prepared remarks. Greg, we can open the line for questions. Operator: Okay. [Operator Instructions] Your first question comes from the line of Peter Arment from Baird. Please go ahead. Peter Arment: Yeah. Good morning, Scott and Frank. Nice results. Scott, your book-to-bill over 1 in Aviation. Maybe you could just give us a little color, what you're seeing in the market environment and any color on pricing and what aftermarket also did in the quarter? Scott Donnelly: Sure, Peter. Yeah. Look, I think the end market continues to be robust. We're seeing strong demand in jets, turboprops. It's pretty much across all models and across the whole family of products, which is great. A strong response to a lot of the upgrades that we've done here recently in terms of existing models. And obviously, we'll expect as we go to the back half of the year to see continued strength in new launches like the Ascend and such. So I would say, again, as much as we've seen for the last couple of years, we're still sort of targeting that one-to-one area, but robust demand, which is great. Aircraft are flying. So we continue to see strength in the service business as well. 13% is particularly strong in the quarter, but we feel good about where that's been performing. So, yeah, across I think the whole portfolio is feeling pretty good in terms of the end market. Peter Arment: Yeah. That's great. And then, just a quick one for Frank. Your CapEx, I think, you're $140 million for the first half of the year. I think your guidance is $425 million. So what is -- are you coming in at a slower pace or than kind of the guidance or plans to step up and outside of maybe FLRAA, what are the main drivers of the step-up? Thanks. Frank Connor: Well, we'll continue to see growth in the second half of the year. Obviously, as reflected in those numbers, we're a little slower in the first half than we expected. We tend to be a bit back end loaded in CapEx though. So we will see growth in the second half. There's probably a little opportunity in that kind of full year number given the pace, but for now, that's a number we'll stick with. Peter Arment: Appreciate the color. Thanks, guys. Operator: Your next question comes from the line of David Strauss from Barclays. Please go ahead. David Strauss: Thanks. Good morning. Scott Donnelly: Good morning, David. David Strauss: Scott -- good morning. Scott, can you just give us an update on supply chain at both Aviation and Bell? Scott Donnelly: Sure, David. Look, it's still problematic. There's fewer problems probably than we used to have, but there are still parts that are from suppliers that continue to give us some heartache with late deliveries and that does create some of these issues around holding the factory and reworked and [indiscernible] sequence kind of things. But what we've been managing through that, unfortunately now for a number of years, it does continue to drew -- drag on our performance in the aviation business and particularly the performance numbers continue to see factory inefficiencies that we would like to get resolved. But I think the team all-in-all is working through that. We're still able to drive higher revenue and higher profit margins. So I think all-in-all, the business is performing well despite, it's still a tough environment. I think you see most companies reporting and continue to see some challenges in the supply chain, still a lot of new people, a lot of training inefficiencies and things like that, but we're working our way through it. Same thing at Bell. We have a number of deliveries that we missed where we're missing some key components. We're working with those suppliers. And as I said, the number of them are getting smaller, but in this industry, every part is important. So we're continuing to have to work our way around, some late deliveries of parts coming in. But as I said, I think all-in-all, our teams operational are fighting through that and getting most of their deliveries done and continue to drive good margins. So we'll keep our heads down and keep fighting through that through the course of the year, I think. David Strauss: Okay. Thanks for that. And your first half jet deliveries are relatively flat year-over-year. Are you still expecting higher, higher jet deliveries for the year? And could you maybe comment on latitude and specifically the deliveries were lighter year-over-year there, which is a bit surprising. Thanks. Scott Donnelly: Look, I think we'll -- we are still expecting to have higher unit deliveries in '24 than we had in '23. I would say for sure, David, we're a little behind where we would like to be on a couple of these models. Latitude is one in particular. We had a few deliveries towards the end of the quarter that we didn't get out. They've now gone. But we're working those lines hard in addressing some of the issues. Latitude specifically had one item that we had to kind of manage our way through and I do think we'll see improved performance on that line through the balance of the year. So bottom line is that we will still -- we will have higher unit deliveries and I think overall good mix and performance of the business. Despite all that, we'll show strong margin performance on a year-over-year basis. David Strauss: Great. Thanks very much. Scott Donnelly: Sure. Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead. Sheila Kahyaoglu: Good morning, guys. Thank you so much. Scott, maybe to start on Aviation. Aviation profitability has been really good, 13.2 in the quarter, I think 150 basis points of net price. So how do we think about the puts and takes as we go into the second half? And is this sort of low teens a new level for Aviation profitability? Scott Donnelly: Look, Sheila, I do think the team is performing well, right? I mean, we've got revenues up, margin is up, backlog is up. So we feel pretty good about where the business is. As I said in my answer to David's question, it's not always easy. We're still dealing with challenges in supply chain and things of that nature. But I do think that we'll see continued strong margins on a year-over-year basis as we go through the balance of the year. And again, we're feeling good about where the business is. I wish it was easier, it's not, but the guys are working through it. And I do think that we'll see strong margins. I think we still feel good about our guide. We still think this is probably a $6 billion business this year. I think we'll be well within the guide on the margin front. As we said earlier in the year, I think the price inflation spread, you'll see that getting smaller as the year goes on. But again, I think that will be in part offset by the fact that we'll continue to drive better we'll continue to drive better efficiencies and performance of the factory. Sheila Kahyaoglu: Great. And then maybe one on Bell and just the military portfolio there outside of FLRAA. How do you think about V-22 and opportunities there elsewhere in the military side? Scott Donnelly: So I think the balance of the military business outside of FLRAA is doing well, right? I mean, we did add the H-1s from Nigeria, so that's 12 aircraft. We're able to start ramping that. Here this year, we saw some benefit of that in the quarter as that program starts to ramp up. V-22 production is still going along. Obviously, the five aircraft that were in FY '24 have now been added. So we look at that as adding a little bit of base. Nacelle Improvement Program continues to go. I think we'll see broader adaptation of our acceptance of that here as we go into the future. So I think there's work going on in the FY '25 budget and beyond that will provide some upgrade opportunities on V-22 as well as H-1. So the announcements around SIEPU. So I do think while the production unit volumes obviously will continue to ramp down, we will see some good flow of upgrade and modernization efforts on both the H-1 and the V-22 lines that will help to make that, to keep that solid as we start to ramp and really more -- move towards the production mode of the FLRAA program. Sheila Kahyaoglu: Great. Thank you. Operator: Your next question comes from the line of Myles Walton from Wolfe Research. Please go ahead. Myles Walton: Thanks. Good morning. I was wondering, Scott, if you could talk about the aftermarket growth, you mentioned 13%, which is a pretty good acceleration given utilization is decelerating. Was there anything or is there anything that's driving that, whether that's non-typical on the military side or mandates or anything of that nature? Scott Donnelly: Well, I think all-in all, Myles, we're continuing to see good growth in the aftermarket business. Demand continues to be strong. Aircraft are flying. We did have a strong military quarter, in particular as we build the spares pool around the METS program for the Navy contract, but it's just in general, strong on the aftermarket side. Demand is there. Again, people are flying, so consumption is up, people are doing shop visits. So I think we feel in a -- and we're in a very good place in terms of the aftermarket overall. Myles Walton: Okay. And then I guess on the performance disclosure, the $33 million drag, I know this can get a little bit apples to oranges comparison, but does that imply that performance actually deteriorated sequentially or didn't improve as much as you had in your baseline plan? Scott Donnelly: Yeah. Myles, look, the performance category is a messy one as you know, right? So there's a lot of stuff in there. For sure, some of it is just some of those inefficiencies that we talked about, right? I mean, we're still not at our standard costs where we would like to be. So part of that number for sure reflects some manufacturing variance. But as you know, there's also a lot of other stuff in there, right? I mean, the business continues to grow. So if you look at on a year-over-year basis, SG&A, IRAD, these numbers, which are in line on a percent of sales basis, but those actual dollar values on a year-over-year basis also go through that performance line. So there's natural growth in SG&A, there's natural growth in IRAD. Look, there was a legal settlement in there this quarter. So there's always lots of $3 million, $4 million, $5 million things that go through there, most of which you would kind of expect in a business that's growing and continuing to invest. Myles Walton: Okay. Got it. Thanks so much. Scott Donnelly: Sure. Operator: Your next question comes from the line of Doug Harned from Bernstein. Please go ahead. Doug Harned: Good morning. Thank you. Scott Donnelly: Good morning. Doug Harned: On the Ascend, you introduced the Ascend at EBACE and I thought that was interesting. Europe is only about, I think about 7% of aviation revenues. How are you looking at international markets, particularly Europe, Asia. Do you see those for aviation as potentially offering a bigger share of your total revenues? Scott Donnelly: So Doug, I don't know if it will change dramatically that overall share of revenue. The Jet business obviously has always been more North American centric. South America has usually been our second biggest market than Europe, third behind that. So specifically, as you look at Ascend, I think we'll see a similar spread of share, much as we saw over many years with the XLS family. This really -- the Ascend in essence takes that historical product, which has been a homerun for us, probably the most popular business yet in the world and modernizes it, gives us great new cockpits, a little bit of thrust pump in the engine side, a much better cabin with a flat floor and larger windows. I mean there's everything -- I think customers will love everything about that aircraft from crews to passengers, performance. But I would expect we will see sort of the same kind of share because it really is the product that is hugely strong in that mid-sized biz jet market, but that is still largely a North American market and then secondarily South American and then European. So I would expect we'll see that same kind of share position across all those key segments with the Ascend as we used to see with the XLS family. Doug Harned: And then on SkyCourier, I mean, SkyCourier seems to be, you're sort of expanding the envelope in which it can serve. How do you ultimately see that market in terms of scale? And how large could that -- the SkyCourier fleet ultimately be? Scott Donnelly: Well, I think it's going to be a very big market. I mean, if you look at the acceptance of that product, I mean, right now, we're just trying to make them as fast as we can make them. The demand has been really strong. And I mean, it's been great to see, Doug, it's everything from the pure cargo version. I mean, this thing is a beast in terms of moving cargo around the world. We're seeing a lot of acceptance on sort of small regional airlines, 19 PAX seating and then obviously, what we did here most recently with the combi is you have a lot of markets where they need to move PAX, but they also need to move cargo and that's exactly what the combi was aimed at. So right now, I think both domestic, international markets, cargo PAX, now the combi, the issue for us with SkyCourier is just continue to ramp up on the production volumes. The demand is there across all those segments and in a lot of different geographies. Doug Harned: Okay. Very good. Thank you. Operator: Your next question comes from the line of Seth Seifman from J.P. Morgan. Please go ahead. Seth Seifman: Hey. Thanks very much, and good morning. Scott Donnelly: Good morning, Seth. Seth Seifman: I was wondering if you could talk a little bit more about the potential where the margin can go in the Industrial segment in the second half, kind of how much of the benefit of the cost cutting program that you felt like we saw in the second quarter and how much is still on the come? Scott Donnelly: Well, Seth, I mean, I don't know if I'll give an exact number, but we certainly continue to -- we expect to see it continue to grow as we move through the year. We're not expecting a miraculous turnaround in the end market demand. We're watching that very closely. So if you look at the numbers Frank kind of went through, we've done about a third of the restructuring costs incurred here in Q2, we'll see another big chunk of that for the most part in the back half of this year as we continue to take cost out of the business to align with that volume. But I think when you look at that, it's probably going to generate, we're probably still running 100 basis points or something below where we should be. And I think the cost actions that we're taking will square that away. So it's -- the strategy right now is keep taking the cost actions. Don't assume that you see some miraculous turnaround in terms of that end consumer demand and just keep driving sequentially improved margins. Seth Seifman: Okay. Great. And then maybe just as a quick follow-up. Very good order activity year-to-date in aviation. Is there anything you'd say to distinguish where the order activity is coming from with regard to either fleet customers versus individual customers? Scott Donnelly: Now we're still seeing the spread is strong pretty much across all the customer base and both jet and turboprops. So it's pretty well across all characteristics, no matter how you want to kind of slice and dice, it's looking to be continually -- continue strong demand. Seth Seifman: Excellent. Well, thanks very much. Scott Donnelly: Sure. Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Please go ahead. Noah Poponak: Hey. Good morning, everyone. Scott Donnelly: Good morning, Noah. Frank Connor: Good morning, Noah. Noah Poponak: The business jet output just remains, I guess, low relative to how strong demand is and where the backlog is. Are lead times getting long enough that it's an issue for some customers and you're losing some sales on that or do you sort of just not care about that because you're managing to price and the margins are good and you're okay on that front? Scott Donnelly: Well, I mean, I think largely, Noah, this is an industry phenomenon, right? I mean, if you're out there -- if you had a dramatically different lead time, you might be disadvantaged, but I think everybody is dealing with the same issue. So we're still out there. Obviously, with a book-to-bill above one, we're selling, but we're delivering aircraft, but we're continuing to take orders into that -- into those out years. So it's -- I'd say right now, it's pretty well-balanced. And I don't think we're at a competitive advantage or disadvantage right now in terms of availability. We're all out competing. But in the timeline, obviously, based on the backlog that's out there year-and-a-half, two years in many cases. Noah Poponak: Okay. The additional H-1 orders at Bell, can you speak to roughly what that adds annually and how far out in the future that will go? Scott Donnelly: No, I don't think so. I mean the Nigerian order was 12 aircraft, like the upgrade programs like SIEPU, that will go on for quite a number of years, but I mean, those aren't all appropriated. So I don't think I would get into -- to that. It's the same, I would say on the V-22 program, right, we think there's missile improvement opportunities. There's a number of other things that are in dialogue with our V-22 customers on enhancements. Everybody knows that aircraft is going to be around for a very, very long time. And so like any military platform, you would expect ongoing investment upgrades, enhancements, but these are all dialogues and programs that will flow over the year. So I don't think I would necessarily start to get into a multiyear forecast on those. Noah Poponak: Okay. And then just last one, does it make sense to walk through the math on the shadow decommission just so that's modeled correctly, how much comes out? What does it do to the margins? Did that affect the second quarter? Any clarity you can provide there? Scott Donnelly: So look, I mean from a modeling standpoint, Noah, this is about a $50 million business or something like that, right? So I mean, we're -- we've already obviously worked our way through most of what the revenue is going to be this year as we wound down from Q1 to Q2. So I'd say it's fairly de minimis as we go through the balance of the year. Again, I think this is one where if you look at that team from our original guide absorbed that loss of the shadow, which kind of came out of nowhere, obviously from our perspective. And we've seen enough growth in all of the other business within systems to try to try to make up for that revenue and obviously continue to hold a good margin business. So I think the team has largely got shadow, unfortunately, it's largely behind us and the team managed their way through that and has positioned us to at least continue to operate the business well. And again, most importantly probably in systems focus on those new programs like the FTUAS, RCVs, the ARV, XM30, I mean there's a lot of stuff going on that business that has opportunity. But I would say largely what you model is we sort of have absorbed the loss of the shadow program. Noah Poponak: Okay. Yeah. That looked mathematically a little tough to do at least in the very near-term. So, yeah, that's impressive. Okay. Thank you. Operator: Your next question comes from the line of Cai von Rumohr from Cowen & Company. Please go ahead. Cai von Rumohr: Yes. Thanks so much. So, Scott, you guys have been kind of warning about margins. Don't get ahead of yourself because the inefficiencies that you experienced in the second half of last year are going to flow through inventory into the P&L and that will restrain margins. It looks like that didn't really occur. I know although I know mix was a plus. And as presumably your efficiencies are improving, even if not as much as we'd hoped. Should we be looking for a good improvement in the second half from diminishing flow through of kind of inefficiencies so that even though I assume the mix is negative given you got more latitudes, but so you could basically sustain this 13% type margin? Scott Donnelly: Well, look, I think that the 13% is extremely strong, right? I'm not sure I would say that we're going to maintain 13% as we go through the balance of the year. But I think it's going to be solidly in that sort of that mid-12s kind of range. So for sure, we will have some -- as I said earlier, probably less price inflation spread than we had. And part of that frankly is some mix. We do have a lot of latitude deliveries, a number of which are heavy on the fractional side in particularly Q3. And as you know, those have lower margin than a retail latitude. So there's, look, there's always some headwinds, but there's also good things that are going on. So I think this business is well within the guide that we put out there despite the ongoing inefficiencies. And at a mid-12%’s margin, we feel like this -- our business is performing well, generating strong margin, generating good revenue growth, generating continued strong backlog. So I think the guide that we had out there, which I think we're clearly still on track to deliver is -- shows that business in a very good place. Cai von Rumohr: Terrific. And then secondly, you continue to be aggressive actually even more aggressive in terms of share repurchase. You bought $358 million, 4.1 million shares. So you're basically whacking away at a 5% rate. What should we expect in terms of the Repo in the second half? Scott Donnelly: I think we'll continue to focus on that Repo, Cai. What we're generating, we're getting good strong cash flow. We feel very good about where the business is on a cash standpoint. What we do some small acquisitions of Amazilia relatively small dollars that adds some real capability to the eAviation business. Frankly, technology that will help us not just the aviation, but I think also at Textron Aviation as well as future opportunities at Bell. So, but these are small dollars. Clearly, the bulk of the strong cash flow generation that we have right now. We're allocated to the buyback and I think we'll continue to do that. Cai von Rumohr: Thank you very much. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Please go ahead. Ronald Epstein: Yeah. Hello. Can you hear me? Scott Donnelly: Good morning, Ron. We can hear you. Ronald Epstein: Yeah. Great. Perfect. Sorry. Yeah. Maybe just a couple of quick ones. Could you do a bigger version of SkyCourier? Like is there any demand for that from your customers? Scott Donnelly: Ron, I don't know that we need to do a bigger version of it. It's a big aircraft. It's just -- next to one of those guys. But I mean the -- from a -- just from a regulatory standpoint, I mean where it fits -- first of all, fits really, really well in that short haul cargo market. Obviously, we work very closely with FedEx and particularly on designing that aircraft. So it was really designed to be in that (3) LD-3 container kind of space where it fits really, really well. And then on the PAX side, from a regulatory standpoint, you hit that 19 PAX line and this thing comfortably takes care of 19 passengers. So I think to do anything bigger than that, now you sort of start to step up into the ATR world and things like that. And I don't think that's really our space. I think the -- where there was a huge gap in the market was really when you went from our caravan, which obviously has been a homerun in that smaller cargo and PAX market and then up into that sort of light air transport kind of slide, we felt like SkyCourier is in the sweet spot of that. So, and we're seeing that from a market demand standpoint. Ronald Epstein: Got it. And then on Aviation, I mean, how do I frame this? It seems like we're in a unique environment where for you guys, I don't want to put words in your mouth, but everybody that you have no white tails. Everything going down lines is owned. Have you ever experienced that before, if that's okay? Scott Donnelly: Well, I think you have to probably go back to 2007, Ron, to be there. But look, this is a business and we talked about this for years, right, Ron? This shouldn't be a white tail business, right? I mean it wasn't in most of its -- most of the history of business jets was not a white tail business. I think what happened sort of financial crisis, post-financial crisis wasn't how that business should operate. This business should operate off of a, depending on the model types, anywhere from 12 months, 18 months to two year, kind of a backlog so that you know when an aircraft is rolling down that line, where it's going. And that's where we are and I think that's where the industry should stay. And again, this is not a new idea, right? This is how this industry worked for decades and certainly good to have it back where it's supposed to be. Ronald Epstein: Yeah. That's great. And then if I can, just one last quick one. Just curious, you mentioned that aviation, some of the technology investments you might make inorganically could flow back to out just broader Textron Aviation. Can you highlight anything that you're learning in that business that could actually help outside of the aviation, just broader aviation? Scott Donnelly: Sure. Look, the nature of what we're doing, particularly with unmanned things like Nuuva and when you look at the levels of automation that we believe need to be in things like Nexus, these are very highly automated fly-by-wire, digital flight control, almost autonomous, even if there's not a person -- even if there is a person in a cockpit like in the Nexus case, it's still in essence, the capability of the aircraft is inherently autonomous. So when you look at the Amazilia guys, this is an expertise that they had. But we've done this. We've done a lot of fly-by-wire on V-22, for instance. Obviously, the V-280 is all fly-by-wire, the 525 is the first commercial helicopter in the world is fly-by-wire. So we have capability in the company to do this. But I think as we go forward, not just for these things like Nexus and like Nuuva, but future families of products or enhancements upgrades to products is going to see more and more levels of fly-by-wire, digital control, quasi autonomous capability, but it needs to be at a much lower price point than what you've seen in these high end, very expensive systems. And so that's the technology that we're using, developing and working both through the acquisition and the implementation on things like Nuuva and Nexus are fundamental technology that -- well I believe you'll start to see in the lower price point on both fixed wing and rotorcraft markets in the future. Ronald Epstein: Okay, cool. Thank you very much. Scott Donnelly: Sure. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Please go ahead. Kristine Liwag: Hey, good morning, everyone. Scott and Frank, I mean, the strength in aviation is clear. Scott, you mentioned on Ron's question that, look, we're kind of almost back at that pre-financial crisis levels regarding the backlog. If you take out the performance headwind that you highlighted in the quarter, margins at aviation would have been 15.5%. I mean, this is also back to pre-financial crisis levels margin. So I guess when the performance headwinds tail off and the backlog continues to hold secure, is the mid-teens margin kind of the new normal in aviation? Scott Donnelly: Well, Kristine, I guess what I would say is, look, some of the -- some of those performance items for sure are associated with these factory inefficiencies and we do expect over time for those things to get better. As we get better, the supply chain deliveries as our workforce becomes more seasoned again. So I do think there will continue to be underlying improvements going forward in those areas. But as I also said, some of these things around performance are also just fundamentally associated with the growth of the business, right? We are going to see more sales commissions when we have more sales. And we are going to see R&D, again, not necessarily a headwind from a percent of sales standpoint, but you're going to see higher R&D numbers as we continue to invest in the business. So, but look, I think the bottom-line answer to your question, Kristine, is we're not going to put a number out there right now, but clearly, over the last few years, we continue to see improvements in the margin performance of this business. And I think it's reasonable to expect that we'll continue to see that going forward. Kristine Liwag: Thank you. That's really helpful context. And then maybe pivoting to a defense question. The European defense budget seems to be moving higher, a little faster and steeper than the U.S. defense budget. I guess, how do you think about opportunities for European sales? It hasn't been a huge part of your portfolio historically. But with the leverage of the business pretty low, what's also your interest in expanding European capabilities either organically or inorganically? Scott Donnelly: Well, I mean, we do have a number of sales campaigns that go on in Europe. It's not, as you noted, has not been a huge part of our business in the past. I do think as you look at farm military sales opportunity, things like the FLRAA program, clearly that's a big part of where the army is focused is looking at partner countries around the world. And just as we saw for many, many decades, things like the Black Hawk become really important parts of those businesses from an international sales perspective, including Europe. We obviously will expect that to happen over time. And there's also some organic things. So again, if you look at rotorcraft again, I guess right now we've we did announce sort of a teeming relationship with Leonardo around pursuit of the European next generation rotorcraft opportunity. So that's kind of organic, but that would be a product that's tailored to that European market. So I do think there are opportunities out there and we are pursuing those and we'll compete for those going forward. Kristine Liwag: Great. Thank you. Operator: Your next question comes from the line of George Shapiro from Shapiro Research. Please go ahead. George Shapiro: Hi, good morning. Scott Donnelly: Good morning, George. George Shapiro: Scott, year-to-date orders have been about $3 billion in aviation, about the same as last year's first half. Do you think you can reach the $1.86 billion of orders that you had in last year's third quarter, which was particularly strong? Scott Donnelly: George, I don't know. I mean we're -- as we kind of guided, we think this is going to end up as a one-to-one year. That's still our view. So if you look at order activities last year, they were stronger than that. But I do think we're -- again, our expectation is we're in sort of a more normalized world here where one-to-one is a good book-to-bill target. And we are coming through the first half of the year strong, which is great. I mean, I'd love to see that continue obviously, but I don't think necessarily $1.6 billion in the quarter is probably pretty sporty. George Shapiro: Okay. And then maybe one for you, Frank, the inventories year-to-date are up like $467 million, obviously less in the second quarter with bedded deliveries, but still up $110 million in the second quarter. I mean, for the end of the year, do you expect that inventory level to come down to close to where it was at the end of last year's -- at the end of last year or we're going to stay $100 -- a couple of $100 million above it? Thanks. Frank Connor: So we'll certainly expect to liquidate inventory in the back half of the year. Yeah. But in order to kind of grow the business for next year, we need inventory in order to sell products. So we expect we'll see some inventory growth on a year-over-year basis at year end, but not at the levels you've seen to date. I'd say overall, obviously, that offsets from working capital in other areas. So we think working capital is kind of flattish type number for the year. But obviously, there are offsets and payables and other things associated with that, but we do need some inventory growth in order to grow the business. George Shapiro: And one last one. Industrial, in the first quarter, you pretty much said was primarily weak because of special vehicles. This quarter, you kind of said -- you didn't say that. So do we assume that both Kautex and special vehicles were relatively weak in this quarter? Frank Connor: Well, Kautex was down on a year-over-year basis, but it wasn't particularly weak. It was just -- we had a very strong second quarter last year, frankly, both in specialized vehicles and Kautex. So you had a really tough compare from both a volume standpoint as well as a margin standpoint. But Kautex on a sequential basis was up quarter-over-quarter, but it was down a bit on a year-over-year basis, but specialized vehicle was down kind of more on a year-over-year basis, coming off a very strong second quarter last year. George Shapiro: Okay. Thanks very much. Scott Donnelly: Yeah. Operator: Your next question comes from the line of Peter Skibitski from Alembic Global. Please go ahead. Peter Skibitski: Hey, good morning, guys. Scott Donnelly: Good morning, Peter. Peter Skibitski: Hey, Scott. As we think about some of the softness in the consumer that you're experiencing at TSV, maybe to your Kautex comments as well, less so, but you guys aren't seeing that extend to any of your aviation customers at all. And I -- not even on the pistons or the turboprops. And I'm asking in particular, because it seems like deliveries on your lighter jets at aviation that Citation in the first half were a little bit lighter year-over-year versus the larger jets. So I just want to understand how you're seeing the health of your customers there. Obviously, they have bigger balance sheets, but I just want to get a sense. Scott Donnelly: Yeah, Peter. I'd say when you look at our lighter aircraft, I mean M2, CJ3, CJ4, we're seeing strong demand. So book-to-bill in those guys is good. Even pistons, I mean, for the most part, we're just trying to make them faster, right? I mean, now the piston aircraft training demand remains very high, right? It's very hard to find a 172 anywhere. So I think the piston side of the business is good. The light jet side of the business is good. So it's that again, these are people with stronger balance sheets, obviously and looking out over time and there's backlog. So you can get one for a year or 18 months, whatever it may be even in the lighter jet side of things. So we continue to see good order flow there. It's that discretionary, sort of point-of-sale kind of consumer, you generally financed kind of market that's just -- that's down. As I said, we're aligning costs around that. As Frank said, it's tough, particularly this quarter. We had a really strong quarter for a lot of those kind of products a year ago. It's softer now. And so we've made necessary cost and production volume alignments to match that. But no, we're absolutely not seeing that behavior when you look at light jets or Bell 505s, Bell 407, I mean the market for those even that sort of the lower price point jets and rotorcraft continue to do very well. Peter Skibitski: Okay. Interesting. Last one for me, just on GBSD. It looks like sentinel (ph), it looks like it passed its [indiscernible] review. Any change that you guys expect in the program profile for you guys? Scott Donnelly: No, I don't. We're continuing to work very closely with Northrop. I think the program is progressing well. We've had a number of things that have added scope to what we originally had bid on the program. So I think we have a great relationship with these guys. That piece of the program is going well. As you guys know, I mean just in the media that a lot of the cost issues around the infrastructure as opposed to the missile itself have been a big issue. So for sure, there are scheduled challenges, which I think are well-documented, Northrop talks about them, their customer talks about them, but we continue to -- I think, to execute well on the program, see scope increases on the program and are continuing to make good progress on the -- on our piece of the -- of the overall weapon system. Peter Skibitski: Okay. Thank you. Scott Donnelly: Sure. Operator: And your final question today comes from the line of Gavin Parsons from UBS. Please go ahead. Gavin Parsons: Thank you. Good morning. Scott Donnelly: Good morning. Gavin Parsons: It sounded like aviation guide in-line with the initial thoughts, industrial margin maybe a little below, but can you just kind of go around the horn a little bit and update what's tracking above or below to allow you to stay in the guidance range? Scott Donnelly: Yeah. I think you actually did a pretty good job there. I think the aviation guys are well within -- in their guide and having a great year. I think that Bell Systems will probably come in a little bit above their guide. Strong performance in both those business. And as we've talked about, we'll probably be a little below the guide on the industrial segment just because of lower volume, particularly in that consumer space. But net, I think we feel pretty good about where things are and most businesses are performing really well. Gavin Parsons: Okay. Appreciate it. And then maybe just on pricing on orders, it seems like you're still getting maybe mid-single digits on deliveries. Is it a similar level what's going into the backlog today? Scott Donnelly: Yeah. Well, I mean, we're probably not going to give price forecasting, but I would certainly say price continues to be strong in the marketplace, so. Gavin Parsons: Okay. Thank you. Scott Donnelly: Okay. Operator: Ladies and gentlemen, this conference will be available for replay after 10 a.m. Eastern Time today through July 18, 2025. You may access the AT&T Executive replay system at any time by dialing 1866-207-1041 and entering the access code 4306608. International participants dial 402-970-0847. Those numbers once again are 1866-207-1041 or 402-970-0847 with the access code 4306608. That does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Operator: Thank you for standing by. Welcome to the Textron First Quarter 2024 Earnings Call. [Operator Instructions] This conference is being recorded for digitized replay and will be available after 10 a.m. Eastern Time today through April 25, 2025. You may access the replay by dialing (866) 207-1041 and enter the access code 8546032. I would now like to turn the conference over to David Rosenberg, Vice President, Investor Relations. Please go ahead. David Rosenberg: Thanks, Leah, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenue in the quarter were $3.1 billion, up from $3 billion in last year's first quarter. Segment profit in the quarter was $290 million, up $31 million from the first quarter of 2023. During this year's first quarter, adjusted income from continuing operations was $1.20 per share compared to $1.05 per share in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $81 million in the quarter compared to $104 million of cash provided in last year's first quarter. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, David, and good morning, everyone. In the first quarter, we saw higher segment profit at Aviation, Bell and Systems. At Aviation in the quarter, we delivered 36 jets, up from 35 last year, 20 commercial turboprops, down from 34 last year's first quarter. Aviation continues to see strong demand across our product lines that resulted in backlog growth of $177 million and in the first quarter at $7.3 billion. Textron innovations fleet utilization remained strong in the quarter, contributing to aftermarket revenue growth of 6% as compared to last year's first quarter. Throughout Q1, we saw continued improvements in our supply chain and hours attained in the factory, supporting delivery growth throughout the remainder of the year. At Bell, revenues in the quarter were up driven by higher military volume, reflecting the continued ramp of the FLRAA program. On the FLRAA program, we continue to progress through preliminary design reviews and expect to complete milestone B, which allows for the entrance into the engineering and manufacturing development phase of the program later this summer. Also during the quarter, Bell received an award for the production delivery in Nigeria of 12 AH-1Z helicopters. V-22, the recently enacted FY '24 budget includes 5 additional aircraft scheduled for delivery in 2027. On the commercial side of Bell, we delivered 18 helicopters down from 22 in last year's first quarter. During the quarter, we continued to progress toward FAA certification on the 525 expected later this year. Bell recently received its first order for 10 525 helicopters from Equinor, Norwegian state energy company. Moving to Textron Systems, revenue was flat and margin was up versus last year's first quarter. During the quarter, we received notification from our government customer of the termination of the shadow program. We're currently working with the Army on winding this program down. This decision reflects the Army's transition from shadow to the Future Tactical UAS system to fulfill the need of organic intelligence, surveillance and reconnaissance. Earlier this month, we received notification that we were awarded options 3 and 4 of the FTUAS program, and we remain one of two competitors for this next-generation program. Also in the quarter, systems was down selected with one other competitor to design, develop and manufacture a 30-millimeter Autocannon Advanced Reconnaissance Vehicle prototype for the U.S. Marine Corps. This 2-year effort will develop an innovative combat vehicle that provides mobile protective firepower for the marines. In addition, the Army's FY '25 budget request funds the design of the XM30 ground combat vehicle in preparation for the prototype build and testing portion of Phase 3 and 4 in the program's development. Moving to Industrial. We saw lower revenues in the quarter, largely driven by lower volume and mix and specialized vehicles. Kautex revenues were flat in the quarter. We are encouraged by recent trends in the hybrid space where industry is experiencing increased customer demand and OEM investments in hybrid platforms. Aviation, Pipistrel delivered 30 aircraft in the quarter, up from 13 in 2023. Also during the quarter, Pipistrel was granted an airworthiness exemption by the FAA for its Velis Electro trainer which will allow U.S. flight schools to use this all electric aircraft in their pilot training programs. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.2 billion were up $39 million from the first quarter of 2023, reflecting higher pricing of $48 million and lower volume and mix of $9 million. Segment profit was $143 million in the first quarter, up $18 million from a year ago, reflecting a favorable impact from pricing net of inflation of $14 million. Backlog in the segment ended the quarter at $7.3 billion. Moving to Bell. Revenues were $727 million, up $106 million from last year's first quarter, reflecting higher military volume of $95 million, primarily related to the FLRAA program. This was partially offset by lower volume on the V-22 and H-1 programs. Segment profit of $80 million was up $20 million from a year ago, primarily driven by a favorable impact from performance of $30 million which includes $13 million of lower research and development costs. Backlog in the segment ended the quarter at $4.5 billion. At Textron Systems, revenues were $306 million, flat with last year's first quarter. Segment profit was $38 million, up $4 million from last year's first quarter. Backlog in the segment ended the quarter at $1.8 billion. Industrial revenues were $892 million, down $40 million from last year's first quarter, largely reflecting lower volume and mix of $51 million, principally in the Specialized Vehicles product line, partially offset by higher pricing of $16 million in the segment. Segment profit of $29 million was down $12 million from the first quarter of 2023, primarily due to lower volume and mix at specialized vehicles. Textron eAviation segment revenues were $7 million and segment loss was $18 million in the first quarter of 2024 compared with a segment loss of $9 million in the first quarter of 2023, primarily related to higher research and development costs. Finance segment revenues were $15 million and profit was $18 million. Moving below segment profit. Corporate expenses were $62 million. Net interest expense was $15 million. LIFO inventory provision was $20 million. Intangible asset amortization was $8 million and the non-service component of pension and postretirement income was $66 million. In the first quarter of 2024, we incurred $14 million in special charges under the 2023 restructuring plan, largely related to head count reductions to improve the cost structures of the Textron Systems and Bell segments in light of the cancellations of the shadow and FARA programs in the quarter. We expect to incur additional severance costs in the second quarter in the range of $25 million to $30 million largely related to head count reductions in the Industrial segment. As a result, Textron has expanded its 2023 restructuring plan from a previously announced range of $115 million to $135 million in pretax special charges to a range of $165 million to $170 million. In the quarter, we repurchased approximately 3.6 million shares, returning $317 million in cash to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in a range of $6.20 to $6.40 per share. We also expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our prepared remarks. So Leah, we can open up the line for questions. Operator: [Operator Instructions] And we'll start with David Strauss with Barclays. David Strauss: Scott, maybe if you could just dig in a little bit in the -- on the deliveries in the quarter. I think the mix was pretty strong but relatively flat year-over-year and you build a lot of inventory. So maybe just how the supply chain is doing? Did you want to deliver more airplanes than you ended up doing? And how do we think about how much deliveries could grow this year off of 168 last year? Scott Donnelly: Sure. David, look I think that we certainly expect to see nice growth on a year-over-year basis. The supply chain does continue to improve the number of hours that we're able to get in the factory in terms of labor hours that are productive hours post training and whatnot does continue to improve. So I think we feel pretty good about how things progressed through the quarter. Look, we always have a few aircraft that we would like to have gotten delivered. We definitely had some things that got late in the quarter or just didn't get to where they could transfer in time. But for sure, the trend in terms of productivity and efficiency and throughput in the factory improved as we worked our way through the quarter. So a little bit lighter than we probably would have liked but not a big number. And I think again, the momentum is good, and we certainly are still feeling very good about our guide in terms of a nice increase in volume on a year-over-year basis. Operator: Next, we go to the line of Robert Stallard with Vertical Research. Robert Stallard: Thanks Scott, maybe we'll start with Industrial, a bit of softness there in Q1. I know this is a tough division to forecast given its short-cycle nature. But are we finally seeing the U.S. consumer rolling over here. Scott Donnelly: Well, look, I think we talked last year Robert towards end of the year and in our guide that we expected to see the sort of high-end consumer dollars, sort of recreational personal transportation, stuff soften and we're seeing that. It's probably even a little bit softer than we would have expected. I think the automotive segment is pretty stable, which is fine. There are certainly some pieces in the vehicle business that are doing fine, but those high-dollar discretionary items have certainly softened. As you know, those are often financed. Finance costs are certainly higher than they have been. So we expected it to be softer, our PTV business, which has been a great business for us. It was a little bit softer than we would have expected, and that's part of what we'll have to do some additional restructuring on top of our initial plan to dial that in and avoid a situation where we put too much inventory out in the field. Robert Stallard: Right. And then maybe one for Frank. On the revised restructuring plan, do you -- how do you expect the cash impact of that to flow through? And do you expect the savings to be roughly equivalent to the restructuring charge? Frank Connor: Yes. I think the savings will be ultimately in the area of $185 million or so kind of on a run rate basis and that we'll realize a fair amount of that by the end of 2024, but that will roll into '25 as well. The incremental cash is about $20 million in '24 for the additional restructuring, and we'll just absorb that into our cash guidance and overall cash for the restructuring for '24 is in the area of $60 million to $65 million. So -- but additional $20 million versus where we had been. Operator: Next, we move on to Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Can we start off with maybe Bell, Scott, if we look at margins, they expanded up 130 basis points of Bell to 11% despite maybe $180 million of large contribution on the top line. So how do we think about the moving pieces to profitability for the year to get to 9.5% to 10.5%? Scott Donnelly: Well, I think we'll probably still end up in that range, Sheila. We had a strong Q1, obviously. We did have, as we noted there, a settlement on initial property-related lawsuit that gave us a little bit of a boost in the quarter. But I would say the team is performing well. As you know, we did restructuring actions to try to deal with the loss of the FARA program. We were able in a number of cases to take some of the appropriate engineering count and move that over to the FARA program, which helped us ramp that program up. But we also had to take some cost actions, both in the -- as a result of the loss of the FARA program as well as some of the lower production quantities. Obviously, it will certainly help us as we start to see some flow of the Nigerian H1 where that gets that line back up and going again, the extra 5 on V-22, which is above the original program of record is certainly a nice add, and we'll start to see some of that flow through in the latter part of the year. So I think Bell had a strong quarter. We're continuing to focus very much on cost to deal with the mix issues there. But we'll clearly end up towards the high side of the guidance on Bell, I think they're performing well. Sheila Kahyaoglu: Great. And then if I could ask one on Aviation, orders held up pretty well, book-to-bill above 1x. Maybe if you could provide any color on what you're seeing from your customers. One of your competitors noted interest rates are potentially prohibiting orders? If you could just comment on that? Scott Donnelly: Sheila, we continue to see real good strength across pretty much all the product lines in the business. So we're feeling pretty good about the order flow a lot of these aircraft are going to deliver a couple of years from now. So from a financing standpoint, I don't know, we don't -- I guess here is as much about that, but the order activity was staying pretty strong, very positive. Operator: Next, we go to Myles Walton with Wolfe Research. Myles Walton: Scott, I was wondering if you could touch on the supply chain within Bell. Obviously, the 1Q seasonally light usually for the commercial helos but down year-on-year. And then also the comment you made on the 525 certification at year-end. I know that, I wonder if your business heads had been quoted is getting more confident on that into the year-end. Could you also comment on your confidence level of that certification? Scott Donnelly: Sure. Look, the Bell supply chain continues to I would say, improve. We always have a number of parts that are sort of problem children. We're continuing to work that. But in general, I think we are able to manage our way through that. And I don't think there's anything new or surprising that would have, in any way, affect our guide as we think about Bell commercial volumes through the course of the year. We did have a very strong Q4, obviously, on the commercial deliveries and so a little lighter maybe than we expected in Q1, but I think we're in good shape. And order activity there also remains very healthy. So I think Bell is in a good place. 525 flight test is going very well. The FAA flight testing portion, we're well into that. We have a few more performance flight test and then we go through sort of what they call FNR, which is about 150 hours of just durability reliability flying. And obviously, as you guys know, we've been flying that aircraft for a long time. It's proven to be very durable, reliable aircraft. So I don't think we'll have any issues going through there. So we'll we should wrap up flight testing year as we get to midyear. And as you know, there's a fair bit of paperwork processing and final documents and all that kind of stuff that have to go before the final certification. But I'd say at this point, we feel pretty good about where it is. Myles Walton: And if it were certified, what would be sort of the production rate that you target over the next few years? Scott Donnelly: Yes. We haven't released a production rate on the 525. Operator: And our next question comes from Peter Arment with Baird. Peter Arment: Scott, nice results. Did you quantify what the settlement was in the Bell that affected the margins this quarter? Scott Donnelly: No, we didn't. I mean, it's not a huge number, Peter, but it's not that helped the margin rate a little bit in the quarter. Peter Arment: Okay. Okay. So I just want to clarify that. And then just a quick one for you, Frank. We expected that you would have higher corporate expenses in Q1. Just wondering, just from a modeling perspective calibrate the rest of The Street. Are we thinking more evenly spread for the balance of the year for your $160 million target? Frank Connor: Yes. As you know, that bounces around depending on where the share price is, but kind of we expected, it certainly will not be as volatile or may not be as volatile for the rest of the year. So we'll see. But yes, we're still sticking with the same target for the full year. Operator: Next, we have a question from Cai von Rumohr with TD Cowen. Cai Von Rumohr: Yes. So your competitors, Gulfstream and Embraer basically had higher biz jet deliveries and we're kind of closer to where they expected to be. And yet you guys continue to struggle. Is part of that related to geography that you guys are in Wichita and you have to fight with Spirit to get people because they're trying to ramp to. And that, therefore, this is going to be a longer slog than maybe others are going to see? Scott Donnelly: Cai, I mean I thought we feel pretty good about our deliveries. We always would like to get another couple of jets here and there, but I think we're doing pretty good and feeling good about where we are. On the labor front, where we expect it to be. So I don't see a problem with our labor situation in which [indiscernible] I think everybody has been challenged by higher turnover rates just in terms of the amount of churn. And that's really been one of the biggest impacts to us on the productivity efficiency side is the number of people that come in and rotate back out, but I think most companies in all industries, frankly, are seeing that. But no, I don't think we have a -- we certainly don't feel like we have a macro unsolvable problem. It's improved significantly. The number of employees is where we needed to be. And I expect we'll -- as I said, we will continue to see a ramp on deliveries as we go through the year. Cai Von Rumohr: Great. And sort of maybe going back to Myles' question. So energy prices are up 525 is clearly targeting that market. You've got an order for 10, do delivery start relatively early next year? So could we start to see some pretty good build on that program? Scott Donnelly: Well, we're already ramping up the production side of the program to start to meet deliveries, but I suspect those deliveries will be in the late '25 sort of time frame. I think we're in a very good place in terms of the cycle, as you alluded to. Obviously, Equinor is an energy company, and those are for oil and gas offshore applications, and we have several other customers who were in, I'd say, positive latter stage negotiations that are primarily aimed at the oil and gas market right now. So it's certainly a favorable time to be getting these things through certification. And I think it fits a nice place in that end market. Operator: Next, we go to Seth Seifman with JPMorgan. Seth Seifman: Thanks very much. Good morning, everyone. I guess, Scott, you called out the contribution to EBIT growth from pricing at Aviation, and we'll see more about the other components in the queue. It looks like the compares for pricing get somewhat tougher from here, should we think about I know you probably have some visibility into the backlog here. Should we think about the $14 million of year-on-year pricing being a relatively high level compared to what we're likely to see for the rest of the year given that those compares get harder? Scott Donnelly: Yes. I think it kind of is pretty stable through the course of the year. I mean we do have obviously very good visibility to the pricing side of things because they're all in the backlog. Obviously, what's important to us is to maintain that spread of net pricing over inflation. And so that's really most of the work as we go through the course of the year is just managing the inflation numbers around supply base and things like that. So -- but I would expect to see positive price over inflation through the course of the year. Seth Seifman: Okay. Okay. And then just a follow-up, I think you talked earlier about potentially some upside at Bell. I talked about being in good shape at Aviation. I mean when we think about where industrial came in, in the first quarter and where the guidance is, it looks like they're going to probably have a tough time getting to that guidance and then maintaining the overall guidance for the company of Aviation and Bell to fill in those gaps? Or that... Scott Donnelly: I think that -- yes, I think look, the industrial business, we would anticipate the revenue being a little bit lower than probably our original guide. I think we'll probably hold in the margin range. But I think we have sufficient upside in terms of the performance and how we're doing on the aviation and the Bell front that -- which is why we're comfortable holding our guide for the overall company. Operator: Sorry about that. We will next go to the line of Noah Poponak with Goldman Sachs. Noah Poponak: Scott, Frank. Just staying on the Aviation margin, I mean, it's a pretty good incremental in the quarter. I think it was a little bit of an easier compare. We kind of a sense what units and price are doing. I think you've had cost input inflation, but you've also cited just kind of supply chain and some internal operating performance, maybe that's been a hurdle. Is that behind you now? Is that no longer an issue as you move through 2024? And is that a tailwind year-over-year? Scott Donnelly: I think you'll still see some pressure in second quarter. No. Remember, a lot of these aircraft are inventories, a lot of that cost is inventory. So it usually takes the first half of the year to bleed out in the performance levels and productivity levels that we saw in the back half of the previous year in 2023 in this case. So I still think we see some pressure for that. But I'd say the good news is that when we look at the metrics in the factory and the efficiencies, productivity and things of that nature, we are starting to see some of the benefits that we expect to see in a more stable production environment, less supplier disruption, fewer onboarding, so less impact on the training. There's a lot of things the business is doing to try to address some of those issues. So I do think that we'll have margin rates that do continue to improve over the course of the year, but you're still going to have some drag of that inventory release, particularly as you get through Q2. Noah Poponak: Okay. That makes sense. And then I guess just a follow-up on the Bell margin. I know the FLRAA is still ramping and it will kind of exit the year at a different revenue run rate than it achieved in the first quarter. But it's also ramped a decent amount. And I think this year, you'll get pretty close to what the run rate is in the sort of medium term. And this Bell margin just keeps outperforming. I mean the amount of margin compression that was discussed out there in the market, I guess, in the medium term? Is that kind of off the table? Or I guess, how do you see this dollar margin hanging in '24, '25 or '26, just in the medium term as you continue to ramp FLRAA? Scott Donnelly: Well, look, I mean, I think again, the team is performing well. We're doing everything we can on the cost front to deal with the lower production levels, things like the Nigerian order, the additional 5 V-22, these things are all helpful. I guess I would also note and you may have seen, if you look at the FY '25 budget request, one of the allocations of sort of the elimination of FARA and where that money in the out years goes, there is over $200 million of FY '25 money on FLRAA above what was originally in the [ FIDAE ]. So I do think that we're going to -- we're ramping quite nicely on FLRAA. We'll actually probably see that increase in terms of the number of revenues on FLRAA as we get into 2025 above what we might have originally expected on the [ FIDAE ]. So that's another couple of hundred million dollar probably revenue step as we get into next year. So look, we'll continue to stay very focused on the cost side and executing and perform against all these programs. And as I said, I think that will drive us to the higher side of the revenue guide -- part of the -- I'm sorry, the margin guide for this year, and we'll certainly get back to you on the FY '25 guide sometime in January, February. Noah Poponak: Okay. And Frank, I guess, a decent amount or a lot of the items below segment manufacturing segment EBIT were pretty different in the quarter compared to what the full year implied on a quarterly run rate. If I look at what Aviation did finance did tax rate, corporate interest, even. Is it worth updating those on a full year basis? Or are they all just kind of still looking like the land in the range of what you had originally embedded in the earnings guidance? Frank Connor: Well, I think that finance will be in the range of what we had thought. We talked about corporate expense was kind of significantly higher this first quarter due to share price performance. But we'll kind of stick with that type of range. I think interest expense relative to, I don't know what -- we didn't really guide interest expense, but our -- I guess, we're probably a little better on interest expense, excuse me, relative to the $90 million depending on what interest rates do for the year. Our investment in cash is a little better than we had thought given the continuing higher interest rates, so there's probably a benefit there. But the other stuff is kind of in the range of what we had talked about. Operator: Next, we have a question from Doug Harned with Bernstein. Douglas Harned: I wanted to go back to your discussion around pricing at aviation. This has been a great story with continuing to be able to get pricing ahead of inflation. But when you look at this, and I'd say outside of what you have in the order book right now. When you try and plan longer term, is this something you can expect to continue? Or do you have to look at this as eventually pricing is going to come back and kind of converge with inflation rates? Scott Donnelly: Jeez, I don't know. I mean, obviously, I would say at a macro level, generally speaking, over very long periods of time, price inflation probably end up pretty close. I think we certainly went through a number of years in this industry where the prices were where the products were way under price. I mean it just doesn't make sense. So I mean, we had a significant catch up in price. I think got them back to much closer to where they should be. And obviously, our expectation is you're going to continue to see inflation on a go-forward basis, and we expect to see pricing increasing on a go-forward basis. And then we're seeing that. I mean pricing in the market is solid. And beyond that, I'm not sure how to forecast over a long period of time. But we still think demand is strong and the price environment is also doing well. As I said, I think when we guided, we talked about the fact that you wouldn't see as significant a price -- absolute price increase, as you saw in the last couple of years, but you also see some inflation starting to come down as well. So anyway for us, what's important is that we have net pricing positive over inflation. Douglas Harned: Okay. And then just switching over to Bell for a moment on -- again, on margins. You've talked in the past, and I think as one would expect, initially, FLRAA is dilutive. But when you look at that trajectory now that you're moving forward, you're headed toward [ Milestone B ], I would expect long term, this is a very accretive program once you're in full rate production. Can you give us a sense of how you expect kind of the time line of FLRAA's contribution to margins to proceed? Scott Donnelly: Well, I mean, I think that -- as you described, that's kind of what you would nominally expect for any of these large defense contract programs, FLRAA is a very big program, right? So the EMD phase of this thing goes out through into 2030. Now you'll start to see, I would suspect initial production lots. We have LRIP deliveries that happen out in 2028, but you'll start to see some of the follow-on production lots be negotiated out in that time frame. But certainly, the next several years is very much dominated by the EMD program. Douglas Harned: Okay. And that would be dilutive in that period. Scott Donnelly: Yes. Correct. Operator: Next, we go to the line of Jason Gursky with Citigroup. Jason Gursky: Good morning, everybody. I was wondering if you could spend a little bit time on eAviation. Maybe provide us a little bit of an update on how things are going in that business and the development that you've got going on there? And kind of what the -- the next couple of years look like for you all on product development revenue and how EBIT is going to trend for us here over the next few years given that backdrop? Scott Donnelly: Sure. So look, I think there's obviously a couple of pieces that are in here, right? There's the Pivotal business, which I think is doing well. We're seeing -- we saw a significant increase in the number of deliveries here in Q1. I think demand for those products is strong. So we feel pretty good about where that is. As I mentioned, we did get an FAA exemption on the ability to do flight training on the Bell's electro, which is fundamentally a training aircraft. So I think that will help us pick up volume as we can now sell those and use those for training in the U.S. domestic market. It's already been accepted, and we've seen nice growth in the international markets. We have a couple of new products that are in that in that product line, I think we'll do well. So I think we feel very good about how the Pipistrel guys are doing and how that's performing. On the R&D, which is really the dominant piece of what's driving the financials in that segment, we have the Nexus program, which is progressing well. We're doing the full integration and testing of the first craft. We'll probably see -- we're already sort of doing ground testing and evaluation already. We'll probably see flight test later on this year on the Nexus front. That program is also, I'd say, progressing well. Most of the supplier selections are done. Parts coming in, we're starting to build the first airframe with an expectation that we would probably fly that sometime next year. So that's really what drives the financial side. Now I would say that we're -- the level of investment that we're making right now into those programs is probably going to level off. So we saw -- as we've guided, we saw a significant increase from '22 to '23 and now '23 to '24 and those -- that level of spending is probably going to level out going forward. So we'll start to see some EBIT increased contribution on the Pipistrel product sales side. So I think that's clearly a segment that the investments in Nexus and in the newer program, we're going to continue to have us in a loss position, but it probably stabilizes going out the next few years. Jason Gursky: And as you think about the size of the market that you're going after, you're putting investment dollars against what you expect to be volumes. And so I'm just kind of curious, when do you expect the payback period to start on these investments that you're making? Scott Donnelly: Okay. So I think this is very much an unknown. I mean, there's plenty of studies out there and a lot of other noise in this industry that when you look at the eVTOL side of things, that it's a mega market. The exact timing of that, I think, is still a little bit to be determined. There's still plenty of work to do on the technical front from our perspective, technical work, regulatory work to make sure that there's viable products to meet that mission. So again, I think there's plenty of independent third-party data out there that has perspectives about how huge that market could be. Keep in mind as our spending here is relatively modest. I think we're taking advantage of a lot of cost and cost structure and talent and capability that we already have in the company. So if the market proves to be what third parties would say the market would prove to be, it's going to be a massive return on investment. Operator: Next, we go to George Shapiro with Shapiro Research. George Shapiro: Scott, the incremental margin in Aviation, as people were talking about was, I mean, like 46%. And I recognize that revenue differences are small, so the numbers can get somewhat distorted. But given that you said inflation will probably pretty much be somewhat similar to the price benefit that you got this quarter. Why won't those incrementals for the rest of the year run somewhat higher than kind of your objective of 20%? Scott Donnelly: Well, George, look, I mean I think when we look at the cost and what's going to come out of inventory and what the margin rates are going to look like, it's, I do think you're right. We did have a higher conversion on Q1, but that's certainly, I think, certainly higher than we would expect for the course of the year. So I think at this point, as we look at it, our expectations in terms of what inflation is going to look like, what plant performance is going to look like, which, as I said, is for sure improving through the course of the year as we get towards the high side of guide there, it's that 20% kind of range, which is generally what we've guided as a long-term measurement for the business. And I think that's where we'll be. George Shapiro: Okay. And one quick one for you, Frank. You bought a lot of stock in the first quarter, like 1.8% of the outstanding I guess it was pretty opportunistic? Or do we expect that you might buy more than 5% for this year? Frank Connor: Well, we talked about kind of 5% was in our guidance, but we also talked about the fact that we have a strong liquidity position, and we're going to return excess capital. So I think that kind of -- we did a fair amount in the first quarter. We'll continue to buy from here. We'll probably be on the higher side of that 5% for the year. Operator: Next, we go to the line of Ron Epstein with Bank of America. Ronald Epstein: Just maybe circling back on the defense business in the supplemental that just got passed yesterday. Is there stuff in there for you guys? I mean have you looked -- obviously you've look at it, but can you give us a sense of potentially what's in there for Systems or Bell? Scott Donnelly: No, there's not. I mean we really haven't been in the in the guns and bullet business. So most of that stuff is not replenishments of things that we have. I do think there's opportunities in Ukraine over time when you look at things that are possibilities for Bell on some other things and systems, but not something that's directly tied to these supplementals. Ronald Epstein: Got it. Got it. And then kind of back to aviation. Broadly, how is this supply chain doing in that? One of the things I've heard oddly enough is like window screens, windshields for airplanes or there's a shortage of those. I mean is there other stuff like that, that's just kind of random stuff to just kind of short in supply. Scott Donnelly: Well, look, Ron, as we said, it's the randomness is part of what drives us crazy, right? It's -- and they change over time. But you're absolutely right. Windshields have been a problem now for several years. And it's, I'd say, probably getting better, but it's been a big problem. It's been a problem for us in terms of production builds. And frankly, it's been a big problem for us in terms of our customers. If somebody has a damaged windscreen and it's been an area of a lot of dissatisfaction in the industry, not just for the OEMs like us but also for our ability to provide spares in service. So it is -- certainly has been and remains one of the top problem items by category. Ronald Epstein: Yes. When I heard that I was astonished, but yes, I guess the current suppliers shut down the other supplier, whatever. Operator: Next, we go to Kristine Liwag with Morgan Stanley. Kristine Liwag: Scott, earlier you mentioned on industrial, how you're seeing incremental weakness in the high-end consumer. Can you talk about the customer profile of those buyers? And if there are similarities to the customer profile for products like M2 or pistons or Couriers in aviation? Scott Donnelly: So I don't know exactly in terms of categorization of that customer per se. But I think that if you look at demand for all the way down to piston. The system 172, demand remains very strong, and we expect to have strong deliveries even over last year, but availability, the demand environment is very strong for that kind of stuff. And too strong. I mean these are products that we see strength in terms of demand across the product line. I don't think they're the same customer maybe or the same consumer perhaps. But I think if you look -- now certainly, what we're seeing and we look at other companies. If you're in the business of doing boats, RVs, recreational vehicles, PTVs, that consumer has clearly slowed down. They slowed down last year, and we did make some adjustments based on that, but we've seen further slowing on that. But yes, I don't know how to categorize whether it's the same customer or not, but certainly those product categories have slowed down and everything from pistons up into light jets has not. And of course, that's a much bigger, much more important business to us, which is good, I suppose. Operator: Next, we go over to Gavin Parsons with UBS. Gavin Parsons: I just want to confirm if I heard the restructuring savings are expected at $185 million, given I think the initial plan was $75 million. And just what's driving the better number there? Frank Connor: Yes. That's a full kind of run rate when we get through it all. And it's really driven by the addition of head count reductions. The unanticipated Shadow, FARA and then the additional actions at Industrial are really focused on head count where the original restructuring had some asset impairment in it. And so we're getting a much bigger run rate savings as a result of those reductions to kind of rightsize those activities. Gavin Parsons: Got it. Okay. What is the transition from shadow to FTUAS look like in terms of kind of revenue and margins over what time frame? Scott Donnelly: Well, look, I think that's still a little bit to be determined when the Army canceled the Shadow program. They did say they wanted to move more aggressively on FTUAS, we have seen that in the awards now of option 3 and 4, which is good. There aren't, I don't think, formally published dates, but the dates that we hear about in terms of when they'll put an RFP out on The Street for the ultimate EMD production decisions, sounds like they're probably pulling that forward to where that RFP could come out as early as even late this year, which would lead to an early '25 calendar year award, which should be great. So the exact size and scope and therefore, the revenue and the margin is -- we just don't have visibility to that at this point. Operator: This conference is being recorded for digitized replay and will be available after 10 a.m. Eastern Time today through April 25, 2025. You may access the replay by dialing (866) 207-1041 and enter the access code 8546032. This does conclude our conference for today. Thank you for your participation. You may now disconnect.

Operator: Thank you for standing by. Welcome to the Textron Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] This conference is being recorded for digital replay and will be available after 10 a.m. Eastern Time today through January 24, 2025 at midnight. You may access the replay service by dialing (866) 207-1041 and enter the access code 4065507. I would now like to turn the conference over to David Rosenberg, Vice President of Investor Relations. Please go ahead. David Rosenberg: Thanks, Leah, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.9 billion, up $3.6 billion in last year's fourth quarter. Segment profit in the quarter was $384 million, up $78 million from the fourth quarter of 2022. During this year's fourth quarter, adjusted income from continuing operations was $1.60 per share, compared to $1.23 per share in last year's fourth quarter. Manufacturing cash flow before pension contributions totaled $380 million in the quarter, up $12 million from last year's fourth quarter. For the full year, revenues were $13.7 billion, up $814 million from last year. In 2023, segment profit was $1.3 billion, up $191 million from '22. Adjusted income from continuing operations was $5.59 per share as compared to $4.45 per share in '22. Manufacturing cash flow before pension contributions was $931 million, down $247 million from '22. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, David, and good morning, everyone. Our businesses closed out the year with another solid quarter with strong margin performance and cash generation. Throughout the year, our team has worked to mitigate supply chain challenges to deliver products to our customers. At Aviation, while we ended the year with an expectation of a book-to-bill 1:1, solid order flow and customer demand across our product portfolio resulted in year-end backlog of $7.2 billion, an increase of $782 million. Textron Aviation Defense delivered 13 T-6 aircraft for the year, up 10 from a year ago. During 2023, solid aircraft utilization within the Textron Aviation product portfolio resulted in a 6.5% growth in aftermarket revenues. At Bell, revenues in the quarter were up driven by higher commercial and military revenues. On the commercial side of Bell, we delivered 91 helicopters in the fourth quarter, up from 71 in last year's fourth quarter. For the full year, we delivered 171 helicopters in 2023, down from 179 in 2022. The higher military revenues reflected the continued ramp on our FARA program. On the FARA program, Bell completed the installation of the ITEP engine on the 360 Invictus. The team continues to conduct integration activities and prepare the aircraft for initial ground runs in 2024. Moving to Textron Systems. Revenue and margin were flat with last year's fourth quarter. During the quarter, Systems delivered the last detailed design and construction craft on the Ship-to-Shore Connector program following its successful completion of acceptance trials. Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume in Caltex and favorable pricing in specialized vehicles. Moving to Aviation. Pipistrel delivered 135 aircraft during the year, up from 61 in 2022. Also at eAviation, during the quarter, the Pipistrel Bells Electro was selected to participate for a trial period to explore operational and trading uses for this all-electric aircraft as part of Agility Prime, the Air Force's vertical lift program. Summary, in 2023, the year -- we had a strong year across all of our businesses. We continue to execute on our growth strategy of ongoing investments in new products and programs to drive organic growth and margin expansion. During the year, Aviation announced the new Cessna Citation Ascend at EBACE and the Cessna Citation CJ3 Gen2 at NBAA. In May, Aviation delivered the first passenger variant of the Cessna SkyCourier to Lanai Airlines servicing the Hawaiian Islands. In the third quarter, Aviation announced a new fleet agreement with NetJets for up to 1,500 aircraft over 15 years, including longitude, latitude, and the newly announced Ascend, extending our 40-plus year relationship. In October, Aviation delivered the 100th Cessna Citation Longitude. At Bell, we began work on the FARA program in April. The team continues to increase activity on the program, ramping up engineering resources, contracting with key suppliers, and ordering long-lead materials. At Textron Systems, we advanced through the future tactical unmanned aircraft system competition and are now one of two remaining competitors down from the initial five. Systems also continued to win on land vehicle programs advancing to the next phase of the Army's XM30 program as part of Team Lynx and was selected as one of four competitors to build RCV light prototypes for the Army. At Textron Specialized Vehicles, we introduced the new street legal EasyGo Liberty LSV powered by our elite lithium ion battery system. At Caltex in 2023, we announced the first pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate, establishing Caltex as a supplier to the expanding battery electric vehicle market. In Aviation during the year, we began system-level integration of the first Nuuva prototype, our hybrid electric unmanned cargo VTOL aircraft in preparation for first flight in 2024. As we closed out 2023, manufacturing performance was trending positively with improvements in labor productivity and supplier deliveries. Looking to 2024 in Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, we're projecting revenue growth in 2024 on higher military revenues from the FARA program and higher commercial revenues from increased deliveries. At Systems, we're expecting slightly higher revenue as new programs continue to ramp. At industrial, we're expecting flat revenues as growth of specialized vehicles is offset by lower than expected volume at Caltex. At Aviation, we plan to continue investments in development of technologies and products supporting sustainable flight solutions for unmanned cargo, next-generation electric trainers, eVTOL, and general aviation. We also expect higher aircraft deliveries at Pipistrel. With this overall backdrop, we're projecting revenues of about $14.6 billion, up 7% from 2023 for Textron's 2024 fiscal year. We're projecting adjusted EPS in the range of $6.20 to $6.40. Manufacturing cashflow before pension contributions is expected to be in the range of $900 million to $1 billion. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were down $58 million from the fourth quarter of 2022, reflecting lower volume and mix of $158 million, partially offset by higher pricing of $100 million. Segment profit was $193 million in the fourth quarter, up $23 million from a year ago, reflecting a favorable impact from pricing net of inflation of $51 million, partially offset by lower volume and mix of $22 million. Backlog in the segment ended the quarter at $7.2 billion. Moving to Bell, revenues were $1.1 billion, up $255 million from last year's fourth quarter, reflecting higher commercial revenues of $171 million largely driven by increased deliveries and higher military revenues of $84 million related to the FARA program. Segment profit of $118 million was up $55 million from a year ago, primarily driven by higher volume and mix of $39 million. Backlog in the segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $314 million and flat with last year's fourth quarter. Segment profit of $35 million was equal to last year's fourth quarter. Backlog in the segment ended the quarter at $2 billion. Industrial revenues were $961 million, up $54 million from last year's fourth quarter, largely reflecting higher volume and mix at Caltex and a favorable impact from pricing at Textron Specialized Vehicles. Segment profit of $57 million was up $14 million from the fourth quarter of 2022, primarily due to higher pricing net of inflation of $18 million. Textron eAviation segment revenues were $10 million and the segment loss was $23 million in the fourth quarter of '23, which reflected the research and development costs for the initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $12 million and profit was $4 million. Moving below segment profit. Corporate expenses were $45 million, net interest expense was $13 million, LIFO inventory provision was $21 million, intangible asset amortization was $9 million, and the non-service components of pension and postretirement income was $60 million. In November, we announced a restructuring plan that resulted in pretax special charges of $126 million in the fourth quarter. We anticipate the restructuring plan will be substantially completed in the first half of 2024, resulting in annualized cost savings of approximately $75 million. Our manufacturing cash flow before pension contributions was $380 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $931 million, down $247 million from the prior year. In the quarter, we repurchased approximately 3.7 million shares, returning $283 million in cash to shareholders. For the full year, we repurchased approximately 16.2 million shares, returning $1.2 billion in cash to shareholders. Turning now to our 2024 outlook on Slide 7. We're expecting adjusted earnings per share to be in the range of $6.20 to $6.40 per share. We're also expecting manufacturing cash flow before pension contributions to be about $900 million to $1 billion. Moving to segment outlook on Slide 8 and beginning with Textron Aviation, we're expecting revenues of about $6 billion. Segment margin is expected to be in the range of approximately 12% to 13%. Looking to Bell, we expect revenues of about $3.5 billion. We're forecasting a margin in the range of 9.5% to 10.5%. At Systems, we're estimating revenues of about $1.25 billion, with a margin in the range of about 11% to 12%. At Industrial, we're expecting segment revenues of about $3.8 billion and a margin in a range of 6% to 7%. At eAviation, we're expecting revenues of $50 million and a segment loss of $25 million, reflecting our continued investment in sustainable aviation solutions. At Finance, we're forecasting segment profit of about $30 million. Looking to Slide 8, we're projecting about $160 million of corporate expense. We're also projecting about $90 million of net interest expense, $110 million of LIFO inventory provision, $35 million of intangible asset amortization and $265 million of nonservice pension income. We expect a full year effective tax rate of approximately 17.5%. Turning to Slide 10. R&D is expected to be about $550 million, down from $570 million last year. We're estimating CapEx will be about $425 million, up from $402 million in 2023. Our outlook assumes an average share count of about 191 million shares in 2024. That concludes our prepared remarks. So, Leah, we can open the line for questions. Operator: Thank you. [Operator Instructions] And I would now like to start with Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Good morning, Scott, Frank, and welcome, David. Scott, maybe first one for you. How do we think about 2024 aviation deliveries and just book-to-bill in the context of your guidance? Scott Donnelly: Sure, Sheila, I think we'll continue to see a ramp on the production side. As I noted, I think we did in the fourth quarter, start to see some improved productivity in the line. There are still some supplier issues, but number of parts coming into PO are improving somewhat. So I think that will help us continue to increase volume here as we go through into 2024. So I certainly see unit deliveries being up on a year-over-year basis, the market is still strong. I mean, obviously, our book-to-bill covers '24 deliveries quite well. But I think our expectation, as we said coming into the year was kind of targeting a 1:1 book-to-bill. We did better than that obviously in 2023, but our assumption as we go into 2024 is that we'll see a 1:1 book-to-bill. So the market is still good. I think we're seeing nice stimulation in some of the new products coming out, like CJ3 Gen2 has been really well received. Ascend, I think will start to also drive strong demand. And overall, the product lineup is in good shape. So I think market-wise, we're good, and we will see, obviously, to get to the guide of around $6 billion on the Aviation side, we will see continued volume on both aircraft production as well as aftermarket growth. Sheila Kahyaoglu: Can we get to about 200 deliveries in '24? Do you think that's reasonable? Scott Donnelly: We are -- as you know, we don't put a number out there, but it will be increased from 2023. Sheila Kahyaoglu: Got it. And if I could ask one on FLRAA, just good progress on the program with ITEP. But I think revenues were about $175 million in 2023, fell short of our expectations. And how do we think about 2024, we have about $850 million of FLRAA according to the budget. So… Scott Donnelly: I think -- for sure, Sheila, I think our revenues were higher than that on FLRAA probably for the year. We won't break out all the details, but it was certainly just south of a few hundred million dollars. But we do expect as we go into '24, the program is reacting very nicely. As you know, like the number was lighter than we originally expected, just because of the delay with the protest in the early part of the year. But the ramp -- as we've ramped after the contract award is going really well. So I would expect a number closer to the $900 million range in 2024 on the FLRAA program. Sheila Kahyaoglu: Thank you. Operator: Next, we go to a question from Peter Arment with Baird. Please go ahead. Peter Arment: Yeah. Good morning, Scott, Frank, David. Just maybe -- just circle back just on how you're thinking about kind of the margin leverage in Aviation, Scott, when you think about just because you called out some of the pricing that you continue to get. How are we thinking about just kind of that flowing through? I mean just given the margin outlook of 12% to 13% kind of at the low end of the range, it's flat, but at the upper end, obviously, 100 basis points. Just how are you thinking about that? Scott Donnelly: Sure. Look, Peter, I think we definitely expect to continue to see price net of inflation is a positive for us. It won't be as significant as it was in 2023, but we still have good pricing in the backlog, and I think it will be a tailwind for us. So if you look at the guide and the numbers, you're right. Look, I mean, we're -- as I said, I think we saw some improved performance in Q4 on the manufacturing conversion side. So we're bringing -- we're certainly baking some of that in as we go into 2024, but as you move towards the high side of the guidance, you get up into that 20-plus-percent conversion, which is where we historically like the business to be. So it's something we've got to work on, obviously. We still have some of those headwinds that we faced all this year on the operating side, but the combination of improved performance and continued price over inflation is positive, while it's not as big a positive, I think, will help us get towards that 20-plus range. Peter Arment: Got it. That's helpful. And then just Frank quickly, the interest expense increase, just maybe what's going on there specifically? Thanks. Scott Donnelly: Well, yeah, go ahead. Frank Connor: Yeah, a little. We've got slightly higher borrowing costs from the bond deal that we did last year. So that's a little bit of the rollover on the financing. It assumes slightly lower cash balances and a little bit of conservatism around the interest rate that we earn on that excess cash. Peter Arment: Thanks again. Thanks, Frank. Operator: And next, we go to David Strauss with Barclays. David Strauss: Thanks. Good morning, everyone. Scott Donnelly: Good morning, David. David Strauss: Scott, I wanted to ask about the V-22 grounding. Does that impact Bell at all? I know you have a pretty big aftermarket business on the V-22? Scott Donnelly: No, David, I don't think it's a material impact. The services, frankly, are using the opportunity -- the grounding to continue to do their maintenance activities and get aircraft ready to fly. So we probably can't say much more about that situation than that. But no, I don't expect it to be a material impact. David Strauss: Okay. And Frank, free cash flow, the guidance were flat, I know you had a pretty big inventory build in '23, but you also had positive advances. What are you assuming for working capital? And in terms of the adjusted EPS guide, what are you baking in as far as share count and share repo in '24? Thanks. Frank Connor: Yeah. From a cash standpoint, we obviously are anticipating volume growth in the year. So that's going to put a little continued pressure on inventory levels as we look kind of to '24 and '25 volume growth, not a lot. There is a little bit of working capital pressure with the timing of some customer payment activity, particularly on the military side. Bell, in particular, had a very good year in '23 in terms of the timing of payment activity that puts a little bit of a headwind on cash flow. And then as you heard a little higher CapEx guidance kind of -- in terms of the spend there. So it's not any one item. It's kind of a little bit of headwinds on working capital associated with the things I mentioned and a little bit higher levels of investment. But we still think we're -- there's still very solid cash flow performance for the year. In terms of the share count, we talked about 191 million average shares. So kind of roughly 5% or so reduction in average share count for the year. David Strauss: Thank you. Operator: Next, we go to Jason Gursky with Citi. Please go ahead. Jason Gursky: Yeah. Good morning, everybody. Scott, I was wondering if you could just spend a few more minutes on systems and talk about the pipeline of opportunities there and the timing of potential awards kind of with the backdrop of what's going on with the budget in mind and whether things like continuing resolutions to go out half a year have any impact on kind of your expectations around those? Scott Donnelly: So the CR situation right now doesn't really worry me very much on the system side of things. As we indicated, Jason, we're going to be relatively flattish on the revenue in 2024, I'd say the pipeline is very strong. You look at some of these down selects on FTUAS, the ARV program, what used to be the [indiscernible] program. A lot of these things are significant opportunities for us are really important down selects that we achieved last year. We'll execute on those, and they're not big growth programs so they don't really have a CR impact that I'm too concerned about. And there are virtually all programs that will have their next significant contractual award down select in 2025. So that's why you see us kind of flattish. We had -- I think 2023 was a hugely important year for the down selects on those really important programs, execute this year and you start to see the revenue growth driven by ultimately being final selection awards, EMD programs that award in 2025. Jason Gursky: Okay. Great. Thank you. And then just quickly on eAviation. We've got widening profitability losses, they're projected for '24 on higher revenue. I was wondering if you could just kind of give us a broad brush update on the plans for that business? And at what point does the revenue potentially pick up here and you begin to see those profitability losses begin to contract? And kind of your overall vision for that business over the next, I don't know, three to five years? Scott Donnelly: Sure. Absolutely. Look, keep in mind, there's two things going on in that eAviation segment, right? There's Pipistrel, which is our current -- it's a real business, real sales, roughly doubling the volume of aircraft sales from '22 to '23, roughly doubling '23 to '24. So I think the product lineup at Pipistrel is doing quite well. We're expanding distribution channels. It's a relatively small business, but it's doing well. What's driving the losses is these investments in R&D, particularly around the Nexus program, that's something that won't generate revenue probably for several years and investment on, say, the Nuuva 300 which is our hybrid unmanned cargo, which again, this is a few years from revenue. And so that's part of why is we broke this thing out, right? So you guys see these investments, which are, frankly, not dependent or tied to the revenue within that segment. So the two big moving pieces in there in terms of the investment side are the Nuuva on the unmanned cargo and the Nexus on the sort of the EV tall side, which, again, I don't think that has to be necessarily dependent to urban air mobility, but just GA in general. Both of those teams are making great shape. I think we'll see first flight of the Nuuva in 2024. We've also begun the assembly and wings and fuselage build on the Nexus program in Wichita. So both programs are making very good progress, but they're both technology investment programs. Jason Gursky: Okay, great. Thanks. Scott Donnelly: Sure. Operator: Next, we go to the line of Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak: Hey, good morning, everyone. Scott Donnelly: Good morning, Noah. Noah Poponak: Scott, we've heard some discussion in the business jet end market that even though 2023 was a decent order year that there's actually maybe some pent-up demand because it was so consensus that there was going to be a recession or something like it. And that in 2024 if we're having an inflation decel and rate cuts and some version of a soft landing that you could have your normal underlying demand plus anybody that deferred from '23. And so I'm curious if you hear that from your customers or your sales force and there's an upside case for bookings? Or is that too aggressive and just stick with book to bill of 1? Scott Donnelly: Well, look, no, I think as I said at the beginning, we feel good about the end market. Customer dialogues are robust. Frankly, the only headwind that I see would run to is just on availability, right? People would like to get aircraft sooner. So we're -- I think our sales folks are out there working hard. There's no doubt there's demand. I think that's, as I said earlier, helped by the fact that we've got some new models that are coming out that are going to be really well received in the market. So, look, all in all, as we talked about, the book-to-bill number can change a little bit quarter to quarter, but I think we feel very good about the end market. I think we'll stick at this point with our kind of one-to-one in our base assumption as we did in 2023. And if the market remains that robust, we can exceed that number, which would be great. So look, I think the market remains strong. It's -- we feel good about it. Noah Poponak: Okay. And I wondered if you could just maybe discuss a little more just how much better is supply chain, labor, your ability to get airplanes out the door. The delivery number was down in '23 despite all the demand, kind of to your point there on availability. Whatever the '24 delivery plan is, it's got to be up a lot to get to that revenue guidance. Do you feel like you really have that hitting the ground running in January here? And then as that pertains to the margin, why would price net of inflation not be better if that -- if pricing is still good, I know the rate of change matters, but if that -- if the cost inflation and disruption piece settles down significantly for you? Scott Donnelly: Well, look, I'd say I don't know how to quantify the exact number for you, Noah, but there's a couple of dynamics here that make us feel good about it. Again, we saw better labor productivity, all the metrics we track in terms of training hours, direct charging to [interact] (ph), all those sorts of things, applied hours, were positive in the quarter. We do track a number of parts that are late to PO. These numbers are getting better. Also, I think as you look at the '23 to '24, we have net less hiring we need to do to hit the ramp. Last year was a big year in terms of onboarding new people. As you can imagine, that's very disruptive. It's a lot of training that takes not just the new people, but it takes a lot of our capable people to help train and develop them. We made a lot of investments in 2023 around new training facilities. So -- but the absolute number, we still need to onboard new people, for sure. But on -- the number of them is less than what it was in 2023, and that should be helpful. The supply chain thing, as I said, look, it is getting better, but it's still susceptible to the wrong part not being available, right? I mean I think it's going to help us do less out of station work but we still have suppliers we're keeping a close eye on because a lack of delivery on their part could hold up an aircraft. So we're still being cautious about how we work through that, but it has improved. And like I said, there is less hiring. I think most of our lines are flowing better as a result of all the things I just talked about. So we do factor that into our ability to hit that larger number of aircraft deliveries in '24. And I think we'll get there. Noah Poponak: Okay. That's good. I'm just going to ask one more. The Bell margin, pretty strong in the quarter, close to '23, well ahead of the initial plan. This '24 guide, 9.5% to 10.5%. Kind of flat year-over-year. There was a view that this was going to 7%, 8% as you ramped FLRAA, you're ramping FLRAA, that's not happening. Can you talk about how you're outperforming there and absorbing the FLRAA ramp? Is '24 the trough or does that still need to go down some number of hundreds of basis points before then going back up? Scott Donnelly: No, look, Noah, I think, look, the team is doing everything they can to manage costs, control -- do the right cost actions here as we see the ramp down on some of these military production programs, and we continue to do that. Those were certainly better mix than a big cost-plus EMD program. So we still will have some pressure around the margin rate. But as we talked about that, the growth benefit of seeing this program ramp up, we believe will still generate accretive not dollars. So even if we see some pressure on the margin rate, the business will still be contributing positively to the overall dollars and therefore EPS for the business. Noah Poponak: Okay. All right. Thanks. Operator: And next, we go to the line of Myles Walton with Wolfe Research. Please go ahead. Myles Walton: Thanks, good morning. I was hoping to circle on Aviation. In the last few quarters, there's been more discussion of this performance as a negative variance to the profit walk. That wasn't part of the conversation. It was clearly price offset by a little bit of volume. So is it fair to think that, that bucket of performance that you all cite has materially become nonmaterial? Scott Donnelly: Well, I wouldn't say non-material. I would say, Myles -- and look in 2023, we had pretty significant price overinflation benefits. And I think we did talk through the course of the year that, that did help to offset some of the performance issues that were driven by these labor inefficiencies and supplier impacts and stuff like that. So I think as you look at 2024, we're expecting improved margins. We're absolutely expecting significantly improved revenue and therefore, operating profit in the business. But the trade you're going to see is there's probably still positive price over inflation, but not as big a number. But you're going to have less performance issue to have to cover with that number because we do expect to see better efficiencies in the factories and lesser impact from the supply. So net of all this stuff, I mean, there's a different dynamic, I believe, in 2024. That's how we're going to get there than 2023. But the bottom line, you're going to see significant revenue growth and significant operating profit, including expanding margin in 2024. Myles Walton: Okay. And then on the restructuring program, you executed, I think, about 60% maybe was directed at Bell. Of the $75 million gross savings you talked about, how much net savings is Bell getting in '24? And also is Bell getting most of the lower R&D benefit? Scott Donnelly: Well, look, I mean we don't -- we're probably not going to break that all the way down, but certainly part of why the discussion I just had with Noah around why are we seeing some better margins and holding in there on the margin rates at Bell is this is part of why we took that restructuring action to control cost and manage our way as we reduce the volume in some of these historic military production programs. And so that's part of what's helping to sustain a better margin rate even as we see those programs ramped out. We just have to take the cost out of the business in the areas that were largely supporting these big military production programs. So I won't put the exact number in there, but that's a dynamic that's helping to improve that margin. Myles Walton: And is R&D drop there mostly in Bell? Scott Donnelly: It is. I mean, as you know, we don't break that all the way out. But look, we still had, as you recall, the delay of the FLRAA program in 2023, we had more of our own costs, still sustaining and supporting that program in the earlier part of the year, obviously, as that has ramped and become a full-blown contract, that's helping to reduce that number. The overall gross R&D, the business is still growing significantly as FLRAA ramps, but the net number in terms of the IRAD side is certainly shifted from that IRAD into the contract over. Myles Walton: Makes sense. Thank you. Operator: And the next question we have is from Kristine Liwag with Morgan Stanley. Please go ahead. She has disconnected. We will move on to the next line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Hi, Robert. Robert Stallard: Scott, I’d just like to follow up on Noah's question about the supply chain and the parts behind at the moment. Are any specific areas where you're seeing any problems like interiors that are holding things up? Scott Donnelly: Nothing that I would comment on a call. There's -- we all have our problem children, Rob. Robert Stallard: Yeah. Understood. And then secondly, there's been some press reports that Textron has been looking at some M&A competitions in recent months. I don't expect you to comment on that. But I was wondering if you could maybe reiterate your priorities for capital deployment as we start 2024? Scott Donnelly: Sure. No, we definitely would not comment on that. And look, I think what we've talked about and Frank's indication on the share count of 191 million, obviously indicates that our priority continues to be share buyback, and that makes, we think, at this point, a pretty significant benefit for our shareholders, and that's what we expect to continue to do in 2024. Robert Stallard: Okay. That’s great. Thanks, Scott. Operator: And our next question is from Seth Seifman with JPMorgan. Please go ahead. Seth Seifman: Hey, thanks very much and good morning, everyone. I guess just asking about the performance at Aviation and kind of the improvement in productivity and parts availability that you started to see in the fourth quarter. Does that mean that in the first quarter, we can expect to see kind of a nice increase in deliveries and something that would kind of affirm the notion of being on track for the revenue guide for the year? Scott Donnelly: Well, we're not going to get into quarterly guidance for sure, Seth. I mean, you certainly should expect to see a nice progression in terms of the revenue on a quarter-to-quarter basis over 2023, consistent with the guide of $6 billion of revenue for the total year. Seth Seifman: Okay. Okay. Great. And then maybe just following up a little bit different twist on Rob's question. I know you probably won't comment on specific M&A reports. But the reports that we have read tend to deal mainly with the space end market. I wonder if you could comment on -- do you view that as an important and/or attractive end market into which to expand? Scott Donnelly: I wouldn't comment. Seth Seifman: Fair enough. All right. Thank you very much. Scott Donnelly: Thanks, Seth. Operator: And next, we go to the line of Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hey guys. Can you hear me okay? Scott Donnelly: Yep, we can hear you fine. Kristine Liwag: Okay, great. Hey, Scott, Frank, Dave. Thanks. On your restructuring actions, can you provide more details on what you're doing and what your expectations are for the timing and the size of the payback from your investments? Scott Donnelly: Well, Kristine, as we kind of put out there, there's a sizable piece that's going into Bell, and that's really aligning our cost structure with the lower production rates on some of the historic military programs like H1 and V-22. That's a very -- in terms of cost and the mix of people within the business, the ramp obviously is net positive, but it's largely in the engineering program side of the FLRAA program. So it's a necessary action to align costs with the old historic production programs. As we also indicated, we're just -- we're aligning some of our plans on the auto side to understand where is demand around the world and rationalizing where we think it's appropriate to keep that business healthy with a high return and cash flow. So just -- there's bits in a number of other places. But we believe on a run rate basis, it's going to be about $75 million a year positive impact to the business. And so that's, I think, a good return and why we decided to proceed with the program. Kristine Liwag: Great. Thanks for the color. And maybe on Aviation, if I could do a follow-up. $100 million in pricing power for new aircraft is very healthy. And so if we're seeing -- if you're continuing to see bottlenecks in new aircraft production, can you talk about the demand environment for aircraft services then? And what's the pricing power in services, especially with the lack of new airplanes coming into the market? Scott Donnelly: Look, I think what we saw this year, which was strong growth, 6.5% on the services side. Obviously, that's a mixture between volume and pricing. I expect we'll continue to see good demand on that side. We certainly have that baked into our forecast. Aircraft are flying. Our customers are running the aircraft. They're doing the necessary maintenance. So I think it will continue to be a healthy part. Certainly, what we've incorporated in the guide for next year is good growth in the service business, both our service centers as well as the parts. And as always, that's going to be a function of both volume increases as well as annual expected pricing in the aftermarket side. Kristine Liwag: Great. Thanks, Scott. Operator: Next, we go to the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Yes, good morning. Scott Donnelly: George. George Shapiro: Scott, I was just curious, you were saying that the supply chain seems better, yet the deliveries in the fourth quarter were a lot lighter than what most of us were looking for. So if you could kind of just connect the two dots there? Scott Donnelly: Look, George, as you know, it takes many months to build an aircraft. So the improvements in both the labor side and the parts side takes a while to push through the system. So the higher cost and a lot of the impacts that we kind of saw through the course of the year were full year impact. So -- but I do feel like as we look at the numbers, and what we experience on a day-to-day basis, we did see improvements. And I think that's -- as a result, you'll start to see that improvement as you get into 2024. George Shapiro: And then one other one. The book-to-bill in the quarter was 0.9 and the orders were like only $1.4 billion. So that was really down a lot from last year as well as from the third quarter now. I guess you're just looking at as timing or have anything to do with Noah's comment that people are concerned about a recession in the fourth quarter, we get a pickup this year. But if you could just comment on that as well. Scott Donnelly: George, I think it's largely timing. We always have a little bit of lumpiness in terms of when deposits are coming in on some of our larger customers, but there's -- I don't think there's anything concerning there. We've said all along, we expect there's going to be some quarters where it's going to be below 1:1, probably some quarters where it's above 1:1. But again, our assumption full year going all the way back through '23 was 1:1. We did better than that. Our assumption in 2024 is it's going to be 1:1, and obviously, we'll see how the market plays out. But I still think we feel good about the end market. We feel good about demand, and I think it's healthy. George Shapiro: And one last one. The strong Bell margin in the quarter, I mean, does that just really reflect the commercial delivery strength, which has much higher margins, more than offsetting the drag from the lower-margin FLRAA program. And if that would continue next year, the margins would probably be somewhat higher than what you've guided to? Scott Donnelly: George, I think we're continuing to see good margins on our military business, obviously outside of the FLRAA side. It certainly helps to have higher commercial deliveries. We -- I think we'll get some benefit of higher commercial deliveries as we talked about in 2024. But look, there's going to continue to be some pressure on the margin just because we are seeing significant growth in the FLRAA program. The reason we did the cost action and did the restructuring was to try to shore up the profitability of the business on the legacy production programs. And so part of the guide is, obviously, we continue to see some benefit of that. But again, there will be overall margin rate pressure going into the future. But I think as we talked about, even with that and the growth of the FLRAA program, we're going to see significant revenue growth, and we're going to see absolute up profit increases and accretion to EPS for the business. So I think as we work through a transition from legacy production to a new EMD program, I think we can manage our way through that well. And obviously, long term, it's going to be a great story for Bell. George Shapiro: Okay. Thanks very much. Scott Donnelly: Sure. Operator: Next, we move to Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Hi, good morning, guys. Scott, can you expand on your opening comments regarding Caltex and your expectations there in 2024? It sounds like you think you might be a little bit weak there. Just was wondering what the drivers were? Scott Donnelly: Sure, Pete. Look, that's one business where we really depend on sort of industry customer forecasts. So our guide reflects that. We don't really apply a whole lot of our own judgment to that. We really go with where the industry tells us they're going and we got to see how the year plays out. I think we feel good about the business. Some of the restructuring we did was reflective of where the volume growth is and where the volume growth isn't. But the business is in a healthy place, and the margins have been doing better as we've come out of all the sort of the post-COVID world and the volumes will be obviously consistent with global auto OEM numbers. Pete Skibitski: Okay. Got it. And then I had a couple of questions on Aviation. Are you expecting Caravan sales deliveries to be up in '24? I know you delivered a lot of them to Asia, and we're seeing some softness in China. So just wondering what you're seeing there? Scott Donnelly: Look, Peter, I mean we're not going to get into model-by-model. But I would say net of everything, the turboprop market is doing really, really well. As you know, that does tend to be a little bit more international. I think we usually give the numbers, roughly 60% international versus the jet side is 80%. But I think our Turboprop business is in a really good place. I think Caravans will do well. I think King Airs are going to be strong. We continue the ramp on the SkyCourier. So we tend to get most of the questions around Jet. But look, I think the turboprop business is in a very good place, and we certainly net expect to see that business continue to grow in 2024. Pete Skibitski: Okay, great. Thank you. Operator: Next, we go to the question from Cai von Rumohr with TD Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks so much. So, Scott, at Bell, are you looking for -- is part of the profit strength this year '24 coming from closeouts on the V-22 and the H1? And secondly, is there any risk to FLRAA volume from an extended CRR? Scott Donnelly: So, Cai, look, I think the 2024 -- obviously, we'll see some contracts come to an end, and there will be some MR release when you do that. But look, I think we can execute well on that pro forma. I mean, I think Q4 is a good example, Cai. We had about $8 million total in the company of EACs that's not a particularly material number and it's flat on a year-over-year basis. So do I think we'll have some reserve release next year? Sure, we will. I mean, we normally do as we perform through these programs. But I think the cost-out activity that we've been driving, the absorption and growth on both the commercial revenue side as well as the FLRAA revenue side will all help to contribute to preserving and getting a good margin rate for 2024. And in terms of the -- I'm sorry, in terms of the CRR, okay, I think we're okay. I mean, as we've talked about before, if the CRR goes all the way through a full year, that could put some pressure for sure. I think the Army probably has backup plans, they're trying to work in terms of how they would move money around. Obviously, FLRAA is a very high priority, very important program to them as well. So the whole thing would be a heck of a lot easier if Congress would just pass the budget for sure. But right now, I think we're okay unless it really goes to a full year, I think we'll collectively [return] (ph) ourselves and the Army to be able to manage through it. Cai von Rumohr: Got it. And last one. At Aviation, can you give us some color in terms of where the order strength is in terms of fractionals versus high net worth versus corporate? Scott Donnelly: It's pretty stable, Cai. We aren't really seeing a change from where we were. We don't break all that out, obviously, but it's -- the demand has been pretty strong. In terms of mix, as you know, the jet stuff tends to be more domestic, roughly 80-20, the turboprop is more like 60-40 international. We haven't seen big changes in that. We haven't seen big changes in the mix between what goes through the fractional world and what goes through the whole aircraft side, end demand continues to be, we think, pretty strong across the board. Cai von Rumohr: Thank you very much. Operator: Next, we go to a question from Doug Harned with Bernstein. Please go ahead. Doug Harned: Good morning, thank you. Scott, in the past, you commented on the supply chain that you'd actually seen more challenges at Bell than you had in Aviation. And given the strong margins at Bell, I mean, can you comment on where that stands today? Scott Donnelly: Well, look, this is the [challenge of the world we're look at, right?] (ph) I mean, we had some pretty significant impacts at Bell in the earlier part of the year around a very small number of suppliers, a couple of those suppliers either got healthier in some cases, we brought stuff inside and exited those suppliers. So when you do that, we had a situation at Bell with a couple of the aircraft models where we had very specific supply issues that we were able to resolve. And as a result, Q4 had a pretty strong delivery number on a year-over-year basis. So again, this is the challenge. So while the absolute number of parts might be getting less, you can still have a part problem that has a significant impact. So that's just the nature of the beast and what our guys work through every day. So I think we did resolve a couple of critical issues in the latter part of the year at Bell that enabled those higher deliveries. And obviously, we've got to keep working. Doug Harned: And then if I go back to the Aviation side and the end market, one of the things we've seen is more preowned airplanes out there for sale, higher percentage. We're still not back at kind of historical norms. But you were commenting that you're seeing a little bit less pricing benefit relative to inflation. I mean are you seeing any potential pressure here from pre-owned and as you look at your market? Scott Donnelly: No, we're not. Look, I think it's -- look, first of all, as you noted, it's up versus where it was, which was at ridiculously low levels. It's still at historically lower levels than normal. And we keep a very close eye on this. They're mostly much older aircraft, right? So the phenomenon that people kind of refer back to is, geez, do you have aircraft competing with new aircraft sales, obviously, there was a time, going back a number of years ago now, where you have relatively new aircraft that were coming on to the market. And we're just -- we're not seeing that dynamic. When we look at what's out there, what's available for sale in the used market, the number is increasing, but they are considerably older and in large part, out of production aircraft. So no, we're not really seeing an impact of used aircraft out there that are competing with new aircraft sales. Doug Harned: Okay, very good. Thank you. Operator: And next we go to Gavin Parsons with UBS. Please go ahead. Gavin Parsons: Thank you, good morning. Scott Donnelly: Good morning. Gavin Parsons: I just wanted to circle back to industrial margins and just get a better sense for what's driving that, given I think context had been the section segment underperforming. And then just thoughts on, it seems like in TSV, some of your recreational vehicle competitors are having headwinds. So what's driving the margins and growth there? Scott Donnelly: Well, look, I mean, every -- sorry, look, we've -- we look at those end markets, be it in the auto side or in the vehicle side. And our view is, as I said, I think, overall, the industrial will be pretty flat, but with improved margins. And that's largely, again, based on just industry forecast, we think Caltex volumes will be down somewhat, although we think margins will continue to improve in that business. On the vehicle side, I think we'll see modest growth, and that is because we do factor in some of these higher dollar discretionary items. We don't expect to see growth in that area. But net of all of that, the business probably still sees some modest growth, and again, continued performance on the margin line. So those things that you guys might aggregate and look at in terms of other guys in that market are completely consistent with what we're seeing. But again, that is absolutely factored into our guide. Gavin Parsons: That's helpful. And maybe just circling back to the NetJets 1,500 over 15 years, I think typically, they firm up about a year out. But on average, that would be 100 deliveries a year. Is that something you need more visibility from them on over a decade of orders or… Scott Donnelly: Well, we don't. And you're right. So we -- the way we treat the backlog is when those firm up and that is roughly 12 months where they actually put deposits down, that's the point at which we move those aircraft into actual backlog. In terms of looking out beyond that, we do absolutely work closely with them on forecasting what that demand is going to look like even outside of that one-year firm up period. So we certainly have very, very good dialogue and working with them to collectively anticipate what that demand is going to be on the fractional side. But then we don't firm up and put into that actual backlog number until roughly, as you said, that one-year window. Gavin Parsons: That makes sense. Thank you. Scott Donnelly: Sure. Operator: And ladies and gentlemen, as a reminder, this conference is available for digitized replay and will be available after 10 a.m. Eastern Time today through January 24, 2025. You may access the replay by dialing (866) 207-1041 and enter the access code of 4065507. And that does conclude your conference for today. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2023 Textron Earnings Release Call. [Operator Instructions]. I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead. Eric Salander: Thanks, Leah, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.3 billion, up $265 million last year's third quarter. Segment profit in the quarter was $332 million, up $60 million from the third quarter of 2022. During this year's third quarter, we reported income from continuing operations of $1.35 per share. Adjusted income from continuing operations, a non-GAAP measure, was $1.49 per share compared to $1.15 per share in last year's third quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure totaled $205 million in the quarter compared to $292 million in the third quarter of 2022. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric, and good morning, everyone. The third quarter was a strong quarter for Textron with revenues up at Aviation, Industrial and Systems, while revenues were flat at Bell versus the prior year. At Aviation in the quarter, we delivered 39 jets, flat with last year and 38 commercial turboprops, up from 33 in last year's third quarter. Aviation solid demand across our jet and turboprop products resulted in our strongest order quarter of the year with a 12% increase over the third quarter of 2022. Backlog grew $521 million, ending the third quarter at $7.4 billion. In the quarter, Aviation announced a new fleet agreement with NetJets, extending our 40-plus year relationship and giving NetJets the option to purchase an additional 1,500 aircraft, including the Citation Latitude and Longitude for the next 15 years. As part of this agreement, NetJets will also be the Fleet Watch customer for the newly announced Citation Ascend, which is expected to enter into service in 2025. Also in the quarter, Aviation received a special missions order for 17 King Air 360 to be used for flight inspection. Aviation also announced [indiscernible] favorability finalized its initial order for 20 grand caravans during the third quarter. On the new product front, Aviation wrapped up a successful NBAA show last week, where we announced 2 new product upgrades, the Citation CJ3 Gen 2 and the Citation M2 Gen 2, continuing our strategy of modernizing our existing aircraft portfolio while also investing in clean sheet aircraft. Moving to Bell. Overall, revenues were flat in the quarter with improved margin performance. Bell had higher military revenues in the quarter, largely reflecting the continued ramp on the [indiscernible] program. On the commercial side, Bell delivered 23 helicopters, down from 49 in last year's third quarter. The lower deliveries reflected manufacturing disruptions related to supply chain shortages. During the quarter, a rock order 15 505 aircraft to replace their pilot trading fleet, continuing with the success of Bell 505 as a military trainer throughout the world. Textron Systems, we saw higher revenues and margins in the quarter. During the quarter, Systems Aerosan Hybrid Quad was 1 of 2 competing unmanned aero systems that was awarded the second option agreement for the Army's Future Tactical Unmanned Aircraft System or FTUAS program. Onto the second option agreement, the 2 remaining competitors will work with the Army towards a critical design review, which includes establishing final system design and initial product baseline. Also during the quarter, Systems was 1 of 4 competitors to build light robotic combat vehicle prototype for the army. Prototypes are expected to be delivered in 2024. Systems also expanded its Aerosonde SUAS operations with the U.S. Navy with an award of additional 3 C-based systems aboard total combat ships. Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume in both Specialized Vehicle and Kautex. Specialized Vehicles, we continue to see strong demand in the fleet gulf business. Within Kautex, we saw increased volumes year-over-year driven by the recovery in the North American auto market. Moving to eAviation. Pipistrel Alpha Trainer continues to gain momentum with Mesa Air ordering 25 additional alpha train aircraft in the quarter, for use in the pilot development program. Also the first [indiscernible] prototype, our hybrid electric unmanned cargo vital aircraft is currently undergoing systems integration and has completed the initial installation of the battery and motor systems. We expect the prototype to enter vehicle ground testing phases by the end of the year. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.3 billion were up $171 million from last year's third quarter, reflecting higher volume and mix of $89 million and higher pricing of $82 million. Segment profit was $160 million in the third quarter, up $29 million from a year ago, due to favorable pricing net of inflation of $39 million and a $23 million favorable impact from higher volume and mix, partially offset by an unfavorable impact from performance of $33 million, largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $7.4 billion. Moving to Bell, revenues were $754 million, flat with the third quarter of 2022, with lower commercial helicopter volume largely offset by higher military volume. Segment profit of $77 million was up $3 million from last year's third quarter, primarily due to favorable platform performance of [indiscernible] million, largely reflecting a lower research and development costs, partially offset by lower volume and mix of $16 million. Backlog in the segment ended the quarter at $5.2 billion. At Textron Systems, revenues were $309 million, up $17 million from last year's third quarter, largely reflecting higher volume. Segment profit of $41 million was up $10 million compared with the third quarter of 2022 primarily due to a favorable impact from performance of $8 million. Backlog in this segment ended the quarter of $2 billion. Industrial revenues were $922 million, up $73 million from last year's third quarter, largely due to a higher volume and mix of $45 million at both product lines and an $18 million favorable impact from pricing. Segment profit of $51 million was up $15 million from the third quarter of 2022. Textron eAviation segment revenues were $7 million and segment loss was $19 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $13 million and profit was $22 million, up $15 million from last year's third quarter, largely due to a recovery of amounts that were previously written off related to one customer relationship. Moving below segment profit. Corporate expenses were $38 million. Net interest expense was $11 million, LIFO inventory provision was $26 million. Intangible asset amortization was $10 million and the non-service components of pension and postretirement income was $59 million. In the quarter, we repurchased approximately 3.1 million shares returning $235 million in cash to shareholders. Year-to-date, we've repurchased approximately 12.5 million shares, returning $885 million in cash to shareholders. To wrap up with guidance, we are increasing our expected full year adjusted earnings per share to be in a range of $5.45 to $5.55, up from our prior range of $5.20 to $5.30. We're also continuing to expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our prepared remarks. So we can open the line for questions. Operator: [Operator Instructions]. Our first question comes from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe if we can talk about Aviation to start spot, competitors on pricing or mix at NBAA, but aviation still booked 7 points of gross price, 3 points of net price. What are you seeing in your backlog in terms of pricing? And I know everyone wants to nitpick on your backlog, but it was still up 15%. How much of that included NetJets? Scott Donnelly: Sure, Sheila. I look -- I would say that the price environment continues to be strong. Aircraft that are going into backlog continue to do so at good pricing. So we feel good about where that is in the marketplace. In terms of the NetJets, look, obviously, the extension of the contract that we've had with NetJets for a long time for 1,500 additional aircrafts is a huge deal for us. It's really important to the future of the business. As you know, that's a very diversified customer base. The business and the partnership that we have with NetJets is very, very important to us. In terms of the impact in the quarter, it wasn't material. As you know, the way we treat the NetJets in terms of backlog is that we're basically working with NetJets all the time and looking about a year out, which is the time line where they firm up the tails and put down deposits, and we commit the delivery dates to those aircraft. So every quarter, we sell aircraft to NetJets and we add additional jets into the backlog. So generally speaking, it's right around that one-to-one range. So again, it's a huge really important thing for the future of the business, but not something that materially impacted the backlog in the quarter. Sheila Kahyaoglu: No, that's helpful. And then if you could talk about Bell margins, they posted another 10% margin. What's going on there, maybe in particular on the R&D side with FLRAA and FARA now that you have [indiscernible]? Scott Donnelly: So look, I think Bell performance in terms of the numbers and getting volume coming in, particularly as the FLRAA program ramps up is helpful. R&D is certainly a tailwind for us, and that's helping us on the performance line. Largely driven by the fact that a year ago. We were still spending a good deal of our own IRAD money in programs like FLRAA, which are now in the fully funded category. So we do still have work going on, obviously, with FARA, as you mentioned, we did get the engine this week, which is great. Our team will proceed now to get that installed and start running preliminary integration tests. We will need to be waiting for the army to give the ground test release for that. And then ultimately, the flight test release, hopefully, as you get that aircraft flying in 2024. But performance was strong. And yes, for sure, part of that is reduced IRAD spending, as we now have more funded R&D under the FLRAA program. Operator: We move on to David Strauss with Barclays. David Strauss: Scott, could you just maybe give a little bit more color on the supply chain issues at Aviation? The performance hit, I think, was the biggest that we've seen there. So are things getting better or worse? And is it engines? Or what other color can you give? Scott Donnelly: Well, David, I guess the color I would give is that, look, obviously, the business pays a lot of attention and tracks sort of trend data. And I would say that from a standpoint, is it getting better, the trend data would say, yes, it is getting better. The number of parts that come in late to PO has been declining through the course of the year. They look at labor, effectivity and efficiencies that has been getting, modestly better as we're going through the year. But it's still a problem, right? So it's -- I wouldn't say we have any one big like engine that's just driving this. As you get towards the end of the quarter, if you're missing parts for aircraft, that's -- you still can't deliver that aircraft. So it is I guess, getting better from a context of how many parts are late to PO, but parts are still late to PO. And as we often say, David, every part is important on an airplane. So we're continuing to see that challenge across the number of aircraft types. I think it will continue to -- we certainly expect it to get better as we go through time, but it's going to be something we're going to fighting our way through. But I guess the only thing I would point out is despite all that, I mean, we obviously would like to have delivered some more aircraft in the quarter. And in particular, we have customers that would like to see us to deliver those aircraft in the quarter. But despite all that and the challenges and the headwinds around labor and supply, we're still posting strong growth in the business and good strong margin expansion in the business. So I think despite a lot of these headwinds, the business performance is growing very well. It's growing and it's continuing to drive improved profitability. David Strauss: Okay. And maybe, Scott, if you could just level set us what we should expect for full year deliveries? Are we looking more kind of 175 to 180 in that range? Scott Donnelly: Well, we're not going to -- we're probably not going to give exact aircraft numbers, David, but it's going to be in that neighborhood, I would expect. Operator: Next, we move on to Noah Poponak with Goldman Sachs. Noah Poponak: Scott, maybe you could just spend another minute on the demand environment, in Aviation and in the business jet market. It's a pretty strong bookings number with a decent amount of uncertainty out there. So what are your customers saying? How much of that is just replacement so they have to do it kind of in a wide range of macro scenarios? How is October? Would just love to hear some more color from you. Scott Donnelly: Look, Noah. The demand environment continues to be strong. I mean, this is a really strong -- book-to-bill is very strong and just an absolute dollar flow of order activity in the quarter. So we just haven't seen it slowing down. People are buying aircraft. And are they replacing older aircraft? Absolutely. Or in some cases, are the expanding fleet capacity, absolutely. We continue to see strong demand, obviously, part of the rationale behind the [indiscernible] program. As they continue to see very strong demand on the fractional side. So it's really across the board. And it's typical what we've been seeing for a while. It's very strong jets in the U.S., although there's certainly some good order activity with jets outside the U.S., it's very strong across the turboprop product lines and both the King Airs, obviously, with SkyCourier and Caravans continue to perform well. So it just continues to be a strong demand environment. Noah Poponak: Okay. And then just on the margin in Aviation, recognizing your point that it has expanded quite a bit from the trough. It's down sequentially and the incremental -- the year-over-year incremental, I think, is a little light of what you normally look for despite healthy unit and price. So -- anything to note there? And I guess, what do we look for, for the Aviation margin to finish the year and maybe into next year? Scott Donnelly: Well, look, I think we're going to continue to see strong margin performance, Noah. We -- without a doubt, are still being impacted by performance issues, just the amount of efficiencies that are driven by those parts that are showing up late and labor turnover, which I think everybody is experiencing. It's a challenge in the industry still, and we're going to continue to fight our way through it. But I think we'll continue to do that with very healthy margins. Noah Poponak: Can you be through that in full year 2024 numbers? Or are you likely to still be battling that into next year? Scott Donnelly: Well, I think we're going to battle that into next year. So -- like you know, fourth quarter is traditionally a very high delivery quarter. I expect that it will be a high delivery quarter, and we'll see conversion that will give us some additional margin is typical for us in Q4, and I would certainly expect that. I think we're going to continue to fight this as we go into next year. But again, I mean, obviously, we're not going to get to guidance just yet on 2024. But I think as we've seen in 2023, people should expect the business to deliver solid growth and strong margins. Operator: Next, we go to Doug Harned with Bernstein. Douglas Harned: I wanted to continue on the strong backlog topic. When you started the year, it looked like -- I think you were thinking kind of a 1:1 book-to-bill for the year. And clearly, it's been much better than that. Could you talk about how your expectations have changed over time? And has the mix shifted at all? Scott Donnelly: No, it really hasn't. Look, I mean we did sort of set our base plan, expecting kind of 1:1, and look, I think eventually, the industry has to get to 1:1. It's not -- I don't really think it can continue to exceed that much for that long. But obviously, our sales teams are out there and customer demand is what it is. So if it's greater than 1:1, obviously, that's terrific for the business. And as you note, we have seen that through the course of the year. So we'll continue to kind of plan and look at production volumes and adjust accordingly as we go forward. But the mix is markedly different. As I said, we're still seeing strong jet demand, we're seeing across all the turbo product lines. We're seeing it virtually across all of our different aircraft types. Obviously, it's helped by having some new aircraft like the Sky Courier out there, it's helped by having some of these upgrade programs which always stimulates the market when you do a next version of CJ3, our next version of an M2. We have [indiscernible] announced out there. So there's a lot of things we're always doing to invest in the product lines to kind of continue to help drive that demand in the market. But for sure, versus our estimation at the beginning of the year 1:1, the end market continues to be stronger than even we would have expected, which is obviously a positive. Douglas Harned: Yes, it is a positive, but I'm also -- I'm interested in how you deal with this because you have delays in supply -- some delivery delays with the supply chain. You've got this huge backlog. I mean, how far out are you scheduling deliveries now? And do you start to run into an issue here if this were to continue? Because as you say, ultimately, should be at 1:1 at some point. Scott Donnelly: Yes. Well, look, we obviously continue to work with our supply chain to try to make necessary adjustments. And as I said, I think the trend line is improving. But it still comes down to a part. So I missing a few parts. I can't deliver an aircraft for missing one part I can't deliver an aircraft. So it is still a problem, but I do think it's trending in the right way. Obviously, as we adjust and think about our production rates going forward, we're working with those suppliers to kind of forecast to them, how we're going to adjust our rates into the future. But that's a real-time activity, right, that's going on all the time. So as I kind of indicated earlier, I think we'll expect to see increased deliveries again in 2024 versus 2023. And that's partly stronger demand, and it's partly getting some of the supply chain issues resolved and getting back to where we can make -- generate additional volume out of factory. Operator: Next go to the line of George Shapiro with Shapiro Research. George Shapiro: Maybe this one for Frank. The increase in guidance, I mean, this quarter, you got a big benefit from finance, somewhat offset, I guess, with eAviation being worse than what I would have expected and a lower tax rate. Was there operational benefits in that EPS increase you got? It was mainly these items I just mentioned. Frank Connor: No, we're seeing as Scott said. I mean, we're seeing strong performance across Bell. And so I think Bell is going to come in at higher margins than we would have originally guided. We're seeing strong performance at Systems. They'll be at least the top end of our original guidance range, we're seeing, frankly better volumes and solid and strong margin performance in the Industrial segment. And then at Aviation, we're also seeing, despite some of the volume headwinds, we're seeing strong profit growth and kind of a strong overall year-over-year growth. So that's -- those are certainly the operational aspects. GFC is an operational thing. It can always a recovery from write-off from many years ago. So a good solid performance out of the businesses. George Shapiro: Okay. And Scott, on the last call, I think there was a comment that maybe deliveries would be higher, closer to somewhere in the 40s from what we saw this quarter. So I assume that's all supply chain. I mean is that going to continue in the fourth quarter as well? So we'll see strong deliveries but maybe less than we would have thought 6 months ago. And does that bode for next year being a lot bigger than what you might have thought before? Scott Donnelly: I would say, George, that for sure, we are delivering fewer aircraft than we originally expected, and that is as a result of these issues and challenges that we're still seeing in the supply chain. We have forecasted and just the way we run our manufacturing operations, obviously, we took down some of the units to accommodate that. Did we have aircraft that moved from Q3 to Q4 this year? Absolutely. Do I think we'll have aircraft that will move from Q4 to Q1? Absolutely. Again, how much of that is our aircraft that you would add on to what we were originally planning in our 2024 guide versus where we'll be, I mean that's -- that will all be incorporated into what we guide when we get into 2024, George. So -- and again, we're not at a point to do that. We're still working through all those kind of numbers. But the only color I would give you is I expect that you certainly would expect to see good growth and over the 2023 number. So for sure, be it just overall demand or things that are moving from '23 to '24. '24 should be a strong year for us. Operator: Next, we move on to Cai von Rumohr with TD Cowen. Cai von Rumohr: And good quarter. Frank, could you maybe talk a little bit about do we see -- do you get any benefit out of the latest IRS clarification of Section 174? And should we be concerned about pension being a significant headwind next year? Frank Connor: On the 174, we had been following kind of what the guidance clarification resulted in. So we -- there is no change to -- from a cash tax standpoint. With regard to pension, as you know, we'll go through our year-end process around that. I would not expect it to be a headwind. So I think that kind of we shouldn't have a problem with pensions and from a headwind standpoint as we move into '24. Cai von Rumohr: Got it. Okay. And then, Scott, strategically, I mean you've announced a couple of new updates at NBAA, but you haven't done a major new clean sheet in a while and not that the rest of your competitors have done anything. But what's your thinking looking out a couple of years? Obviously, you've got good demand now. You've got some nice smaller new products coming. But do you think that you need to start something bigger for the next 3 to 5 years? Scott Donnelly: Well, I think where we are right now, Cai, I mean, obviously, we've just come up the SkyCourier program. We had Denali, which is in certification, that's coming along very nicely. I think that will be a spectacular product for us. We did just announce the Ascend which is a pretty big program. That's -- and so I think, I guess, strategically, Cai, I think where we are on the sort of that Latitude/Longitude family are in really good shape. Those are both relatively new aircraft. Certainly, there will be upgrades and enhancements to those programs as we go down the line but we sort of have turned from a long period of time, a decade really of making major investments in those mid- to super mid aircraft and have gone back now and we made some pretty good investments in some of the turboprop family. And again, that light to mid-sized jet, Ascend, I think, is going to be a fabulous product for us. That kind of fits that space where the XLS has lived in the XL before that for many years, home run product for us. And I think the Ascend is going to be kind of filling those shoes. So we're really excited about that. And again that Denali is going to be a great product that's, I think, doing well here and going through the certification process right now. So look, we're always -- as you know, there's always stuff on the drawing board and ideas and plans that we're always working on, but that's -- we don't have any new announcements for you beyond that stuff. We're pretty full up right now, actually. Operator: Next, we move on to Robert Stallard with Vertical Research. Robert Stallard: Scott, there's some concerns yet again about the outlook for the economy and higher interest rates and all that. And I was wondering, in the Aviation division, have you seen any of your customers starting to get a little more concerned about their ability to take jets and trying to defer things? Scott Donnelly: No, we really haven't, Robert. It's been -- I mean, if there's been a cancellation here or there, it's none that I'm even aware of here lately. I think the demand is strong and look people are thinking about, what could you be a 12- to 18-month softness in the economy. The reality is right now, people are talking about deliveries that are out way beyond that. It's just because of the nature of the backlog. So I don't think -- we certainly have not seen any impacts of this shortsighted kind of, hey, you guys what's going to happen in the economy in the next 18 months window, the deliveries. People are taking their aircraft. We haven't seen any problems there. And again, from an order perspective, they're out way beyond that period that might be of any concern. Robert Stallard: And then similarly on the Industrial side of things, what sort of demand pool are you getting from your customers at both Kautex and Specialized Vehicles? Scott Donnelly: We've been seeing a very strong year. The Kautex side of things, North America, in particular, has been growing. Europe has been growing. So we are -- we've seen nice increases in volume growth here in 2023. I expect we'll see that continue in 2024. Obviously, everybody was a little bit worried about the UAW situation. You see this morning, it was Ford has got a tentative agreement, which is great. We haven't seen much impact from that yet. And hopefully, this will get resolved before it has any kind of material impact to us. We're pretty diversified in terms of the OEMs that we serve and particularly in North America, a lot of the Toyotas and the BMWs, Mercedes and [indiscernible] in the southern part of the country. So Anyway, the volume does continue to grow at Kautex. We've seen nice volume growth in the vehicle business as well. So for sure, we pay close attention to sort of the high-end consumer, if you're going to have a slowdown, adjust accordingly. But all in all, the golf market, the commercial market, it's staying strong, even in the consumer market, which it's not as strong as it was as you see most people and say '21, '22, but it's claims are still quite strong on a historical basis. So I think the business -- and that's a lot of the intersection of all those things is what's been driving nice growth for us. Operator: Next, we move on to Kristine Liwag with Morgan Stanley. Kristine Liwag: Scott and Frank, leverage on the balance sheet is pretty low at less than 1 turn of EBITDA. Free cash flow is pretty solid. You mentioned the demand environment is strong. I guess looking at the stability and the strength of your business, what's your appetite for either an incremental outsized capital return to shareholders in excess of your existing share repurchase plan or some sort of transformative deal? Scott Donnelly: Well, look, Kris, clearly, our focus and what we've communicated and what we've been executing on, we did again here in the third quarter, is really focusing our capital returns around share buyback. And we continue to do that here in the third quarter. So it was another quarter of strong turns. Obviously, we agree. I mean I think our balance sheet is a good place. We're generating strong cash flows, and we'll continue to use that on the share buyback. In terms of any acquisition opportunity, like we're always keeping an eye out for things. And if there's something that makes sense for us, obviously, we have a balance sheet and an ability that we can do that. Obviously, we have to convince ourselves that, that's something that's good for our shareholders. And there have been a couple of deals out there where we concluded that wouldn't be the right thing, but we certainly always keep an eye out and contrast that versus just continuing the share buyback program, which I think has been very successful. Kristine Liwag: Great. And maybe following up on what we've seen in the industry, Embraer signed a 20-year licensing agreement to service Pratt GTF engines including the Airbus A320neo, considering your strength in services for business jets, what's your appetite to join that engine MRO ecosystem and expand your addressable market? Scott Donnelly: Yes, I don't -- I'm not -- I don't know all the details of that. I mean, we're obviously -- we work very, very closely with our engine suppliers and making sure that there's great MRO capability for them. Obviously, there's engine programs, which we promote with those suppliers. But I mean we love our service business. Our service business has been growing. As you know, over the last decade, we've taken a lot of this and do a lot more direct service around our aircraft than we used to do, and that's been a big success for us. But getting into the engine MRO business is not something that I think would make any -- it would make any sense for us. I mean all cared about the engine in the world. The value in engine overhaul is in the parts and those parts come from those suppliers. So I think that's probably best left to them to manage. Operator: Next, we go to Jason Gursky with Citi. Jason Gursky: Scott, I was wondering if I get you to just put aside the supply chain issues for a moment and just assume that they weren't there. And talk a little bit about what you're hearing from your customer in Aviation and how long customers seem like they're willing to wait for it yet? And if you all could just kind of wave a magic wand and get your production to the right level for the right wait time for those customers, what would that wait time be? For 2-plus years today, we were less than 12 months prior to the pandemic. What's the right level that we should all be thinking about as things kind of settle out? Scott Donnelly: Well, look, it's a good question, Jason. There's no way to know totally the answer to that. I mean there's no question that right now, we have customers that would like to see us have delivery dates earlier than what we're able to promise them. I mean that's true. I think that obviously, this adjustment that's going on is that I think for -- obviously, for a decade or so, customers knew they could come in when they wanted to get a new aircraft and get something delivered in a very short period of time. That wasn't true historically, as you know, and it's certainly not true today. So I do think that we've gone through some challenging phase with customers who are kind of accustomed to say, "Well, geez, I should be able to get that in 3 months or 6 months" and say, no, guys, actually, it's a couple of years. But I think the market is adjusting to that, right? Customers know what the order backlogs look like in the industry. And people now realize that if you're thinking about your fleet planning, you're thinking about your current aircraft and when you're going to want to do an upgrade that you need to be thinking about that being a couple of years out, not something that you just could come in inside of a quarter or even inside of a year and get a transaction done. So I think we're probably on the -- certainly at a point, where customers would like earlier delivery dates than what we can promise them. But I think customers are getting accustomed to the fact that this is a couple of year kind of a time line and they need to plan accordingly which frankly is not all bad for them either because they can think about how they plan the sale of their used aircraft, it's a much more -- it's a better market environment for everybody, including those buyers because so many of them currently own an aircraft. I don't know if that helps you because I mean, there's not really a specific answer here, but 2 years that's a long time, but people have to kind of plan accordingly at this stage of the... Jason Gursky: Yes. I think what a lot of us are trying to figure out is, once these supply chain issues work their way through, how much we might see production rates across the industry come up over time? If we're 2 years now, is the sweet spot 18 months, and we can kind of back into what that would mean from a production rate perspective. I think it's what we're all trying to better understand. Scott Donnelly: That math is too sophisticated for me. Jason Gursky: Maybe an easier one then on Industrial. Can you talk a little bit about the margin and the margin opportunity in that business over the longer term based on new product offerings and product development things that you're working on today? Just whether there's any structural opportunity for margins in that business over the longer term. Scott Donnelly: No, look, I mean, I think we still have margin opportunity. I mean, this business should be a high single-digit margin. I mean it's got a lot of auto in there. Kautex is a good business. It generates good cash. It generates good margin. But we're, obviously, right now, you're still trying to get some of the auto volumes back up around the world, and we have obviously capacity to do that. So better utilization, more efficient utilization of some of that capacity would be obviously be helpful. And that's part of what's driving the margin improvement this year. The same is true in the vehicle business. We've had strong demand across most of those product lines. Some of them are still recovering from some of the post-COVID. Some of them still are struggling with a lot of the same kinds of supplier and labor challenges that we talk about in aviation, and that's -- we're still -- have a fair bit of inefficiencies in some of those factories as we manage our way through that. So I do think there's still some upside in terms of margins in the future. Operator: Next, move on to Myles Walton with Wolfe Research. Myles Walton: Scott, I was wanting to lead off on the NetJets agreement. And I realize it's not in backlog. So maybe this is a little bit of a carton from the horse. But when you sign up to deliver or agree upon 1,500 jets per 15 years in a pre-inflationary market, I imagine that's probably a little bit more straightforward maybe. I just wonder, how do you do that in a very volatile potentially inflationary backdrop? How do you put the constraints and guardrails in place on those realized sale prices? And just to confirm, does this start to fold in, in '25? Scott Donnelly: So look, I want to probably [indiscernible] go into all of the gory details of the arrangement, but we've always worked with -- there's always been a factor in how we work with NetJets that takes in consideration market pricing. So it's not something that's a fixed price 15-year thing. I mean nobody could do that. I mean in the industry. So there's adjustments that are made that have to do with market pricing that's, frankly, a very fair equitable deal because, again, you really have to think of NetJets. I mean they're out selling aircraft into this marketplace. So we -- you think about, I guess, almost a wholesaling right of these aircraft to NetJets and then they have a spread for covering their costs and sales and running their business. So there is a market adjustment scheme that's incorporated into this thing. So nobody is trying to sit down and imagine what pricing is 15 years from now. Myles Walton: And then in terms of the initiation of the contract, is it a '25 start deliveries with the last one running through '24? Scott Donnelly: Yes, I think that's about right. I mean, again, it's an add-on, right? So we're -- it extends the agreement we already have, and we sit down obviously, every quarter and sort of true up what's that deliveries that are a year out. So -- but yes, I think if you looked at how many aircraft were left on the old agreement versus the new agreement, it's kind of phasing kind of '24, '25 time frame. Myles Walton: And then, Frank, just to clean up, can you level set us on interest and tax rate for the year at this point, given we only have the quarter left? Frank Connor: Yes. I mean, interest is expense is going to come in a little better than we had originally guided just given what's going on with, frankly, our investment in our cash balances and tax is probably going to be a little bit better also than we had guided, maybe 1 point better than our original guidance. Operator: Next, we move on to Peter Arment with Baird. Peter Arment: Scott and Frank, nice results. Scott, on Systems, the performance there continues to be really, really good, and there was obviously a bullish tone down the USA around just a lot of the modernization efforts. How are you feeling about the kind of visibility of that business going forward? Scott Donnelly: Peter, I think they're in a very good place. I mean a lot of the things that we've been working on for a very long time are starting to kind of come to roost. We had a nice strong growth in the quarter. That's driven by things like XM250, which -- as you know, we're sort of decade-long investments in IRAD for some of these new munition systems, which are doing well. The sentinel program, obviously, we're one of the partners with Northrop Grumman that program continues to grow nicely. We had some very important down select here just in this quarter around the RCV program with the Army, the ARV program with the Marine Corps. The FUS down select with the Army. So I think the business is performing well. The margins are strong. We've got this business back into a growth mode, and we have several additional opportunities out there that are material, do you win all of them or not, I don't know. But I mean, we have probably 4 or 5 pretty significant opportunities that we'll close here over the next couple of years. So I think the business is executing well. They're delivering on their existing programs very well. And I think they've got a lot of pretty significant growth opportunities that we've been -- are clearly in the pipeline. Peter Arment: Appreciate that color. And then just Frank, a quick one on do you have the -- what services growth was in Aviation for the quarter? Frank Connor: Yes, it was 3%, and aftermarket was 33% of revenue for the quarter. Operator: Next, we go to Ron Epstein with Bank of America. Ronald Epstein: The Industrials business did well. So my question is this. In the past, Scott, I think you've intimated or maybe more direct than that, that it's core. Is that still how you're thinking about it or not? I mean how do we think about the Industrials business in the context of the kind of greater Textron, which seems to be evolving quickly towards a bigger A&D company? Scott Donnelly: Ron, I mean the way we're looking at industrial right now is us providing good growth and strong performance improvements and generate good cash. That's how we think about it. Ronald Epstein: So is it -- so I guess is it core? Is it not core? Scott Donnelly: We've never defined core or noncore. I certainly have never said that. Look, I get what we have said, Ron, is when we think about M&A activity in the company, we certainly would view that the places that we would additionally or add additional capital would probably be in our Aerospace and Defense portfolio. And that's kind of how we look at the M&A world as opposed to thinking that we should increase the size of our Industrial business. But certainly, to the extent that we can drive organic growth in these businesses, and make smart investments and generate good returns for shareholders. That's the best thing we can do for the shareholders is make sure there's performance. Those businesses are performing as well they can perform. Ronald Epstein: Yes. Fair enough. And then on the M&A front like you mentioned. What's it like out there right now? Are there opportunity? Are there directions that you want to go in terms of A&D. Are you more A focused or D focused or agnostic? How should... Scott Donnelly: Yes, probably agnostic. We've done some small deals here in recent times, largely around expanding some of our services footprint. Obviously, we did the Pivotal deal, which has turned out to be, I think, a great acquisition for us to help grow our focus in the future for our Aviation business. Obviously, there's some opportunities there. There could be massive opportunities in the future or not. We don't know. But I think that's a nice acquisition that's given us some real additional capability in the company. Again, as I said, most of what we look at in terms of any material M&As in that A&D space. As you know, Rob, there's deals only come along so often, so you kind of keep an eye out. And look at things that come down the pike. So we'll -- that's what we've been doing, and we'll continue to do that. And if something makes sense, that we think is a great deal. It will be good for our shareholders, and we would certainly be willing to participate in that. We obviously have the capacity to do a fairly material deal, but it has to be something that financially makes sense. Operator: Our next question is from Pete Skibitski with Olympic Global. Peter Skibitski: Just want to follow up on Myles' question and maybe see if we can get into the gory details of the NetJets deal a little bit. But my main question is Scott, is there a minimum number of aircraft that they're obligated to take each year under this deal? And if so, how does that compare to the prior deal? Scott Donnelly: No, they don't. Look, guys, the relationship and the way this works is that I mean, our friends at NetJets are out every day selling aircraft. And they're selling those shares. And by the way, I think that's a very robust strong market right now, which is fabulous but they sit down with us in real time. I mean, every quarter, looking out a year out and given where the market is and what sales activity looks like, what their pipeline looks like, firming up. Those aircraft that we're going to deliver in roughly that 1-year window. So when the market is strong, they're selling. We expect that thing to continue to grow. If there was a slowdown, and we expect to see that number come down. So it's a total 100% alignment around that end market. Peter Skibitski: Okay. And how do you think about the high end -- I mean, on average, 100 aircraft a year would be more than 50% of your deliveries this year. How do you think about contemplating if you could ever get to the high end of that deal? Scott Donnelly: Well, again, that's based on the market, right? I mean if the end market continues to be that robust, but I would -- I guess, what I would say is if the end market is going to be that robust on the fractional side and all like it's also going to be that robust in the whole aircraft side. So you have to expect to see overall production output growing, not locked into where it is in the 2023 number. Operator: And we have a follow-up from David Strauss with Barclays. David Strauss: Just wanted to ask specifically on FLRAA. I think you guys have talked about getting kind of $800 million to $900 million annual revenue run rate on FLRAA. Where -- are you fully ramped to that rate in Q3? And if not, did that have something to do with the Bell margin holding up, I think, certainly better than we had thought? Scott Donnelly: No, I wouldn't say there's a margin impact to it. But certainly, we're not ramped to that rate yet, David. I mean that will grow here as we go through '23 to '24. I would say the ramp is going well. I mean, a lot of our internal resources, ramping up the engineering activity is happening at a pretty good clip. But obviously, a lot of that is also getting all of our suppliers on board and getting a lot of key partners ramped up. It took some time from the original contract award to get those guys on to contract. So as you go through the rest of this year and particularly as you grow into 2024, there's the inside kind of Bell heads, if you will, but there's also a lot of ramp that's the pass-through to our partners on the program as well. David Strauss: And I apologize if you've already touched on this, and I may have missed it, but the supply chain issues that you called out on the commercial helicopter side. How do those compare to kind of what you're seeing on the Aviation or jet side? I think you hadn't really highlighted supply chain as a challenge on the Bell commercial side prior to today. Scott Donnelly: Yes, it's very similar issue, David. I mean they're -- it's very similar issues. Operator: And we have a follow-up from Cai von Rumohr with TD Cowen. Cai von Rumohr: Yes. So your deliveries were down 50% at Bell and Commercial. Maybe give us some color on like, what's the demand there? And what should we look like in the fourth quarter? Because your original guidance assumes a very big step-up that looks like it's going to be tough to hit and you also had talked about margins kind of coming down as FLRAA effort ramped? And maybe some color in terms of where the margins could be. Scott Donnelly: Yes, I'm not sure I have a whole lot of additional color on the margin side, Cai, that we certainly expect it to be, given the performance through the course of the year that it will be over the top end of what we originally guided. So I think we still feel that the Bell will finish out a very strong year. But the numbers are significant, and I appreciate that, and it certainly looks like a big ramp. We had a couple of issues very specific around our 505, which is a fairly high-volume product, but a relatively speaking, lower dollar per unit volume. So a lot of the numbers miss and a lot of the challenge, frankly, in Q4 in terms of the units is around those 505. So obviously, we would like to get them out. Customers want us to get them out. But the miss on a number of those very light helicopters won't have a big material impact to the performance overall at Bell. Operator: And ladies and gentlemen, that does conclude the Q&A portion of today's conference. If you would like to access the digitized replay of this call, it will be available after 10 a.m. Eastern Time today through October 26, 2024 at midnight. You may access the replay by calling 866-207-1041 or 402-970-0847 and use the access code 5951112. Again, that's 866-207-1041 or 402-970-0847 with the access code 5951112. And that does conclude your conference for today. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Q2, 2023 Textron Earnings Release. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. And I would now like to turn the conference over to your host, Vice President of Investor Relations, Eric Salander. Please go ahead. Eric Salander: Thanks, Kaylie and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.4 billion, up $270 million from last year's second quarter. Segment profit in the quarter was $352 million, up $71 million from the second quarter of 2022. During this year's second quarter, we reported income from continuing operations of $1.30 per share. Adjusted income from continuing operations, a non-GAAP measure, was $1.46 per share compared to $1.11 per share in last year's second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $242 million in the quarter compared to $309 million in the second quarter of 2022. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric, and good morning, everyone. Second quarter was a strong quarter with revenue up across all our businesses and solid execution, generating a segment profit margin of 10.3%, up 140 basis points from the second quarter of 2022. At Aviation in the quarter, we delivered 44 jets, down from 48 last year and 37 commercial turboprops, up from 35 in last year's second quarter. Aviation continues to see solid demand across jet and turboprop products. Backlog grew $315 million, ending the second quarter at $6.8 billion. In the quarter, Aviation received an order for 11 Special Mission King Air 360s expecting to deliver in 2024 and 2025. Also during the quarter, Aviation delivered the first passenger configured Cessna SkyCourier to Lāna’i Air for its Hawaiian interisland routes. On the new product front, Aviation announced the Cessna Citation Ascend at Ebase ph in May. Ascend will feature the latest Garman 5000 avionics suite, 4-passenger range of 1900 nautical miles, comfortable cabin experience with large windows and a flat floor and the new Pratt 545D engine that features improved thrust and increased time between overhauls and enhanced fuel efficiency. The aircraft is expected to enter into service in 2025. Moving to Bell, revenues were slightly higher in the quarter. Bell began ramping activity on the FLRAA program, including on-boarding engineers, contracting with major suppliers and ordering long lead materials. Bell also added $1.2 billion of backlog related to the FLRAA contract during the quarter. Also in the quarter, Bell received an initial contract authorization for four additional V-22 aircraft. On the commercial side of Bell, we delivered 35 helicopters, up from 34 in last year's second quarter. At Textron Systems, we saw a continued solid margin performance on slightly higher revenues. In June, Systems delivered Craft 107 to the U.S. Navy Ship-to-Shore Connector program, the Aircraft delivered to the Navy. Also during the quarter, Systems Aerosonde Hybrid Quad UAS was among four competing unmanned aerial systems that were awarded design contract under the first option of the Army's Future Tactical Amend Aircraft Systems Program. Systems also advanced as part of Team Lynx led by American Rheinmetall in the next phase of the U.S. Army's XM30 program. Textron Systems is a designated manufacturer of Team Lynx. The Army down selected two competitors for the next phase of the program, which includes detailed design and prototype builds. Moving to Industrial, we saw higher revenues in the quarter, driven by higher volume in both Kautex and Specialized Vehicles. At Specialized Vehicles, we announced the new Liberty LSV, a street legal vehicle powered by our elite battery system with four forward-facing seats. Within Kautex, we saw increased volumes year-over-year across all our geographic end markets. Moving to Aviation, we began wind tunnel testing on the Nexus eVTOL aircraft. These tests represent a significant step in the aircraft development process and supporting design validation activities. Additionally, we continued the prototype assembly and systems integration of the Nuuva, our hybrid electric unmanned cargo VTOL aircraft at our facilities in Slovenia. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.4 billion were up $78 million from the second quarter of 2022 reflecting higher pricing of $95 million, partially offset by lower volume and mix. Segment profit was $171 million in the second quarter, up $22 million from a year ago, largely due to favorable pricing net of inflation of $52 million, partially offset by an unfavorable impact from performance of $23 million. Performance included unfavorable manufacturing performance largely related to supply chain and labor inefficiencies. Backlog in the segment ended the quarter at $6.8 billion. Moving to Bell, revenues were $701 million, up $14 million from last year due to higher pricing of $21 million, partially offset by lower military revenue of $7 million. Segment profit of $65 million was up $11 million from last year's second quarter due to a favorable impact from performance of $13 million, largely reflecting lower research and development costs and a favorable impact from pricing net of inflation of $9 million, partially offset by lower volume and mix. Backlog in the segment ended the quarter at $5.6 billion. At Textron Systems, revenues were $306 million, up $13 million from last year's second quarter, largely reflecting higher volume. Segment profit of $37 million was down $1 million from a year ago. Backlog in the segment ended the quarter at $1.9 billion. Industrial revenues were $1 billion, up $155 million from last year's second quarter, largely due to higher volume and mix at both Kautex and Textron Specialized Vehicles of $121 million and a favorable impact from pricing of $37 million. Segment profit of $79 million was up $42 million from the second quarter of 2022, primarily due to higher volume and mix of $32 million and a favorable impact from pricing net of inflation of $17 million, principally at Kautex, partially offset by an unfavorable impact of $10 million from performance. Textron eAviation segment revenues were $11 million and segment loss was $12 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $18 million and profit was $12 million. Moving below segment profit, corporate expenses were $21 million, net interest expense was $16 million, LIFO inventory provision was $35 million, intangible asset amortization was $10 million and the non-service components of pension and postretirement income were $59 million. In the quarter, we repurchased approximately 4.2 million shares, returning $273 million in cash to shareholders. Year-to-date, we have repurchased approximately 9.4 million shares, returning $650 million in cash to shareholders. Earlier this week, Textron's Board of Directors approved a new authorization for the repurchase of up to 35 million shares under which the company intends to repurchase shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. To wrap up with guidance, we are increasing our expected full year adjusted earnings per share to be in a range of $5.20 to $5.30 per share, up from our prior range of $5 to $5.20 per share. We also continue to expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our remarks. So operator, we can open the line for questions. Operator: Thank you. [Operator Instructions] Our first question will come from the line of Peter Arment with Baird. Peter Arment: Yes, good morning Scott, Frank. Scott Donnelly: Good morning. Peter Arment: Hi, Scott, I guess, start with Aviation, really strong performance on margins and the top line. Do you still kind of tracking, I mean, I guess, with the supply chain the way there's been so much volatility? How are you thinking about just kind of your delivery targets and just managing your skyline? I know you're probably sold out now much farther out, just given your backlog, maybe just some overall comments? Thanks. Scott Donnelly: Sure, Peter. Look, I think on the order activity, the market is still quite strong and so I think we've posted a strong book-to-bill again in the quarter. It's both jets and turboprops, so I think we continue to be really happy with how the market is behaving in terms of demand and pricing. So that's all good. Okay, as I think you're hearing from everybody the biggest challenge still remains on the supply chain side of things. I'd say it's not getting worse, it's probably modestly getting better but as you know, the challenge is every part is important, right? So, you may not have as many problems, but you still are kind of hit by that weakest link and hey, if you look at our numbers, we're probably a few jets lighter each quarter than we would like to be. That's obviously creating a little bit of inventory, but these things ultimately will sell. But I think when we think about the guide and what's going forward, we're still very happy with the margins and execution performance despite inefficiencies and dealing with some of the supply chain issues. But I think for the year, it will be a little light on the revenue side versus where we would like to be, but those things will push into 2024, obviously. So net of everything, it's still a good strong demand environment and we'll continue to fight our way through some of the supply chain challenges through the course of the year. Peter Arment: I appreciate that. And just one quick follow-up. Frank, did you disclose what the aftermarket growth was in the quarter for Aviation at all? Frank Connor: So aftermarket for the quarter was about 3% growth and 32% of total revenue. Peter Arment: I appreciate it. Thanks again. Operator: Thank you. We'll go next to the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Good morning, guys and thank you. Maybe just to start off a specific one on Bell, how do we think about the B-22 here? The House Appropriations Bill included about $700 million for potentially five B-22s, how do we think about how that could add legs to this program and transition to FLRAA? Scott Donnelly: Well, so, what's going on there, Sheila, is the Navy, of course, has now had a good while of deploying the CMV 22s into the Navy applications. As you know, that program was originally awarded and the program record was based on replacing the C2 COD [ph]. And so the number of aircraft was really sort of designed just to replace that mission. And what we're hearing from the Navy, and they've been fairly public about this, there's been some nice articles out there, is that as they're getting the CMV-22 into the fleet, they're realizing there's a lot of things you can do with a V-22 that you couldn't do with a COD, which was restricted to big deck carriers and airports onshore. So the versatility and the performance of the V-22 is leading the Navy to say, look, we've got other applications that would cause us to like to have more of these aircraft. That hasn't been formalized yet on the Navy side of things. I mean there's a lot of dialogue around that. But what you're seeing in the House Appropriations is those five CMV 22s, which would be above program or record is because of the versatility and the desire ultimately of the Navy to have more of these crafts. So, we'll see how this plays out over time, but we're obviously -- we're very happy with the performance of the aircraft. The Navy is very happy with the performance of the aircraft and so hopefully, we'll see some continuing level of production now that we're sort of beyond the program or record. Sheila Kahyaoglu: That's great. Thank you for that color. And then maybe a bigger picture one. Frank, if you could start, and I know you'll be for both, so give Scott some time on this, too. You announced a pretty large repurchase program in the quarter. How are you thinking about capital allocation? And then Scott, obviously, with Ascent, capital allocation for repo versus new products? Frank Connor: So capital allocation, it really remains the same, Sheila. We've obviously continued to generate very good free cash flow. We've talked about, obviously, we invest significant capital back into business in R&D and CapEx, that's going to continue, but beyond that, we're generating a lot of free cash flow that we've been returning through share repurchase activity. We talked about kind of baseline of 5% to 6% or so of our share base a year from a repurchase standpoint. We came out of the pandemic more liquid than we usually are and need to be and you've seen in the first half of the year, we've repurchased a lot of stock, and we expect to continue to be in the market opportunistically and the 35 million reflects kind of the need to have the shares available -- authorization available to do that. We were down to 2.7 million shares on the last repurchase and we're rolling through it pretty quickly. Sheila Kahyaoglu: Cool. Thank you. Scott Donnelly: That’s right. As Frank said, Sheila, I mean, I certainly don't see it as a trade with R&Ds. As you know, we're a fairly high R&D company. We think investing in new products is the key to growth. I think we're seeing that play out right now and if you look at Aviation with the investments in Latitudes and Longitudes, a lot of the upgrades, a lot of our current products both on the jet and the turboprop side, SkyCourier now driving nice growth for us, the Ascend that we just announced. So if you look at Bell, obviously, we've made a huge investment over the years in the FLRAA program and the FLRAA program, that's obviously now turning into a great growth driver for us. So across all the businesses we're not going to change our strategy here in terms of R&D. We'll keep making the investments that we think we need to make in the product side. But despite all that, we're obviously making strong profits and strong cash flow and that gives us a great deal of flexibility to allocate and drive some of that back through the share repurchase program and do what's right we think for the shareholders. Sheila Kahyaoglu: Great, thank you. Operator: Thanks. We'll go next to the line of Jason Gursky with Citi. Jason Gursky: Hi, good morning, everybody. Frank Connor: Good morning. Jason Gursky: Scott, I was wondering if you could provide kind of a general update on the general aviation market. I think there was a show here recently up in Oshkosh. I was wondering if you had any general learnings from either that show or your general view of the general aviation market? And then second one would be just kind of an update from your perspective on the market for pilots both for, as they come in through the general aviation market and make their way maybe up into the biz jets and other aircraft that are more important to you? Scott Donnelly: Sure. Look, Jason, I think the -- one of the nice parts about the market right now is this, as much as we talk about the jets and the turboprops and obviously, that's the bulk of our business, but when you're looking at Oshkosh, which is really a show that's aimed around the propeller marketplace and Cessna 172s and Pipistrel electric aircraft and all that kind of good stuff, the demand is strong from top to bottom. I mean, we’re -- have a great book-to-bill and our 172s, 182s, 206s. So you see really, really strong demand from that GA customer that we've always had. There's very strong demand from trading schools. So if you kind of shift into your pilot discussion, there's no doubt people have talked for many, many years about the shortages of pilots is coming up, and we're seeing that, right? So the training schools are putting a lot of orders in, they're increasing the size of their fleet so they can get more pilots through. There's a lot of activity with frankly, some of the airlines buying a lot of aircraft so that they can get pilots, not just pilots that come into the industry, but pilots that need to get the hours in order to be eligible to fly for the actual airlines. And so those hours are best built by using less expensive per hour sorts of aircraft, we have a lot of demand on that side as well. So the nice part here is it's a robust market, everything from Cessna 172 or a small Pipistrel Velis all the way up through Longitude. So it's -- the demand is very, very broad. Jason Gursky: Great, thank you. Operator: Thank you. We'll go next to the line of David Strauss with Barclays. Bradley Barton: Hi, good morning, Scott and Frank. This is Brad Barton on for David. Quickly starting off on Bell, looks like the quarter might have been a little light, can you just talk about how much FLRAA added in the quarter and how Bell’s going to ramp from here and hitting the $3.3 billion? Frank Connor: Sure. Look, I think Bell is pretty in line with where we expect them to be. The FLRAA program is certainly ramping. We’ve added a lot of engineering resource and we are able ramp reasonably quickly because we still had a lot of engineering talent that had been going through the FLRAA design, the CDR risk reduction programs that we've retained through that carrier. So, I’d say the team is ramping really well. The army has been great about working to quickly get authorizations out there for us to award contracts to our major subcontractors which is a huge part of the program obviously, as it goes out through the industrial base. They’ve authorized critical long lead materials that we needed to support the industrial flight aircraft, so the program is ramping the battle status as I can imagine ramping such a large program. So, I think we still feel very comfortable with the guide that we provided in terms of where we're going to end up the year on revenues that program drives a lot of the growth frankly that's ramping up. And look, as the way they think about this program, is it’s certainly ramping her as we go through 2023, but the JDox [ph] out there, right? The next few years that’s just sort of a $1 dollar a year program. Obviously part of that is retained by the government to run their program offices and things like that, but I think we will very rapidly ramp up and the -- how far exactly where we expect it to be, which is in that probably $800 million to $900 million a year of revenue. Bradley Barton: Okay. And then just a follow-up, there has been some reports in the press about potential interest in some properties out there. Just wondering if you could talk a little bit how you see the portfolio shaping up? Scott Donnelly: We probably won't provide any commentary on various rumors that are out there in terms of M&A activity at this point. Bradley Barton: All right, thanks for the time. Scott Donnelly: Sure. Operator: Thank you. We'll go next to the line of Noah Poponak with Goldman Sachs. Noah Poponak: Hi, good morning, everyone. Scott Donnelly: Hi, Noah. Frank Connor: Hi, Noah. Noah Poponak: The aviation margin is -- that's one of the highest levels in a while and the incremental, I think, is a little higher than your kind of long-term framework. And I guess that's despite the performance number you cited. If I add that back, I'm more in the mid-teens. And so I guess, as I think about where that margin goes over time, obviously the labor and supply chain inefficiencies you're citing won't be solved immediately, but also won't last forever. So is it reasonable to think about the margin adjusted for that in the quarter as kind of a baseline plus an incremental for where you can go late next year into the middle of the decade? Scott Donnelly: Well, I'm probably not ready to guide into the middle of the decade, just yet, Noah. Noah Poponak: Well, you have a pretty big backlog in that business now. Scott Donnelly: Well, look, there's look, I think the margins are very good. The guys, you're right, are working through challenges, which we would certainly hope will abate somewhat over time. I mean, obviously there's inflation that's baked into the numbers at this stage of the game. But I think we'll probably avoid doing too much in terms of guiding out to the future other than what is a good gross margin products. I mean, I think we'll be the way to long-term, think about this is going to be around that 20%, 25% conversion and we're sort of looking at certainly growth as we look into 2024 and beyond. But again, it's going to be in some part, constrained by supply and also I was just looking and making sure that we're tracking to where the demand is in the marketplace. I think again, we've talked before about the health of this industry should be running with a substantial backlog, and we are now running with a substantial backlog, and that's a good place for the whole industry to be. So... Noah Poponak: In the near-term, is it reasonable to expect that price net of inflation number to grow because I think your -- I think the pricing in your backlog is still better than what's hitting the P&L now, although correct me if that's wrong. And then if inflation is decelerating, it would seem like both the top and bottom end of that number would be widening. Scott Donnelly: Well, look, I think we do feel good about the pricing that's going into the backlog, but we are still seeing inflationary pressures. The rate of inflation is certainly coming down, but there is still inflationary pressure out there. Frank Connor: Yes. Remember, we have some longer-term supply contracts, so we did a nice job of responding to any demand in the market and created a more appropriate pricing environment, but there is some lag effect associated with our contracts and just the flowing in of inflation. But we still feel very good about where we are price net of inflation, but there is a lagging impact on some of those cost inputs. Noah Poponak: Okay. And just the last piece on it, is your price, your rate of change in price decelerating with maybe some normalization in the market or did you not increase it so fast that it needs to slow and the rate of change is just kind of holding at this point? Scott Donnelly: I don’t know. I have not run a first derivative on our price at this point, but I don't know. We probably won't go into that level, quite that level of detail, but suffice to say, we're still getting price and feel good about how that price demand is working in the market. Noah Poponak: All right, I appreciate it. Thank you. Operator: We'll go next to the line of Robert Stallard with Vertical Research. Robert Stallard: Thanks so much. Good morning. Frank Connor: Good morning. Scott Donnelly: Good morning. Robert Stallard: Scott, on industrials, a good quarter there, both on the top line and the margin. How sustainable do you think this is going forward? And do you just see this as a sign that the U.S. consumer is still holding in there pretty resilient? Scott Donnelly: Oh, look, I do think it's a good sign for sure, Robert. I mean the automotive guys recovery as kind of every geography is encouraging to see those volumes going up and there, and I think the Kautex guys did a nice job of converting on that. We still continue to see strong demand across golf and turf and consumer products. I mean -- so yes, I mean, it's -- they're hanging in there, right? I mean I think we all still worry a little bit about that high-end consumer, but things have been pretty reasonable. Now as you know, there is a certain seasonality of these businesses. In autumn, we do a lot of summer shutdowns and things like that, so second quarter is usually a stronger quarter. Third quarter is usually a little bit lighter in terms of the revenue on those businesses. But look, net of the whole thing, I think the demand environment has been improving, and our teams are doing a nice job of executing on that. Robert Stallard: Yes. And then Frank, a technical question for you. You raised the EPS guide by $0.10, so can you give us some idea of where that's coming from within the operations? Frank Connor: Yes. I mean it reflects kind of strong first half and the earnings obviously that we just reported. So there's a little bit in there for kind of share count and some other things, but it reflects a solid first half of the year and just continuing good execution in the second half of the year. As Scott said, I think kind of -- there's a little bit of volume at aviation that is going to probably be light relative to our guide, but industrial is probably coming in stronger than we had first thought from a top line standpoint and overall solid execution across the businesses. Robert Stallard: That’s great. Thanks so much. Operator: Thank you. We'll go next to the line of George Shapiro with Shapiro Research. George Shapiro: Good morning and good numbers. Scott, are we -- do you think we still do 200 deliveries or we should not maybe call that 190 or something given that we seem to be missing a couple each quarter? Scott Donnelly: Yes. I think the number is going to be a little bit lighter than we originally had in there, George so I don't think it's going to be 200. As I said, I think their execution is strong. I think the margins and contribution to earnings are going to be where we expected them to be, but it's going to be with a little bit lighter top line just driven by, again, trying to get the aircraft out and obviously those are aircraft that will move into 2024 sales that are still going to happen, but I do think we'll be a little bit lighter on the year than what we originally guided on the top line. George Shapiro: And at Bell, is the margin guide still good, assuming that this quarter was particularly strong because Florida hasn't fully built yet, so margins will weaken in subsequent quarters? Scott Donnelly: Look, look, I think Bell is tracking right on where we expected from a guide standpoint. So we're still seeing good execution on a lot of the production side of things. Obviously, FLRAA coming in is nice in terms of driving the top line. And clearly, it absorbs a lot of overhead in the business, which helps maintain the level of profitability in some of the other product lines. But as we've talked about the absolute number and we don't have as much V22, H1 production as we had, but we're going to still, I think, post a number that's very much in line with what we guided. George Shapiro: And then just one follow-up on Industrial, I mean it was particularly strong, I mean, I went back and looked, it was the best quarter since like Q2 of 2018 and that probably- the business wasn't even the same at that point, although Kautex is obviously there. So, can you comment anymore? I mean it would seem like the sales you could- would be $3.6 billion guide here for the year and the margin certainly would look like it could be based on what the margin was this quarter. So if you could comment a little bit more on that? Scott Donnelly: Yes, look, I think we do have George as I said, look, aviation is probably a little bit light on the revenue line. I think industrial will be a little bit stronger on the revenue line to offset that as we go through the year. I do think that the margins, there's probably a little bit of upside to the margin, but certainly just conversion on net revenue will give us a little bit of upside on the year. And again, that's part of what's factored into the raise on our guidance at the EPS level, so I think we're happy with how that's going on, on the industrial side. And again, it's strong demand recovering in the auto side. You don't see as much drag on automotive manufacturing, and that's good for us at Kautex, and golf and turf and these markets are staying pretty robust. So I do think that's kind of the way we think about mostly offset here, we'll see some nice upside on the revenue there, and that will bring with it some increase in Op, that's certainly incorporated in part of our raise for the year. George Shapiro: Okay, thanks very much. Operator: We'll go next to the line of Myles Walton with Wolfe Research. Louis Raffetto: Hi, you have Lou Raffetto on for Miles for you. Scott Donnelly: Good morning. Louis Raffetto: So I think you kind of covered this a little bit with the ongoing disruption, I guess, within Aviation, but at what point do you think that the pricing benefit will sort of overcome or more than overcome the sort of the negative on the performance side? Scott Donnelly: Well, I mean it is, right? I mean so our -- when you look at our pricing right now is even net of inflation is still enough to overcome some of the challenges in terms of inefficiencies driven by some of the ongoing supply stuff. So I think that's a trend that we've had here for a while, and I expect we'll continue to see that as we go into the future. . Louis Raffetto: Okay. And then I think you mentioned, so is 190 the right number to think about or will you be maybe a little bit higher than that for the year? Scott Donnelly: We're not going to guide a specific number. But I mean, I don't think it's-- being light by a couple of hundred million dollars is probably the right way to think about the top line. But again, I think from a performance standpoint, a margin standpoint, we'll -- we should be more or less in where we guided. . Louis Raffetto: Okay, thank you very much. Scott Donnelly: Sure. Operator: Thank you. We'll go next to the line of Cai Von Rumohr with TD Cowen. Cai Von Rumohr: Yes. Thanks, so much. So Scott, a strategic question, obviously, your A&D business is growing with FLRAA, some opportunity at OMB, a number of other programs. And yet when you look at your business, you're not really a niche player, and you're also not up with the GD or Lockheed, those guys. Strategically, I think you said you'd like to increase A&D, how big would you like to get? And what sorts of things would you consider buying to bolster your A&D business? Scott Donnelly: Well, it's a good question, Cai. Look we -- obviously, we'd like to be bigger. And I think that the approach we're taking here is investments that we've made in our existing businesses is driving a lot of that growth. So I think if you look at aviation, all the investments that we've made and continue to make in those new platforms, you referenced a couple of other names. Look, I think obviously, we've made a huge investment in FLRAA over the years. That's going to drive a ton of growth and shows that we can go head-to-head on a program-by-program basis and win, and drive a lot of organic growth. I think when you look at systems, some of the things that we talked around OMF or what's now referred to as XM30 and ARV with the Marine Corps, there's things out there that are potentially significant growth drivers. We're going head to head with some of the guys that are the biggest names in the business and I think we can win against them. So our focus continues to be making sure that we're making the right investments so we can drive the organic growth. And will we do acquisitions, if there's a right opportunity that comes along, absolutely. But we've got a cause I've always felt that you want to -- you don't want to have to do a deal, right? So I think that our strategy is continue to make the right investments on the organic side so that we can drive really good growth and if something comes along that makes sense from an extension [ph] standpoint, we're happy to look at that. Cai Von Rumohr: So when you look at things, do you look at it sort of from a holding company perspective, this would be a good business or are there specific skill sets that you think would be complementary to what you currently do that would make you a stronger player in helicopters and whatever? Scott Donnelly: Well, look, I think, Cai, right now, it's primarily looking in the A&D space, things that would help diversify us in terms of our strength in A&D. I don't think it's likely that you see something that's specifically in the helicopter space. I just don't know that there is targets out there where you do that. And from a government standpoint and other standpoint, I don't think you would probably see much activity in that space. I'd be kind of surprised. But I think you look at complementary A&D capabilities, certainly where we bring technological capability where the target would bring technology capability that's some synergistic, but I think in large part, providing a more well-rounded, more diversified A&D company. Cai Von Rumohr: Great, thank you very much. Operator: Thank you. And our last question will come from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Great, thanks. Scott, with the macroeconomic uncertainty and increasing interest rates, I mean, ultimately the demand and pricing for business jets and general aviation continue to be robust, a surprise for the bears pretty much. So what do you think is driving this sustained demand and how undersupplied do you think the market continues to be? Scott Donnelly: Well, look, I think the demand environment is driven by the fact that people-- a particular people who have come into this market and started using aircraft and experienced what private aviation is all about, have had a great experience. I mean there are time machines, right? It allows you to do things that you just can't do if you're using commercial transportation. So the productivity, the efficiency, the ability to get from anywhere to anywhere on your time and in an expeditious way is something that the more and more people and I think, again, this is if you’re affected by COVID a lot of people got exposed to this market that had not in the past, and they're turning out to be a great tool. And so I think that’s what continues to fuel a lot of the demand in this marketplace. So it's obviously, we offer a lot of products across a broad range of price points and performance. And I think that's why we're seeing just a fundamentally very strong demand environment. And as you know, it's not just our company and our products, but across a very, very broad range of general aviation. . Kristine Liwag: Yes. And I guess when you look at the portfolio, light, medium and large cabin, that large cabin out of the market continues to also be robust. At this point, when you look at the Cessna portfolio, what's your appetite to go bigger? I mean we had the Columbus and the Hemisphere that didn't come about, but is there a right moment to reintroduce an airplane of that size or even larger and move up the portfolio to the larger cabin jets? Scott Donnelly: No, I don't think there is. Look, we did look at one point, as you know when we stretch the top end of our platform. We did have programs at the time and for technical reasons and we ended up not doing those programs. I think that part of the market now, particularly as you go larger in that market, which is kind of the choice we were faced with, is a very well-served market. So I think we're better off focusing all of our R&D and our energy in our investments in sort of up to that super midsize on the Longitude. We've been doing, as you know, a lot of great upgrades to a lot of those programs, platforms all across our portfolio. And yes we continue to make the right investments. Denali is still in development, and that's going to be a homerun for us, is then which just announced. I mean, that's right in the sweet spot of our market, that's a segment of the market that we've had a great track record in the past with previous aircraft, and I think this end will be really well received and drive a ton of growth for us. So, this is -- I think that -- and we're very focused on making those investments across everything from our little Cessna 172s and now, of course, in the electric space with Pipistrel and eAviation up through Longitude. But I think that's a pretty good place for us to be and that's where we're going to focus our R&D efforts. Kristine Liwag: Great, thanks Scott. Operator: Thank you. And ladies and gentlemen, today's conference will be available today, 10:00 a.m. Eastern Time running through July 27, 2024 at midnight. You may access the AT&T replay system by dialing 18662071041 and entering the access code of 8467989. International dialers may call 402-970-0847. Those numbers again are 18662071041 or 402-970-0847 with the access code of 8467989. That does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.

Operator: Thank you for standing by and welcome to the Q1 2023 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host Mr. Eric Salander, Vice President of Investor Relations. Please go ahead, sir. Eric Salander: Thanks, Bradley, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3 billion, up $23 million from last year's first quarter. Segment profit in the quarter was $259 million, down $18 million from the first quarter of 2022. During this year's first quarter, we reported net income of $0.92 per share. Adjusted net income, a non-GAAP measure, was $1.05 per share compared to $0.97 per share in last year's first quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $104 million in the quarter compared to $209 million in the first quarter of 2022. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric, and good morning, everyone. We had a solid first quarter. Revenues up Aviation, Industrial and Systems largely offset by lower revenues at Bell, consistent with our expectations. At Aviation in the quarter, we delivered 35 jets, down from 39 last year and 34 commercial turboprops, up from 31 in last year's first quarter. Aviation continued to see solid demand across jet and turboprop products. Backlog grew $136 million and in the first quarter at $6.5 billion. In the quarter, Aviation received an initial award on the U.S. Navy Multi-Engine Training System contract for 10 King Air 260 aircraft and associated support equipment. This contract includes options for up to 64 aircraft with deliveries in 2024 through 2026. Textron Aviation's fleet utilization remained strong in the quarter, contributing to aftermarket revenue growth of 9% as compared to last year's first quarter. Moving to Bell. We announced the appointment of Lisa Atherton as the CEO, succeeding Mitch Snyder, who will retire at the end of April. Lisa returned to Bell in January after more than five years as the President and CEO of Textron Systems. She's done an outstanding job building strong teams at Bell and Textron Systems in her 16 years with the company and certainly confidence for our military customers. I want to thank Mitch for his leadership. During his tenure, he oversaw significant wins at Bell's military business, along with development of new technologies and product innovations. Earlier this month, the FLRAA contract protest was denied and the U.S. Army subsequently canceled the stop-work order allowing work on the contract to proceed. On the commercial side of Bell, we delivered 22 helicopters, down from 25 in last year's first quarter. During the quarter, we saw solid customer activity across all our commercial products and in markets, including order from the Polish National Police for four additional BEL407s, which will expand their fleet to seven aircraft. At Textron Systems, we saw a good margin performance on higher revenues across our programs. During the quarter, Systems Aerosonde Hybrid Quad was among five competing unmanned air systems that were down selected for Increment-2 of the Army's future tactical unmanned aircraft system competition. Also during the quarter, systems delivered craft 105 of the U.S. Navy Ship-to-Shore Connector program, the seventh craft delivered to the Navy. There are now two craft remaining to be delivered under the detailed design and construction contract. Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume, both in Specialized Vehicles and Kautex. Specialized Vehicles, the golf business continues to see strong demand and pricing for its lithium product. At Kautex, we announced the first Pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plates. Skid plate is part of the company's new Pentatonic battery system product line, supporting battery electric vehicle production. Moving to eAviation. During the quarter, we announced two new U.S. distribution partners on the East Coast to further expand Pipistrel's existing distribution network. Also in the quarter, we finalized the route with Mesa Airlines for 25 Alpha Trainer aircraft and an option for 75 additional aircraft. At [indiscernible] during the quarter, we displayed the Pipistrel's Panthera and Velis Electro aircraft receiving CW customer interest in both models. With that I'll turn the call over to Frank. Frank Connor: Thank you, Scott. Good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.1 billion were up $109 million from the first quarter of 2022, reflecting higher pricing of $58 million at higher volume of $51 million, which included higher defense and aftermarket volume. Segment profit was $125 million in the first quarter, up $15 million from a year ago, largely due to favorable pricing net of inflation of $17 million and the impact from the higher volume and mix, partially offset by an unfavorable impact from performance of $17 million. Backlog in the segment ended the quarter at $6.5 billion. Moving to Bell, revenues were $621 million, down $213 million from last year, as expected, on lower military revenues, reflecting lower spares and support volume in V-22 and H-1 production volume. Segment profit of $60 million was down $31 million from last year's first quarter, primarily reflecting lower volume and mix, partially offset by a favorable impact from performance of $29 million, reflecting lower research and development costs. Backlog in the segment ended the quarter at $4.6 billion. At Textron Systems, revenues were $306 million, up $33 million from last year's first quarter, largely reflecting higher volume. Segment profit of $34 million was up $6 million from a year ago, primarily due to a favorable impact from performance. Backlog in this segment ended the quarter at $2 billion. Industrial revenues were $932 million, up $94 million from last year's first quarter, largely due to higher volume and mix at both Textron Specialized Vehicles and Kautex. Segment profit of $41 million was up $2 million from the first quarter of 2022, primarily due to higher volume and mix and a favorable impact from pricing, net of inflation, principally in the Specialized Vehicles product line, partially offset by an unfavorable impact from performance. Textron eAviation segment revenues were $4 million and segment loss was $9 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $12 million and profit was $8 million. Moving below segment profit. Corporate expenses were $39 million. Net interest expense was $17 million, LIFO inventory provision was $25 million, intangible asset amortization was $10 million, and the non-service component of pension and post-retirement income were $59 million. In the quarter, we repurchased approximately 5.2 million shares, returning $377 million in cash to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in a range of $5 to $5.20. We also continue to expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our prepared remarks. So Bradley, we can open the line for questions. Bradley? Operator: Of course. And our first question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Thank you and good morning, guys. Scott Donnelly: Good morning. Sheila Kahyaoglu: I wanted to ask about Bell profitability. Frank, I think you mentioned some favorable performance in there. But with the FLRAA protest now cleared, how does this change the trajectory of Bell profit? And how are you thinking about the dilution just given the development work? And just thinking about the bid overall, Textron's development value was nearly two times Lockheed. So how do we think about this in terms of revenue contribution? Frank Connor: Well, I'd say that we had anticipated or we had planned basically for a delay in FLRAA when we gave our guidance. So FLRAA is going to roll in consistent with how we had seen Bell in terms of the $3.3 billion of revenue and eight a quarter, nine a quarter not guidance. Obviously, we had margins above that for this quarter. So we do expect to be within that margin range that we had guided to. We do expect to see revenue growth. So we think this will be the low quarter for Bell from a revenue standpoint. So as FLRAA kicks in, we talked about that being a lower contribution margin. We'll see ultimately kind of where we get in terms of booking rates on that, but we'd expect volume growth with some margin headwinds associated with that revenue coming in. But overall, the team did a really nice job from a cost structure standpoint in this quarter, offsetting that decline in volume, and we feel good about kind of how Bell is positioned in the performance of the business. Sheila Kahyaoglu: And then just maybe, Scott, one for you. How do we think about Aviation pricing? I think you mentioned $58 million of a gross price or 5%. Is that sort of what we should expect on the growth side and how do we think about that as the dynamics of the market are changing? Scott Donnelly: Yes. I think so, Sheila, look, I mean, obviously, the pricing is well built into the backlog. I think we are on track in terms of our expectations on costs. So I would continue to expect to see pricing net of inflation as a positive. Demand is still good in the marketplace. I think pricing is stable out there as we look out into the future bookings. So again I think it's a reasonable expectation to think that we're going to continue to see price net of inflation as a positive going forward. Sheila Kahyaoglu: Thank you. Scott Donnelly: Sure. Operator: And our next question comes from the line of Doug Harned with Bernstein. Please go ahead. Douglas Harned: Good morning. Thank you. Scott Donnelly: Good morning. Douglas Harned: When you look at the first quarter and orders in Aviation. Yesterday, we heard from General Dynamics that Gulfstream had some hiccups around the banking crisis that Silicon Valley Bank collapse had actually delayed a lot of decision-making in pushing orders through. How did you find that period at Aviation? Have you seen similar things there in terms of order flow? Scott Donnelly: Look, I don't know that I would pin something specifically to Silicon Valley Bank, but when we had a positive greater than one-to-one book-to-bill in the quarter, which is good. We kind of guided to around a one-to-one book-to-bill. I think the lead time that we have right now in aircraft is in a pretty healthy place. And that's kind of what we're targeting. I guess I would say that any time you have financial disruption or adverse events out there in the economy in general, it's certainly easy for people to say, hey, look, let me think about it or wait a little bit. I think the good position we have right now is we have enough backlog out there that even if you have a quarter where you're down below one-to-one, that's not the end of the world. If somebody defers out there for a few months, that's not a problem. That's the beauty you have in the backlog. So unlike previous periods where you had some interruption and you'd see a delay, then that would hit you in terms of revenue and profit in the near term. I think we have sufficient backlog out there that even if you do have something where somebody waits a little bit, then that's fine. Douglas Harned: And then when you look forward and you're talking about a book-to-bill in the order of one this year. When you look beyond that, how do you think about the aftermarket. I mean, we might look at this as the aftermarket should grow somewhat proportionate to the fleet, but do you expect other factors to give you more growth there, such as more content for airplane or pricing? Scott Donnelly: Well, look, I think it's a lot more around utilization, right? So flight hours is more closely correlated with the growth in the aftermarket as opposed to necessarily the fleet numbers. I mean, our fleet is so huge that even adding small numbers in any given quarter doesn't make any real impact. So I think it's primarily driven around utilization and utilization in the fleet remains very high. Douglas Harned: Very good. Thank you. Scott Donnelly: Sure. Operator: And our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead. Seth Seifman: Okay. Thanks very much, and good morning. You saw the share repurchase amount step up nicely in the quarter. I guess, can you talk about your thinking around that and maybe where you expect share repo to come in for the year? I guess you guys might have some additional cash coming in from a recent verdict and so what your thoughts are on repo this year and whether maybe it's time to step things up. Scott Donnelly: Well, so I think what you did see us do is step things up here in the first quarter. We've always said that that's our primary return of capital will be through share repurchase. And to do that opportunistically, we feel we've still been sort of in a good place to be buying. And so we stepped up $377 million in the quarter. Our cash flow in the company continues to be strong. We have a lot of cash on the balance sheet, as you guys know. And so I think consistent with what we guided at the beginning of the year, we expect to probably buy back somewhere in that 5% to 6% of the outstanding shares. So the first quarter was indicative of doing that. In terms of that, what's been out there in the media and the press around this intellectual property, verdict. Obviously, we're not going to comment much on that as it goes along through the legal process, but that's not something that we would expect to see cash come in any time in the near future. There's appeal processes, who knows how that's going to play out. So that doesn't factor into our thinking in terms of share repossession at this time. Seth Seifman: Okay, great. I'll leave it there this morning and pass it on. Thanks very much. Scott Donnelly: All right. Thank you. Operator: And our next question comes from the line of Cai Von Rumohr with Cowen. Please go ahead. Cai Von Rumohr: Thanks for taking the question and nice results. So at Aviation, maybe give us some color in terms of relative trend you're seeing in supply chain? And also, what was the commercial biz jet book-to-bill because obviously you also got some defense orders there in the quarter? Scott Donnelly: So the supply chain side, Cai, is largely unchanged. I would say that kind of as we've talked about earlier, I think our labor position is in a much better place than it was. We did bring a lot of resources in the third and fourth quarter last year. Obviously, that does create some disruption, which, as you know, affects some of our conversion here is some of that inefficiency on lines here in the first half of this year. But we're largely staffed at the levels where we want to be. So I would say on that front, things are certainly improved. But we continue to have suppliers have issues that are causing us to do things out of sequence and driving still some inefficiencies in how we operate the plant. So it's -- I'd say it's not getting worse, but it's not necessarily getting better. Sometimes it's frustrating. If you get one kind of resolved and another supplier becomes a problem. And I -- we kind of expected that to be an ongoing issue through most of the balance of this year. So I don't think there's any big surprises there, but it's still a challenge. As far as order, look, our book-to-bill was greater than one. We feel good about that. It's -- we don't break it out down to the individual models or programs, but certainly, we're -- I'd say we're happy with how the demand is going in both jets and turboprops. So I think we're in a pretty good place. Cai Von Rumohr: Okay. And then a follow-up to Seth's question. 5.2 million shares is like 2.5%. So essentially, in one quarter, you've done half of your buyback target for the year. You won FLRAA, you had this bluebird of the DGI patent suit. What's the chance that basically the 5% to 6% is exceeded in terms of the repo? Scott Donnelly: Well, look, I think, again we're going to continue to press on this opportunistically, Cai, and we'll see how it plays out through the balance of the year. But I mean, as you know, it's not really formal guidance. We just kind of indicate to you guys how we're thinking. And there's no change in how we're thinking it continuing to be our primary means of returning value to shareholders. Cai Von Rumohr: Fabulous. Thank you very much. Scott Donnelly: Sure. Operator: And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Good morning. Frank Connor: Good morning. Robert Stallard: First of all, Frank, you said you were holding the EPS and cash flow guidance for the year. Are there any changes in the divisional guidance for 2023? Frank Connor: No, it's roughly in line with where we had been. Robert Stallard: Okay. And then, Scott, one for you. Industrial double-digit growth in the quarter is pretty healthy performance. How sustainable do you think that is given the economic backdrop that we're seeing particularly on your shorter cycle products? Scott Donnelly: Well, look, it's something to keep an eye on. I'd say that we're kind of roughly to the plan that we thought. I think you're -- we certainly expect to see and have seen softness in some of the short-cycle consumer side of things. But we're seeing strong performance still or, let's say, in some of the industrial and commercial applications. And when we look at our production allocations, for instance, we're certainly pushing some of our capacity and our volume to serve commercial industrial applications more so than on some of the consumer side. So that's one where -- obviously, there's some uncertainty, we keep a close eye on it. But net of all those things, there's enough demand across all of the different markets that we serve to drive that kind of growth. And I think we'll continue to see that through the balance of the year. Robert Stallard: Okay, that's great. Thank you. Operator: And our next question comes from the line of David Strauss with Barclays. Please go ahead. David Strauss: Thanks, good morning. Scott Donnelly: Good morning. David Strauss: Scott, biz jet deliveries in the quarter, were those a little lighter than you were anticipating? Just looking at how much inventory, I know you always built some inventory in Q1, but there was a pretty big inventory build in the quarter. So I don't know, some deliveries, you missed some deliveries or kind of where you came in relative to what you were thinking? Scott Donnelly: Well, Dave, I mean, for sure, but it's a couple of aircraft, right? I mean I think it's something is going to pressure us all year long, but we also factored in, in terms of our plans, what we thought we would see in terms of headwinds. So I don't think we're very disconnected from what we indicated in terms of the guide for the year. David Strauss: Okay. Was that supply chain related, customer decision? What drove those delays? Scott Donnelly: Most of the delays we're going to see through the course of the year are supply chain related just getting parts and being able to get things sequenced and through test. We haven't seen any real change in customer behavior that's impacted anything. David Strauss: Okay. And then I was wondering if you could maybe give a big picture look or how we should think about Bell given all the various moving pieces, thinking beyond this year. Obviously, with FLRAA now in-house, H-1 and the V-22 rolling off, I think not sure what the outlook is for V-22 aftermarket. But how should we think about the growth profile for Bell thinking out over the next couple of years given all these moving pieces? Scott Donnelly: Sure. Well, look, I think Frank kind of indicated this as well. We certainly expect revenues to be increasing in Bell through the balance of the year and into next year as the FLRAA program is ramping up. So I think on the revenue growth side, we feel very good about that. Clearly, as we bring in a higher proportion of primarily cost plus development effort that's going to be at lower margins and those production program volumes on V-22 and H-1 that have been going down. So you do have that mix issue. That's kind of where that led us to the guide that we have out there this year and I think that's kind of where we would expect to be as we go forward. So we're going to get this thing back into a growth mode, but it is going to be heavily weighted towards a cost-plus relatively lower margin piece of the business that's going to be offsetting lost revenue that's a higher margin. But I think it's going to stay as a healthy business, but it's certainly not going to be at the margin levels that we've seen in the past number of years. David Strauss: Okay, that's helpful. Thank you. Scott Donnelly: Sure. Operator: And our next question comes from the line of Myles Walton with Wolf Research. Please go ahead. Myles Walton: Thanks. Good morning. Scott Donnelly: Good morning. Myles Walton: Scott, in the last 12 months, I guess, or 18 months, last two additions to your Board of Directors where a couple of defense executives and Richard Ambrose and Tom Kennedy. And I'm curious if sort of the trend there is indicative of where you want to be taking the portfolio directionally more towards defense? And if so, is it indicative of the organics with FLRAA obviously being a contributor or more inorganic from an M&A interest? Thanks. Scott Donnelly: Sure. Look, these are both guys who have, to your point, a lot of deep experience in the aerospace and defense world. Our company has always been sort of in that 30% defense with the growth that we're expecting to see in the systems business with the growth, obviously, we're expected to see in FLRAA and ongoing opportunities in the near future here, I think, of future opportunities in Bell and systems. I felt like it made a lot of sense for us to beef up a little bit more on the A&D side of the company. But these guys are recent retirees, their current. They know acquisition, they know defense and they know aerospace technology. So I think they're two great adds onto the Board. So there's no real super underlying message, but obviously, these are a couple of real high-quality individuals that know our space very well. Myles Walton: Okay. Very good. And there was just 1 clarification, if I could. On the FLRAA disclosures from the protest, you talked about cost-plus incentive portion and fixed price incentive version. Can you just illuminate us on maybe where the fixed price risk you've taken on is and isn't? Thanks. Scott Donnelly: Well, I think there's two principal pieces of fixed price. One is kind of a program management and operation layer, which I think is low risk. We sort of understand what that is. And then as you guys know, there are several deliverables under this full program. There's the EMD phase, which has about eight aircraft that are part of the development test -- limited user test for the Army. And then there's a craft that are the [indiscernible] first initial production craft and the material that's in there is at fixed price. So -- but it's heavily weighted towards the cost plus. Myles Walton: Thanks again. Scott Donnelly: Sure. Operator: And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Good morning. Scott Donnelly: Good morning, George. George Shapiro: Scott, the supply chain issues, I mean, led to an incremental margin of 14% in aviation this quarter. That's the same that you had in the fourth quarter. And the performance impact, $16 million, $17 million is similar. So do you expect that the rest of the year? Or can you overcome some of the supply chain issues that you had mentioned are going to continue? Scott Donnelly: Sure, George. Look, I think it will abate in the back half of the year. As we talked about, a lot of those efficiencies are things that were experienced in the back half of last year. A lot of that obviously goes through inventory. So that releases with the aircraft deliveries here in the first half of this year. Obviously, that anticipates that performance and disruption will be less in the first half of this year than it was in the last half of last year. And I think more or less so far, we're seeing that. I think our factory is running better. That's largely as I said, attributable to the fact that we've got the resources on board. There's still issues turnovers higher than we would like. There's still more churn than historical. But certainly, the plant is running in a more efficient way. Now supplier issues still pop up, as I said. But net of all that, I think that we will see better lower impacts of those efficiencies in the back half of the year than the first half of the year. So even with that 14%, which again is kind of where we expect it to be. I think for the total year, the overall conversion, which is sort of 24 so percent, which is appropriate for our business is still something we expect to realize for the total year. George Shapiro: Okay. And then have you changed anything about deliveries expectation for the year? Scott Donnelly: No. Not really. I think we're still tracking to what we guided. George Shapiro: Okay. Thank you very much. Good report. Scott Donnelly: Thanks. Operator: And our next question comes from the line of Peter Arment with Baird. Please go ahead. Peter Arment: Yeah, thanks. Good morning, Scott. Frank. Nice results. Scott Donnelly: Good morning. Peter Arment: Hey, Scott, you've had a lot of questions on Aviation. I'll just ask one quick one. There's been a slight kind of increase in used aircraft out there. I'm sure it's in-production aircraft still remains very low. Just maybe any comments that you're watching or from your perspective on the used market? Scott Donnelly: Sure, Peter. Look, obviously, we watch this very carefully. And you see numbers coming out, and they look like big percentages, of course, there are big percentages on very small numbers. So I think when we look at the used available -- when you look at kind of that zero to 10 years old, it's less than -- it's around a couple of tenths of a percent of our fleet. So it's a really, really small number. I mean, we're talking about nine aircraft that we know of right now that are under 10 years old versus our fleet size of over 7,000 aircraft. So look, it's a trend of we see in the marketplace, but remember, these are -- on an absolute basis, these are very small numbers, right? So the available for sale is less than a few percent, and about half of those are 20, 25 plus year old aircraft. So still a very, very positive environment in terms of used aircraft available for sale. Peter Arment: Thanks so much. I appreciate the color. Scott Donnelly: Sure. Operator: And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Hey, good morning, Scott and Frank and Eric. A little bit of a follow-on to, I think it was Myles' question on FLRAA. Typically, congrats, you get past the GEO review on FLRAA, big milestone there, but now you have to kind of switch to a keep-sold strategy, right? So I'm just wondering, Scott, from your perspective, what your view is on the technical and schedule risk to the development contract as you kind of move from the aircraft in your configuration to the exact production configuration as the Army wants. I'm just wondering kind of how you gauge the risks and if there are any important milestones that we should be on the lookout for? Scott Donnelly: Sure, Peter. Look, I think the way the Army has conducted this acquisition, and as you guys know, this goes back a decade, really, right, of both guys going through design, development, producing prototype aircraft, flying them, lots of soldier touch points, Army pilots flying them. As you know, as we went even through the formalities of the formal RFP and during this whole period of time, the proposal valuation, there was ongoing effort under the OTA for the CRR program, which was continuing to reduce risk and finalize design activities and risk reduction even whilst the proposal evaluation was going on. And so I think the good news here is we have a really, really solid technical baseline for the aircraft itself. We have a great team that's in place, ready to go, that is being reassembled here to now go execute the EMD program. Obviously, there's a lot of new stuff here around the mission systems and development of that capability in the MOSA system for the - and ensures the architecture of the mission systems and how they accommodate changes over time. But I think that we have a really, really good technical baseline. The aircraft that we're about to go design and build and fly is very, very close to the aircraft that we've already designed and built and flown. So I think there's a big chunk of a risk that has been very effectively reduced and we're ready to go get at it. Pete Skibitski: Okay. I appreciate the color. Scott Donnelly: Sure. Operator: And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hey, good morning. Scott, Frank, when you look at the portfolio today, it's clearly stronger this cycle versus the last. Aviation has got a backlog, Bell secured FLRAA, Industrials is stable now. With the balance sheet pretty low, what's your appetite to expand into another vertical and tap into secular growth markets? Scott Donnelly: Look, I think that we -- as we've always said, we'll -- we keep an eye on things as things come to market or there's opportunities out there. But obviously, our plan is still built around organic growth. Investments in the businesses that we have, which I think we've been making substantial investments and those are paying off for us in terms of what organic growth we're seeing. And at this point, look, I think we do have a very strong balance sheet. We have a lot of cash on hand. We have strong cash generation in the business. We'll continue to execute on our buyback programs. If something came along that we thought made sense that was, frankly, in the A&D space and was something that we knew could be accretive and a better value to our shareholders than just continuing share buyback, we would look at it. But as I said, it would have to be something where it's a clear win and always contrasting that with what's going on with our share buyback program. Kristine Liwag: Great. Thank you. Scott Donnelly: Sure. Operator: And with that our last question comes from the line of Ron Epstein with Bank of America. Please go ahead. Ronald Epstein: Hey, good morning guys. Scott Donnelly: Good morning, Ron. Ronald Epstein: Scott, could you kind of walk through -- you mentioned earlier on the call, is kind of back to Myles' question about positioning the company for some more growth in defense and the opportunities ahead of you in Bell and Systems. But if you could walk through a couple of those that maybe you find particularly interesting for the company. Scott Donnelly: Sure. Well, Ron, I would say that the FLRAA win on a stand-alone basis is hugely important to our future. I think our guys have done a great job over the past decade in investing and positioning for that. Obviously, as you know, the FLRAA program continues. It's a few years behind the FLRAA program, but one where, again, I think our team has made the right investments. We've got the right people that have developed a product that I think is going to be a home run. As you know, we're all kind of waiting on the engine side to have that thing fly. But again, the Army activity continues in risk reduction and further affinitizing that program. So clearly, I think that's a great opportunity. I think we have a great solution. There are activities, which, again, are publicly out there in terms of the future systems the Navy and the Marine Corps are looking at, which I think a lot of our technology, particularly in the tilt rotor space, will potentially be a great solution and can leverage off a lot of the investment that we've already made on the 280 program. Those were likely to be adaptations. But again, from a technological standpoint, I think we're in a really good place for some of those future opportunities. High-speed VTOL Bell arguably provide a little bit further off, but that's another step I think that leverages, our fundamental core capabilities to go to even higher speed, higher performing, longer range assets. So I think Bell in my view, Ron, I guess I would say I think we have a phenomenal franchise around tilt rotor, and I think we have a lot of opportunities to continue to grow that franchise on a number of different adaptations of that technology into the future. On the system side, okay, that's -- there's a lot of programs in there. I think we've -- the win on the Sentinel program with Northrop is a driver of growth for us going forward as that moves ultimately from EMD into its production phases here in the future. We have some great new wins on the munition side with XM204s and XM250s. Again a great franchise for us for a long time, which is really growing. I mentioned our down-select on FTUAS. Shadow continues to be a good program for us, but the Future Tactical UAS with the Army is certainly a big opportunity. There's a couple of big land vehicle programs, as you know, ARV on the Marine Corps side, OMFV on the Army side. So I mean I don't want to wrap up those stuff, but there's lots of opportunities out there for which we've either won or we've been down selected or I think we're certainly a viable competitor. You're not going to win all these things, but there's enough opportunity, and I think we're in good enough place that we can see a lot of organic growth being driven out of that business as well. Ronald Epstein: Got you. And then maybe 1 follow-on, if I can. Maybe in the shorter term, are you seeing much demand being driven from the war in the Ukraine? Are you seeing orders for stuff that maybe 18 months ago, you wouldn't have expected better? Scott Donnelly: No, we're really not, Ron. We're not in that sort of munition space. I mean there has been some dialogue around some land vehicles, but they're largely EDA things that are in surplus in the army that would come out being refurbished and put over there. There's some talk of different UAS systems. So there's some -- there are -- we've had nothing so far. And there's probably some relatively speaking, smaller opportunities going forward, but it's not going to be a material impact to us. Ronald Epstein: Got it. Thank you. Scott Donnelly: Sure. Operator: And with that, ladies and gentlemen, today's conference will be available for replay after 10 A.M. Eastern today through April 27, 2024. You may access the AT&T replay system at any time by dialing the 1-866-207-1041, entering the access code 4732406. International participants may dial 402-970-0847. And those numbers again are 1-866-207-1041 and 402-970-0847, again, entering the access code 4732406. That does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2022 Textron Earnings Release Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Vice President, Investor Relations, Mr. Eric Salander. Please go ahead. Eric Salander: Thanks, Greg, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings, and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.6 billion, up $3.3 billion in last year's third quarter. Segment profit in the quarter was $317 million, up $7 million from the fourth quarter of '21. During this year's fourth quarter, we reported income from continuing operations of $1.07 per share. Manufacturing cash flow before pension contributions totaled $368 million in the quarter, up $70 million from last year's fourth quarter. For the full year, revenues were $12.9 billion up from $487 million from last year. In 2022, segment profit was $1.2 billion up $89 million from 2021. Income from continuing operations was $4.01 per share, compared to $3.30 in 2021. Manufacturing cash flow before pension contributions was $1.2 billion, up $29 million from 2021. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric, and good morning, everyone. Our business closed out the year with another strong quarter. In the quarter aviation grew revenue and segment profit reflecting high record deliveries increased aftermarket volume and strong pricing net of inflation as compared to last year's fourth quarter. Also in the quarter, we continue to see solid order flow customer demand across our aircraft product portfolio ended the year with 6.4 billion of backlog. For the year we delivered 178 jets up from 167 last year, and 146 commercial turboprops up from 125 in 2021. Textron aviation defense delivered 10 T6 aircraft for the year up from five year a ago. Throughout 2022, strong aircraft utilization within the Textron aviation product portfolio resulted in a 16% growth in aftermarket revenues. At bell, as expected revenues were down slightly in the quarter on lower military revenue reflecting the continued wind down on the H1 program partially offset by higher commercial revenue. In December, U.S. Army announced the Bells V-280 Valor was selected as the winner of the future long range assault aircraft program competition. This award is a testament to the hard work of the Bell team that designed built and flew V-280 prototype over the last 10 years in support of this win. The initial flyer contract award of up to 1.3 billion over the first 19 months with an initial funding of 232 million for engineering and manufacturing development related activity is currently on hold pending the outcome of protest was filed at year-end by the competing vendor. On the commercial side of Bell, we delivered 179 helicopters in 2022, up from 156 in 2021. Moving to Textron systems revenues were essentially flat with last year's fourth quarter. During the fourth quarter systems awarded another anti-vehicle munition contract from the U.S. Army. The award is valued at $162 million over five-year period performance. In December, Systems announced the delivery of the Cottonmouth to the U.S. Marine Corps for testing through 2023. This vehicle was purpose built for the Marines Advanced Reconnaissance Vehicle Program. Also in the quarter system delivered to the fixed Ship-to-Shore Connector to the U.S. Navy after the successful completion with substance trials. Moving to industrial, we saw high revenue in the quarter driven by higher volume, both Caltex and Specialized Vehicles, and favorable pricing principally in specialized vehicles. Moving to aviation, we delivered 6 Bell [indiscernible] aircraft in the fourth quarter, including the first unit into Canada. For the year, [indiscernible] delivered 61 aircraft following the completion of the acquisition in April 2022. In summary, we saw strong demand across our commercial product lines and the team as executed well despite supply chain and labor constraints. At aviation, the team executed very well with a full year segment profit margin of 11.5%. It was above the high-end of our original guidance range. Aviation's backlog grew 55% to 6.4 billion at year end on strong border activity and customer demand. On the new product front, we received FAA certification for the Cessna SkyCourier and delivered 6 units to our launch customer, FedEx, during 2022. The Textron Aviation Defense, the Light-Attack 86 Wolverine achieved military type certification from the U.S. Air Force, enabling the first international sale of 8 aircraft. At Bell, the December 2022 FLRAA contract, award has solidified the long-term outlook for the segment and should provide an increasing revenue stream that we expect will drive growth well into the future. On FLRAA, the 360 Invictus is nearly complete, and we expect first flight 2023, pending delivery of the ICAP engine. At Textron Systems, we advanced our weapons programs with the award of our anti-vehicle munitions programs, continued work on the robotic combat vehicle and Armor Reconnaissance Vehicle Development Programs. Systems also obtained airworthiness certifications for 4 additional F1s at ATAC, bringing the total operational F1 fleet to 23 aircraft in support of increased demand across U.S. military tactical air programs. At Textron Specialized Vehicles, the company continued its leadership in the development and production of zero emission gulf vehicles, turf maintenance equipment and ground support equipment to markets. At Caltex in 2022, we were awarded contracts on 14 hybrid electric vehicle programs for our fuel systems. At Aviation, the Pipistrel Velis Electro continued to receive certifications from around the world and is now certified in more than 30 countries. Looking to 2023. At Aviation, we are projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, we're projecting revenue growth in 2023 on higher military revenues from the FARA program and higher commercial revenues. At Systems, we're expecting mid-single-digit revenue growth across our businesses. At Industrial, we're expecting revenue growth at specialized vehicles and Caltex. At Aviation, we plan to continue investments in development of technologies and products supporting sustainable flight solutions for unmanned cargo, next-generation electric trainers, EV tolls and general aviation. With this overall backdrop, we're projecting revenues of about $14 billion for Textron's 2023 financial guidance, projecting adjusted EPS in the range of $5 to $5.20. Manufacturing cash flow before pension contributions is expected to be in the range of $900 million to $1 billion. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.6 billion were up $223 million from a year ago, reflecting higher jet and defense volume and higher pricing. Segment profit was $169 million in the fourth quarter, up $32 million from last year's fourth quarter due to favorable pricing, net of inflation of $29 million and higher volume and mix, partially offset by an unfavorable impact from performance. Performance includes unfavorable manufacturing performance largely related to inefficiencies from supply chain disruptions and increased staffing associated with higher production, partially offset by lower selling and administrative costs. Backlog in the segment ended the quarter at $6.4 billion. Moving to Bell. Revenues were $816 million, down $42 million from last year, reflecting lower military revenues, partially offset by higher commercial revenues. Segment profit of $71 million was down $17 million from a year ago, primarily reflecting lower military volume and mix, partially offset by a favorable impact from performance. Backlog in the segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $314 million, up $1 million from last year's fourth quarter. Segment profit of $40 million was down $5 million from a year ago. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $907 million, up $126 million from last year, reflecting higher in volume and mix of $95 million and a $59 million favorable impact from pricing largely at specialized vehicles product line, partially offset by an unfavorable impact of $28 million from foreign exchange rate fluctuations. Segment profit of $42 million was up $4 million from the fourth quarter of 2021, primarily due to higher volume and mix, partially offset by an unfavorable impact from performance. Textron eAviation segment revenues were $6 million and segment loss was $10 million in the fourth quarter of 2022, which reflected the operating results of Pipistrel along with research and development costs for initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $11 million, and profit was $5 million. Moving below segment profit, corporate expenses were $43 million in the fourth quarter. Interest expense, net for the manufacturing group was $17 million. Our manufacturing cash flow before pension contributions was $368 million in the quarter. For the year, manufacturing cash flow before pension contributions totaled $1.2 billion, up $29 million from the prior year despite higher cash tax payments of $284 million in 2022 related to the R&D tax law change. In the quarter, we repurchased approximately 3.3 million shares, returning $228 million in cash to shareholders. For the full year, we repurchased approximately 13.1 million shares, returning $867 million in cash to shareholders. Beginning in the first quarter of 2023, we'll change how we measure our segment results. Going forward, we will exclude from segment profit, the LIFO inventory provision, intangible asset amortization and the non-service component of pension and postretirement income or expense. These items will be separately reported on the income statement below segment profit. We believe these changes will provide a more consistent method of measuring and evaluating business performance across our segments, while also aligning our reporting results more consistently with other companies within our industry. On Slide 15 and 16 in the investor presentation posted to our website, you will find prior year results, reflecting the recast of segment profit. Also effective with the first quarter of 2023 results we will report earnings per share on an adjusted basis that excludes the LIFO inventory provision and intangible asset amortization, both non-cash items. Turning now to our 2023 outlook on Slide 9. We're expecting adjusted earnings per share to be in a range of $5 to $5.20 per share. We're also expecting manufacturing cash flow before pension contributions to be about $900 million to $1 billion. Moving to segment outlook on Slide 11 and beginning with Textron Aviation. We're expecting revenues of about $5.7 billion; segment margin is expected to be in a range of approximately 12% to 13%. Looking to Bell, we expect revenues of about $3.3 billion. We're forecasting a margin in a range of 8.25% to 9.25%. At Systems, we're estimating revenues of about $1.25 billion with a margin in a range of about 10.75% to 11.75%. At Industrial, we're expecting segment revenues of about $3.6 billion and margin to be in the range of about 5% to 6%. At eAviation, we expect revenues of $45 million and a segment loss of $65 million, largely reflecting our continued investments in sustainable aviation solutions. Lastly, at finance, we're forecasting a profit of about $15 million. Looking at Slide 12, we're projecting about $150 million of corporate expense. We're also projecting about $90 million of net interest expense; $130 million of LIFO inventory provision; $35 million of intangible asset amortization; and $235 million of non-service pension income. We expect a full year effective tax rate of approximately 17.5%. Turning to Slide 13. R&D is expected to be about $585 million, down from $601 million last year. We're estimating CapEx will be about $425 million, up from $354 million in 2022. Our outlook assumes an average share count of about 205 million shares in 2023. That concludes our prepared remarks. So Greg, you can open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead. Sheila Kahyaoglu: You've definitely had a busy quarter between FARA. So congratulations on that. And I think you threw in an Aerojet bid and [indiscernible] as well. So I wanted to focus on aviation margins. In Q4, I think you ended at 10.7%, potentially lower, including the recasting for LIFO. How do we think about the walk to the 12.5% margins in 2023? Scott Donnelly: Well, I think, Sheila -- so first of all, the quarter, we knew that we were going to have some headwind with supply chain. And obviously, we brought a lot of new people on board which is a good thing but had a lot of impacts just getting all those folks on and training and those kinds of interruptions. So in the quarter, we did take a lot of those unusual impacts right to expense in the quarter rather than putting it into in inventory. So we did take a hit on that. LIFO was still in there, obviously, in that reported number. So obviously, on a recast basis going forward, that will be there. So I think when we think about what happens as we go into 2023, obviously, you're going to not have the LIFO in there. And I think we're going to see, again, we're guiding probably almost $0.5 billion of higher revenue, and that converts at good margins. So I think we're pretty bullish on our ability to drive higher margins as we go through 2023. Sheila Kahyaoglu: And maybe just as a follow-up to that longer term, like how do you think about peak trough margins in aviation? Is it just steady as it goes from here? Can it just be a 20% incremental margin business? Scott Donnelly: Well, as you know, Sheila, based on analyst pressures, we've been striving to get above 10% margins in the aviation business. And we feel pretty good about that. So look, I think it's going to be very much volume driven. You guys know we tend to convert somewhere in that 20%, 25% range. I expect we can continue that as we go forward. Certainly, we're guiding that in our conversion for 2023 and as we go beyond that, we'll just have to see where the market is. The good news is demand has remained strong. The fourth quarter demand remained strong, and with good bookings in Q4. So environment, I think we feel pretty good about. But in terms of what margins do on a go-forward basis. I think we would kind of remain in that neighborhood of expecting sort of a 20%, 25% conversion on our revenue growth. Sheila Kahyaoglu: Great. Thank you. Operator: Your next question comes from the line of David Strauss from Barclays. Please go ahead. David Strauss: Scott, could you just talk through the forecast at Bell, so up revenue, down margins, decent amount. You mentioned it includes FLRAA. So what exactly is your assumption for FLRAA? Does that assume you win it post protest? Just if you could help there. Scott Donnelly: Sure, David. It does. So the protest period ends at the first week of April. So we've baked that into our estimates, assuming that will be resolved by that period of time. Obviously, the dynamics in terms of margin is that we will continue to see a decline on the military revenue side. There'll be some offset on the commercial revenue side. We've had a good year in terms of bookings and expect to see nice growth on the commercial side. And then obviously, we'll have 3/4 of the FLRAA program coming in, which is good, but that is a lower margin business. I mean EMD programs tend to be lower margin, and that's what we've forecast in our guide for you for '23. David Strauss: Scott, can you say specifically how much revenue is in there for FLRAA? And how would we expect to ramp beyond 2023 in terms of revenue? A - Scott Donnelly No. We're not going to break out the specifics of the individual programs, but I think clearly, it will ramp as we go into '24, '25 and obviously, I think probably for quite some time. I mean, I think this program will be a terrific boom for the business. It's going to start out, obviously, with a lot of the CMD, which as we said, is great volume and good revenue, but not a whole lot of margin. And then obviously, we'll expect to see it continue to grow and turn into better margins as you get into production programs and foreign military sales and all the things that we would expect will come along with a successful FLRAA program. David Strauss: Okay. And last one on the aero supply chain. Could you just update us there? And your deliveries, I think, came in a fair amount later for the full year than we were originally anticipating at the beginning of the year. So how many additional deliveries could you have done this year if you didn't have supply chain bottlenecks. Thanks. Scott Donnelly: Well, I don't know if we'll go into express numbers, David. But look, we've been kind of forecasting here since the mid part of the year that we expected we would end up a few hundred million dollars light versus our initial guide based on the fact that we continue to see supply chain challenges and some labor issues. I think labor has certainly improved through the balance of the year, although a lot of that is new folks and training and it has an efficiency impact, but at least we're making some progress on that front. I think we've had a number of suppliers that were challenged or getting better, but you always have a couple out there that are still struggling. So we kind of anticipated that in the back half of the year. That's why we kind of try to provide some color that we expected this to be a few hundred million off of our guide. But I think that we've taken that into consideration. So as we think about next year's guide for '23, there are still going to be supply chain challenges all along the way. But we think we've taken that into proper consideration in terms of the '23 guide. David Strauss: Thanks very much. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Please go ahead. Robert Stallard: I'll start with Frank. I was wondering if you could give us some sort of walk on the manufacturing cash flow and why you expect it to modestly decline in 2023? Frank Connor: Yes. It's a reflection of an expectation that we'll continue to see good performance from a working capital standpoint. But we do have the continuation of higher cash taxes associated with the R&D tax credit change. And also, we're just expecting a slightly lower V in deposit activity from commercial volume. So we're kind of framing it in terms of kind of 1:1 book-to-bill type expectation as it relates to deposit activity, and that kind of has a little bit of a headwind on cash relative to where we have been. Robert Stallard: Okay. And then maybe one for Scott. Also, been a lot of commentary around about in the business jet industry about some of the lead indicators starting to slow. Have you seen any impact of, say, activity leveling off of used inventory increasing having any impact on order activity for you? Scott Donnelly: No, we haven't seen that, Robert. I mean, I think our order rate in the fourth quarter was consistent with the third quarter. It remains quite healthy. I think when people look at some of these leading indicators, like it's hard to keep track of what -- when you see a little bit of an increase in used available for sale, what kind of aircraft are those? What are their vintages? We think, obviously, the market has been very strong. So people are looking to put some aircraft on the market. They're still at very low levels. So we're not seeing the knock-on effect into market for new aircraft. So we haven't seen a material change in the level of activity that's going out there in terms of order activity. I mean, there's lots of people ready reports. It's frankly hard to understand. Sometimes there's so many comparisons of flying by region, by size of aircraft compared to '19 compared to last quarter, compared to '22 but it's in the round. So we haven't seen any of that have a meaningful impact on order activity. Robert Stallard: That's great. Thanks so much. Operator: Your next question comes from the line of Peter Arment from Baird. Peter Arment: Scott, just circling back on David's question regarding just the supply chain and maybe just tacking and inflation. So it sounds like -- I mean, it sounds like things are holding in there? Or are they getting a little better? And then just also, just could you maybe talk a little bit how you're passing in the higher input costs right now? Scott Donnelly: Well, on the supply chain side, Peter, I think we have some suppliers where we've had challenges, and we clearly see them getting healthy and getting better. But we have other areas where suppliers are still struggling. I mean, I don't want to go into too much detail, but it's very specific components, very specific suppliers. Obviously, we're working with them and trying to get them healthy and do a better job in terms of getting parts into the factory. And obviously, from our standpoint, we do lots of out-of-sequence work and swapping parts around. We'd like to stop doing that. It's an efficiency hit to us. Our guys have to work through every day. So I think it's about the same, right? As I said, there are some suppliers that are getting better but then you got one that's just having a hard time catching up. I don't know that we're seeing a lot of new suppliers coming in and say, hey, I got a big problem. We have a couple there we've been struggling all year, and we're trying to get them back on schedule. They're working at it, but they're just not quite there yet. And again, we factored that into how we think 2023 will play out. In terms of the pricing side of things, Peter, we continue to get price, net of inflation. We're very focused on that. As these input costs increase, we got to drive price to get that back. I think the guys are doing a pretty good job of that. Peter Arment: And just as a quick follow-up on systems, I mean, just could you talk a little bit post the [indiscernible] bill and defense kind of looking funding pretty robust as we go forward. How are you looking at, we're showing modest growth for systems this year, but how do you think longer term? Scott Donnelly: Well, look, I think when we look at the [indiscernible] numbers, they seem fine to us. When you look at what came through on the omnibus in terms of this current fiscal year's budget, was in line with our expectations. So I think we're fine. The growth, the good news at systems is it's really kind of across almost all the product lines. It's not just one particular thing. Obviously, we've had some new wins in the munition side, which is great. That's put that business back to growth. Sentinel program continues to do well. Our ship-to-shore, as I said, we've made deliveries. We'll start negotiating the next production by here shortly, but we'll finish the DD&C this year and start production deliveries. The ATAC business has had nice growth. Our electronics business has had a nice growth. It really is kind of across all of the businesses within systems. And the omnibus budget that was appropriated is consistent with obviously what we're guiding to you guys. Peter Arment: Appreciate the color. Thanks, Scott. Operator: Your next question comes from the line of Pete Skibitski from Alembic Global. Please go ahead. Peter Skibitski: Scott, fair to say, I think some of your businesses have a cyclical component to them. And I'm just wondering I'm sure you guys see, I think the consensus out there for the macro guys is that we'll have some sort of mild recession this year, maybe later this year. So as you guys see that and whether you agree with it or not, is it prudent for you to maybe even kind of slow the top-line growth in those type of businesses in maybe like Citation, maybe TSV to kind of protect your margins and not over hire? Are you guys thinking about your businesses that way or not necessarily right now? Scott Donnelly: We absolutely look at that, Peter. I mean, as I said, there's cyclicality in almost every business, right? So some have more than others. Those that we think are going to be more recession sensitive we've kind of factored in thinking we'll have a mild recession. I don't think it's going to be dramatic. We're certainly not thinking about something in the scope of back in the 2009, '10 kind of time frame. But I don't think we have an economic situation that's going to lead to something like that. I'd say, look, I think when you look back at previous modest recessions, the area that has always impacted us the most difficult has been a slowdown in the aviation business. And I think we're in a very different place than we've been in those previous sessions because we have a pretty significant backlog. So I think that the nature of that will allow us to -- even if you were to see a slowdown in bookings which is entirely possible. I would expect it if you really go into a modest recession, you'll see a slowdown in booking. But you've got almost 2 years of backlog sitting there that you'll continue to execute on. And I think that will help you ride through it. And we haven't had that for a bunch of years, Peter, as you know. So I think that it's one that would translate to a slowdown in bookings, but not something that would slow us down in terms of our revenue and margin generation. Peter Skibitski: Okay. That's fair. Just one last one for me. Scott, are you guys any closer to signing that AH-1 deal with Nigeria? Scott Donnelly: Well, I mean it's in the kind of government contracting process, right? So that ends up being -- because of the FMS nature of that, that would be signed between ourselves and the U.S. government. And as you know, Peter, that can take a little while. Pete Skibitski: Okay. Fair enough. Thank you. Operator: Your next question comes from the line of George Shapiro from Shapiro Research. Please go ahead. George Shapiro: Frank, if you could just fill in a couple of numbers. How much was aftermarket up in the quarter? Frank Connor: Well, at aviation, aftermarket as a percent of the sales was 27%. So you can kind of do the V based on that, it was 11%. Eric Salander: [Indiscernible] for the year, and I think it was [indiscernible] in the quarter. Frank Connor: Yes. And aftermarket was 33% of total sales for the year at aviation. George Shapiro: Okay. And Scott, you didn't specifically mention, but I assume you're looking at deliveries based on the revenue forecast for '23, somewhere 200, 205 deliveries. Is that fair? Scott Donnelly: Yes. It's going to be in that neighborhood, George. And we've got a lot of dialogue and think about when you back to '19 and obviously, the mix of aircraft is quite different, right? I mean we're certainly heavier on the super mids and the mids than we would have been a few years ago, but that's -- if you look at our revenue guide, it's probably going to be somewhere around that couple of hundred aircraft. George Shapiro: And Scott, I looked at the fourth quarter and even if I added back the $16 million that you mentioned for supply chain issues, the margin was still weaker than the last couple of quarters. So what else was going on there? Scott Donnelly: Well, I don't know where the 16 -- the inefficiencies that we took through and LIFO, which was around probably about $10 million or something impact is largely what drove us to the margin rate that we reported. George Shapiro: Okay. Very good. That's it for me. Thanks. Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Noah Poponak: Scott, you've alluded to it, but your backlog is several multiples of what it was just a few years ago and the production is not. So what's the average wait time at this point? And how are you thinking about managing how long you're making customers wait for an airplane? Scott Donnelly: Well, look, I mean it does vary from model to model, right? When you look at the longitudes and latitudes the larger aircraft in the family, and we think those should be out a couple of years. And that's generally where they are. When you get into some of the smaller aircraft. Those tend to be a shorter cycle order deliveries. But again, those probably should be in that 12- to 18-month kind of window. So when we think about production volumes and what we're laying into our forecast which is then, that then drives what our sales team has in terms of available slots and time frames, that's kind of how we're managing it. Noah Poponak: Okay. How does pricing that's entering the backlog now compared to pricing that's hitting the P&L now in the aviation jet business? Scott Donnelly: It's better. Noah Poponak: Increasing or stable? Scott Donnelly: I'm not sure. I mean, we don't measure a gap. You mean pricing of inflation, is that -- Noah Poponak: I guess what I'm wondering is, I know you've been taking price as the market's been stronger. Was there a period of time as the market was strengthening, where you were not taking as much price to allow the backlog to extend first before you now take more price? Is that the strategy? Or has it been pretty consistent for the last few years? Scott Donnelly: It's been pretty consistent, Noah. I think like the pricing, obviously, demand is strong, right, which is very helpful from a pricing standpoint. But our opinion, this market has been mispriced for a long time. I mean, this is a business which, as you guys know, it's a lot of R&D. It's expensive to develop these things and get them through certifications and you need to have fair pricing to generate these kind of margins. We always believe the business had to be back as a double-digit profit margin business, and we've been driving price to make sure that, that's the case. Noah Poponak: Okay. And what would be a credible protest case on FLRAA from your competition? Scott Donnelly: I don't think there would be one. Noah Poponak: Okay. Thank you. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Ron Epstein: Just a quick one. Can you help me think through this LIFO adjustment you guys are making. I mean, isn't it sort of unfair to not include inflation in your costs? Scott Donnelly: Yes. So Ron, that's a good question. Look, just to make sure we understand the LIFO -- so actual inflation is still in the segments. That's very much a cash impact. It remains in the segment. The only thing we're taking out of the segment is this LIFO provisioning, right? So by full accounting, which -- again, I'm just a simple engineer Ron, but the LIFO provisioning phenomenon is that I've bought parts at one price. And now I have a new contract with a supplier. I have a higher price for that part. As soon as that first part shows up, the LIFO provision is basically taking the actual price I paid for those other parts and raising them up to the price of that new part. So it's an accounting provisioning process. It's not an actual cost. So when I get to where that higher dollar part gets consumed by an aircraft, that's going to be in my cost. That real inflation is in the segment. It is cash and it is in performance. It's only that provisioning of that -- the nature of this last-in, first-out accounting that is what we're pulling out of the segment. Ron Epstein: So I guess another way to frame the question though is if we were to look at your margins pro forma back to GAAP for 2023, what would they be if you didn't do that adjustment? Scott Donnelly: Well, you'll have that full disclosure, right? You'll see that LIFO number. Frank Connor: You'll see the total LIFO. But, Ron, there are no one else in our space is on LIFO. So we're on LIFO. For accounting, you need to conform that between tax and accounting. So we derive a benefit from a tax standpoint in an inflationary environment by essentially accelerating those costs for book and tax purposes. But as Scott said, it's not a true economic cost. And we have basically hung up about $600 million of effectively LIFO provision on our balance sheet that was profit never realized because of this accounting that is not consistent with everyone else in the space. So as inflation has accelerated here and LIFO has become a bigger number, we felt it was important to highlight that. And certainly, from a segment performance, take it out of the segment performance because it is not a true economic cost to the business. It is essentially a function of the accounting treatment that we have, but that LIFO inflation will never turn into true economic cost in the business. Scott Donnelly: So Ron, this has been an issue. We've always been on LIFO. Textron has always been on LIFO. So in a non-inflationary environment, it's relatively small. It's always been a bit of a drive. It's a small number. It's not been an issue. But with an inflationary environment, all of a sudden, you have these big non-economic bookings. Again, as Frank said, other companies -- everyone else in our space, does FIFO accounting instead of LIFO accounting. So we get a lot of questions from investors about what are these differences. And so, I think taking this out make sense. And look, the reality is we don't manage the business that way, right? I mean, when we sit down with the business, when we're doing our plans, we're managing, we do our operating calls that like it's not something they control, right? It's not economic. And so, that's not how we manage the businesses, right? We don't look at that. So it makes sense to also not report that in that segment since that's not how we manage these guys either. They don't control that LIFO. They do control and they do get held accountable for actual real inflation on that -- on those higher part counts, right? So that's -- we're not taking anything operational out of the segment but managing it on what they control and the real financial impact. Ron Epstein: Got it. Okay. Thank you. Operator: Your next question comes from the line of Cai von Rumohr from Cowen. Cai Von Rumohr: So as Sheila mentioned, allegedly, you guys went after AJRD. You did buy Pipistrel. You've won FLRAA. So it looks like your business is becoming more A and B. If we kind of look at valuations across the space, it looks like valuations tend to be higher for pure plays, either you're doing aerospace, you're doing air conditioning, whatever. So as you think of your business, Scott, are you thinking of any strategic initiatives? At one point, I think you considered spinning off Caltex. How are you thinking about that now? Scott Donnelly: No, Cai, I don't think we're going to talk about portfolio shaping or changes as part of the earnings call. It's something we're always looking at. And I think we'll leave it at that. Cai Von Rumohr: Okay. Great. And can you give us any help on the -- I don't know, but what Lockheed's -- what the case Lockheed is making as to why they're protesting because certainly, on paper, it looks like your vehicle is very substantially better than theirs. Scott Donnelly: Look, I mean, obviously, that process is going on between the Army and Lockheed. So we probably can't comment too much. I guess I would just say that this -- as you all know, this process has been going on for a decade, right? There's been an enormous amount of work between both suppliers and the Army from design, development, test, prototype, flight. It's been an unbelievably robust process. And so, I don't -- it's hard for me to understand what flaw would have been in the process. It's kind of inconceivable to me, but we'll leave that to the Army and Lockheed. And needless to say, we think they made the right choice. I'm proud of what our team did, and we're excited to get this thing behind us and get on with the program as I'm sure the Army is. Cai Von Rumohr: Terrific. And the last one is cash deployment. I mean, you've got good cash flow, even though down year-over-year. You've got a good balance sheet. You've basically and heavily focused on share repurchase. I mean, really a lot of leverage there. But you also bought Pipistrel. As you think about where the cash is going, maybe give us some thoughts about M&A versus share repurchase, dividends, all of that. Scott Donnelly: Well, look, I mean we always look at opportunities that are out there, Cai. And I would say relative to your earlier question, comment, yes, we would view our focus in the world to be within the A&D space in terms of most of our capital deployment. Pipistrel has turned out to be a great little business. Bought some great technology into the company and is now kind of important to us in terms of the future of sustainable flight. But if opportunities like that come along, then that's great. We've done some other smaller deals, again, in the A&D space, and we would continue to look at that. But our principal deployment of our capital has been for the last number of years in the share buyback. We've been doing kind of 5%, 6%. We did another 5%, 6% this past year, and I would expect that's probably the track we're on in 2023 as well. Cai von Rumohr: Thank you very much. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Please go ahead. Kristine Liwag: Scott, for the demand environment for aviation, can you give us an update in terms of the customer profile that you're seeing that are placing these aircraft orders? Are they corporate, individual fractionals? Are they -- more for growth, replacement? Or are they new buyers? Any additional context would be helpful in understanding the demand environment? Scott Donnelly: Sure. We haven't seen much of a change. It continues to be that same mix. There's still new buyers coming into the marketplace. Fractional is certainly strong. There's a lot of buyers on the fractional side. That's a particularly attractive place for I think for new people to go. It's not easy to necessarily know how to own this asset. The fractionals provide a great option for people that want to get in. That's doing well but we still see robust whole aircraft sales. It's a mix of public companies, private companies, family held companies. It really is kind of our usual customer base, I would say. It remains also kind of the same as we've seen around jets largely being driven by the North American market, probably 70-30 to 80-20 in that range, which is normal. Turboprops are more robust internationally. Again, we see stronger activity, again, like 60% plus international versus domestic on King Air for instance. So the trend in terms of that, who is that customer is kind of our traditional buyers. Kristine Liwag: Great. Thanks for the color. And maybe following up on the supply chain issues that you mentioned. I mean for some of these suppliers that continue to struggle for a few years now, what's the long-term solution? What can you do to mitigate their problems so you can actually deliver on the strong demand for bizjets? Are there other solutions, like you need to vertically integrate your supply chain or anything like that to alleviate some of the pressure? What other actions can you take? Scott Donnelly: Yes, that's a good question. Look, it's a mix. I mean, in some cases, we have some smaller suppliers and technologies where they basically kind of were us and we did acquire them and integrated them as part of our business. We have a good track record of doing that in the past around some critical areas, interiors we did. That's been a home run for us. We just did a deal this past year in the actuation space. Again, a very unique aerospace technology. Most of the volume was ours. It's a critical supplier and a critical technology for us in the future. And these aren't big numbers, but it was a great acquisition. And so far, it's working out really, really well for us. It's helped to get us back on track. But there's always going to be some guys out there that are suppliers where we're a small percentage of their sales. It's very capital intensive. It's a technology that doesn't make sense for us to vertically integrate that. And so in those cases, we just keep working on those folks. I think those suppliers are all trying to get back up to speed. Obviously, it's a good business for them. I'd say we don't have suppliers that I'm aware of that are abstinent or don't want to perform. It's a matter of them getting the resources back in place and some tier suppliers getting in place and those are folks that just take a fair bit of work. But I think they will get there. Again, we've seen some of them have already recovered. But there's still a couple of problem children out there that are working on getting there. Kristine Liwag: Great. Thanks, Scott. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Please go ahead. Seth Seifman: I'll just stick to one here. Kind of a follow-up on the last question Kristine asked. I think from a mix perspective, while the deliveries in total are still down from 2019, I think the deliveries to NetJets are probably higher. And so as you think about delivery growth from here, do you think about the incremental growth coming more with that top customer or more kind of diversifying the mix a little bit more? And then, I'd also imagine that like the order for [200] [ph] latitudes, the NetJets has probably come into a conclusion pretty soon. And whether you think about -- how you think about expectations for the next slug of latitudes from them? Scott Donnelly: Well, so first of all, I don't know what percent of sales back to 2019, what it was on fractional versus today. But look, I think fractional, when you think about diversification, the sale of a fractional aircraft is a more diversified sale, frankly, than a single jet. Remember that this is not a concentration of a buyer in NetJets. Remember, NetJets is out there selling that aircraft to eight or so people. So every sale that we make to NetJet is a sale from NetJet to a whole bunch of different customers. So it's quite diversified. So I don't expect NetJets or any fractional for that matter to track wildly different than the overall market demand. If the market is strong and people are wanting to fly private, you're going to see this mix of people that choose to do it through a fractional, which is actually a lot more people because, again, they're buying a fraction of an aircraft, not a whole aircraft. So when I look at our mix, I think of the mix associated with the NetJet business as being very good mix. That's a very diversified sale. It's a very diversified market. And that's kind of that's what they do every day. They're out and working and talking to lots and lots of customers in a broad range of customer base for selling that fraction of an aircraft. And obviously, as you guys know, one of the things we do now is we work very closely with NetJets and looking out roughly about a year that these things come into backlog based on how their sales team is doing out there selling these aircraft. So it's a great part of our backlog, and it's a great part of our business. It is as you guys know, it tends to be at a lower margin because it's kind of a wholesale sale, but they're the ones that are out there, spend the money on sales forces and reaching out and selling to that large customer population. So NetJets remains as through other fractionals as a really important part of the business, and it's a really, really important part of our customer base are these fractional owners. As far as the deal with NetJets, we are in constant discussions in terms of forecasting unit volumes. As you get to where you get towards the end of a particular quantity buy, obviously, we'll work with NetJets to work on what comes next. But that's kind of a business arrangement between the two of us, obviously. But the actual forecast and backlog that's reflected in our numbers is really kind of a rolling one-year process regardless of what the size of the overall arrangement is between ourselves and NetJets on latitude and longitude volumes. Seth Seifman: Great. That's very helpful. Thanks, Scott. Operator: And your last question today comes from the line of Doug Harned from Bernstein. Please go ahead. Doug Harned: I wanted to go back to the discussion around the size of the backlog as it clearly has grown quite a bit over the years. And when you look at backlog as it slowed sequentially in this quarter? How do you compare the -- how do you contrast the demand you're seeing for new aviation sales to basically the wait time that's there? In other words, there's a point where you just flat out are going to lose customers if they have to wait too long. So do you see a constraint on the growth from that at this point? Scott Donnelly: Well, we really haven't seen that. I mean I think the whole industry is in a similar situation. If we were in a situation where you couldn't get an aircraft for 18 months to 2 years and somebody else had an aircraft they can get tomorrow, then yes, you could lose that customer. And I think, obviously, somebody could go buy a used aircraft or something in that nature. But I think right now, the whole industry is in this situation. And frankly, it's where this industry should be. I mean these are complicated assets. There are a lot of times, customers already have aircraft. They need to sell their used aircraft. So look, remember, this industry actually worked like this way for a very, very, very long time. The aberration has been since 2008 to the last 2 years ago where you didn't have much of a backlog in this class. Generally speaking, this industry has been a backlog business. It should be a backlog business. By the time you specify your craft and configure aircraft and customize the aircraft, this is -- really where we're sitting today is what normal should look like, not what we've seen in the past 10, 12 years. Doug Harned: Now when you get to the situation, though, which is clearly a good situation, the solution always is to add capacity, and we've seen that happen in past cycles as well. When you look out today, what things would you want to see to make material increases in your production capacity? Scott Donnelly: Look, I don't think it's our production capacity so much. I mean obviously, we're struggling through some of these supplier issues, and you don't hear it tactically. But remember, as we talk about the delivery times, what our team is out there selling as we look at that backlog, they're selling aircraft and serial numbers that are delivered at certain dates. So that's how you manage this backlog and then you've got to make sure that you dial in your production schedule to match what those committed delivery dates are. So if you start to see a softening in the order rate, then you're going to sell out fewer of those slots in the future and then you would adjust your production. If you all of a sudden say, hey, 2025, it looks like you could have 5 more latitudes or 10 more M2s, then you do that and you modulate your production capacity accordingly. But I think as long as you're out there looking at these sort of 12, 18-month, 2-year kind of timelines, it gives you the ability to do that. And again, how this industry has always worked. Doug Harned: And just one last thing. When you look at the constraints coming from the supply chain, are there some specific areas right now that you would point to as most difficult? Scott Donnelly: Yes. I mean I can tell you a couple of part numbers that are our biggest challenges. We're not going to do that. I'm not going to throw particular suppliers under the bus. But yes, there's a couple of particular products, a couple of particular technologies from a couple of particular suppliers that are our biggest constraint. I mean there's always a bunch of little stuff going on, but for sure. If you get a couple of these guys back in line, that would be very helpful. And again, that doesn't mean we turn that into, all of a sudden, delivering a lot more aircraft because, again, we've committed dates to our customers. It's a lot more for us right now about getting rid of all the inefficiencies in our production runs where we're having to build aircraft and swap parts around and do things out of sequence. It's very, very harmful running a good, smooth production operation when you've got to go chase all the stuff around. Doug Harned: Okay. Great. Thank you. Operator: Ladies and gentlemen, this conference will be available for replay after 10 A.M. Eastern Time today through January 25, 2024. You may access the AT&T Executive Replay System at any time by dialing 1-866-207-1041 and entering the access code 4482216. International participants dial 402-970-0847. Those numbers once again are 1-866-207-1041 or 402-970-0847 with the access code 4482216. That does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, today's call is being recorded. And I would now like to turn the conference over to the Vice President of Investor Relations, Eric Salander. Please go ahead sir. Eric Salander: Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings, and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.1 billion, up $88 million from last year's third quarter. Segment profit in the quarter was $299 million, up $20 million from the third quarter of 2021. Income from continuing operations for the quarter was $1.06 per share, compared to $0.85 per share on an adjusted basis in last year's third quarter. Manufacturing cash flow before pension contributions totaled $292 million in the quarter, up $21 million from the third quarter of 2021. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric. And good morning, everyone. Overall, we had a solid quarter across our manufacturing businesses with higher net operating profit, cash generation as compared to last year's third quarter despite ongoing supply chain labor challenges. Aviation generated segment profit margins of 11.9% up from 8.3% in the third quarter 2021 on slightly lower revenues reflecting a favorable revenue mix with higher aftermarket volume and strong pricing net of inflation. We continue to see solid demand across our jet and turboprops products resulting in backlog growth of $524 million in the quarter. We delivered strong performance even as we continue to experience supply chain disruptions throughout the year that have impacted production schedules. In the quarter we delivered 39 jets down from 49 last year and 33 commercial turboprops down from 35 in the last year's third quarter. Last week at NBAA, we also announced two large fleet orders that included an agreement with flyExclusive for eight XLS Gen2 aircraft, we expected deliveries in 2024 and up to six Longitude aircraft with deliveries expected to begin in 2025. FlyExclusive also exercised its option to purchase an additional five CJ3+ aircrafts from its order earlier in the year with deliveries expected to occur in 2024. We also had an agreement with Fly Alliance for four XLS Gen2 aircraft and options for an additional 16 aircraft with deliveries expected to begin in 2023. At Bell, revenues were down in the quarter on lower military revenues partially offset by higher commercial revenue. On the commercial side of Bell, we delivered 49 helicopters up from 33 in last year's third quarter, including the 400 Bell 505 aircraft. During the quarter, we continue to see solid commercial demand across all our models. Moving to Future Vertical Lift, we continue to await a Florida contract award announcement in the U.S. Army. Textron systems revenues were slightly lower in the quarter. During the quarter, ATAC announced a five-year IDIQ contract with the U.S. Navy to provide Chase Flight Services for the F-35 program. Systems was also recently awarded a contract to provide Aerosonde operational support on its fourth maritime site services that are expected to begin in 2023. Moving to industrial, we saw higher revenues in the quarter driven by higher volume at both Kautex and Specialized Vehicles and favorable pricing principally in Specialized Vehicles. Kautex, while revenues were higher in the quarter as compared to the prior year, we continue experience order disruptions related to the global auto OEM supply chain shortages. Moving to Aviation, we're seeing increased order activity for our training aircraft like the Alpha Trainer which is a low cost pilot development platform. In the future, we will look to expand this training option to include the [indiscernible] as we work to achieve NFA research. Also last week at NBAA, we unveiled our new Nexus eVTOL model aircraft. Our updated design reflects our ongoing investment in the underlying research and development supporting Textron's long-term strategy to offer family with sustainable aircraft for urban air mobility, general aviation, cargo with special mission roles. To wrap up, we continue to see strong demand in our end-markets and our teams are executing well in a challenging environment. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues of Textron Aviation of $1.2 billion were down $14 million from the third quarter of 2021 largely due to lower Citation jet and pre-owned volume partially offset by favorable pricing and higher aftermarket volume. Segment profit was $139 million in the third quarter, up $41 million from a year-ago, largely due to favorable pricing, net of inflation of $31 million. Backlog in the segment ended the quarter at $6.4 billion. Moving to Bell, revenues were $754 million down $15 million from last year due to lower military revenues of $112 million, primarily in the H1 program due to lower aircraft and spares volume offset by higher commercial revenues of $97 million. Segment profit of $85 million was down $20 million from last year's third quarter, primarily reflecting lower volume and mix partially offset by favorable pricing net of inflation. Backlog in the segment ended the quarter at $4.9 billion. At Textron Systems, revenues were $292 million, down $7 million from last year's third quarter. Segment profit of $37 million was down $8 million from a year-ago primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2 billion. Industrial revenues were $849 million up $119 million from last year's third quarter, primarily due to higher volume and mix of $95 million and a $58 million favorable impact from pricing principally in specialized vehicles partially offset by an unfavorable impact of $34 million from foreign exchange rate fluctuations. Segment profit of $39 million was up $16 million from the third quarter of 2021 primarily due to higher volume and mix. Textron eAviation segment revenues were $5 million and segment loss was $8 million in the quarter, which reflected the operating results of Pipistrel and costs for initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $11 million and profit was $7 million. Moving below segment profit corporate expenses were $14 million and net interest expense was $21 million. Our manufacturing cash flow before pension contributions was $292 million in the quarter, up $21 million from last year's third quarter. Year-to-date manufacturing cash flow before pension contributions totaled $810 million. In the quarter we repurchased approximately 3.1 million shares returning $200 million in cash to shareholders. Year-to-date share repurchases totaled 639 million. To wrap up, we now expect our full-year capital expenditures will be about $375 million, and the full-year tax rate to be about 16%. For the full-year, we are narrowing our earnings per share guidance to a range of $3.90 to $4 per share. Also, we are increasing our full-year manufacturing cash flow before pension contribution guidance to be at a range of $1.1 billion to $1.2 billion, up $300 million from our prior outlook. That concludes our prepared remarks. So Brad, we can open the line for questions. Operator: Of course. And our first question today comes from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Good morning. Robert Stallard: Couple of questions from me. May be my numbers were wrong, but it looks like revenues in Aviation and Systems were a bit lower than what we'd anticipated in the third quarter, I was wondering if you could perhaps go into a bit more detail with what you experienced in the quarter if it was supply chain issues and whether this has pushed some deliveries to the right? Scott Donnelly: Yes, Robert, I think that's safe to say, you know we've been ramping up our production volumes through the course of the year, we continue to do that. But we have been hit by a number of supply chain challenges that have resulted in aircraft pushing out to the right, our guys are managing through that. And we'll continue to work hard to make deliveries and we'll continue to work on that ramp as we go into 2023 as well. So, in general case seeing some very strong demand environment. Aftermarket has also been very strong driven by high utilization but for sure we're continuing to see some difficulties around getting parts, labor ramp is, I'd say picking up and doing reasonably well. But we've had some critical part impacts. Robert Stallard: So Scott, does this impact your division by division guidance expectations for the year? Scott Donnelly: Well, as we've said before, on the last call, Robert, I think we expect Aviation probably is going to come in about $300 million below what we originally guided, I think we're still on track to do that. I think we'll still make strong margin performance as the team has executed well. As I said, it's a tough market, but we're to our tough situation, but they're executing very well. So I think we'll be solid on the margin side, but a little bit late on the top line. I think at Systems, you also mentioned, well Systems was pretty close. I mean, they're flattish. We still had a little bit of impact on that year-over-year from Afghanistan. But I think as we get into the fourth quarter here, you'll start to see some slight growth in that business and obviously we expect that to continues into 2023. Robert Stallard: Okay, then just a technical one, Frank. On the corporate and other big decline year-on-year, what sort of run rate should we expect on that line going forward? Frank Connor: Yes, I think we should probably think about $110 million or so for the year. So a higher level in the fourth quarter that we've been running at a lot of -- some of that depends obviously on share price, but in that zone. Robert Stallard: Okay, that's great. Thank you very much. Operator: And our next question comes from the line of David Strauss with Barclays. Please go ahead. David Strauss: Thanks. Good morning guys. Scott Donnelly: Good morning, David. David Strauss: Scott, can you maybe touch on your manufacturing footprint in Europe, how you feel about things there from kind of an energy perspective? And also how we should think about obviously, in the quarter you had a pretty big FX impact there? How we should think about the FX impact, given the euro, dollar parity at the moment? Scott Donnelly: Yes, the FX has been obviously quite a dry primarily in our Kautex business. And, I mean, obviously, we expect that to continue, but we'll manage our way through that. I think on the factory front, most of the impacts we've seen in that footprint in Europe had been driven really just by auto OEM issues around hitting their volumes, it hasn't been energy related at this point. Most of what I'm reading here lately is actually the energy situation seems to be a bit better than they expected heading into the winter. So we haven't had any indications yet that anyone's going to back off on their auto manufacturing based on that energy. It's really more of these other supply chain issues that they're continuing to just impacted. And look, David, we go kind of by IHS data, in terms of how we think about and forecasting volumes going forward. So clearly, the year has been disappointing in terms of what was originally thought the volume we achieve. But right now, it's looking like IHS is probably forecasting sort of a mid to high single-digit growth next year on top of some growth we saw this year. So that's kind of how we think about the volumes and the business including the European footprint. David Strauss: Got it. Thanks. And Scott, I guess your latest update on Florida and the timing, you're expecting now for a decision? And what kind of incremental spending are you looking at for the rest of year to kind of continue to carry on your effort? Thanks. Scott Donnelly: Sure. So like the latest we're hearing is it's probably a November timeframe. Obviously, we continue to work with the customer. And we got to make sure we've been worked on this, as you guys know for a very long time, we're not going to do anything that's other than supportive and doing the right thing for the program, making sure we keep the team together and keep making forward progress. Obviously, we still feel good about the program. And I think that there's obviously still some uncertainty around this. I mean, we don't know an exact date, but we're doing the right thing by the programs were through by the people. And while there is some uncertainty I would say that we're pretty comfortable that, we incorporated any impacts over the total year from where we were on our plan in our guidance. So I think that we're comfortable that we'll land inside that guidance, despite the impacts we've seen on the FLRAA delay. David Strauss: Thanks very much. Scott Donnelly: Sure. Operator: And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Hi, good morning guys, and thank you. Scott Donnelly: Good morning. Sheila Kahyaoglu: Just a follow-up on the last point, Scott. How do you think about Bell without a FLRAA win. What would sort of the scenarios look like their Bell without FLRAA or potentially FLRAA? And maybe can you remind us of the R&D investment impact for FLRAA associated with 2022? Scott Donnelly: So I don't think about Bell without FLRAA. Because I think we're in a good place, we will let the performance of our product stand and just kind of work through the process, obviously, the Army is going through a very, very rigorous process here. So we'll bear with them and let this thing play out. But we're pretty bullish on that program. And we'll leave it at that, I suppose. On 2022, the R&D has actually been down a little bit, because we've had more of the crusher activity both on the FLRAA program and the FARA program. So even with some of the impacts that we've seen on some of the delays, I think we'll be fine there. We're working our way through it, and clearly the FARA program is going to continue to extend and like say hopefully here, compared to all the years we've been working on this thing FARA delays a relatively short period of time so. Sheila Kahyaoglu: Great. That's helpful. And then glad you don't think about Bell without FLRAA. But switching gears to aviation, when we look at year-to-date deliveries, they're like, you mentioned supply chain. How long does that linger and how do we think about jet deliveries for '22 in total? And does it linger into '23? Scott Donnelly: Sure. Look it's a good question. And I think the way we're starting to lay out the years that we've been planning on ramping production all through the year, we've been achieving that. I mean, we have been increasing the number of hours and labor and activity in the factory. We're clearly not going to get to the number, just that we were originally hoping to be based on some of these delays. But we're going to keep that ramping activity going through 2023. So when you look at the incremental volumes that we had in 2022, we're not ready to guide '23 yet, but it's not on reasonable expected. We'll see a similar increase in volumes in 2023 from what we saw from the '21 to '22 timeframe. Sheila Kahyaoglu: Great. Thank you. Scott Donnelly: Sure. Operator: And our next question comes from the line of Seth Seifman was JPMorgan. Please go ahead. Seth Seifman: Hey, good morning, everybody. Scott Donnelly: Good morning Seth. Seth Seifman: I guess just to follow-up on that question, Scott, when you think about the strong backlog that you've been able to build here, and you think about where deliveries might ultimately go. I mean, I assume the aim would be to be back to kind of the 200 plus level, maybe in 2023. Kind of the level that that had been anticipated for 2022 before the supply chain issues. And then when you think about moving higher from there. Would it make more sense to kind of focus on keeping that backlog, maybe expanding margins even a little further from this low double-digit range. And having a more steady delivery pace, as we head toward mid decade. Scott Donnelly: First of all, Seth, I think there -- your thoughts on volume here in the near-term are correct. We obviously would like to have had more than in '22, but it's probably reasonable to think that what we hope to get in '22 will be there by the end of '23. So we should back to that kind of 200ish number in the '23 timeframe. Beyond that, we'll continue to watch demand in the marketplace continues to be strong as long as we see that kind of growing backlog in a strong environment, then we'll continue that ramp, but it's going to be a slow steady ramp, right. I mean, we've certainly like and we think it's better for -- yes I think we've talked about, it's better for our company, it's better for our customers, it's better for the whole market to be operating with better visibility here around the backlog that's out there in that 18 months kind of timeframe. So right now, the demand continues to be very robust. We're seeing a lot of order activity that's out in that 18 plus sort of timeline. And so we'll match production as we can to meet that just for the market starts to ease back or slow down. And obviously, we can taper off on the ramp, but I certainly don't see that being the case going through 2023 considering where the backlog is and where the demand environment is so. Seth Seifman: Okay, great. And just to follow-up very strong cash this year. And when you think about next year, other than what we might assume on the P&L. Are there any things you'd note about cash flow, either headwinds or tailwinds heading into '23? Scott Donnelly: I think, now and not really we've -- obviously we've had good working capital management again this year, just like last year. We certainly benefited again from strong customer activity and deposits and so. But there's nothing from a kind of working capital or other cash impacts that are kind of out of line with where we've been. Seth Seifman: Okay, great. Thanks very much. Operator: And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead. Peter Skibitski: Hey, good morning, guys. Scott Donnelly: Good morning. Peter Skibitski: Hey Scott. I just wanted to beat a dead horse a little bit on the aviation. Just because even at a little bit of a lower guidance number there is still applies a pretty good hockey stick in the fourth quarter. So I'm just wondering kind of on the risk assessment fraud. Do you have the engines in house already that you need and the parts and the labor trained up? Or is there still some risk to that number do you think given the ramp? Scott Donnelly: Well, look, Peter, I'd say there's always some risk to the number, right. But I think we're -- obviously our guys are working heck out of this every day. They're tracking all the critical components. So I think, kind of that number I gave you guys were probably a few $100 million under our original guide is still holding, is there some risk to it? Yes, I mean, one of the challenges is that we, you get supplier issues that pop up every day, I think we're in good shape in terms of labor, and the things we can control still pops up, we get all over it, but I think we've got a pretty good shot of getting to the number that we told you. And if we missed something, it'd be a few aircraft around a particular part that pops up between here and there. So you guys are working every day. I think it's a good guide. And could there be some risk in any environment we live in. Sure. But I think we're, our folks are all over it. Peter Skibitski: Okay, now, I appreciate. Just one follow-up on the same segment, kind of post NBAA, how are you guys feeling about, kind of the health of your customer base, the aviation, how the conversations go. And obviously, I'm sure the macro backdrop was part of the conversations down there. I'm just wondering kind of what your net assessment is? Scott Donnelly: I'd say very positive. I think that, we're continuing to see some new people coming into the market, we're seeing some of our historical corporate customers that are doing fleet refreshes, they're putting aircraft orders in which obviously, deliveries are ways out, but they're refreshing their fleets, obviously, the level of flight activity in the industry continues to have kind of charter and fractional customers, very motivated to bring additional assets online. So I'd say all in all, it's really strong and again I also put against the backdrop of hardly a bubble, right, I mean, we're talking about, jet delivery volumes that are kind of back even still maybe below historical norms. So, I don't think there's this euphoric, bubble bursts, but people are refreshing fleets and investing in our aircraft. We don't see this big pull-in, right, it's just the market is strong, and volume is strong, which is critical. Peter Skibitski: I was going to say, your exposure to Europe is still fairly limited, like it used to be I think it was only, I don't know 20% to 25% of your citation volume, is that still the case? Scott Donnelly: Yes, it is. I mean look, we're seeing kind of relatively normal from what we've seen historically, jets are probably 80%, roughly U.S., 20% International, the [indiscernible] lines are typically the other way around. And that's what we're seeing. We're seeing maybe like 40% U.S., 60% International. So in terms of the good news here is that the demand across pretty much all the models is strong. And we're seeing mix in terms of international versus domestic fleet operations that are kind of what we've normally seen historically. Peter Skibitski: Okay, great. Thank you. Operator: And our next question comes from the line of Noah Poponak with Goldman Sachs, please go ahead. Noah Poponak: Hey, good morning, everyone. Scott Donnelly: Good morning, Noah. Noah Poponak: Scott, what are you now planning for 2022 Cessna jet units? Scott Donnelly: No, we never give a specific number. I think from the top line, you're looking at probably about 300 million off of our original guide. And virtually all of that is jet deliveries really so. Noah Poponak: Okay, okay. So we can back into that. And then you're saying, if I heard it correctly, you're saying, think about that growth rate in units, does that implies for '22 repeating in '23 approximately? Scott Donnelly: Yes, that's good. Noah Poponak: Okay, and then how much visibility do you have beyond '23? Scott Donnelly: Well, pretty good visibility. I mean, it's most of the aircraft, I mean, we have larger aircraft, frankly we're out in 2025 right now and the mix of lighter and midsize are certainly through '23, well into '24, towards the end of '24. So again this backlog is obviously very helpful to us in terms of having the kind of visibility we need to run the operations. And obviously, we'd like to do a little more efficiently without some of the supply chain challenges, but I think we're in a pretty good place, as we've had in a very long time, obviously, in terms of the visibility of the business. Noah Poponak: Okay. So I guess, that's all positive and really kind of major structural change in the business. But where the bookings are running, if they hang around in the zone that they're in now, you'd continue to run the bookings pretty far in excess of the revenue and which would build the backlog even further. So, when do you get to the point where that's going too far and customers are going elsewhere have to wait too long? Or is it just with the macro level of supply chain bottlenecks, everybody's in the same boat. And every OEM kind of has to do the same thing and is there any? Scott Donnelly: No, I think -- I think you just said it. Everybody's in the same boat, right? I mean, so, I don't know where that equilibrium point is, right when it gets out too far. But this is not a -- this is not like, some other supplier OEM that says, hey, I've got aircraft sitting around. So I think this is an industry dynamic, as opposed to just being you need to watch. I mean obviously, I feel great about how guys perform from a profitability standpoint. I mean look this businesses is in fabulous condition, right? It's a great backlog, good visibility, it's generating very strong margins, it's generating very strong cash flow. I don't think there's a lot, I look it's every day is hard with these supply chain issues and stuff like that. But our guys are fighting through it every day. I'm not sure we'll be apologetic for these kind of margins, and this kind of cash and strong backlog. And guys, I'm not sure what else I would ask them to do. They're driving hard every day and performing really, really well. Noah Poponak: Great, just lastly on price in the business. Are you actually now increasing price more, in terms of a year-over-year rate of change than you were 12, 18 months ago, when the market first strengthened, I get the sense that the price increases early in this strong demand environment weren't that big, because you wanted to build the backlog? And now that you've done so you can actually accelerate the pricing? Is that a fair assessment? Scott Donnelly: Well, I guess, yes, I am not sure I would do. I don't do the first derivative on the pricing every day. But look I think for sure this market has changed over the last 18 months or so as it's gotten stronger and competitive market, obviously. So pricing and what competition is doing matters. But I think everybody I mean the whole industry has seen stronger pricing. So, again we've looked at this kind of on a model by model basis, and what's going on with the competitive environment and it's not as I'm not sure, I can give a simple answer on the slope of the curve, but it's strong. And I would say, we continue to obviously very much focus on making sure we're getting price in advance of inflation, we think about this a lot when you start thinking about, obviously we're taking contracts on aircraft that are in '23, and '24, and '25. And so you've got to make appropriate assumptions in terms of inflation between here and there and make sure price accordingly, I think that we are. Noah Poponak: Okay, thank you. Operator: And our next question comes from the line of Peter Arment with Baird. Please go ahead. Peter Arment: Yes, thanks. Good morning, Scott, Frank. Scott Donnelly: Good morning, Peter. Peter Arment: Hey, Scott. You've been talking about supply chain disruptions, obviously, all year. You've got a lot of -- you had a ton of experience in engines. Is engines for you still in aviation, the biggest shortage or are there other components like chips or other things that you would call out, and just maybe any color, you could provide on the engine shortfalls? Scott Donnelly: Peter it is, I mean engines are strained. And as everybody knows, one particular model that's important to us that had an issue that kind of stems back to this Russian Ukrainian sanctions, but I think that's in recovery mode. So we feel good about that bouncing back. But there's, I think the frustrating part for our folks, Peter is, it's just sort of everywhere, right stuff happens. It's I say that, overall our avionics suppliers have done a really nice job. Garmin is critical to us, they've been able to meet deliveries. So they're managing the way, that that'd be there probably most highly concentrated in terms of semiconductor risks. So I think they've done a nice job. But it's -- this is the problem in this business, right? Every part is important. So it's, there's certainly some things like the engine was an issue, I think that will resolve itself here in the next six, nine months or so. But these things pop up every week or it's just the world we live in. And our guys are kind of used to it. They just keep working and they go manage each thing that pops up. Peter Arment: It's helpful color and just Frank just quickly, could you tell us what the aftermarket was up in the quarter and any comments on pricing? Thanks. Frank Connor: Yes, aftermarket remains strong. It was up 18% year-over-year, 37% of total volume for the quarter. So really, kind of continued as Scott said, we see strong buying activity and therefore strong volumes in the business. Peter Arment: Terrific. Thanks. Operator: And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead. Cai von Rumohr: Yes, thanks so much. So how much of the goodness in cashflow that 300 million came from deposits on aircraft and thinking about next year, you've had such a big gusher from that source this year? How should we think about cash flow, if book-to-bill goes back to about 1.0? Frank Connor: We're not going to kind of break out separately that the cash items, I mean, offsetting the deposit activities, we have seen a little bit of inventory growth as we've had these supply chain issues, and we've seen some kind of slowdown in our ability to deliver. So there has been some offset. But kind of with a book-to-bill above one and strong commercial at aviation strong commercial demand at Bell, we've benefited from that. Frankly, we benefited also from strong cash performance on the military programs as Bell. So it hasn't been all that. We've talked in the past about kind of, generally, the business over time wants to be around one-to-one cash flow to profitability, right. So we certainly have benefited kind of this year and last year from strong cash performance relative to that. And it'll depend on lots of factors, kind of when we get to a slower kind of booking rate, but it will migrate back towards that one-to-one, as we do at. Scott Donnelly: Look, I guess, I would emphasize that we're conscious of this, right? I mean, I think that you've -- you enjoy a benefit here with strong commercial deposits in aviation. And some of you also in the Bells commercial business, which has had also seen very strong demand here. But you don't change anything else to do in terms of managing the business and making sure that you're fundamentally managing working capital and CapEx and all those things. So I don't for sure you're getting a benefit of this, but I think we're delivering well over one-to-one. And that's because the businesses are doing a good job of managing their cash, and then enjoying the benefits of customer positive activity on top of that. So that's the nature of where we are right now. Cai von Rumohr: Terrific. And given this extra cash, goodness, how are you thinking about deploying the cash? Frank Connor: Well, same as we talked about. As we said, we've been an active repurchase of stock. We bought about $640 million year-to-date, that that's up from last year's year-to-date number. Last year, we ended up kind of low 900 million of share repurchase. And so we would expect similar types of rates kind of -- for the year and on at least as we sit here today on a go forward basis, we've been buying back about 5% of our stock on an annual basis. And so kind of that type of rate is a good rate to be thinking about. Cai von Rumohr: Thank you very much. Operator: And our next question comes from the line of Rob Spingarn with Melius Research. Please go ahead. Robert Spingarn: Hi, good morning. Just wanted to turn to a couple of the other segments for a moment. But in the past, you've talked about systems being a low double-digit margin business, but it's been outperforming that last year and this year. So can we talk a little bit about the trend there? Is it going to stay more in the mid-teens? Scott Donnelly: Look, it's a good question, and yet we're not quite ready to guide for next year. But I think that the -- that business performs really well. I mean, it's always has some components of it. For instance, I think and you'll still see this everywhere, right? Where there's a fixed price government contracts, I guess you can't reprice those, so there'll be some pressure on inflation on that front. But there's like also a constant flow of new programs and I think overall strong execution, which has helped us deliver strong double-digit margins that I would expect that to continue. Robert Spingarn: Okay, and Scott, sticking with these other businesses, industrial was clearly strong. And I think you call that specialty vehicles. Can we talk about the forward trends there? Scott Donnelly: Sure.. I think that the specialized vehicle businesses is doing well. There's -- they -- obviously there were some segments of that business that real hits through the COVID periods around support equipment and things like that that are seeing robust or directivity come back into those markets as well. Also achieving strong pricing our golf in specialized PTVs and whatnot is very strong. I think we have a great product lineup, and that team has done a nice job that. Obviously, in that business, we also see supply chain challenges all the time, but the team's work through it. And I think we'll continue to see that on a steady improvement. Robert Spingarn: And you haven't really seen any evidence of this recession. How do you feel hitting that that business? I would imagine that business is somewhat sensitive. Scott Donnelly: Some are more sensitive than others. So but absolutely, I think particularly when you look at the powersports world, we keep a very close eye on that. Inventory levels are still very much lower than they typically are in those channels because of supply chain challenges. So I think you need to get those to a healthy level, but absolutely we watch very, very carefully, because I think that that particular piece, which is a relatively small piece for us. Obviously, is -- it is very recession sensitive. But I think when you look at a lot of the municipal stuff, and ground support equipment, golf, these things have historically been pretty resilient in terms of how they perform even in a recessionary period. And I think we're well positioned in those markets, which are much larger pieces of the business for us. Robert Spingarn: Of course. Thank you very much. Scott Donnelly: Sure. Operator: And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Yes. Good morning. Scott, on a supply chain issues, it seems like it's affecting your business more than say like, Gulfstream at the high end. Is there any differentiation you can say as to why? Scott Donnelly: I haven't George. I have a list of all of the parts we're missing right now. I could call Mark, I guess and see if he has some extra ones. But the -- no, I don't I mean, again, you guys look, I think this is a world we live in, right? We have the challenges. I think our guys have done a nice job through this. I think we'll be -- we'll have a strong fourth quarter. It's not without, some risk on a part popping up here and there. But it's -- I don't know how to explain the difference between the commentary with the -- with some of the high end stuff versus where we are. But it's some where you going to manage our way through, it'll be fine. George Shapiro: Okay. And Frank, can you provide some comments on what you see for pension next year, given the big changes we're seeing in DR and asset returns? Frank Connor: Yes, we don't expect it to be a headwind. We're obviously, we've got a lot of work to do in fourth quarter and calculating the numbers and everything, but it should not be a headwind for us. George Shapiro: Okay. And then one last one. Is Scott, you've been saying that the delay in FLRAA has been a cost to you in terms of carrying all the people. Can you quantify it all? How much of a cost it was to Bell in the quarter, because the margin at Bell still look pretty good this quarter? Scott Donnelly: Yes, well Bell had a very strong quarter on the commercial side. And I think we'll continue to see strong commercial business. And we talk a lot about aviation, obviously, you guys asked. But the commercial helicopter business is also seeing very robust demand. And those guys are performing well. And it's obviously offsetting the historical military programs, which continue to ramp down a little bit. But like, I think on the FLRAA Georgia, it's obviously, it was our original guide. That's why we're certainly seeing lower absorption. And we expected to be kind of under contract at the stage of the game, but it's something we're managing our way through. And like I said, I think we can't quantify or wouldn't quantify exactly the number, but suffice to say that we can live within our guidance based on I think, where we are and our expectations for the -- for announcement toward the latter part of this year. George Shapiro: Okay, thanks very much. Operator: And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hey, good morning. Scott, I mean you mentioned pretty strong session, that pretty strong orders and incremental interest you're seeing from corporate buyers. And book-to-bill is pretty solid at 1.5x. So from your conversations with your customers and potential customers. What's the key impetus for the incremental order? Is it replacement capacity increase, or new customers to biz jet? And how sensitive are they from the financing environment? Scott Donnelly: Well, it's a bit of all we've bought, Kristine. I mean, so -- I mean, obviously, we have some corporate customers out there that in the quarter placed orders, because they're going to replenish turnover to their fleets of aircraft. As you know, the corporates, they -- they're used to sort of looking out on that 18 month two-year or so timeframe. As they plan their fleet refreshes. So the lead times that are there right now aren't something that they're not accustomed to, and that kind of fits in their plan. So we are seeing that activity, we are still seeing some new activity. And yes, we continue to see a lot of -- there are certainly new people that were coming in more than normal that are buying a whole aircraft. But we also see just the demand of new people coming into the market that are using either fractional or charter operations. And so we continue to see strong demand from those customers as well. So it really is across the board, which is I think again very healthy for the industry. Kristine Liwag: Thank you for the color, and maybe switching gears, Scott in the past, your Sensor Fused Weapon exposure, albeit only support on the past few years, and no longer production, it had limited your -- the European owner of your SOC, now that you're completely out of the Sensor Fused Weapon business, and it looks like you're completely out of support to, and you have the only electric aircraft certified for passenger use, it seems to me like your portfolio is more attractive on an ESG basis. So are you seeing any recognition of the portfolio shift? And are you seeing incremental interest from European asset managers and ESG investors? And how do you think of that evolution? Scott Donnelly: Well, it's a good question, Kristine. And I don't know specifically, those funds that have historically not wanted to invest in the company, in large part because of the SFW exposure. And as you know, that doesn't exist anymore. So I think that's not an issue on the overall ESG front, without a doubt, there you're going to see certain funds out there that are going to be more oriented towards companies they think are investing in that future in terms of particularly electric transportation. And I think we have a very good story. I mean, obviously, aviation is an area we're investing and frankly, particularly as a result of that Pipistrel deal are a leader in that field. And we're also very strong in electric side in terms of our vehicle businesses, right. I mean, we've pioneered over the years, a lot of that electrification, and frankly, that's spreading out across that business in a big way, including ground support equipment and turf care equipment, it's, that trend is going to continue to happen. So I can't speak specifically to the European funds. But I absolutely and consciously, obviously, on our part, we think we're engaging in strategies that will help make us more attractive to funds that have ESG criteria. Kristine Liwag: Great. Thank you, Scott. Operator: And our next question comes from the line of Ron Epstein with Bank of America, please go ahead. RonaldEpstein: Hey, good morning. Scott Donnelly: Good morning, Ron. RonaldEpstein: There's been a ton of focus on Florida for obvious reasons. But could you walk through some of the opportunities beyond Florida, then the Navy is looking for some helicopters down the road as the Air Force and you guys talked about a bit of AUSA but not everybody was there. So I was wondering if you could kind of walk through some of those other opportunities that are beyond Florida? Scott Donnelly: Sure, absolutely, Ron. Look I mean, you're right. We everybody asked a lot about Florida, we're obviously very, very interested in the outcome of Florida. But that was hardly a one trick pony, right. I mean, there's a lot of other stuff going on. I think when you think about the maritime strike, and or like there's active AOA activity going on right now in the Department of Navy thinking about what they do with their future of aircraft replacement programs. Obviously, we think that our offering, which is in that tiltrotor space is very attractive to them, I mean these are services that obviously today operate V-22s and they need aircraft and assets that can keep up with V-22s. So it's I think we feel like the tiltrotor solution is a good answer in that space. These programs are relatively early on, I say they're doing their analysis alternatives, and that'll lead to more acquisition activity here in the next couple two, three years. So we're very close to those programs obviously. Air Force, as has been fairly public is, talking about what they want to do for, frankly, higher speed vehicle, right? So even beyond the kinds of speeds we see today, it'd be in 22 or in be 280 class of aircraft we're highly engaged with the Air Force on those sorts of programs. So I think there's no doubt that what we're seeing with the Army. And obviously that's a huge opportunity to replace that for the Black Hawk class of aircraft, that you will see similar programs in the Navy, Marine Corps and in the Air Force in one form of fashion and our guys are highly engaged in those program opportunities. RonaldEpstein: Got it. And then maybe shifting gears back to Cessna. Bigger picture question. When you look at the portfolio of Cessna airplanes, is there any place that you think you need to do a refresh or not? And how are you thinking about new product development, given that the businesses in a healthier place than it was just a couple of years ago? Scott Donnelly: Yes, look, I think we have a very robust set of refresh programs. We've launched a couple of these Gen2, Gen1 mod programs. We have more of that in the works. We think it's really, really critical to be rolling those out on a fairly regular frequency. So we have a couple that are in the works right now that we haven't yet announced. But obviously, the work is going on the clean sheet front within Denali program, which is still under development. So I think if you look at both jet and turboprop, there's a robust level of activity. I mean, I love our product lineup right now. I think the longitude, latitude obviously have been homeruns in the market, the sky career is just getting in, kind of getting to raised in production with great demand. I think that's going to be a homerun product. Denali will similarly and I think the -- a great product for us. And the line is, be sprinkled with a couple of these refresh programs here in the coming years. RonaldEpstein: Got it. Thank you. Operator: And our next question comes from the line of David Strauss with Barclays. Please go ahead. David Strauss: Thanks for taking the follow-up. Sure I just wanted to ask about the H-1 and how that kind of rolls off from here and what sort of headwind we should be thinking about to Bell as that program runs awesome? Thanks. Scott Donnelly: Sure. H-1 is about to wrap up. It's program a record in terms of the U.S. sales. We have some FMS programs that are still under production, but those clearly won't be ramping down here over the next couple of years. Service programs continue to run. But no question, David, that program will continue to ramp down here in the next couple of years. David Strauss: And Scott, could you quantify how much in revenue each one currently accounts for? Scott Donnelly: No, we don't break out the individual programs, David. But look, obviously, our plan is largely based on the fact that you'll see a ramp up in FLRAA program activities that will largely replace overseeing in the ramp down on H-1 program. David Strauss: Got it. Thank you. Scott Donnelly: Sure. Eric Salander: Okay, Brad, that completes the call. Operator: And ladies and gentlemen, this conference will be available for replay. After today at 11:00 a.m. Eastern through January 24, 2023. You may access the AT&T replay system at any time by dialing 1-866-207-1041 entering the access code 265-9646. International parties may dial 402-970-0847 and those numbers again are 1-866-207-1041 and 402-970-0847. Again, entering the access code 265-9646. That does conclude the conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead. Eric Salander: Thanks, Brett and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.2 billion essentially flat with last year's second quarter. Segment profit in the quarter was $303 million up $14 million from the second quarter of 2021. During this year's second quarter, we reported net income of $1 per share compared to $0.81 per share in last year's second quarter. Manufacturing cash flow before pension contributions totalled $309 million in the quarter down $200 million from the second quarter of 2021. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric and good morning, everyone. Aviation had another solid quarter with higher revenues and strong execution, resulting in a 12.1% segment profit margin. We continue to see strong demand, solid pricing and increased deliveries for our citation jets, commercial turboprops and higher aftermarket volume from increased aircraft utilization. We delivered 48 jets up from 44 last year and 35 commercial turboprops up from 33 in last year's second quarter. Order activity was strong in the quarter, reflecting continued order momentum that generated $700 million of backlog growth resulting in $5.8 billion of backlog at aviation at the end of the second quarter. During the quarter, aviation's defense business was awarded a $91 million contract for 86 aircraft, spares and related support services to Tunisia. Also a tax aviation defense earlier this week, the AT-6 Wolverine received military type certification from the US air force paving the way for continued global sales of the light attack aircraft. On the new product front, we delivered the first [indiscernible] our launch customer FedEx and also delivered the first XLS Gen2 aircraft. At Bell, revenues and segment profit were down in the quarter, primarily reflecting lower H1 program volume. On the commercial side of Bell, we delivered 34 helicopters down from 47 in last year's second quarter. While commercial order activity was strong across all models, supply chain headwinds impacted Q2 results as several commercial helicopter deliveries slipped out of the quarter. Overall, the strength in commercial demand, which included South Korea, selecting the Bell 505 aircraft for use as its next military trainer, contributes to an increase in Bell backlog of $500 million in the second quarter. During the quarter, Bell announced the contract award of $518 million to upgrade Canada's fleet of CH-146 Griffon aircraft. This upgrade program is expected to be completed by 2028. Moving to Future Vertical Lift, we now expect the FLRAA contract announcement sometime in October, following the AUSA conference. As a result, we anticipate continuing our investment on this program, which will be incremental to our original segment guidance. Moving to Textron systems, revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of US army from Afghanistan on our fee for service and aircraft support contracts. At ATAC, we continue to see increased flight activity on our U.S. Navy and Air Force adversary air contracts. During the quarter, we delivered LCAC 104 to the US Navy and continue to progress through the build process of the remaining EMD craft on the ship to shore connection program. Last week, the US army announced that systems was awarded a $354 million firm fixed price contract for the production and delivery of XM 204 Tupolev ammunition in anti-vehicle system. This is an IDIQ contract with an estimated completion date of 2027. Moving to industrial, we saw higher revenues in the quarter driven by higher pricing volume in specialized vehicles, mainly in our personal transportation and golf product lines. At CalTex, the auto market remains challenging as we again experienced order disruptions related to the global auto OEM supply chain shortages and COVID mandated factory shutdowns in China that continue to directly impact our production schedules. In April, we closed the acquisition of PIPISTREL, pioneer and global leader in electrically powered aircraft. Beginning in the second quarter of 2022, PIPISTREL became part of Textron eAviation, a new reporting segment that includes PIPISTREL's operating results and R&D expenses related to the development of sustainable aviation solutions. In the quarter, we announced that PIPISTREL Velis Electro received the UK Civil Aviation Authority Certification. The Velis Electro remains the only type of certified electric aircraft in the world. Overall, it was a solid quarter with strong cash generation and growth and earnings. Our teams executed well in a difficult environment where we continue to experience supply chain disruptions, labor supply shortages, and COVID related impacts across our businesses. While these challenges drove manufacturing inefficiencies and delayed product deliveries at many of our businesses, our financial performance demonstrates the resiliency of our operations. Looking forward, we anticipate these headwinds to continue through the remainder of the year. With that, I'll turn the call over to Frank. Frank Connor: Thank you, Scott. Good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues at Textron Aviation of $1.3 billion were up $123 million from the second quarter of 2021, largely due to higher aircraft and aftermarket volume. Segment profit was $155 million in the second quarter, up $59 million from a year ago to the impact from higher volume and mix of $25 million, a favorable impact from performance of $19 million and favorable pricing net of inflation of $15 million. Backlog in the segment ended the quarter at $5.8 billion. Moving to Bell, revenues were $687 million down $204 million from last year due to lower military revenues of $170 million primarily related to the H1 program and lower commercial revenues of $34 million. Segment profit of $63 million was down $47 million from last year's second quarter, reflecting lower volume and mix, partially offset by a favorable impact from performance, which included lower operating expenses, partially offset by an unfavorable change in net program adjustments. Backlog in the segment ended the quarter at $5.3 billion. At Textron Systems, revenues were $293 million down $40 million from last year's second quarter due to lower volume of $44 million, primarily reflecting the impact of the US Army's withdrawal from Afghanistan on our fee for service and aircraft support contracts. Segment profit of $42 million was down $6 million from a year ago, primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $871 million up $77 million from last year's second quarter, primarily due to a favorable impact from pricing and higher volume and mix, principally at specialized vehicles. Segment profit of $41 million was up $9 million from the second quarter of 2021, primarily due to the higher volume and mix. Textron eAviation segment revenues were $5 million and segment loss was $8 million in the quarter. Finance segment revenues were $14 million and profit was $10 million. Moving below segment profit, corporate expenses were $12 million and interest expense was $28 million. Our manufacturing cash flow before pension contributions was $309 million in the quarter down $200 million from last year's second quarter. The second quarter of 2022 included significant cash tax payments as a result of the 2022 change in R&D tax treatment. In the quarter, we repurchased 4.4 million shares returning $282 million in cash to shareholders. For the full year, we are reiterating our earnings per share guidance of $3.80 to $4 per share and we are increasing our cash flow from continuing operations before pension contributions guidance to be in the range of $800 million to $900 million, up a $100 million from our prior outlook. That concludes our prepared remarks. So Brad, we can open the line for questions, Operator: And our first question today comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Hey guys, I'm impressed nine minutes today. So in terms of your guidance for the year, you read and reiterated it, but several companies are missing on supply chain. So maybe can you talk about, are you seeing some of those supply chain headwinds for the second half of the year? And Scott, in your prepared remarks, you mentioned FLRAA, the push out to mid-October, how does that impact results and the additional investment there? Scott Donnelly: Sure, Sheila. Well, look, I think, if we look at sort of across the company, first and foremost, I think textile aviation performance will continue to be very strong in the second half. We are trying to ramp production. We expect to try to continue to ramp production through in the 2023, given the very strong demand environment. Supply chain and headwinds are causing some disruptions there, obviously. So, I think we'll probably be a little light on revenue. We'll probably miss some deliveries as things push into 2023. But I think that from a performance standpoint, from a margin standpoint, the business will continue to excel. Aftermarket remains very strong obviously, and that's an important part of the financials in the business. So I think that that business will be a strong performer in the second half and be really well positioned for us going into 2023 as well. The Industrial segment like our vehicle business continues to perform well. It continues to improve. First half was pretty tough in the automotive world. Again, mostly supply chain and COVID shutdowns in China. I certainly expect that to improve in the second half. So we'll see better performance, from CalTex in the back half of the year. So I think, continued improvement. It'll probably be towards the low end of margin just because of the first couple quarters on the automotive side, but otherwise strong performance. Systems in the second half, look, we should get back. We've had these negative revenue comparisons driven largely by the Afghanistan pull-out and the impact it had on fee for service business. Those comps go away in the third and fourth quarter. So I think we get back to stable, even showing some growth probably towards the end of the year, resulting from some new wins and again, very strong performance I think in terms of segment profit and bell will be the one that's a bit of a challenge. Look, we are starting really strong performance on the commercial side. The demand environment is good. We'll certainly have a lot more deliveries in the back half of the year. But they are fighting through supply chain issues and inefficiencies. We know, and fully expect we're going to see lower volume, particularly on H1 aftermarket. There's just been lower demand, lower flying in that side of the house. But the big issue, we also have to face into is obviously the Flower program, which we continue to feel good about. Our teams are working really hard on it, but that's probably a three or four month slip from where we thought it would be when we gave our guidance originally. So, obviously we have a big team and we're going to retain that team and keep pressing on, but certainly that will result in some more investment in our program before we get to a contract award. So that will weigh on Bell for the total year. So I think we'll probably get there on revenue, but we'll be on the lighter side of margin given that transition. Sheila Kahyaoglu: Maybe just a follow up on balance, since you just mentioned it, 22% decline, how much of that or 23%, how much of that was due to supply chain and how much of a decline should we expect in the second half? Is it still $3 billion feasible in terms of revenue? Scott Donnelly: Yeah, I think $3 billion is still feasible and really look, the split is going to be in part again, lower aftermarket on the military side, which is down and that's kind of lumpy. It was actually pretty strong in the first quarter. It was pretty weak here in the second quarter, but I do think we'll see softness in that aftermarket side. But we'll see, I think strong deliveries on the commercial side of the helicopter business that will partially offset that here in the third and fourth quarter. Sheila Kahyaoglu: Great. Thank you very much. Operator: And our next question comes from the line of Ron Epstein with Bank of America. Please go ahead. Oh, one moment. Sorry about that, please go ahead with your question. UnidentifiedAnalyst: Hi, it's Elizabeth. Can you hear me? Scott Donnelly: Yeah, we can hear you now. UnidentifiedAnalyst: Okay, great. Good. I'm on for Ron this morning. We noticed on your finance segment slide in your presentation that the 60 plus delinquency more than doubled quarter-over-quarter from $2 million to $5 million. Is there anything to worry about there? Frank Connor: No, the finance segment's been performing very well, as you can see from kind of the earnings for finance. So we continue to see good performance out of the portfolio. Kind of things come up from time to time where things move around, but the overall portfolio is performing well. Operator: And our next question comes from the line of Peter Arment with Baird. Please. Go ahead. Peter Arment: Yeah, thanks. Good morning, Scott and Frank. Nice results, Peter. Hey Scott, your backlog continues to swell in aviation, can you maybe talk a little bit about just how you think of managing that, ramping that production and you're obviously probably well into 2023, when you think about kind of delivery slots, just maybe a little color there, that'd be helpful. Scott Donnelly: Sure. Peter look, Obviously demand's been really strong in that backlog is continuing to grow. It gives us really good visibility, which is terrific. Something we didn't have for a long time as you know. So yeah, we continue to work to be able to ramp and we're continue to do that through the course of the year, and obviously we'll be needing to do that as we into 2023. We're working really hard on hiring on our end of things to bring staff on board and working with suppliers. That just, to be able to meet that ramp. So, we're making sure we're cautious about how we're committing to customers who want to deliver on the dates that we'll say we'll deliver, but it's a headwind. And like I said, I think it will impact us this year on some deliveries that we would've originally had that'll push off into the beginning of 2023, but our teams are obviously working every day on this stuff and we are making progress with growing our workforce in-house and we're continue to work with our suppliers to help them meet that ramp as well. So I don't think it's going to be easy, but clearly I think we have line of sight that continue to increase our production rates as we go through the balance of this year and through 2023 as well. Peter Arment: That's great. And Frank, do you have what the aftermarket growth number was in the quarter? Frank Connor: Yeah, it was it was 18% on aviation, 18% and 33% of the revenues. Peter Arment: Terrific. Thanks again, results. Operator: And our next question comes from the line of David Strauss with Barclays. Please go ahead. David Strauss: Scott, on FLRAA, what gives you confidence that we're actually going to see a decision here on October? We've seen several slips now, I guess. What color can you give us around your confidence that we're actually going to get a decision here come the fall? Scott Donnelly: Well, obviously we've had ongoing interaction with the acquisition side of the army. Everything is all obviously very quiet from a post evaluation stage. The indications we get from the acquisition side are that they're going through their process and there haven't been data requests or proposal related activity here for some time. So we know they're in their detailed evaluation phase. Secretary Bush, who we saw last week, indicated that, and he has said this publicly in several forums that he expects that they're on track to make an announcement after the USA conference. That's what the 10th, 11th or so of October. So, when he says that we're kind of surmising, that means sometime in that mid to late October timeframe. So, that's what we're currently trying to factor into our plans and what we need to do to make sure that our team, that's assembled, which are currently working, obviously on the risk reduction program, will continue to have activity and keep progressing this thing while they finish their evaluation. But, the dates I'm quoting are again, kind of publicly, Secretary Bush has made those statements. And again, there's no indication from him when we met that there's anything other than just working through their process. David Strauss: Okay. Frank, couple of questions. How do you see -- you've raised your free cash flow guidance, but how do you see working kind of pieces of working capital, mainly inventory and advances going from here the rest of the year, and then, any initial thoughts on pension for '23, given asset returns and discount rates, it's a pretty big income item for you guys. Thanks. Frank Connor: Yeah. So on the cash flow side, we're consistent with where we had Ben. We continue to see good working capital performance. The supply chain issues and kind of potential delays and deliveries obviously could create a little bit of pressure on the inventory side. But I don't expect that to be at all significant as we go into year end. But we obviously raise cash flow guidance anticipating continued overall good working capital performance and that's bolstered by strong order activity and customer deposits, frankly both at aviation and a Bell on the commercial side as well. So overall good cash flow performance so far year to date and expect that to continue through the remainder of the year. Look on the pension side, it's kind of too early, I guess, right now, if you snapped a line, the interest rate impact would more than offset the impact from on the asset valuation side in terms of, kind of creating any headwind associated with pension. So, we have the potential for some additional tailwind given where things are right now as we move into '23 from pension. Operator: And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Good morning. Quick one, why was corporate expense so low on the quarter? Frank Connor: That has to do with the share price impact that kind of flows through corporate for our equity related comp programs. So, unfortunately we saw a tough overall market and tough share price performance for us in the quarter. So that impacts that number. I'd say in terms of overall for the year, kind of given where the overall market environment is we're probably $10 million-ish better. We expect on corporate expense from an overall cost for the year. But, hopefully that number is not a sustainable quarterly number because the share price performance. George Shapiro: Okay. And then you'd also mentioned that in Bell, there was an adjustment unfavorable adjustment. Can you quantify that? Frank Connor: Yeah, we don't talk about that, kind of by segments. But the comment related to we did see some unfavorable program adjustments this quarter and when you compare that to a year ago, we had some favorable program adjustments. So the overall we, between the two years, kind of created more negative program adjustment therefore. So that's the nature of the comment. Overall expenses are down at Bell anticipating the kind of the reduction in volume. But frankly volume has come out a little faster than we anticipated and so it did have some negative impact on performance. George Shapiro: Okay. Then for Scott, in terms of the general aviation demand, did you see any changes? They went through the quarter and is April -- is July continuing to be strong? Scott Donnelly: Oh, so George so far the market feels about the same. Demand is strong, continues to be strong business jet market in North America. In the quarter we saw a significant pickup in international activity, particularly in our turboprop business. So strong international demand on years, which certainly helps. We see some more of the corporates, coming back in as corporate flight activity picks up, but still seeing a lot of new entrance into the market as well. So I think that, as we look at sort of how Q2 played out and continues now in the beginning of Q3 is indicative of really strong demand across the entire portfolio of products. George Shapiro: Okay. Thanks very much. Operator: And our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak: Scott, how are you going about deciding exactly where to lay the Cessna production and deliveries for the remainder of this year and next year? Scott Donnelly: Well, for the most part, no, these are pretty well booked. So, we know what commitments we've made to customers in terms of delivery dates. As you know, unlike it was for a long time, and this is pretty well booked business. So we know the models, we know the mix, we know the interiors and colors. We know what we got to go do. That's not a problem. The challenge is just getting enough people and suppliers to deliver the parts and get the stuff in there and get it produced. So it's a good problem to have, but it's still a problem, right? So we're working our way through that and like I said, I think the performance of the business, despite a lot of those interruptions and disruptions, they're largely getting it done. I do think we'll have some aircraft slip out because of some particular supplier issues that we're not we just know their delivery dates aren't going to get there, but it's a relatively small number of aircraft and again, that's offset by a very strong aftermarket, the utilization of the aircraft is very high, that drives a lot of service business, which is great and just overall, I think the business is performing really well, Noah Poponak: You've had bookings in excess of revenue by about 50%, several quarters in a row. The backlog isn't all new billed, but just the implied bookings it's running about $2 billion a quarter. Do you try to take the production system and the revenue to a place that would match some assumption of that order rate slowing down and try to get the revenue and the orders to land in the same run rate or do you want the orders to keep exceeding revenue and keep growing the backlog from here? Or can you just not even do that because it's customer dependent? Scott Donnelly: Well, look, there's a lot of moving parts here, right. But, to be honest, you had your dream, you'd have a one to one, right? You'd keep building and keep selling and everything would be great. So, obviously right now demand is stronger than that and we know which leads to that, backlog going out further in time, that's certainly not all bad, but it gives us visibility and we'll plan a production rate. And again, we are increasing our production rates and we'll continue to increase those rates in the next year. But look, we keep a close eye on that right because in the end, this is about matching supply and demand and I think as we've talked about before, this is a business that should run off backlog, right? It's better for our customers. It's better for us. I think the whole market is in a better place when there's adequate time for people who have their aircraft to sell their aircraft and doing their upgrades and have a better flow in manufacturing and customizations. So look a one to one's a healthy place to be. You can't build backlog forever obviously, right? You get to a point where somebody's not going to order an aircraft if it's not available for three or four years and there's more customization and longer lead time probably in order cycle around some of the larger aircraft and smaller aircraft so that, you have that dynamic in there. But look, I think we're in a really good place. Obviously we want to maintain a backlog and we need to balance it where it's a good spot for both ourselves and our customers and I think that's where we are right now. So the out demand continues to grow and so we will grow our production rate, but there's no objective to try to get this back to where you're not working off of a backlog. I don't think that's good for the business or the overall market. Noah Poponak: Yeah, no, I meant it more anticipating a slowdown in the order rate and therefore keeping the supply tight. Scott Donnelly: Well look, the good news. No, we're out far enough, but if you do see us slow down at some point, you can adjust that right, and manage a view, start seeing some absolutely. Noah Poponak: And then just on the margin, it's another incremental that's well above that sort of longer term framework you have in the segment. Can you give us some color on how much of that is price versus absorption versus mix and then where do you see that for the remainder of the year? Scott Donnelly: Well, look, I think we're still coming out of some, highly disruptive times when you look at the year over year, right? So we saw this in the first quarter as well. Price over inflation is good. We've needed that in this industry obviously for a long time. So I think that obviously is a positive contributor, but, I still think if you think about the long term, the gross margins, the mix between the original equipment and aftermarket that this is a business that generally you should expect to see sort of that 20%, 25% conversion. We're a little stronger than that coming off some pretty extraordinary times, but as we go forward, I think that's a reasonable expectation is that you generally will see somewhere in that 20%, 25% range. Operator: And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks so much for taking the question. So Scott, could you talk a little bit about supply chain specifically at aviation and also labor availability in the Wichita area. You seem to have obviously done pretty well? What kind of a challenge is it and is it getting better or getting worse? Scott Donnelly: You know, Cai, it's kind of flat, right? On the labor front look, we are making progress. But, if I look at the ramp, as we think about this year, going into next year, we're looking to add, kind of net, a 100 people or so a month. So that's we're running, hiring fairs. We are seeing people coming back into the workforce. We're working that hard. It's the entry level, bringing new people in and obviously, you've got training and development. So, there's only so fast we can do it, but we're working and like, Wichita's always been a great place for us in terms of availability, labor, and people that have good work ethic and stuff. So we're continuing to work that, but it's sizeable number of people that we need to bring on board to support that ramp every month. So when you go to the supply chain, Cai, look, I think, a lot of our smaller suppliers continue to struggle with a little COVID thing here and there and when we have an issue and some people can't show up to work, we're big enough that we can kind of try to move people around and sort of keep things going, not easy, but our guys do a pretty good job of that. When you've got smaller suppliers and they lose a chunk of their workforce for a week, they can -- they slip a week on part availability. So again, our guys do everything they can to manage those inefficiencies and do out station work and they're constantly working this. So I don't think it's getting worse. But, unfortunately we haven't seen it get dramatically better. And then, you always have a couple suppliers where, what the lead times are, if they've had an issue or problem, we talked last time about some resourcing out of Russia into US manufacturers. That's a discontinuity that we will get caught up on some of that, but I do think it'll impact us in pushing some things into 2023, but again, net of all that I think the businesses performing really well, despite those challenges. Cai von Rumohr: Terrific. And you've owned PIPISTREL now for a little over a quarter. Could you give us some thoughts on where you plan on taking the products here specifically before PIPISTREL, you had some designs, do you hope to take their technology and pursue that area? You have the Nuva [ph], you got a number of potential opportunities. Maybe give us some color in terms of where you're thinking of taking that? Scott Donnelly: Sure, absolutely. Look, the Nuva [ph] you just mentioned, we're very excited about that thing. They've done some good work in the past that that is one of the areas that we're adding R&D to try to accelerate that and get the aircraft, the first aircraft flying. I think when you think about unmanned, I actually think unmanned cargo, is probably something that's a reasonable expectation for acceptance in the marketplace and growth and that Nuva is kind of a 1,000 pound cargo, kind of a crap. The guys are working hard on that right now and again, that's an area we've accelerated some of our investment to bring that to market. You talk about Nexus and sort of the EV space, as we talked about Cai, I think that when we look at our company, we feel great about our arrow and fatigue and structures and flight controls guys. Obviously, these things look like at least in our view is sort of a mini rotor kind of a technology. We actually do that. We have the right technical talent to pull that off. Our weak spot in terms of organic capability was around the power train and electric propulsion and the PIPISTREL guys are fantastic at that. This is what they do and so in that particular area on Vitol [ph], absolutely, we have that team now engaged in adding some resources to help our team in Wichita to deal with the battery storage, battery energy and electric propulsion trains that would support [indiscernible]. So I'd say so far, we've only owned them for a couple of months here. They've got some great current product line. You've got things like Pantera that have been sold previously under sort of experimental tickets. I think we have a great pathway for that to be a great airplane, part of our portfolio as a certified IFR aircraft. So again areas where the teams that do that kind of work in Wichita are now helping the team in Slovenia and how do you lay out, product certification for an IFR aircraft. So, so far I'd say the integration is really going really, really well, the PIPISTREL folks have a fabulous engineering and technical base and we're just growing that, so… Operator: And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Scott, probably question for you, obviously concerns out there about a slowing global economy. I was wondering if you'd seen any sign of this in your industrial division, and if this were to occur switching over to aviation, how would you say the setup here differs from what you saw back in say 2007, 2008 peak of last cycle? Scott Donnelly: Well, Robert that's a great question. Look, we haven't seen it yet. I think, look, we all kind of keep an eye on things and everyone sees some softness in some of the let's call it lower end retail source side of things. I think that makes a lot of sense. People are obviously putting a lot more cash into their gas tank that takes some of that discretionary spending away, but we keep a very close eye on this in terms of the demand, particularly in some of that in the industrial world. But, we're still seeing a very strong demand environment. We continue to be gated more by supply chain issues and just getting product out there. Dealer inventories are still at very, very low levels. So we we'll continue to keep a very close eye on it obviously. But, we're not seeing that change just yet on the. On the GA side, Robert, we have the situation today having lived through that 2008, 2009 is just a totally different dynamic, right? You had a liquidity based financial crisis. Today I would argue we have absolutely the opposite of that, right? The world is a wash in money. And I think, again, if you go on the aviation side, you had political overhang back in 2008, 2009, right? Where, it was bad to have a business jet and today you see a situation where good, bad and different, the commercial airlines, and the whole network of commercial travel is struggling and you see people moving and being incentivized to moving into the business, aviation world. So the dynamic is just wildly different. I think the underlying economics are just totally different, right? You went from a liquidity problem to a world that's it's just a wash in money. So totally different dynamic. Operator: And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Hey, good morning guys. Question on system, sorry if I missed this, but are you still expecting $1.3 billion for the full year and if so, which programs are going to ramp in the back half? Scott Donnelly: Well, I think that we'll, I'm not sure it's probably going to be a one, two or something in that Peter. I think the we continue to see growth in our services business, on the adversary air. we're continuing to see growth in our webs and munitions business, as GBSD continues to ramp. We just mentioned an award on the XM204. It's a program we've been working on for a very long time. It's across obviously very important milestones here that will start to contribute growth to the business. So, it's across all the other segments. The comparative that we've struggled with really has been this Afghanistan, withdrawal and I think again, you'll start to see this business pick up and go back into a growth mode here in the latter part of the year, driven by those programs. Pete Skibitski: Okay. And just last one for me much smaller program, but I'm just curious if you guys are tracking this Armed Overwatch program just because it seems like the type of thing that could be maybe leveraged internationally and you just got the 86 certified. So just wondering if you think that might be awarded this year and if it's going to be meaningful to you or not. Scott Donnelly: Well, look, it would be Peter. I think that the Armed Overwatch, our expectation is that that could be announced any day, any week here. Again, the air force is in their proposal evaluation. So all is quiet there, but they're going through their process. So, yeah, absolutely, I think that's something will be announced in the pretty near future. But, regardless, the fact that we did get the military type certification on the T6 six is a big deal for us on the international markets. As you know, we've already taken our first orders for that because customers expected, we would get the type certain and we have a large installed base and a very successful product in the T6 on the trainer side of things. So an awful lot of customers have been in dialogue with us around their desire to go be able to transition from that T6 into AT6 for their light attack aircraft. So I think that we see a bright future for that product. Now that we have the MTC if we were to win the Armed Overwatch program, that would obviously be a huge opportunity for us. But either way, I think, we feel really good about where the AT6 position going forward. Operator: And our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead. Seth Seifman: Okay. Thanks very much and good morning, everyone. I was wondering if you could talk a little bit more about Bell and just kind of A, sort of the pace of recovery through the year, but also, with H1 ramping down just the extent to which the EBIT level that we saw in Q2, even though there was some one time aspect to it. To what extent does that become kind of a preview of '23, '24 as H1 goes away and we think about the transition, potentially into FLRAA? Scott Donnelly: Well, I think what we saw this quarter is probably kind of where Bell's going to be here for a little while, as we see those lower aftermarket military volumes. Again, we'll see commercial kicking in here with some increases on the revenue side and obviously a lot of this will depend on where FLRAA goes, right? So, obviously we're optimistic about the program, but the army, it's their decision and hopefully we'll see that happen here in that October, sort of timeframe because clearly that's really important for us for the future in terms of that program moving from the investment phase, which it has been now for almost a decade and move into a real program. Seth Seifman: Right. Okay. Thanks. And then I apologize if you mentioned it, but I think, you said a few deliveries might slip out due to supply chain issues in aviation. If we thought that the target was kind of to get back to 2019 level of 206, it, should we still be thinking about, let's say 200 deliveries and do these supply chain issues have much impact on the quarterly cadence in the second half? Scott Donnelly: Look, I think it's going to be, south of the numbers you're talking about here. We've never given the exact number, but like I said, I think you can expect that our original guide on the revenue is probably going to be short, a couple $100 million. But on the margin side, it's going to be north of our guide because again, I think our business is despite all these disruptions is performing really well, very strong aftermarket. As Frank mentioned, really strong growth again in the quarter. So, as you'll look through the bounce of the year, I think aviation will continue to perform really, really well. But for sure these supply chain issues are going to have force a few aircraft out of the year. Operator: And our next question comes from the line of Robert Spingarn with Melius. Please go ahead. Robert Spingarn: Scott, on the slippage, in the deliveries that we're just talking about here is you mentioned it's a lot of small suppliers, but are engines involved at all? Is there an engine shortfall? Scott Donnelly: Sure. Robert Spingarn: And so, is that the dominant factor or again, it's across the airplane? Scott Donnelly: Well, it's across airplanes. The engine impact on one particular model is probably our single biggest impact. And again, that's one where like, I think they're working really hard at trying to get the stuff back in. And I think the good news is in that particular case, the resourcing is well defined. It's well understood. It's someone who's built the part before. I think there's a good path to getting back on track, but I just don't see that getting itself resolved and not impacting deliveries this year, but those are couple move into the 2023. And again, financially we're going to be fine. Again, the business is performing really, really well. The bigger issue for me is frankly, I have some customers obviously that want their aircraft that are going to get pushed into next year as a, as a result of that. But I think the path to get that resolved is quite clear and it's being, it's being worked really hard. So, the other craft it's a couple here, a couple, it's small there's just a lot of suppliers with a lot of issues and it's like I say, it's a bit of a fight every day, so… Robert Spingarn: Right. And it looks like your pricing is outpacing inflation but if inflation continues to stay where it is or gets worse, are there any protections being built into the newer contracts? Scott Donnelly: No, look, we, most of our, aircraft, these deals are negotiated. We know what the delivery dates are and our guys have put in appropriate pricing associated with what our expectations are on the inflation side. So, when we have the few deals we have that are kind of out there in time and pre-negotiated take into consideration market pricing at the time. So, I think we feel like we have adequate protection and adequate, incorporation of inflation going forward. Operator: And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hey, Scott, back on Textron Aviation, you reported margins at 12%, the highest we've seen since 2008 and we look back, it's really been 14, 15 years since we've seen a real light and mid-size biz jet upcycle. At this point, use inventories in your favor, you're getting pricing, you're getting orders. If we continue to see sustained demand and the supply chain issues, ease, are there any structural differences in the business today that could prevent margins from going back to that mid to high teens that we saw in '07 '08? At some point, not this year clearly, but at some point, Scott Donnelly: Look, I think the way we look at the market right now and the performance of the business and the mix of aftermarket and aircraft and all the programs, the new models, obviously we have a very different portfolio product today than we than we did back then as well. I think the cost structure of the business is really, really well managed. It's well aligned to what the volumes are. And so, certainly our expectation is that we'll continue to see positive margin progression as we go into the future. That's absolutely our plan and look, we've as you said, it's been a long, hard fight from back in the 2008 days to get to where we are today. But, this is kind of back to where you've got a business running the way it's supposed to be running and with a strong backlog like it's supposed to have. And the dynamics, as you mentioned, used aircraft available for sale, or are at record lows versus being a real problem for quite an number years. So, look, I think the business 12% margins, this is a spectacular business and I do think we can continue to improve those margin rates as we go into future years. Operator: And with that, there are no further questions for today's call. Today's conference will be available for replay after 11:00 AM Eastern today through October 27. You may access the AT&T replay system at any time by dialing 1866-207-1041, entering the access code 5456778. International participants may dial 4029700847. And those numbers again are 1866-207-1041 and 402-970-0847 again, entering the access code 5456778. That does conclude your conference for today. Thank you for your participation and for using AT&T teleconference services. You may now disconnect.

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.: Operator: 00:00 Ladies and gentlemen, thank you for standing by. Welcome to the Textron First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. 00:36 I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead. Eric Salander: 00:44 Thanks, Leah and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. 01:11 Revenues in the quarter were $3 billion up from $2.9 billion in last year's first quarter. Segment profit in the quarter was $304 million, up $48 million from last year's -- from the first quarter of 2021. During this year's first quarter, we reported net income of $0.88 per share compared to $0.77 per share on an adjusted basis in last year's first quarter. Manufacturing cash flow before pension contributions totaled $209 million in the quarter, up $138 million from the first quarter of 2021. 01:41 With that I'll turn the call over to Scott. Scott Donnelly: 01:43 Thanks, Eric and good morning, everyone. Revenues and margins were up in the quarter driven by Textron Aviation. Aviation demonstrated strong execution in the quarter, resulting in a 11.6% segment margin. We continue to see very strong demand, solid pricing, and increased deliveries from our Citation jet and commercial turboprop products and higher aftermarket volume from increased aircraft utilization. We delivered 39 jets up from 28 last year and 31 commercial turboprops, up from 14 last year's first quarter. 02:14 Order activity was very strong in the quarter with $1 billion of backlog growth reflecting continued order momentum across our product portfolio. We ended the quarter with $5.1 billion in backlog. In March, our new commercial turboprops Cessna SkyCourier received FAA certification and we expect to begin deliveries in the second quarter. At Bell, revenues were down 1% in the quarter, largely driven by the mix of commercial products sold. 02:28 On the commercial side of Bell, we delivered 25 helicopters, up from 17 in last year's first quarter. During the quarter, we saw momentum build in commercial demand across all our product aircraft models and end markets with a strong quarter of new orders. 02:50 Moving to Future Vertical Lift. In March, Bell submitted its final FLRAA proposal revision to the U.S. Army, a down select and award announcement is expected this summer. 02:59 Moving to Textron Systems. Revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of the U.S. Army from Afghanistan on our fee-for-service and aircraft support contracts. At ATAC, we continue to see increased flight activity and revenue on our U.S. Navy and Air Force adversary air contracts. During the quarter, Systems successfully deployed the first Aerosonde on UAS system in a maritime environment, abroad a U.S. Navy guided missile destroyer. Systems is expected to deploy a second Aerosonde on UAS for an additional ship later this year. 03:30 Moving to industrial. We saw higher revenue during the quarter driven by higher pricing and volume in specialized vehicles and our PTV and golf product lines. We continue to see strong end market demand in most of our product lines across specialized vehicles. Kautex, we saw disruptions related to global auto OEM supply chain shortages to continue to directly impact our production schedules, resulting in lower volume. 03:51 At the product level, hybrid revenue increased 24% year-over-year to 12% of total Kautex revenues in the first quarter, up from 9% a year ago, as we continue to penetrate the hybrid Fuel Systems segment. On April 15, we closed our acquisition of PIPISTREL, a pioneer and global leader in luxury powered aircraft. PIPISTREL brings its technical and regulatory expertise in the development of electric and hybrid aircraft to support Textron's long-term strategy to offer families sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles. 04:21 With that, I'll turn the call over to Frank. Frank Connor: 04:23 Thanks, Scott and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues at Textron Aviation of $1 billion were up $175 million from a year ago, largely due to higher Citation jet volume of $93 million. Aftermarket volume of $61 million and commercial turboprop volume of $59 million. Segment profit was $121 million in the first quarter, up $74 million from a year ago, largely due to the higher volume and mix of $55 million and favorable pricing net of inflation of $16 million. Backlog in the segment ended the quarter at $5.1 billion. 05:02 Moving to Bell, revenues were $834 million, down $12 million from last year, due to lower commercial revenues of $32 million, largely reflecting the mix of aircraft sold during the period, partially offset by higher military revenues. Segment profit of $98 million was down $7 million reflecting lower volume and mix, partially offset by favorable impact from performance. Backlog in the segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $273 million, down $55 million from last year's first quarter due to lower volume of $59 million, primarily reflecting the impact of the U.S. Army's withdrawal from Afghanistan on our fee-for-service and aircraft support contracts. 05:47 Segment profit of $33 million was down $18 million from a year ago, due to lower volume and mix of $11 million described above and an unfavorable impact from performance of $9 million, primarily reflecting lower net favorable program adjustments on our fee-for-service contracts. Backlog in this segment ended the quarter at $2.1 billion. 06:08 Industrial revenues were $838 million up $13 million from last year, primarily due to a favorable impact of $46 million from pricing, principally in the Specialized Vehicles product line, partially offset by lower volume and the mix of $24 million, largely in the Fuel Systems and Functional Components product line due to the impact of global supply chain shortages on our auto OEM customers. Segment profit of $43 million was down $4 million from the first quarter of 2021, primarily due to the lower volume and mix described above. Finance segment revenues were $16 million and profit was $9 million. 06:48 Moving below segment profit. Corporate expenses were $44 million and interest expense was $28 million. Our manufacturing cash flow before pension contributions was $209 million in the quarter, up $138 million from last year's first quarter. In the quarter, we repurchased $2.2 million shares returning $157 million in cash to shareholders. Beginning in the second quarter of 2022, PIPISTREL will become part of Textron eAviation, a new business segment where we will combine our existing initiatives with PIPISTREL's capabilities to accelerate our development of sustainable aviation solutions. This new reporting segment will include development expenses related to these efforts and PIPISTREL's operating results. 07:34 For the remainder of the year, we expect revenues for the eAviation segment to be in the range of $30 million to $40 million and a segment loss of about $45 million, which reflects a net cost increase of about $20 million from the eAviation guidance we provided in January. On our January call, we provided guidance for the expected costs related to eAviation of about $30 million, which were included in our full year corporate expense guidance of about $150 million. We now expect corporate expense to be about $125 million, reflecting the move of $25 million of expected eAviation cost to the new segment on a prospective basis. For the full year, we're reiterating our EPS guidance of $3.80 to $4 per share, inclusive of the eAviation segment results. 08:24 That concludes our prepared remarks. So, Leah, we can open the line for questions. Operator: 08:31 Thank you. And our first question is from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: 08:38 Thanks so much. Good morning. Scott Donnelly: 08:39 Good morning, Robert. Robert Stallard: 08:40 Scott, you noticed that a very -- noted a very strong quarter for orders at aviation in the first quarter. I was wondering, if you could comment on whether you'd seen any differences in terms of the different types of aircraft you had and whether there have been any change in the customer dynamics by type as well? Thank you. Scott Donnelly: 8:57 Not really, Robert. It's across the whole portfolio carriers, it's the momentum continues to be strong. It's still more U.S.-centric than general, it's probably around 80/20 on jets, around 60% on turboprop, where we usually see more like 60% international in turboprops. So the dynamics from what we've seen here over the last year, let's say, kind of continued through the quarter in terms of kinds of customers still seeing quite a fair number of new customers are coming into the marketplace, which is encouraging, but yeah, I'd say the dynamic is quite similar to what we've seen just very strong in terms of the number of transactions. The demand out there continues to be robust. Robert Stallard: 09:43 That's great. Just a quick one for Frank. Is there any change to your cash flow guidance for the year? Frank Connor: 09:48 No, We're staying at the $700 million, $800 million for that. Robert Stallard: 09:54 That's great. Okay. Thank you very much. Frank Connor: 09:56 Welcome. Operator: 09:57 And our next question is from Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: 10:03 Good morning and thank you, guys. So maybe on aviation margins just relative to the guidance you gave in January, 11.6 is pretty strong for the first quarter on, maybe lower deliveries than we thought, but up significantly year-over-year and price was only 1.5%. So maybe, Scott, if you could talk about what you're seeing there? How we should expect that to progress? Can we see better pricing? Scott Donnelly: 10:26 Well, I think the pricing remains strong. Obviously, we're selling out into the future and making sure that we get good pricing in anticipation of continued inflationary pressure. So I think we're pretty well covered on that front. Do you think the margins are a little strong here, in the first quarter, Sheila, because we just get a flying activity is up. So strongly that we saw about 38% of our revenue here in Q1 was service and aftermarket business. So that's a little heavier mix than we would expect to see certainly for the total year. And that's part of what's driving a little bit probably higher margin in Q1 than what we guided. So it's a little bit more of a mix here between aftermarket and original equipment sales. And obviously, original equipment sales will strengthen as we go through the year. Sheila Kahyaoglu: 11:12 Okay. And then maybe one more on eAviation, just creating a new segment. What was the thought process behind that, Scott and how do you envision that sector -- segment evolving over the next few years? Scott Donnelly: 11:26 So, our logic for doing this and breaking out as a separate segment is, as we talked about in January, because this was sort of a cross business thing. We had got aviation engineers and Bell engineers and folks from systems that are kind of building out this team. And it's a new space, particularly around eVTOL. We were funding that in a corporate line. With the acquisition of PIPISTREL and the increasing importance, I think of kind of these investments that we're going to make on the sustainable aviation side. We thought it would be helpful to shareholders to break that out as a separate initiative and give visibility to that. 11:59 So obviously, PIPISTREL is in there. Its operating results are in there, but it's a $40 million, $50 million at this point sort of a business. So a lot of the results that you'll see in that segment are driven by the significant R&D investments that we're making around the sustainable aviation activities and some of that is activity we are already funding on -- through the corporate line as well as obviously, bringing PIPISTREL in and increasing some of the R&D that was in that business to sort of accelerate some of the product activities that PIPISTREL already had undertaken. Sheila Kahyaoglu: 12:34 Thank you. Scott Donnelly: 12:35 I think it will just give better visibility. Sheila Kahyaoglu: 12:38 Thank you. Scott Donnelly: 12:39 Sure. Operator: 12:39 And next we move to the line of David Strauss with Barclays. Please go ahead. David Strauss: 12:46 Thanks. Good morning. Scott Donnelly: 12:47 Good morning. David Strauss: 12:48 Scott, did you read deliveries a little short at all or do you miss any deliveries given the transition to the M2 or M2/CJ4 Gen2? I thought that was going to impact Q1? Scott Donnelly: 13:05 Look, I think we're probably a couple of aircraft behind where we'd like to be just in terms of schedule, ramping up and getting people hitting, but not materially. I mean, it's, we expect to continue to see the growth in deliveries as we go through the course of the year. But I mean, it was a couple of aircraft probably that we would like to have gotten in the quarter, but nothing material. David Strauss: 13:27 Okay. And could you talk about maybe across Bell and Systems how you did in the '22 budget in terms of the final bill relative to the initial request and same thing in the initial fiscal '23 requests? Scott Donnelly: 13:47 I think FY '22 finally came out about where we would have expected it to be. Our programs are funded where we expected them. I think when we look at what came out on the FY '23 budget, this is a very long process. There's certainly things that we would like to see have some increased funding. And obviously, we'll work on that between now and getting to an actual appropriate at FY '23 budget. I would say, when we look at the overall budgets and we look at the numbers have been put out in terms of future, defense funding areas that are sold to us, particularly army things around FLRAA, and FARA looks like those are being funded as we would have expected. David Strauss: 14:34 Okay. Thanks very much. Operator: 14:38 And next we'll go to Seth Seifman with JP Morgan. Please go ahead. Seth Seifman: 14:45 Hey. Thanks. Thanks very much and good morning. Just wanted to ask about cash deployment and kind of the pace of share repurchases. You told us at earlier in the year to expect share repo to ramp through the year and it looks like that's what's happening. But we've seen strong cash generation so far, the markets had some setbacks early on. How did you think about approaching cash share repurchases opportunistically? And how did the acquisition play into that thought process? Scott Donnelly: 15:20 Well, I would say, we tend to model it as, more back-end loaded. I think we did -- do a little more acquisition opportunistically here in the quarter because of some of the moves in the share price. So we continue to execute that strategy. The acquisition of the PIPISTREL was not a huge cash outlay. So that was something that we handled sort of within our balance sheet. So I think we have certainly cash available to deploy and we will continue to do that opportunistically as we work through the year. Seth Seifman: 15:49 Okay. Great. And sorry, to split hairs here, but I think you mentioned summer award for FLRAA still expecting that in early July? Scott Donnelly: 16:01 That's what we understand, yes. Seth Seifman: 16:03 Okay. Excellent. Thanks very much, Scott. Scott Donnelly: 16:05 Sure. Operator: 16:06 And our next question is from Ron Epstein with Bank of America. Please go ahead. Ron Epstein: 16:14 Good morning. Scott Donnelly: 16:15 Hi, Ron. Ron Epstein: 16:15 I was wondering, if you could maybe peel back then in on a little bit on what drew you to Pipistrel? And then maybe as a follow on what else are you thinking in terms of M&A out there that could bolster your businesses? Scott Donnelly: 16:30 Well, I guess, let’s say, on the Pipistrel Ron is, as we look at what needs to happen in the technologies and capabilities you need to do things like eVTOL, I think our company is -- was already very well equipped in terms of aerodynamic capability and structures and loads, aircraft, flight controls, obviously our expertise in the aviation business today, in doing Part 23 aircraft certifications and the capability that we have in Bell, on tiltrotor which in essence, I think the architecture certainly where we're heading is, just small tiltrotor sort of a product on the eVTOL front. I think we felt like we've got a tremendous amount of organic capability, but we don't have any experience to speak of around battery management systems and cell analysis development, the whole electric propulsion side of this. 17:24 And when we looked at Pipistrel, I mean this is a perfect combination. So in my view, when you look what's critical from a technical standpoint to go design develop and certify an aircraft of that clause. I mean, they were not just eVTOL, but also other applications in GA for electric or hybrid. We had a gap in that electrical propulsion side and this is Pipistrel strength. So I think sort of the missing piece of the puzzle in terms of how we think about our ability to go off and design, develop and certify aircraft in that space. So I would say, the more work we’ve done and now with the deal closed and interacting with their team, they've got superb capability and are real leader in that space. And they understand a very deeply. Our teams are already integrating and getting to work. So I think we're feeling really good about it. 18:13 In terms of other acquisition stuff, we probably won't comment at this point, but something happens we'll certainly let you know. Ron Epstein: 18:20 All right. Thanks. Scott Donnelly: 18:22 Sure. Operator: 18:22 And our next question is from Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: 18:29 Hey. Good morning, guys. Sorry, if I missed this, but what was the sequential increase in Bell's backlog, was that driven by commercial or just kind of legacy V-22 or AH-1 or something else? Scott Donnelly: 18:45 There are some commercial, but also, we signed the V-22 PBL contract for five-year, PBL support contract. Pete Skibitski: 18:51 Okay. So I wanted to ask you guys about this potential Nigeria AH-1 contract, because that seems like it could be sizable for you. I think maybe approaching $1 billion. Wondering when that contract might get signed, then how to think about the start of revenue recognition and time frame on that? Scott Donnelly: 19:12 Pete, it's hard to say, right. I mean, we've been working on this program for a while, working with the Nigerians to develop this, the congressional notification and approval was a big deal. Obviously, that's an important hurdle to get through, but this does still now need to go through contracting. It is an FMS case, right. So it's a contract that needs to be negotiated between the Nigerian Government and US Government and then to turn around a contract down to us. So I'm always leery of providing any data associated with anything, it’s FMS. So for sure, it was a major milestone to get through the congressional process. But there's probably a bit of work here still to do to get this thing under contract. So we certainly have not factored that into anything in our guide at this stage. Pete Skibitski: 19:59 Okay. Thanks so much. Scott Donnelly: 20:02 Sure. Operator: 20:02 Next, we have a question from Robert Spingarn with Melius Research. Please go ahead. Robert Spingarn: 20:08 Hi. Good morning. Scott Donnelly: 20:11 Good morning. Robert Spingarn: 20:12 Scott, regarding the very strong extension of demand at aviation into the quarter. Could you talk about the cadence through the quarter just given the war starting the volatility in the stock markets, did that change anything between January and March or even into April? Scott Donnelly: 20:28 No, it really didn't. The activity has stayed very strong through the whole quarter. Robert Spingarn: 20:34 Okay. And then -- and globally any changes there? Scott Donnelly: 20:39 No. Look, I mean, obviously, flying of assets that are in Russia or Russian registered has dropped off dramatically. We don't service or support those aircrafts at this stage of the game, but that's relatively minor as a light mid-size kind of player. Most of the oligarchs tend to be big iron guys, so the impact to us was pretty immaterial. Robert Spingarn: 21:07 Okay. And then just on the Specialty Vehicle side, how would you characterize the current demand environment, the trends there and the inventory situation? Just give us any change there? Scott Donnelly: 21:18 Yeah. Sure. Look, the demand remains very strong. Inventory levels are at extremely low levels. Supply chain continues to be the battle, I would say, in some of our product lines, particularly on the golf and the golf derivative PTVs. We've been -- we've seen stabilization in that supply chain. It's still a fight every day, but we're getting stuff out. And the market demand is robust. Pricing is strong in some of the other areas. You're still getting challenges of supply chains. Things get caught up. I mean, we had a lot of deliveries in the quarter around snow, for instance, which normally that would have been done by the end of last year. The parts finally came in. We were able to finish up units and get those out into the field. I'd say encouraging, like on GSE, for instance, which is really impacted obviously by the airline side of things. The order activity has come back very robust, which is great so that those lines are ramping back up again. But I would say in general across pretty much all of those markets that we serve, like, very strong demand, very low inventory out there in the channel, supply chain challenges continue, but we work from them every day and are getting stuff out. Robert Spingarn: 22:28 Thank you for the color. Operator: 22:31 Next, we go to George Shapiro with Shapiro Research. Please go ahead. George Shapiro: 22:37 Good morning. Scott Donnelly: 22:38 Good morning, George. George Shapiro: 22:41 Scott with a strong book-to-bill and you consider raising production rates further for next year or you want to wait a little while yet? Scott Donnelly: 22:52 I would say, George, as you guys know, we talked about the rates kind of increasing through the course of this year. Certainly with the demand that we're seeing and the level of backlog, we'll plan on continuing to raise those as we go into 2023. So, look, we do this on a pretty real time basis. So is the order activity continues to stay demand. We'll stay on the ramp that we've already committed to on, in '22. And certainly, we're not ready to guide to 2023 yet, but I would certainly expect that we'll continue to push on increasing those rates as we go into 2023 as well. George Shapiro: 23:30 And what are the kind of lead times that you're comfortable with and where are you now? Scott Donnelly: 23:37 Well, look, the lead times are always sort of in that nine months or so kind of timeframe. There's certainly long lead, longer lead components that are part of that and engines and some other critical technologies. But we work with our suppliers every day on sort of forecasting that demand so that they're ready to meet that ramp. So for those critical long lead items, the discussions are happening in real time. And they understand what our expectations are in terms of supporting the ramp, not just through the balance of this year, but into 2023. George Shapiro: 24:06 And one quick one for Frank. Given the weak system sales in the first quarter is your guide of 1.3 billion for the year still good or it's going to come down some? Frank Connor: 24:18 No. We're still kind of maintaining that type of area. We expect that the first half was systems will be on the lighter side and then we'll see momentum and growth going into the second half. George Shapiro: 24:31 And what drives the growth in the second half? Frank Connor: 24:34 Just kind of the timing of program activities and other things. George Shapiro: 24:41 Okay. Thanks very much. Operator: 24:46 And next we have a question from Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak: 24:51 Hi. Good morning, everyone. Scott Donnelly: 24:52 Good morning, Noah. Noah Poponak: 24:54 Is all of your prior full-year guidance reiterated this morning? Scott Donnelly: 25:04 Well, I mean, yeah, we're not changing any of our guidance. So we held the range on EPS. Obviously, we did the Pipistrel deal. So we have some additional dilution. We think we can overcome that by some overperformance in a couple of areas. And the cash we're holding at least at this point to our previous guide, so. Frank Connor: 25:24 Yeah. We're not re-guiding the segments, but, yeah, we're… Scott Donnelly: 25:27 Yeah. We don't normalize, no, we don't usually go back and try to re-guide the segments. But I would say the color which we usually provide is that, I mean, I don't expect it will maintain this level of margin at aviation every quarter, but I do think we'll be towards the high side on that, which helps to cover some of the dilution associated with the acquisition and increased R&D spending in that area. Noah Poponak: 25:47 Okay. Yeah. No, I mean, just given where the earnings and cash flow is usually seasonally pretty weak in the quarter. Just given where those came in in the quarter, it seemed to outperform even what maybe you had been looking for a quarter ago when you guided. So I just wanted to make sure we're on the same page there. Scott Donnelly: 26:05 Yeah. No, look, as I said, I think we had strong aftermarket in the quarter, which is good mix for us. But as we talked about last year, I do think when you guys model these things, you will see more linearity than we've seen for quite a number of years. And that's because having that strong backlog, we're able to plan production, customer deliveries and all that activity will be more linear than what we've had in previous years. Noah Poponak: 26:33 Okay. Just honing in on that aviation margin again, I mean, with the way that was forecasted to start the year, it was sort of a low 20% incremental for the year. It's over 40% in the quarter. There's a strong pricing environment. You have low capacity utilization and volume coming into that. It would seem like you could have a better, better incrementals than you've had in the past for a period here. Recognizing your point on the mix in the quarter. I mean just what's your latest thinking on where those incrementals can land as you move through the year? Scott Donnelly: 27:06 Yeah. I mean, we've we always feel like this is probably a 20%, 25% incremental. Absolutely, in the quarter, it was considerably stronger than that. Again, that's largely mix driven. And on a year-over-year basis, the revenue, we're going off relatively low levels, right. I mean, last year's deliveries were light this year are certainly stronger. And so we get some overhead benefit out of all that. So I think we feel great about the margins we delivered in the quarter. I think we'll have a very strong year, but it's you know this was a very strong mixed quarter. Noah Poponak: 27:43 Okay. And then just on the aviation lead times for customers to buy airplanes. Are there any models that have moved well outside of the time frame where you, you've talked in the past about needing to keep it in a range so as to not lose a customer for having to wait too long for an airplane. Has anything moved out of that range? Scott Donnelly: 28:09 Well, look, I mean, every customer is different, right, in terms of what their expectations are. For sure there's a lot of customers at this point that the market's changed dramatically in the last year or so, right. So there, folks that would have thought, hey, I can just call up and I can get an aircraft here on a short cycle or finding that that's not the case, right. The lead times are back where they've been historically in this industry. So, look, so I don't. That being said, part of our plans as we talked about going into next year is, we expect we will continue to increase production rates because we certainly don't want to create a situation here where we lose a customer because of timing. So it is a balancing act here, but we need to, we certainly do with this backlog and the demand we continue to see in the market. We will need to continue to increase rates, but I think we want to do that responsibly and work with our suppliers to make sure we don't put ourselves in a bad situation. But, yeah, we will continue to meet production increases to try to avoid that problem. Noah Poponak: 29:09 Okay. That's excellent. Okay. Thanks so much. Scott Donnelly: 29:11 Sure. Operator: 29:12 And our next question is from Peter Arment with Baird. Please go ahead. Peter Arment: 29:18 Hey. Good morning, Scott, Frank. Scott Donnelly: 29:21 Good morning, Peter. Peter Arment: 29:22 Hey, Scott. On the aftermarket, so I think Frank mentioned 38% of the mix in the quarter. I'm just curious that how you see that kind of sustaining or what's really behind the step up there? I know that a lot of flight activity, but if the flight activity continues, should we expect that just kind of continue to flow through. Maybe just a little more color on that? Scott Donnelly: 29:41 Sure. Well, Peter, the flying hours are very strong, obviously, and that ultimately drives our aftermarket revenue as we all know. I don't I'm not predicting a change in that. I think we continue to see very robust flying hours. And so I think our service business, aftermarket business will stay strong through the whole course of the year. It's more about the OEM original equipment side ramping up, which is just going to change that ratio as opposed to an expectation that aftermarket will go down. So it's just on a percentage basis at 38%. That's pretty strong, right? We're normally in that in the low 30s in terms of our aftermarket. Frank Connor: 30:16 Yeah. Full year aftermarket last year was 29% of kind of total revenues. Scott Donnelly: 30:20 So it's a function. We have a numerator and denominator here, right. I think this is just the numerator is going to grow on the OE side. So the mix will change a little bit. But I certainly have no reason to believe the aftermarket isn’t going to stay strong through the whole year. Peter Arment: 30:37 That's helpful. Then just we're hearing on lot of the calls about just pressure with the supply chain, particularly in aerospace. You guys didn't really call it out, but I'm sure you're dealing with it. How would you characterize kind of that? Scott Donnelly: 30:48 Peter, it's everybody's dealing with supply chain challenges. I think our team does a great job of managing from issue to issue. As I said, we're a little bit behind schedule on a couple of things is just ramping up employees, our suppliers ramping up employees. It continues to be a challenge. I mean there's most things we're able to work our way through. There's a couple out there where we've got a couple of critical suppliers, unfortunately, had some supply chain, there are suppliers that were in Russia. And that's created some issues that we see some suppliers are having to go resource. The good news is at least on a couple of critical ones, they've got suppliers that have built those parts before. But it created a gap, right? Because all that not just finished goods, but stuff that was work-in-process and these Russian suppliers is basically unavailable to us as a result of the sanctions. So we're kind of got a transition in resource to somebody who knows how to do it, but it creates a gap and we'll have to manage our way through that gap. 31:50 Again, the timing of, does it affect an aircraft or a few aircraft here or there? I mean, I think we are kind of expecting that. I think our financials can hold together. But there are certainly some aircraft from a timing standpoint that we see at risk. The good news is most of these things are things where we can continue our production processes and build the aircraft, paint, do everything, and it's something that can be incorporated very late in the game. So I think we'll be able to catch up pretty quickly once the flow of some of those things starts again, but it's an everyday thing. Peter, I think I see for the most part we work through it. There's going to be a couple items here or there that could impact us by a few aircraft and we'll have to manage our way through that. Peter Arment: 32:30 Appreciate all the details. Thanks. Scott Donnelly: 32:31 Sure. Operator: 32:34 Next, we go to the line of Cai von Rumohr with Cowen. Please go ahead. Scott Donnelly: 32:40 Cai, you might be on mute. Hello? Cai von Rumohr: 32:49 Yeah. Excuse me. I'm here. I was on mute, correct. So Pipistrel basically has focused on fixed wing applications and lift cruise cargo designs. And you guys, to the extent you've kind of shown models have focused on tiltrotor for the UAM market. As you put these two together, what do you think are the target markets that are of greatest interest to you? Scott Donnelly: 33:21 Well, it's a great question, Cai. I think that I think there's a broad range of applications for electric and hybrid electric aircraft. UAM kind of sort of hijacked that story here for a long time. And that market is probably a very real market. It could be a huge market and certainly one that we want to play in. But from my perspective is by no means the only market for electric or hybrid electric aircraft. As you mentioned, the cargo, like, we have a lot of interest from customers to talk about doing unmanned cargo. And to this point, a lot of them are trying to figure out how do you take existing platforms and unmanned them. 33:59 There's good work going on in that space, but I don't know if that's the answer. I think that some of the work that Pipistrel has done, architecturally, frankly, what they're doing in the cargo space is not unlike some of what we've done with some smaller aircraft in the unmanned world for the military side, but the work Pipistrel has done, this is a serious cargo machine. It's kind of 1,000 pound of utilization. So there's, those are some of the things that we'd like to add additional R&D to try to accelerate bringing some of that to the market. There's some other work in sort of more traditional GA aircraft that could be electric or hybrid electric. 34:38 So I think that this is, certainly there's a bet here for us, Cai, on the UAM side and a mega market opportunity that we need to play in. But by no means this is the only one. I think some of the stuff that Pipistrel has done, everything from pure electric for the trainer to cargo to GA of all sorts. These are all opportunities that we're looking at pretty hard. And I think, frankly, some of them will happen faster than the UAM market is going to happen. Cai von Rumohr: 35:07 Great. So if you think about it, with the FAA today being a lot tougher on what you have to do to get things certified and you got a lot of targets. I mean, if you look at the other guys who are focusing on UAM, I mean, we're talking three, four years, from vision to actual getting certified. So that would imply, if you're really going after that, a fair lift in terms of your R&D spend. So do you have any rough sense in terms of what kind of an envelope that's in? Like, does this go to a 100 million, could it go to 200 million because the potential is so big? How should we think about that? Scott Donnelly: 35:58 Well, Cai, we'll sort of work through that here year by year. And obviously, part of our objective on creating the separate segment is to give you guys good visibility into where what kind of investment we're placing into that space. Does it become that big a number couple of hundred. Probably not in my view. Remember when we've talked a little bit about this before, right. We don't when you look at some of the amount of money that some companies are spending in the space, it's facilities and building out factories. And it's a lot of infrastructure that, frankly, we already have. So I think, our investments will be much like they traditionally are for one of our aircraft programs, which is the engineering resources and some tooling to the extent that we need to do that. But we can leverage an awful lot of what we already have. 36:45 But anyway, look, you guys will get good visibility because of the breakout of this segment into what those investments are. Obviously, we're very open to talking about that and showing those kinds of numbers. But the certification issues, look, I think people don't understand what that process is all about, right. We just certified the SkyCarrier as a Part 23 aircraft, this past quarter, we know the Part 23 process. Yes, it's challenging. Any certification program is very challenging, but it's something we work through all the time. So I think we know how to navigate through that process and work with the FAA to get there. And obviously, now with Pipistrel similarly, they understand that process and have worked out and frankly, have already certified an electric aircraft with the office. So I think the regulatory framework is one that a lot of people don't understand. I think we do understand it. Cai von Rumohr: 37:38 Terrific. Thank you very much. Scott Donnelly: 37:41 Sure. Operator: 37:42 Next, we go to Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: 37:48 Hey, good morning, guys. Scott Donnelly: 37:49 Good morning. Frank Connor: 37:50 Good morning. Kristine Liwag: 37:52 In terms of inflation, can you discuss the effect of that on your reporting segments? And then also, where do you have a stronger ability to pass through on pricing and which ones are you more concerned about? ScottDonnelly: 38:09 Well, look, we obviously will disclose price versus inflation. I think in most of our businesses, our guys are doing a really nice job of recognizing that the where the inflation is and we're getting priced to offset that not just here in the near-term, but in how we're pricing products that are delivering out into the future with reasonable expectations about what the inflationary environment will look like. So, I mean, as much as this is sort of new territory, it's kind of just what it is, right. The inflation is very real and we have to get priced to offset that. And then, we've been doing that. So, look, it's harder if you've had some government fixed price contracts that are you're working through that, put a little more pressure on it. But clearly, as we price and bid new programs, we factor in that inflationary pressure to that as well. So I think, in general, we talk about it a lot. I think our teams are very sensitive to what's going on from an inflationary standpoint and understand the need to get price to offset. Kristine Liwag: 39:09 Thanks, Scott. And maybe following up on eVTOL, when you look at some of these new players coming into the market trying to build the airplane, but at the same time, they're pursuing these strategic partnerships around the world with ridesharing companies, other tech companies, trying to figure out the distribution side on the direct to consumer relationship. How do you think the go-to market of an eVTOL business would be similar or different to what you do for Cessna or for Bell? Scott Donnelly: 39:39 Well, look, I think it'll be very, very similar, right? I mean, we have relationships with companies today, obviously, where we have fleet programs into fractional, for instance, or other charter operators or big cargo operating companies. I mean, we do this as a normal course of business. So I think, I don't worry about that at all. I mean, I see all these announcements and people are talking about things that are years into the future and business models that aren't well defined yet. I just we don't need to do that, right. When you talk about direct consumer, for us, that's easy. We do that every single day, right. We sell Cessna 172s and 182s and 206s and Bonanzas, by the way. Obviously, part of what we're doing with Pipistrel is leveraging that sales team all around the world that's selling our aircraft today under the Cessna in the Beechcraft Brands. We'll also be out there selling and servicing the Pipistrel brand. 40:33 But I think specifically around eVTOL, as this market evolves and the business starts to build. We will absolutely be a player in that. And I'm not worried at all about our access to those customers and ability to sell our product to those customers. It's what we do. Kristine Liwag: 40:53 Great. Thanks for the color, Scott. Scott Donnelly: 40:55 Sure. Operator: 40:57 And we have no other questions. You may continue. Eric Salander: 41:03 Okay. So why don't you just give them the replay number and that will end the call. Operator: 41:11 Thank you. Ladies and gentlemen, this conference is available for digitized replay starting today at 10 A.M. Eastern Time and will be available through October 26 at midnight. You may access the digitized replay by calling 1-866-207-1041 and enter the access code of 5894411. Again, that dial-in number for the replay is 1-866-207-1041 with the access code of 5894411. And that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference service. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Q4 2021 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. Eric Salander, Vice President of Investor Relations. Please go ahead. Eric Salander: Thanks, Brad. And good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.3 billion, down from $3.7 billion in last year's fourth quarter. During this year's fourth quarter, we reported income from continuing operations of $0.93 per share. In the quarter, we recorded $5 million in pretax special charges related to our 2020 restructuring plan, or $0.01 per share after tax. Excluding these special charges, adjusted income from continuing operations, a non-GAAP measure, was $0.94 per share for the fourth quarter of 2021 compared to $1.06 per share in the fourth quarter of 2020. Segment profit in the quarter was $310 million, down $14 million from the fourth quarter of 2020. Manufacturing cash flow before pension contributions totaled $298 million in the quarter. For the full year, revenues were $12.4 billion, up $731 million from last year. Adjusted income from continuing operations was $3.30 per share compared to $2.07 per share in 2020. Manufacturing cash flow before pension contributions was $1.1 billion, up from $596 million in 2020. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric. And good morning, everyone. Our business closed out the year with another solid quarter. In Aviation, we continue to see favorable market conditions, including improved aircraft utilization, low pre-owned inventory levels and strong customer demand. Order activity remained very strong, with backlog growth of $655 million in the quarter and $2.5 billion for the full year, resulting in a $4.1 billion backlog at year end. As a result, we delivered aircraft on a more linear trend for the year, which improved manufacturing efficiency and cash flow generation. Reflecting this improvement operating environment, strong execution of our teams, Aviation achieved a segment margin of 10.1% in the fourth quarter. For the year, we delivered 167 jets, up from 132 last year, and 125 commercial turboprops, up from 113 in 2020. Also in the year, we saw sequentially higher aftermarket revenue on a quarterly basis, driven by increased aircraft utilization. Moving to defense, aviation was awarded $143 million contract for eight AT-6 aircraft, ground support equipment, spare parts and training from the Royal Thai Air Force. This contract establishes Thailand as the international launch customer for the US Air Force's latest light attack aircraft. On the new product front, the Beechcraft Denali completed its first flight in November, launching the start of the flight test program. At Bell, revenues were down slightly in the quarter, largely on lower military revenues as expected, reflecting the continued wind down of the H1 production program, partially offset by higher commercial revenues. In December, Bell completed the first install improvement modifications on an Air Force CV-22 Osprey. This effort is part of an ongoing process to upgrade the Air Force's Osprey fleet. In January, the Bell Boeing program offices awarded a $1.6 billion contract over the next five years to support the V-22 Osprey currently in service with the US military. On the commercial side of Bell, we delivered 156 helicopters in 2021, up from 140 in 2020. We also saw solid commercial order activity for the year, reflecting broad-based demand. Moving to Textron Systems, we saw another strong quarter of execution that contributed to a full-year margin of 14.8%, up 320 basis points from 2020. During the quarter, we delivered the fourth Ship-to-Shore Connector to the US Navy after a successful completion of acceptance trials. On the Shadow program, Systems was awarded an $82 million logistics support contract for 2022. On our common unmanned surface vessel platform, we completed final testing related to the Unmanned Influence Sweep System program, setting up potential for a production contract award in the first quarter of 2022. Moving to Industrial, revenues were lower in the quarter as we continue to experience supply chain challenges, including order disruptions at Kautex related to global auto OEM production schedules. At Textron Specialized Vehicles, we continue to see a strong pricing environment and steady retail demand. Despite the ongoing supply chain challenges, both businesses saw sequential revenue improvements in the quarter. In summary, there were many items to highlight in 2021 across our segments. At Aviation, strong order activity and customer demand throughout the year drove $2.5 billion of backlog growth. On the new product front, we continued our product refresh strategy with the introduction of the Citation M2 XLS and CJ4 Gen2 aircraft. The Cessna SkyCourier completed the flight test program, with 2,100 hours of flight test activity, and we expect FAA certification in the first half of 2022. At Bell, we continued our work on the FDL programs. We submitted a proposal for the FLRAA program in September and the US Army is expected to award the FLRAA program contract in 2022. On FARA, we've made significant progress on the 360 Invictus prototype build, with 75% of the effort complete at year-end. We opened the Bell Manufacturing Technology Center, an innovative proving ground, to test and refine technologies and processes across Bell's core production capabilities. Textron Systems, ATAC continued to grow its fleet of certified F1 aircraft in support of increased demand on US Air Force, Navy and Marine Corps tactical air programs. We continued our innovation and development activities, with the rollout of the Ripsaw M5 prototype vehicle for the US Army and the Cottonmouth ARV for the Marine Corps. At Textron Specialized Vehicles, we entered into a strategic collaboration with GM, which will assist our ground support equipment business in the electrification of baggage tractors, cargo tractors and belt loaders for use in airports globally. We also introduced the Liberty, the industry's first PTV to offer four forward-facing seats in a compact golf car sized platform powered by lithium ion battery. At Kautex, in 2021, we were awarded eight contracts on new vehicle programs for our hybrid electric fuel systems. Looking to 2022. At Aviation, we're projecting growth driven by increased deliveries across all product lines and higher aftermarket volume. At Bell, 2022 represents the beginning of a transitional period as we expect lower revenues related to military production programs, while awaiting a down-select and award on the FLRAA program. At Systems, we're expecting flat revenue with growth on ship-to-shore and tactical air programs, offset by lower fee-for-service volume. At Industrial, we're expecting revenue growth and margin improvement. Within Kautex, we expect increasing volumes from improving OEM auto production, while at Specialized Vehicles, we anticipate improving supply chain conditions and increasing volumes across our products. Earlier in 2021, we launched our eAviation initiative to leverage the resources and expertise across our aviation businesses to develop new opportunities in aircraft, utilizing electric propulsion systems. In 2022, we plan to expand these efforts and increase our investment in developing technologies to accelerate the shift to sustainable flight, including eVTOL and fixed wing aircraft. With this backdrop, we're projecting revenues of about $13.3 billion for Textron's 2022 financial guidance. We're projecting EPS in the range of $3.80 to $4 per share. Manufacturing cash flow before pension contributions is expected to be in the range of $700 million to $800 million. With that, I'll turn the call over to Frank. Frank Connor : Thanks, Scott. And good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.4 billion were down $201 million from a year ago, largely due to lower aircraft volume, partially offset by higher aftermarket volume. Segment profit was $137 million in the fourth quarter, up $29 million from last year's fourth quarter, largely due to favorable pricing net of inflation of $21 million and improved manufacturing performance. Backlog in the segment ended the quarter at $4.1 billion. Moving to Bell. Revenues were $858 million, down $13 million from last year, reflecting lower military revenues, partially offset by higher commercial revenues. Segment profit of $88 million was down $22 million, primarily due to lower military volume and mix. Backlog in the segment ended the quarter at $3.9 billion. At Textron Systems, revenues were $313 million, down $44 million from last year's fourth quarter due to lower volume, which included the impact from the US Army's withdrawal from Afghanistan on the segment's fee for service contracts. Segment profit of $45 million was down $4 million from a year ago, largely due to the lower volume. Backlog in the segment ended the quarter at $2.1 billion. Industrial revenues were $781 million, down $85 million from last year, reflecting lower volume and mix of $133 million, largely in the fuel systems and functional components product line, reflecting order disruptions related to the global auto OEM supply chain shortages, partially offset by a favorable impact of $50 million for pricing, largely in the Specialized Vehicles product line. Segment profit of $38 million was down $17 million from the fourth quarter of 2020, primarily due to lower volume and mix, partially offset by favorable impact from performance. Finance segment revenues were $11 million and profit was $2 million. Moving below segment profit, corporate expenses and interest expense were each $29 million. Our manufacturing cash flow before pension contributions was $298 million in the quarter and $1.1 billion for the full year. In the quarter, we repurchased approximately 4.5 million shares, returning $335 million in cash to shareholders. For the full year, we repurchased approximately 13.5 million shares, returning $921 million of cash to shareholders. Turning now to our 2022 outlook. I'll begin with the segments on slide 8 of the earnings presentation. At Textron Aviation, we're expecting revenues of about $5.5 billion, reflecting higher deliveries across all our product lines and increased aftermarket volume. Segment margin is expected to be in the range of approximately 10% to 11%, reflecting higher volume, favorable pricing and increased operating leverage. Looking to Bell, we expect revenues of about $3 billion, reflecting lower military volume primarily related to lower H1 production. We're forecasting a margin in the range of about 10% to 11%, largely due to the lower military volumes and continuing high levels of R&D investment. At Systems, we're estimating revenues of about $1.3 billion, with a margin in the range of about 13.5% to 14.5%. At Industrials, we're expecting segment revenues of about $3.5 billion on higher volumes at Kautex and Specialized Vehicles. We're estimating Industrial margins to be in the range of about 5.5% to 6.5%. At Finance, we're forecasting segment profits of about $15 million. Moving to slide 9, on a consolidated basis, we're expecting earnings per share to be in the range of $3.80 to $4 per share. We're also expecting manufacturing cash flow before pension contributions to be about $700 to $800 million, which includes an approximately $300 million impact from a change in the R&D tax law beginning in 2022. Looking to slide 10, we're projecting about $150 million of corporate expense, which includes $30 million of investment in eAviation. We're also projecting about $120 million of interest expense and a full-year effective tax rate of approximately 18%. Looking to the other items and turning to slide 11. We're estimating 2022 pension income to be about $120 million, up from $30 million last year. Turning to slide 12, R&D is expected to be about $585 million, down from $619 million last year. We're estimating CapEx will be about $425 million, up from $375 million in 2021. Our outlook assumes an average share count of about 219 million shares in 2022. That concludes our prepared remarks. So, Brad, we can open the line for questions. Operator: [Operator Instructions]. And our first question today comes from the line of Peter Arment with Baird. Peter Arment: Scott, maybe you could just describe kind of the level of where you think bizjet production or jet production is going to in 2022? In the fourth quarter, did you have any kind of challenges from the supply chain that had any jets move into the year 2022? Scott Donnelly: As we've talked about, we have been ramping up the production rate. We continue to do that and expect to continue to do that throughout the course of 2022. The backlog has been very strong. We still see robust demand in the marketplace. So, I think it remains very favorable from a market condition. We haven't had problems – I shouldn't say we haven't had problems. The guys always had to work through supplier issues here and there. But, no, we did not have that impact our production rates or impact any 2022 deliveries. The ramp rate continues. We're bringing people on board every month and training and continuing to bring them on our human resources in our own business. We continue to work with suppliers as they meet those ramp rates as well. I think as we look forward, again, look, we're coming out of the year with somewhere around 12-month backlog. We like that. I think that's very healthy for us. And I think it's very healthy for our customers, right? So, it's really how the business should run. It gives you much better visibility. It allows customers the opportunity to go sell their used aircraft for many of whom who are upgrading an aircraft. It gives them a lot more time to specify options, Interiors, and paints, and all the things involved in that process. And it allows us to cut all those things into the production line in a very efficient way, rather than having a bunch of rework and changes towards the end to accommodate a customer need. So, I think keep an eye on that 12-month. Again, if that's kind of for our class of aircraft, that makes a lot of sense to us. And I think it makes sense to our customers. So as the year goes on, and obviously, we will keep a close eye on the demand environment, and we'll continue to make adjustments as we see fit. But I think we're very happy with where we are at the backlog levels that we have. I think, as I said, it works for us. It makes for a much more efficient, cleaner, easier to operate, more linear business, and I think it's been good for customers as well. Peter Arment: Just as a follow-up to that, Scott. Are you back now do you think, back to the 200 plus jet level on production? Or should we not really look at it that way just given the mix? Scott Donnelly: I think – sure, I think, as we've been saying, we think we'll be back to those levels where we were in 2019. And we're probably a little early to guide on our 2023 volumes, but we'll keep an eye on it. But, yeah, for sure, we feel good that we're on track to get back above those 2019 levels. And I think you see that in the revenue guidance. Peter Arment: Just lastly on CR, if it goes the full year, have you quantified if there's any impact, if any? Scott Donnelly: Peter, we really haven't. We're still kind of going on the basis that the CR is going to resolve itself here probably in February, into March. If it ends up being a full year thing, I don't think we have any one specific thing we point at. Look, it's not healthy for the industry. It's not healthy for the government. I hope it gets resolved, but we kind of continue to fight through it every day. Operator: And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: On Bell, revenues are down 8% and margins contracted 158 bps. How do we think about pension given it should be additive to that as well as R&D is lower and how does FLRAA factor into that? Scott Donnelly: Well, [indiscernible] all the constituent parts, Sheila. There's no doubt that there's some margin compression at Bell. Operationally, that's driven by the fact that we're going to continue to see the H1 program winding down. So, you're losing what's been important production volume for us. We will have some offsets there, obviously. I think we'll have a good year in terms of commercial aircraft deliveries. I think the commercial aftermarket will continue to be better, but I think we're going to see some pressures. Military aftermarket is always a little bit lumpy, but it probably will be a bit of a challenge. But most importantly here, as you know, we've been investing very heavily on the R&D side, particularly around FARA and FLRAA. We do expect, given what we're seeing, that the US Army customer is staying on track with what they've said publicly about the FLRAA evaluation process. It's a huge proposal. It's a lot of work on both sides, but I think it appears they're making good progress. So I think they're probably on track to make an announcement towards the middle of the year as they've been saying. But I will say, what we put in our numbers is I think a reasonable expectation that this is a huge program and it's going to take a little while for it to actually get under contract and turn into something that has revenue associated with it. Right? So, I think we're going to continue to see a pretty high level of R&D in support of that program throughout the balance of – most of this year. So, that's really what's going on operationally here. We are without a doubt seeing a mix shift from good margin production volumes, particularly associated with the H1 ramp down, with continued high levels of R&D and a sort of a slow transition here, even in the event of FLRAA win to revenue recognition on that program. Operator: And our next question comes from the line of Cai von Rumohr with Cowen. Cai von Rumohr: You mentioned the FLRAA downselect in 2022. My understanding was, the expectation was they were going to make that decision by mid-year. Is that still your understanding? Scott Donnelly: It is, Cai. All I was saying in kind of the response to Sheila's question was that I think they're on track, from what we see in evaluation notices and that process that you'd normally – we're working through on a proposal of this magnitude, I think it's heading in that direction. But there's a difference between announcing who the winner is and actually getting under contract, right? This is a big program. And I think it's going to realistically take some time. And so, therefore, I'm expecting that, even though the announcement might come quite possibly at the end of Q2, let's say, transitioning that into actual being on contract is going to take a little bit of time. And our assumption is, we're not going to go disband that team. So, we're going to have to continue to do part of the cost share funding to retain that team until such time as we get under contract. Sheila Kahyaoglu: And then, at Textron, I know that pricing, you mentioned, is strong, but did pricing improve in that quarter versus Q3? And maybe if you can tell us how many price hikes did you have in 2021 and where have you had one in 2022? Scott Donnelly: I guess the dialogue really, Cai, is around price realization, right? So, we've for a long time – you're negotiating these deals. So, yeah, pricing certainly continued to be strong in Q4. You'll see that indicated, right about $29 million of positive price, and so well ahead of inflation. And, yep, we're still continuing to improve on our on our realized price. And I expect that to continue on this year as well. Sheila Kahyaoglu: Frank, one for you. So, in kind of reading through the release, I think you mentioned that your cash flow numbers assumes a $300 million hit from R&D credit amortization. So, you're basically assuming that, whereas Lockheed and RTX did not, is that correct? Frank Connor: It looks like different folks are handling this differently. There's kind of some dialogue around the interpretation of what might be capitalized and what might not be capitalized. I'd say that kind of we are on – we've taken an approach that is on the more conservative end of things, I think, in terms of looking at the cash impact, and have included it in our guide. So, it's $300 million, as I said, and that would be the full impact with the larger range of impact associated with how people are looking to assess how this gets implemented. Operator: And our next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Frank, just to stay there for a sec, I understand if you're being conservative in laying out a forecast to all of us. But what did you think of what Lockheed said there, because they had originally been talking about an impact similar in percentage terms as what you've laid out here, but now they're saying that it only applies to where they've had R&D tax credit in the past? Do you think that's incorrect? Or it's just still being evaluated and that may be correct? Frank Connor: I think there's dialogue in the tax community, as I understand it, around the interpretation of this, and I think, yeah, we're all hoping it gets fixed, is the real answer that we're – kind of there's a lot of dialogue around this. This is not good for companies investing in R&D, and the focus of the nation on continuing to invest for the future. And so, we're all hopeful it gets fixed, but there are different interpretations that are being discussed in the tax community around the application of it. Scott Donnelly: All we're trying to be is transparent, right? So, if they do the right thing – and I mean, look, this is ridiculous, right? The whole purpose of the R&D tax credit is to incentivize R&D. And by not allowing you to do that, that sort of defeats the whole purpose for this thing. So, we're transparent. We're giving you guys the numbers. The day a bill passes that repeals it or removes it or some interpretation, we'll immediately add that to our guidance. Noah Poponak: But it can still be considerably smaller even without a bill that actually changes the law and where it's just a different accounting interpretation. Scott Donnelly: That would have to get resolved as we look at what our cash tax payments are and how we would handle that and the risk associated with that. Right? So, I'd say that kind of, as we sit here today, our expectation is that if the R&D tax credit does not get changed completely that this will be our approach to the implementation of what is the law today. Operator: And our next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: Scott or Frank, I'm not sure who this is for, what you said so far about the aviation outlook sounds pretty positive for margins, not just this year, but the future year as well in terms of pricing and a steadier production rate, longer lead times. What's your latest prognosis on incremental margins maybe over the, say, two, three-year period? Scott Donnelly: Robert, we've always said that these conversions ought to be somewhere in that 20% to 25%, and I think that's what we're realizing. So, you look at the guide, you're getting a nice revenue increase and good leverage to the bottom line associated with that. Robert Stallard: So, you are moving towards the top end of that range, you say, is a fair assumption with this pricing coming through? Scott Donnelly: Well, I think as time goes on, we'll continue to see the margins expand, if we continue to see this kind of revenue growth, because I do think we'll be able to convert in those 20%, 25% incrementals. Frank Connor: There's new programs coming in, like SkyCourier and Denali over time, and things that have impact on things. So there's some variability as we look at mix, but generally, as Scott said, it's consistent with what we've been talking about. Robert Stallard: As a follow-up, in the industrial division, relative to what you said three months ago, have these got any better on the supply chain? Scott Donnelly: I think they're kind of where they were. I think we're expecting that we'll see a little bit of a – the bad news with this Omicron is if you looked into our factories, our supplier factories, the last week or so or December into January, you saw this crazy high spike, which clearly has impacted operations. The good news here is we're seeing that line of cases come down just as dramatically as it went up. But I think, realistically speaking, we'll see some of the impact of that trickle through here in the first quarter or so. But I think as we progress through the year, it's certainly our expectation that we'll see that improve, and that's what we reflected in the guide. So, you have probably a slower realization of that, and certainly in the first quarter going into the second. But all in all, we'll see improvement as we go through the year. Operator: And our next question comes from the line of David Strauss with Barclays. David Strauss: Scott and Frank, you touched on Bell and the pressure there from the military [Technical Difficulty]. If you were to happen to not win FLRAA or FARA, what is the longer term outlook for the military business of Bell? Scott Donnelly: Look, if you don't win any new military programs, that's a challenge for the military program for sure. But, look, we've talked a lot about FLRAA, and I certainly don't want to underestimate the impact and the importance of FLRAA to the future of Bell. That's something we've been working very hard at, and we think we're in a good place. But, obviously, it's a competitive program. But as you noted, we're also working on FARA, we've got high-speed VTOL. There's a number of investments that we're making to – there are opportunities. We've got maritime strike in the Navy and FARA programs in the Marine Corps, there's certainly a lot of other opportunities beyond FLRAA. But, look, FLRAA is an important program for us, for sure. David Strauss: Frank, can you – obviously, you highlighted the R&D impact. What is your working capital assumption kind of underlying that $700 million to $800 million free cash flow forecast? I guess, looks like capital deployment, you're talking about maybe buying back $500 million, $600 million in stock. But based on that, you're going to be kind of half a times levered by the end of the year. So, how are you thinking about longer term capital deployment and where you want the balance sheet to be? Frank Connor: From a working capital standpoint, we're looking at kind of flattish working capital ex the tax number, which does impact working capital. But kind of as you look at the other elements from an inventory payables, receivables, things like that, we think we will likely see a little bit of inventory growth associated with ramp in the commercial businesses, but we think we can offset that in other places. So, continued good working capital performance. In terms of cash flow, cash deployment remains the same. Certainly, we look at, obviously, R&D and investment back into the business. We outlined that. So, we've modeled in some number for acquisition activity that we always do. But the rest of the free cash flow would go towards share repurchase activity. The number in our model in terms of share count actually has our share repurchase a little bit back-end loaded. So, we're roughly thinking about share repurchase that is in line with the – from a dollar standpoint, with the amount of repurchase activity that we undertook this past year. Operator: And our next question comes from the line of George Shapiro with Shapiro Research. George Shapiro: Scott, last year, at this point, you projected Aviation revenue at $4.5 billion. So, you guys are quite good on that. But you projected profitability of 5.5%. We wind up with 8.3% and the incremental is effectively like 60%. For your current projection, you're in line with what you're saying, 24% incremental. But my question is, what caused last year to be so good, particularly the fourth quarter where revenues were down and profit was way up. And so, is there upside to that 10% to 11% margin guide for this year? Scott Donnelly: Comparables going back to 2020, obviously, 2020 was a pretty extraordinary year. So, you would expect to see a lot better overall performance into 2021 as things kind of returned to normal. So, that's why I think we're back into that world where you're talking about these 20%, 25% incrementals on the business. We continue being in a strong pricing environment. We've been in a strong pricing environment all year, which obviously is helpful. And again, as I mentioned, having the strength of the backlog we hadn't seen in a very long time, it really has helped to run the plants much more efficiently and effectively. So, I think we have all those things – are tailwinds to us. But we've got our way into 2022 here and keep our heads down and keep delivering. And if we can drive additional margin, obviously, we have a reasonable way to do that. George Shapiro: Just one quick one, Frank. How much was aftermarket actually up in the quarter? Frank Connor: Aftermarket, on a year-over-year basis, was up at Aviation 20% year-over-year and sequentially was up 6%. Operator: And our next question comes from the line of Peter Skibitski with Alembic Global. Peter Skibitski: Scott, just want to tease out how much visibility you have right now in the business jet marketplace with the incredible backlog growth you've seen this year and your delivery skyline that you have planned. Do you think you could work any of that backlog down this year, by the end of the year or could backlog stay flat? Could it grow? Do you have any sense of how hot the market is? Scott Donnelly: I would say the market is pretty hot. And you see that again. Q4, where we've got – it's kind of 1.7 sort of numbers. So, that that's good. All I would say, Pete, is I think we like that visibility of being able to look out over a month and understand that skyline of deliveries by models. And, again, it's so important to us to be able to work in an efficient way. But, look, our salespeople are out there selling hard every day. And so, if we get the visibility where we start looking at – being able to look out even further into the future, then we'll look at continuing to increase production rates. But I don't think we want to do something stupid and try to go radically accelerate production rates and then burn down backlog and then you're back where you were where you don't have that visibility and don't have those efficiencies. Again, I don't I don't think it's healthy for the industry, to customers, or our companies. So, I think that's sort of what we'll keep our eye on, right, those timelines have kind of kind of come back to normal historicals in terms of what a customer's expectation is from the time that they start a process of buying and when they want to take a delivery for the aircraft. And I think we're in a good place right now. And we should keep it there. Peter Skibitski: Just one last one. Where are we in the commercial helicopter cycle? And will the 525 be certified this year? Scott Donnelly: Well, look, I think the commercial helicopter is, as we've seen, similar to what we've seen in aviation. We've seen a nice solid demand. We saw good delivery increases. We'll see that again in what we've guided you in the 2022 numbers. Look, 525 clearly has been a disappointment for us in terms of our ability to get that through certification. I think there's been a lot of good work done this year. I think we're on a good path. You've probably seen some of the stuff that's been out there in the press where, in addition to working the basic cert, we're starting to do the ICE certification because so many of our customers will need that capability. So, we're paralleling those tasks right now. And, yep, certainly, we expect to get that certification done this year. Operator: And our next question comes from the line of Robert Spingarn with Melius. Robert Spingarn: Scott, would you be able to parse out the demand within Aviation, perhaps across the portfolio, where you see the strength? And then, also talk about the different types of customers, the corporates versus the individuals versus the fleet operators? Scott Donnelly: I guess the color I could give is to say that jets leads the way. That's been the strongest demand environment. I would say that the demand is very robust in both the individual buyer, whether that's a corporation or a high net worth individual, as well as, obviously, the fractional market is very strong right now. So, we're seeing a lot of demand through our partnership with NetJets. So, again, jets, virtually, across the board, in terms of jet models, from entry level all the way up through longitudes, it's quite strong. Turboprops is also strong, but not as strong as jets. And I would say, part of that reason is, as you guys know, that our jet business is usually – the biggest chunk of that market is North America where we see very robust demand. A smaller part of that market is outside the US. They're still a little bit behind. There is demand there, but it's not quite as robust as North America. When you look at turboprops, and specifically when you look into the King Airs, for instance, now that's a market that for us historically is stronger outside the US than inside the US. So, it's strong, but, frankly, it's marginally led right now by North America because, again, the North American recovery has been so strong. So, we have seen that that outside of the US market picking up and are seeing that demand, and so it is better than one to one, it's good. But I would say in terms of color, jets is certainly leading the way. Robert Spingarn: Just quickly on the specialty vehicle side, wanted to ask how the inventories are. I think you touched on it. But with the supply chain issues, it gets a little obscured. Is the takedown or the sell-through of snowmobiles has been good this season? And what's the outlook for the dirt market? Scott Donnelly: Yeah, it is. Look, the demand environment is very strong, guys. The only challenge we have is supply chain. If I could get more parts and build more machines, the stuff sells through the market. It's our only frustration right now, is being able to get more stuff out there to dealers. I'd say, look, on a year-over-year basis, we actually saw improved volumes through the tractor channel, which is terrific, but it could have been even better if we get more machines out there. So, this is certainly not a demand problem. It's a supply chain problem. Operator: And our next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: As the backlog builds in Aviation, can you talk about how you're managing potential inflation risk, especially if we see raw materials and labor prices at elevated level? How much is a straightforward pass through in terms of escalation clauses? And how much would you try to offset with lower costs? Scott Donnelly: Obviously, our intent here is to keep pricing, net of inflation, a positive number. And so, we do certainly see inflationary pressure. I think everybody in the world is seeing that come through to one degree or another. Some businesses have more long-term agreements than others, which helps to cushion that a little bit. Some are more exposed to logistics and transportation costs, which are virtually immediate, but we respond to a lot of that. In the businesses where that's a problem, we put freight surcharges out there right away. So, we're very, very conscious of the inflationary pressures and have, I think, good plans and actions around prices and surcharge to try to more than offset that. Kristine Liwag: Maybe on Bell, with the program roll off and with FLRAA, if you win that contract, upside is really farther down the line. Is there a path back to a 12% Bell margin in the next few years? Scott Donnelly: Look, I don't know. I won't go beyond probably 2022 guidance, but we've been saying for a very long time that we expect Bell as sort of a 10% to 12% margin business. We've obviously been well above that, as we had a lot of strong multi-year production programs where we could drive efficiencies and gain the benefits of that. But on the other side of that coin, when you see some of the ramp downs, it's more pressure to be in that range. And that's where you see us today. So, clearly, some of these programs, even when you talk about EMD programs of the magnitude like FLRAA, there's still pressure when you unwind some of these large production programs. But, again, I think it's too early, obviously, to think about how we would guide in the 2023 or 2024. It'll depend a lot on mix. There's still opportunities out there for increased production on some of our military programs. We don't know what the aftermarket is going to look like on some of those programs. So, we've got to kind of adjust every year. But I think 10% to 12% is what we said for a long time. And I think that's probably the reality where that business will be. Operator: And our next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: Scott, I was wondering if you'd share some of your thoughts on eVTOL. We've seen some of the publicly traded eVTOL companies just get crushed. Boeing just dropped about half a billion dollars into risk. Arguably, you're probably one of the more experienced companies at this, given that you do have a vertical lift business. You do deal with kind of smaller vertical lift aircraft. Just curious what your sense is on the market and how you think about it for Textron? Scott Donnelly: Ron, I think we're in a better position than anyone to go execute on these market opportunities. We're doing that. I think the advantage for us is that we have already, in the company, the infrastructure and the talent to do these sorts of things. So, I don't need to announce half a billion dollar investments. I think we've indicated to you guys, we're going to probably have $30 million that we're putting in this year. But I can spend my money on actual engineering capability and designing stuff. I don't need to be building hangars and office spaces and test laboratories and all that sort of stuff. I have all that stuff, right? So, we have a lot of technology leverage that comes out of our flight controls side of Bell that's been doing tiltrotor, which is kind of what these guys look like, are baby tiltrotors. We know how to design and build and certify a Part 23 aircraft. Look, I just think our approach on here is spend the money we need to spend, to invest in the technology, we've talked before the battery density issues, I think you have to have a practical product. And so, we're working with a lot of different angles and battery cell suppliers to try to understand this thing. There's a number of things we're looking at to strengthen, frankly, that part of our business. We don't really need to strengthen the part of our business that knows how to do tiltrotors, that knows how to do fixed wing aircraft and that weight class and that certification type. But we do need to strengthen our capability on the battery, electric propulsion side of things. So, we're doing all that. I just don't think there's a reason for us to come out and throw dates around when this business model happens. And, frankly, look, I think there's every reason to believe that that eVTOL and urban air mobility could be a very big business. And I think we'd love to supply assets into that business. But I think electrify, frankly, is a lot more than that. Right? There's trainers, there's fixed wing stuff. It's not just all about eVTOL. That could be a monster market, that would be great. But I don't think it's the only market. So, we're taking probably a more pragmatic approach and making the right investments, I think, and looking at opportunities for us to be a big player in that. I think we should be the winner in that space. But I think we can do it with relatively modest investments and leverage the technology that we already have in our company. Operator: And our next question comes from the line of Seth Seifman with J.P. Morgan. Seth Seifman: I guess, Scott, I'm not totally sure, but I want to guess that you're probably at least three quarters of the way through the NetJets agreement on Latitudes. And so, how do we think about where that goes from here and the demand level as you sort of approach the end of those 200 aircraft given their importance as a Latitude customer? Scott Donnelly: That's a good question. I don't recall exactly the numbers. It was a huge order. As you guys know, we put those into backlog as we work with NetJets every quarter on forecasting that sort of 12 to 18-month window that's out there. I don't think we're close enough that we started to have to negotiate another deal, the provisions of how to manage that through the lifecycle of that couple hundred aircraft we've already defined and we're executing to that. I guess, all I would say, I think that the performance of that airplane for NetJets, for their customers has been terrific. The relationship is very strong. It's very healthy. We enjoy working together. And I think when we get to the point where we've got to say the term of that contract in terms of the number of aircraft and I would have every reason we would negotiate an extension to it and keep on going. Seth Seifman: Maybe following up on Kristine's Bell question, understand that there's no 2023 guidance at this point. But with a FLRAA win, can we assume that 2022 is an EBIT bottom at Bell? Scott Donnelly: Again, I don't want to guide 2023 just yet. There's a lot of stuff that will happen here through the course of 2022 in terms of other programs and commercial aircraft and aftermarket and all those sorts of things. So, there's a lot of moving parts in the mix that goes into what our EBIT levels look like at Bell and we certainly haven't delved into that at this point. Operator: And we do have a follow-up question from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Scott, you first projected that you would recover half of the decline from 2019 to 2020 in Cessna deliveries in 2021. You essentially just reported exactly that, maybe actually slightly light a bit. And you first projected 2022 would get back to 2019 for Cessna units with the fourth quarter of 2020 report. And now, you're guiding to pretty much exactly that. But it seems like the market has strengthened considerably since you first provided those targets that span a two-year period about a year ago. And so, it's sort of the market is strong and understand you want to be prudent about where you go with the production rates here and this has been cyclical in the past. But it sort of seems like the strength, the incremental strength of the last 12 months is not really coming through in those delivery numbers. Scott Donnelly: Well, we've tried to provide a guidance and try to hit the expectations on that guidance. We'll look at how the market plays out through the course of the year and what the order rates look like and what we can do that we think we can – if we think we can do additional aircraft, in other words, if the market demand is there, the supplier capability is there – look, we work that every day. So, if there is an opportunity for us to improve upon that and [indiscernible] deliveries, obviously, we'll go down that path. But I think that the guide is appropriate to what we've said. It's supported by the backlog, and that's the plan that we're looking at today. Noah Poponak: And do you anticipate seeing bookings in excess of revenue at a rate through 2022 that was similar to what you saw in 2021? Scott Donnelly: Look, I don't know. We're looking at awfully strong ratios here in 2021. So, that would be another awfully big backlog build. Look, I'd love to see us continue some backlog build, but is it reasonable to expect, let's say, is that hot through a whole another year? I don't know. If it does, great. And if it does, obviously, we'll continue to tweak our production levels up and our delivery levels up. But that's something I think we'll just keep an eye on that as we go through the course of the year. I'd just be making stuff up to – it's going to be that strong for a whole another year. We'll see how it plays out. Certainly, it has remained robust. If we can sell more, then we'll do it. Operator: And our last follow-up question is from the line of George Shapiro with Shapiro Research. Noah Poponak: Scott, the fourth quarter deliveries being 3 less than the third quarter, I know you talked about wanting to level load them this year, but I would have expected the fourth quarter to be a little bit bigger than the third. So, were there any deliveries that got pushed into 2022 as a result of that? Or that's just how it fell out and that's just what we expect in the future? Scott Donnelly: No, that's just how it fell out, George. It's not going to be the same number every quarter, obviously, but I think, look, we like the fact that there's a lot more linearity. If you can contrast that to going back and having a lower third quarter and then you get this big spike of tons of deliveries right at the end of our fourth quarter, again, it's not a very healthy way to run a business. So, would we like to be totally flat or a little bit better on sequentials? Okay. But I think at this point in the game, we're delivering to the customer new dates, and that's what we're going to continue to do as we go forward. Noah Poponak: What is the lead time where you'd have to make a decision to deliver more planes this year? You have the first half of the year to be able to do that or what's the kind of lead time do you need? Scott Donnelly: Look, George, we've always talked about these being sort of 12 to 18-month kind of things on some of the longest lead. Obviously, we work with those suppliers to try to go down another level or two levels, in some cases, to look at what are the longest lead times in their supply chains and try to mitigate some of those things, so that it gives us a little more flexibility in in ramping as we go through. But there are, obviously, limits to that. So, when we say it's kind of 12 to 18 months is where we'd like to be, obviously, we've tried to mitigate some of those longest lead items, so that we have some flexibility inside of that window. But, look, it's really hard to make much change inside of a six-month window, right? But we have a little bit of wiggle room in that sort of year timeframe. Operator: And ladies and gentlemen, today's conference will be available for replay after today at 10 AM Eastern through April 27 at midnight. You may access the AT&T replay system at any time by dialing 1-866-207-1041, entering the access code 9339579. International participants may dial 402-970-0847. And those numbers again are 1-866-207-1041 and 402-970-0847. Again, entering the access code 9339579. That does conclude your conference for today. Thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.

Operator: And ladies and gentlemen, thank you for standing by. Welcome to the Textron Third Quarter 2021 Earnings Conference Call. At t this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Eric Salander, Vice President of Investor Relations. Please go ahead. . Eric Salander: Thanks, Brad. And good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings, and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3 billion, up from $2.7 billion in last year's third quarter. During this year's third quarter, we reported income from continuing operations of $0.82 per share. Adjusted income from continuing operations, a non-GAAP measure, was $0.85 per share for the third quarter of 2021 compared to $0.53 per share in the third quarter of 2020. Segment profit in the quarter was $279 million, up $90 million from the third quarter of 2020. Manufacturing cash flow before pension contributions totaled $271 million in the quarter and $851 million year-to-date. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Eric. And good morning, everyone. We continue to execute well across the company in the quarter. At Aviation, we continue to see a solid recovery in the general aviation market with strong commercial demand, increased deliveries in Citation jets and commercial turboprop's and higher aftermarket volume. We delivered 49 jets, up from 25 last year and 35 commercial turboprop's, up from 21 in last year's third quarter. Order activity in the quarter remained very strong, resulting in backlog growth of $721 million bringing us to $3.5 billion at the quarter end. Also in the third quarter, the Beechcraft King Air 360 and 260 achieved EASA certification and began to deliver customers throughout the region. Continuing with our product strategy of upgrading existing models at NBAA, we recently announced the Citation M2 Gen 2 and the XLS Gen 2 product upgrades. Also on the new product front, Cessna [ph] Sky Courier is continuing to progress through certification with over 1,600 hours of flight test activity and the Beechcraft Denali successfully completed its initial ground engine runs powered by GE's new Catalyst engine. At Bell revenues were down 3% in the quarter, largely on lower military revenues. On the commercial side of Bell, we delivered 33 helicopters, down 41 in last year's third quarter. Moving to Future Vertical Lift. In September, Bell submitted its proposal for the FARA program, a down selected [ph] award is expected in the second quarter of 2022. On FARA, Bell is about 60% of the way through its build of the 360 Invictus Prototype and remains on schedule. Also in the quarter, Bell inducted the first U.S. Air Force CV-22 for its Nacelle Improvement modifications. Moving to Systems. We saw another strong quarter of execution with operating margins at 15.1%, up 190 basis points from last year's third quarter. ATAC continued to expand its fleet of certified F1 aircraft with two additional aircraft entering service in the quarter bringing the total fleet to 19 aircraft at the end of the quarter. The fleet continues to support higher customer demand for adversary air services, driving higher revenues in the quarter. At Air Systems, the team booked $25 million in new orders in the quarter, including both fee-for-service activities, as well as new hardware. Moving to Industrial, overall revenues were lower in the quarter as we continue to experience manufacturing disruptions related to supply chain challenges. In Kautex, we again saw order disruptions related to the global auto OEM supply chain shortages, which have directly impacted production scheduling and resulting in intermittent line shutdowns of manufacturing efficiencies. At Specialized Vehicles, we saw continued strong demand in our end markets with higher pricing, which offset production disruptions from part shortages. To wrap up, Textron delivered a solid quarter with increased aviation backlog, improved manufacturing margins and continued strong cash generation, while working to minimize the impact of supply chain disruptions. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott. And good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.2 billion were up $386 million from a year ago, largely due to higher Citation jet volume of $290 million, aftermarket volume of $62 million and commercial turboprop volume of $48 million. Segment profit was $98 million [ph] in the third quarter, up $127 million from a year ago, largely due to the higher volume and mix of $96 million and favorable pricing net of inflation of $22 million. Backlog in the segment ended the quarter at $3.5 billion. Moving to Bell. Revenues were $769 million, down $24 million from last year, largely reflecting lower military revenues. Segment profit of $105 million was down $14 million, primarily due to lower military revenues. Backlog in the segment ended the quarter at $4.1 billion. At Textron Systems, revenues were $299 million, down $3 million from last year's third quarter due to lower volume of $39 million at Air Systems, which primarily reflected the impact from the U.S. Army's withdrawal from Afghanistan on its fee-for-service contracts, partially offset by higher volume, primarily at ATAC and Electronic Systems. Segment profit of $45 million was up $5 million to a favorable impact from performance and other. Backlog in the segment ended the quarter at $2.2 billion. Industrial revenues were $730 million, down $102 million from last year, reflecting lower volume and mix of $156 million, primarily at Fuel Systems and Functional Components, reflecting order disruptions related to the global auto OEM supply shortages, partially offset by favorable impact of $44 million from pricing, largely at Specialized Vehicles. Segment profit of $23 million was down $35 million from the third quarter of 2020, primarily due to the lower volume and mix described above, partially offset by higher pricing net of inflation at Specialized Vehicles. Finance segment revenues of $11 million - were $11 million and profit was $8 million. Moving below segment profit. Corporate expenses were $23 million and interest expense was $28 million. With respect to our 2020 restructuring plan, we recorded pretax charges of $10 million on the special charges line. Our manufacturing cash flow before pension contributions was $271 million in the quarter and $851 million year-to-date as compared to $129 million for the corresponding 9 month period in 2020. Year-to-date, our cash generation reflects improved working capital management, which includes more linearity in quarterly aircraft deliveries and higher customer deposits at aviation from an increased backlog. In the quarter we repurchased approximately 4.2 million shares, returning $299 million in cash to shareholders. We're raising our expected full year guidance for adjusted EPS to a range of $3.20 to $3.30 per share. This includes revised tax guidance at effective rate of 15.5% for the full year. We're also raising our outlook for manufacturing cash flow before pension contributions to a range of $1 billion to $1.1 billion, up $200 million from our prior outlook, with planned pension contributions of $50 million. That concludes our prepared remarks, so we can open the line for questions. Operator: And our first question goes to the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Hi, thank you. Good morning, Scott, Frank, Eric. Backlog at Aviation was at 3.5, I think, an all-time high since 2010. So maybe can you guys talk about who these customers are? Are they new, what's their rationale for buying a new jet? I'm sure $20 million jet buyers disclose all this info. So if you could share that with us a little bit. Scott Donnelly: Sure. I think the backlog is fairly broad in terms of the makeup of those customers. It still remains you know, more US-centric. I think when we look at order activity in the quarter on the jet side, it's probably you know, roughly 70% were so domestic versus 30% in international. So I think we'll continue to see the shift. It's a little bit more international, as Europe is starting to pick up and South America is starting to pick up. But it is still more North America-centric. It's probably closer to 50-50 on the turboprops, that's usually been a market where it's - the turboprops [indiscernible] and such Caravans usually end up being more international. I think it will continue to shift that way. But right now, it's closer to 50-50. But obviously, there's a mix of the next year or so deliveries of what we have coming up with NetJets, but we have very strong retail individual customers in there. It's - if I looked at the number of new customers, folks that are coming in buying a jet who have not owned a jet before, that number probably is somewhere around the 20% or so you know, kind of a range, so you know, which is encouraging. We do see a lot of people. As you know, buying a jet when you've not had an aircraft before is a little bit of a daunting task. One of the things we do in our business is we have a whole dedicated team that helps someone who's not owned an aircraft like that before, but wants to do that, we help them with the complex issues of pilots and hangers and insurance and all the things that you have to look at to do that to successfully place that aircraft with a brand new customer. But for sure, we're seeing a lot more interest in demand from those first time buyers than we would historically see. Operator: And we do have a question from the line of David Strauss with Barclays. Please go ahead. David Strauss: Thanks. Good morning. Scott Donnelly: Sure. David Strauss: Scott, with the backlog at aviation now and your deliveries year-to-date, I want to see if you could offer an update on how you're thinking about the production plan. I think you had said recovering half of the 2020 drop. It looks like you're tracking well ahead of that. And then your thoughts about going above 2019 levels, just given how extended your backlog is becoming? Thanks. Scott Donnelly: Sure. Well, David, I mean, I think as we've given color all year long, our expectation was that we would you know, get kind of halfway there this year and get back to the '19 levels in 2022. I think that's still good color to have on it. Obviously, we won't guide until we get into the January time frame. But for sure, the order activity which has been getting stronger as we've worked our way through the year and remained strong, supports that number, and we'll be looking hard at that backlog and that order rate as we finalize our production ramps at aviation. I mean, clearly, right now, we are in the process of ramping up production with the goal, as we stated, to get up to that 2019 level and there's probably room for a little bit beyond that, but we'll give you the final guys when we get into January. Operator: And we do have a question from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Thanks, so much. Good morning. Scott Donnelly: Thanks. Robert Stallard: Scott, on the aviation side, maybe following up from Sheila's question, have you seen any differences in the order intake between the various aircraft models you have? And also on the aircraft, what's the sort of lead time looking at? Are you getting to the point where some of these planes you know, you have to wait more than 12 months to get them? Scott Donnelly: So the strength is really across the whole segment, Robert. I mean every model is, I would say, doing very well right now. Order activity and interest in all of them is quite strong. And part of that is you know, we've been putting updates and upgrades. I mean as I said at NBAA, we put the M2, you know, Gen 2 version of that, the Gen2 version of XLS, has been a fabulous aircraft for us for a long time, and it's a really nice update that I think is sparking even greater new interest in that aircraft as well. So it's really across the board. And look, we're not going to get into details on the model by model on the backlog. But as we've said before, I think this business, this industry, frankly, operates better if it's sort of looking at a 9 to 12 month sort of backlog, and that it gives a customer who has an aircraft time to sell the aircraft. It gives them time to specify the interiors and colors and paints. Obviously, it makes it much easier for us in terms of our production forecasting and then smoother production line flow. And as you know, that - historically, that's how that - this industry works. This last decade has been unusual where you're actually having to try to build to forecast instead. So I do think one of the things that we certainly keep in mind as we look at production rates is that we want this business to be out there as sort of a 9 to 12 month kind of a backlog business. So it's a much healthier way to run the business. I think it's better for the customers, again, for their planning perspective and marketing of used aircraft if they already have an aircraft, which is the majority of our customers. So I think that that's a healthy place for the business to be, and that's kind of where I feel like we are right now. Operator: And we do have a question from the line of Ronald Epstein with Bank of America. Please go ahead. Ronald Epstein: Yeah, good morning. Good morning, guys. Scott Donnelly: Good morning. Frank Connor: Good morning. Ronald Epstein: So Scott, what are you seeing on the pricing front, meaning, I mean, there's demand, right, that's clear. But are your competitors behaving themselves. I mean, how is the broader pricing environment right now? Scott Donnelly: Look, it's always a competitive market, Ron. But for sure, I think we're seeing a positive pricing environment, as you would expect, right? You have very strong demand. All of the dynamics that we look at in terms of the macro level of the market, are extremely favorable, right? You've got used aircraft available for sale at record low numbers, particularly if you look at something that's sort of less than a 10 year-old aircraft. As you know, that was an issue in this business for a long time, and that's down to kind of below 1% of the fleet, and we're seeing the used aircraft valuations going up, right? So the dynamic overall in pricing is much better than it's been for a very long time. Flight activity is obviously very strong. So we just - we see the demand from everything from charter to memberships to fractionals to the whole aircraft. So I think you have a very, very strong demand environment, you would expect to see better pricing in the environment. Operator: And we do have a question from the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Good morning. Scott, on that, you mentioned you had a $22 million benefit in the quarter from pricing. The incremental margin was 33%, which is very high number. Do you expect that kind of trend to continue? Scott Donnelly: Well, look, there, I think we're going to continue to see good pricing in the industry based on all the dynamics that I just talked about, incremental leverage on volume in this business has typically been sort of in that 25% kind of range. So I think that's a reasonable expectation. Operator: And we do have a question from the line of Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak: Hi. Good morning, everybody. Scott Donnelly: Good morning. Noah Poponak: Scott, I guess, what is - in aviation, what is the absolute dollar backlog level or backlog to production ratio that you feel you want to maintain sustainably in the business? Where do you want to keep that? Scott Donnelly: Well, no, as I said, I think that the place we'd like to see this is kind of out in that 9 to 12 months. I think if you get beyond 12 - you have too much beyond 12 months. I mean customers are interested in new aircraft, right? I mean, so I think there's a limit to how far out someone is willing to say, okay, I'm going to wait for a year. It's probably on that shorter side on maybe a smaller aircraft, where there's not as much customization. It's a little quick return. But I think on a larger aircraft, you see it move out on that in more of that 12 months or so. So there's not an absolute dollar number we look at, but we do look at demand model by model. And where we think that backlog that cycle time is reasonable in terms of where - how it fits with our production planning, how it fits with our customer's expectations. And as I said, I think that's it ideally somewhere in that 9 to 12 months, again, some variability on the models, largely a smaller aircraft, probably being on the shorter side of that and things like longitude being in that more than 12 months or so kind of time line. Operator: And we do have a question from the line of Seth Seifman with JPMorgan. Please go ahead. Unidentified Analyst: Hey, good morning. It's Tyler on for Seth. Scott Donnelly: Morning. Frank Connor: Morning. Unidentified Analyst: Just on FARA, can you just provide an update just maybe where things stand today, what Textron is doing in the meantime and when we could expect a decision? Scott Donnelly: Sure. So the FARA program, the proposal went in back at the beginning of September, which was consistent with the army schedule, what their you know, announces that they expect to have an announcement decision and contract with that by the second quarter of next year. So by the end of next year, just kind of our expectations. Remember that the FARA program I feel is a little unique in that we've obviously put an enormous amount of work into getting the proposals submitted. But in parallel with that, we still under are under contract on an OTA. So we are continuing the design development activity towards PDR and that, of course, that work is going on in parallel with the army doing their proposal valuation. So the team obviously kind of worked out on the proposal, and now they're all back hard at work - you know, working towards that next milestone for the program, which will then dovetail into hopefully a program record. Operator: And we do have a question from the line of Cai von Rumohr with Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks so much. So Scott, obviously, demand is strong in aviation. What are you seeing in terms of commodity price hikes and supplier disruptions that might limit your ability to kind of boost production next year? Scott Donnelly: Well, we're not - I mean, look, there's always a pop-up problem even in the best of times, right, with managing a supply chain. I would say we're not seeing big issues right now in our - in the supply chain associated with the A&D businesses. My view is, you know, most of these suppliers also do defense work, much like our company. And so most of them didn't go through an entirely hard shutdown, as you saw a lot of the commercial world doing. Also, as you know, a lot of these suppliers also have a lot of business that goes into the commercial aviation space with the Airbuses and the Boeings of the world and those guys are not back anywhere near the demand that they used to have. So there's capacity available in these supply chains. So as we work our way through this thing, most of our critical suppliers in the A&D space are able to meet our demand. I'm not suggesting there's never an issue or a problem, but those things pop up here and there. It's also a longer cycle supply chain. So if you do have a problem or a challenge, you've got more time to work on it and go manage it and look for alternatives and work with the supplier around that. Whereas in the industrial and commercial world, you tend to find out a vital problem it's going to hurt you on Tuesday, the previous Friday. So we don't see as much of that in the A&D side. So I don't think when we look at this, we feel like we're going to be supplier constrained at this stage of the game. It's more around managing and making sure that we're doing the right thing here in terms of production rates versus long-term demand and again, managing to a backlog that works for us and works for our customers. Operator: And we do have a question from the line of Peter Arment with Baird. Please go ahead. Peter Arment: Thanks. Good morning, Scott, and Frank. Hey, Scott, just a quick one on, I guess, aviation. Just you've always kind of talked about this business eventually getting back to crossing over on the double-digit margin front. It seems like you've got everything in place in terms of the overall demand and potentially higher production. What's key for us to see margins kind of cross over that 10% level? Is it just volume or is there other things you need to see? Thanks. Scott Donnelly: Well, most obviously, volume is a huge contributor to that. We've talked about that for a very long time. And I think we'll see - as you remember, we were getting close to that level pre-pandemic, and I think as our volumes are recovering back on track to where we were in '19 and move beyond that. We clearly have been working to drive to get double-digit margins, and I think we're on track to be doing that. We'll obviously give you more specifics in January, but I feel pretty good about our path to get there. Operator: And we do have a question from the line of Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Yeah. Good morning, guys. Nice quarter. Maybe to piggyback off Cai's question a little bit. Scott, can you talk about kind of how you manage kind of the two businesses at industrial in this environment? Do you have much visibility at Kautex? Would you guide us in any way Kautex over the next couple of quarters? And then is it kind of - it seems like the market is very strong in specialized vehicles, but there's, as you mentioned, some supply chain issues there as well. So just wondering if you could give us more color on how to think about that segment over the next couple of quarters. Scott Donnelly: Sure. Look, obviously, Peter a bit different, right. In the case of Kautex, where we're a Tier 1 guy, we're sort of following the OEM path, right? So we don't independently set that. It's – one of the challenges, frankly, this year is there's been a lot of disruption that the OEMs have felt and changing model types and volumes through the course of the year as a result of other supply chain issues. Fortunately, the Kautex guys have done a nice job in not being the problem, right? I mean we've been able to fulfill whatever demand is placed on us, and certainly, we don't want to be the reason they can't run a line. So I think our guys have done a really nice job of that. But we look really at the IHS data, Pete, in terms of how it - how we forecast. I mean we obviously have to go down model by model. But I think when you listen to what the OEMs are saying, they're starting to indicate that a lot of their other issues in their supply chain, which semiconductor is the one that's obviously talked about the most, that's going to start to abate. I think if you look at IHS data right now, they're talking about probably a 10%, 11% increase in global auto volumes as we go from '21 to '22. So that's how we think about our business, right? We look at that IHS data. We don't really have an independent view, I suppose, of what's going on in that market. In the case of our vehicle business, we're the OEM, we're the end market guy. So we are a lot closer and having to make that call. And as you indicated, the good news is demand is very strong. I mean everything we can build is going out in the channel and selling inventory levels are at, frankly, on healthy low levels. We're working hard with our suppliers to get parts in and everything we can build, we get out there and tends to be selling through strongly. So I think our guys in the vehicle business, frankly, but we would love to have seen revenue growth in the quarter from year-over-year. We couldn't get that just because we can't get the parts to do it, but I think the team has managed price inflation disruption and all that sort of stuff, so that at least we've been able to hold on to the margin rates where we were. And obviously, as we can get the supply chain flowing better and get the revenue top line growing, we think the margins will improve with it. But our dynamics in that business in terms of pricing and the performance of the business was able to at least at a margin level, overcome a lot of the interruptions and inefficiencies that we've seen in the factory. So I think the business is being well run. It just needs to be able to start to generate more top line, and that's a supply issue, and the demand is quite strong. We've got great products out there. And as a result, we're getting good pricing for them. But we would love to get higher revenues, and I think we will. We just got to work through the supply margins [ph]. Operator: And we do have a question from the line of Kristine Liwag from Morgan Stanley. Please go ahead. Kristine Liwag: Hey. Good morning, guys. Scott Donnelly: Morning. Kristine Liwag: Scott, you mentioned how longer lead time nature in aviation provides more visibility for the supply chain and right that makes sense in a normal environment. The vaccine executive order effective December 8 is a little different than what we've seen before. How are you anticipating this executive order to affect labor, your supply chain and ability to raise production in aviation? And what mitigating actions can you take? Scott Donnelly: Well, look, it's a good question. And all of our business as well as, obviously, all of our key suppliers are - tend to have that defense component and therefore are subject to the mandate. It's - frankly, it's a curveball we wish we didn't have, but we're managing our way through it. I think we and all of our peers and suppliers are all sort of in the same - in the same place here, it's created a lot of noise. It's not been terribly well received by a pretty sizable portion of our employees, but people are working their way through it. It's the nature of - I think people have accepted its a fact of what they've got to go do. And in the end, there's no question that we're going to lose some employees because of this. But we're trying to ramp up our hiring and expectations of that. And look, we'll manage our way through it. It's not the first challenge we've ever seen, so. Operator: And we do have a question from the line of David Strauss with Barclays. Please go ahead. David Strauss: Great. Thanks for taking the follow up. I guess Frank, question for you. On working capital, it looks like you're assuming for the full year, a couple of hundred million dollar benefit from working capital, I assume that's mainly predominantly aviation advances? How should we think about working capital as we move into next year? That's my first question. And then any initial thoughts on pension income for next year as compared to I think you're doing like $30 million or so in pension income this year? Thanks. Frank Connor: Yeah. So on the - look, on the working capital front, I think, as we said, we've had a strong year from an inventory management standpoint and the aviation business being far more linear, obviously, is a really good thing there. So we've had kind of better seasonality of cash flow and good customer deposits. The cash flow for the fourth quarter, implying the guide continues to be in the area of 1:1 or a little over 1 of kind of net - relative to net income. So we saw a lot of benefit this year, kind of that we'll continue, I think, to see very strong working capital management next year. I'm not ready to guide on it. A lot of it will depend on order activity. I think that on the inventory side and the linearity of the business, we'll continue to see strong performance. It will depend on kind of customer deposit activity to some degree to how that ultimately works out. Look, on the pension side, we're not ready to kind of lay out numbers there. We've had a good year so far on return on assets. Interest rates are up a little bit. So as you sit here today, I don't think that we would expect to be - we would expect pensions to continue to be a benefit as we go into '22, but we're not ready to quantify things. Operator: We do have a question from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Yeah, thanks. Just a follow-up from me. I was wondering if there's any changes on the divisional guidance for 2021 with one quarter to go? Scott Donnelly: I don't think, Robert, we're doing a formal update to the guide at the segment level. But clearly, Aviation and Bell are strong performers. And I think you'll see that versus the original guide. Obviously, Industrial with - particularly with the auto OEMs volume down and challenges in supply chain, that will be the sort of bit of a mix shift, I suppose, between what we originally guided and where we'll end the year. Operator: And our last question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak: Frank, do you expect to be able to grow free cash flow from the manufacturing group next year versus the good performance this year? And then if you could just maybe touch on the systems margin since that seems to have just kind of stepped up to a new level with all the programmatic and mix changes you've had there? I mean, is that just now a sustainably high 14%, low 15% business? Thank you. Frank Connor: Yeah. Look, we're not going to guide '22, as I said, I believe we'll continue to see solid and strong working capital management next year. We had a lot of benefit this year of particularly at Aviation, again, of getting the business kind of running the way Scott described, which is kind of with some visibility on delivery and order activity and run it far more linear. So I would expect that to continue, as I said, into '22. But I'm not going to start kind of guiding cash flow and profitability here for '22. I'm sorry, I know what the second piece of that was a systems margin. Look, on systems, we've talked about this, kind of systems has had a very strong year. Defense business is generally kind of consistent with how we've talked about Bell or kind of 10% to 12%. We have made some investments in systems where we're seeing solid return on those investments. They're a number of businesses there where we have invested in assets to drive higher margins like the ATACH business, so we expect to see good execution on a go-forward basis out of the systems business. But kind of these levels of performance this year are kind of strong relative to the general mix of those businesses. So we expect solid execution on a go-forward basis, but we've had a very good year this year. Operator: And with that, ladies and gentlemen, today's conference will be available for replay after 10 A.M. Eastern to January 29, 2022. You may access the AT&T replay system at any time by dialing 1866-207-1041 and entering the access code 6190396. International participants may dial 402-970-0847. And those numbers again are 1866-207-1041 and 402-970-0847 and again, entering the access code 6190396. That does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Textron Second Quarter Earnings Call 2021. At t this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Eric Salander, Vice President of Investor Relations. Please go ahead, sir. Eric Salander: Thanks, Tony. And good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.2 billion, up from $2.5 billion in last year's second quarter. During this year's second quarter, we reported net income of $0.81 per share. Adjusted net income, a non-GAAP measure, was also $0.81 per share for the second quarter of 2021 compared to $0.13 per share in the second quarter of 2020. Segment profit in the quarter was $289 million, up from $82 million in the second quarter of 2020. Manufacturing cash flow before pension contributions totaled $509 million, up $294 million from last year's second quarter. With that, I'll turn the call over to Scott. . Scott Donnelly: Thanks, Eric. And good morning, everyone. We had a strong second quarter with higher revenues across all of our manufacturing segments, operating margins of 9.1% and strong cash generation. The Bell revenues were up in the quarter on higher commercial revenues, partially offset by lower military revenues. On the commercial side of Bell, we delivered 47 helicopters, up from 27 in last year's second quarter. We continue to see strong commercial demand and solid order activity in the quarter across all our commercial models, both domestically and internationally and across multiple end-markets, including corporate, private, utility and EMS. Moving to future vertical lift, in June following 214 flight hours over 3 years, Bell retired the V-280 Valor demonstrator aircraft. Over this 3 year period, the Valor successfully demonstrated all key performance parameters with FLRAA [ph] program, including low-speed agility, long-range crews, 305 knot high-speed flights, autonomous flight and rapid mission systems integration. On July 6th, the Army issued [ph] the FLRAA RFP. The program remains on track to the Army schedule with bids due in September, followed by down selected award in the second quarter of 2022. On FARA, Bell is about 45% of the way through its build of a 360 Invictus prototype. And lastly, Bell announced plans for new systems integration lab in Arlington to provide integration, verification and validation testing on aircraft emission systems needed to meet the requirements for both FPL programs. Moving to Textron Systems. We saw another strong quarter - execution with operating margins of 14.4%, up 310 basis points from last quarter. We saw a strong performance at ATAC driven by increased flight activity, led by our F1 fleet on the U.S. Air Force cash program, where we have made significant investments over the last few years. In June, C Systems [ph] delivered the third Ship to Shore Connector, LCAC 100 to the U.S. Navy. As development contract portion of this program continues to wind down through the remainder of 2021, we expect to see revenue growth and margin expansion on the program as we increase our activity on the production contract. Also in the quarter, Land Systems delivered the fourth and final RIPSAW M5 vehicle to the U.S. Army for RCV medium program. The customer will begin integration and testing the vehicles in preparation for the 2022 Soldier Operational Experiment. Land Systems also unveiled the Cottonmouth, vehicle purpose built for U.S. Marine Corps' Advanced Reconnaissance Vehicle program and was recently selected for further prototype development under an anticipated OTA contract award. Offsetting higher revenues in most of its operating units in the quarter, we did experienced some top line pressure at Air Systems largely related to the reduction in hours or fee-for-service activities due to the U.S. Army's Afghanistan withdrawal and impact of the sale of the TRU Simulation business earlier this year. At Aviation, revenues were up in the quarter on higher volumes for Citation jets and commercial turboprops, as well as in our aftermarket business. We delivered 44 jets, up from 23 last year, and 33 commercial turboprops, up from 15 in last year's second quarter. We continue to see strong commercial demand and order activity for our aircraft, which resulted in backlog growth of $689 million to $2.7 billion at quarter end. Through the first half of the year, we recorded over $1.1 billion of backlog growth in Aviation. Both the Citation Longitude and Citation CJ4 Gen2 received the EASA type certification in the quarter. These certifications are expected to generate additional demand opportunities for each of these models. On the new product front, Cessna SkyCourier [ph] aircraft certification program has now accumulated over 1,200 flight hours and continues to progress well, as we work towards entering the service targeted for later this year. Moving to Industrial. Revenues and margins were up at both Caltex and specialized vehicles from last year's second quarter, primarily due to higher volume and mix at each of the businesses. At Caltex, despite the higher revenues, we've experienced order disruptions related to the global auto OEM supply chain shortages, which have directly impacted our production scheduling, resulting in intermittent line shutdowns and manufacturing efficiencies. At Specialized Vehicles, we saw higher revenues and improved operating performance from a strong retail pricing environment, driven by continued high customer demand in our end markets. While we've experienced continued strong retail demand for our products, we have been impacted by our supply chain's ability to fully meet this demand, and we continue to work through these production challenges. In summary, we continue to see increased commercial order flow at Aviation and Bell, solid execution in our Military businesses, strong retail demand for our products, the Industrial segment and improved cash generation that all contributed to the second quarter performance and our improved EPS and cash outlook. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott. And good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.2 billion were up $414 million from a year ago, largely due to higher Citation jet volume of $174 million, aftermarket volume of $98 million and commercial turboprop volume of $75 million. Segment profit was $96 million in the second quarter, up $162 million from last year's second quarter due to the higher volume and mix of $117 million, a favorable impact from performance of $34 million and favorable pricing net of inflation of $11 million. Backlog in the segment ended the quarter at $2.7 billion. Moving to Bell. Revenues were $891 million, up $69 million from last year on higher commercial revenues of $99 million, partially offset by lower military revenues. Segment profit of $110 million was down $8 million, primarily due to higher research and development costs in the quarter, largely related to the future vertical lift programs. Backlog in the segment ended the quarter at $4.8 billion. At Textron Systems, revenues were $333 million, up $7 million from a year ago. Segment profit of $48 million was up $11 million due to a favorable impact from performance. Backlog in the segment ended the quarter at $2.3 billion. Industrial revenues of $794 million were up $232 million from last year with $169 million from fuel systems and functional components and $63 million from specialized vehicles, largely reflecting higher volume and mix. Segment profit was $32 million, up $43 million from the second quarter of 2020, primarily due to the higher volume and mix at each of the businesses. Finance segment revenues were $12 million and profit was $3 million. Moving below segment profit. Corporate expenses were $37 million and interest expense was $32 million. With respect to our 2020 restructuring plan, we recorded a pretax charge of $4 million on the special charges line. We had another strong quarter of cash generation, reflecting our focus on working capital management across the segments and cash deposits from strong order activity at Aviation. Our manufacturing cash flow before pension contributions was $509 million, $294 million higher than last year's second quarter. In the quarter, we repurchased approximately 3 million shares, returning $96 million in cash to shareholders, and we repaid at par $250 million of 5.95% notes with a stated maturity of September 2021. Following these activities, we ended the second quarter with approximately $2.2 billion of cash on the balance sheet. To wrap up, we now expect our full year tax rate to be 16%, reflecting increased tax credits related to higher qualifying domestic investments in R&D. We are raising our expected full year guidance for adjusted EPS to a range of $3 to $3.20 per share, up $0.20 from our prior outlook. We're also raising our outlook for manufacturing cash flow before pension contributions to a range of $800 million to $900 million, up $200 million from our prior outlook, with planned pension contributions of $50 million. That concludes our prepared remarks. So operator, we can open the line for questions. Operator: Thank you. Our first question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: [Technical Difficulty] of 1.6 times in the quarter. I guess, Scott, what are you hearing from your customers? How do you think about the sustainability of this growth? And do you think there's any change in consumer behavior? Scott Donnelly: Sheila, I think you know, we had a strong order quarter for sure. I think the Q will come out, you'll see that we had - services was about - aftermarket was about 31%. And when you account for that and you account for used aircraft sale, our book-to-bill actually probably is closer to two, in terms of new equipment. That order activity continues to be strong here as we've gone through the end of the quarter. So I think, you know, the sustainability appears to be quite strong, as we've seen through the course of the year. We have an awful lot of new customers coming into the market, which I think is great. We've got very low used aircraft at all [ph] for sale. I mean, it's sort at record low levels, so people that are coming into the market, there's not a whole lot to be had out there in terms of quality you know, relatively new, used aircraft, and that's driving a lot of strength in the new side. I think from everything we're seeing, it appears to be quite sustainable. The demand is there flying. If you look to that is, is at the highest levels we've seen in a very long time in terms of daily utilization. So I think demand, if you look at sort of the macro level, everything from charter to club to fractional the whole ownership is very strong. It's very US-centric in terms of jet right now, although we're starting to see some pickup in the South American and European markets, particularly on the turboprop side, we're starting to see more activity in South America. As you know, that those international markets tend to be the dominant part of our turboprop market, they haven't been just because they're a little slower. So I think when you look at the demand that we're seeing and then you start thinking about South America and the European markets, starting to come back. And frankly, just corporate. We're - I think we're talking about a lot of high net worth individuals, small businesses, things like that are really driving it so far. And the addition, I think as we go further into the year and start to see more corporate activity will help to make it a sustainable demand environment. Sheila Kahyaoglu: Thanks for that color. And then maybe one more on Bell, as you mentioned it in your prepared remarks about the R&D impact. Is that more on FARA or FLRAA? And kind of how do we think about that progression of company funded R&D? Scott Donnelly: Yeah. It's both. But FARA, frankly, at this point, is the bulk of it, although we're seeing obviously some pickup here on B&P spending, as we are preparing the FLRAA proposal. But this year, the lion share of it is around the FARA [ph] program, he's making great progress. As I said, we're progressing really well in terms of the design and the assembly of the first aircraft for the first flight test activity. But you'll see this composite of higher R&D spending associated principally with those FDL programs through 2022. Sheila Kahyaoglu: Great. Thank you. Operator: Thank you. Our next question comes from the line of Peter Arment with Baird. Please go ahead. Peter Arment: Hey. Yes, thanks. Good morning, Scott, Frank. Scott Donnelly: Morning. Peter Arment: Maybe Scott, just following up on your Aviation comments, just demand environment obviously sounds like it's really broad-based and across the board. I think the original plan was to kind of get back 50% of the recovery of your previous 2020 production plan. Just how are you thinking about that and managing it when you think about this environment? Scott Donnelly: I think we're on track for that, Peter. And as we go into the end of the year, obviously, we've been raising our production rates, as we expected, did not only accomplish that this year. But as we kind of gave color around 2022 to get us back to those 2019 levels. So I think that's going well. And obviously, strong demand makes us feel pretty good about continuing to bring those rates up, as we go through this year and into 2022. Peter Arment: Okay. And just as a quick follow-up on just the margin performance. I mean, I think year-to-date, you're kind of 7% versus guidance of 5.5%. So it's just the guidance increase that you're giving today. Obviously, just you forecasting at us [ph] continued strong margin performance at Aviation in the second half? Scott Donnelly: Yeah, we are, Peter. I think the color on Aviation given the strength of the market, we're probably going to be guiding up a couple of $100 million of revenue is the way to think of it and probably a couple of 100 basis points of better margin. Peter Arment: Terrific. Thanks so much, Scott. Scott Donnelly: Sure. Operator: Thank you. Our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead. Pete Skibitski: Good morning, guys. Nice quarter. Scott, maybe to follow up on the UAV fee-for-service. As the U.S. continues to pull troops out of Afghanistan, and I think maybe even more out of Iraq. Maybe you can quantify how much of a headwind that program was in the quarter for you? And kind of how much were expecting it to be to negatively impact the full year? Scott Donnelly: We don't go into that level of detail, probably, but just it's - I guess our point is that it is - we're seeing growth in a lot of the other pieces of that business and the Afghan issue is holding some of that back. I think the margin performance continues to be strong. And look, I think we're fairly optimistic that we'll redeploy those assets and utilize them in other applications, but that's probably something that will be more of a 2022 impact. It takes a while for that to happen. So I don't think - it's not a horrible story. It's just the reality of the pullback in Afghanistan. And I think we've been conservative in terms of how we manage those assets. The team has done a great job with that. So it's not a bottom line problem right now. And again, I do think a lot of those assets will get redeployed into other opportunities. But it is creating a little bit of a top line headwind. So when you look at systems, I think we're really happy with the performance there. We'll probably see margins a couple of 100 basis points better than what we originally we're guiding you guys, but we're not - we're probably just kind of on track to the revenue line because of some of the pressures on that Afghanistan pull out. Pete Skibitski: Okay. Last one for me, also at Systems. They're bidding on some pretty meaningful ground vehicle programs, right, OMFV, on a team and the Marine Corps program. How do you guys ensure that you guys get an adequate return on those programs, especially OMFV, it's pretty - it's an order of magnitude bigger than I think most of the things they've done there. I think about the return you get just in light of - you know, the type of return you got in the TAPV program? Scott Donnelly: Well, thanks, Peter. Look, these programs will not be structured in a way where you're taking on an EMD program and also committing the full life of production at a fixed price contract. So I get your point. I think the business learned a lot about that. And certainly, we would never put ourselves in a contracting situation where we had that kind of exposure. So look, these could be phenomenal programs. They can be great programs. I think our guys are - technically we're in a good place on some of them. I mean, there's a long way to go, obviously, on things like OMFE [ph] But they are huge opportunities, and it's going to take some time for them to come to fruition. But yeah, certainly, we're not going to look at a contract situation where we have the kind of exposure that we had on TAPV. Pete Skibitski: Sounds, great. Thanks, guys. Operator: Thank you. Our next question comes from the line of Carter Copeland with Melius Research. Please go ahead. Carter Copeland: Hey. Good morning, guys. Scott Donnelly: Morning. Carter Copeland: Just two quick ones. One, Scott, I wondered specifically, if you could just speak to what you saw or what you continue to see in terms of trade in activity, just given the used inventory dynamic that you talked about, what you're seeing in that regard? And then a second one for Frank on the performance in ATAC and Systems, was there anything sort of one-time in nature in that regard that we should be aware of? Or anything we should think about in that regard? Thanks. Scott Donnelly: Look, on the used, our activities reflect what's going on in the market, right. So I think our used aircraft inventory is quite low. Aircraft have largely sold out of our book. The need for trade in is down dramatically. As you guys know, we do run what we call Market Assist program. So we'll help customers with the resale of their aircraft ideally not even ever putting it onto our book, and we continue to try to do that. And you know, frankly, as the backlog builds and that time, that frame, from someone deciding to buy a new aircraft, they have a much longer window for the remarketing of their aircraft than what we saw when there was a lesser backlog and shorter cycle sale. So I would say that the dynamic of the used aircraft has been reflected in our own used aircraft department, and it's, I would say, all positive. Frank Connor: So on the Systems mix, no, there was nothing kind of unusual in the quarter. Overall consolidated net program reviews were a positive $15 million. And I think it just, again, reflects, as Scott said, strong performance across the Systems businesses and the expectation of a couple of 100 basis points better than what our original guide was for the year. Carter Copeland: Okay, great. Thanks for the color, gents. Scott Donnelly: Yeah. Operator: Thank you. The next question comes from the line of Ron Epstein with Bank of America. Please go ahead. Ron Epstein: Hey. Good morning, guys. Scott Donnelly: Good morning. Ron Epstein: Scott, could you give us a little bit of a breakdown on maybe the customer demographic. I mean, how much of it is wealthy individuals versus corporates? Who are you seeing coming back to the market? Scott Donnelly: I don't know if we can give a super big break down numbers. But as I said, it was - it's largely driven by - when we talk about high net worth individuals, these are usually folks that have family businesses, small businesses, private companies, which is the core of our - historically, the core of our customer base. And I think that's where a lot of demand is coming in. As you look at a larger way, particularly with the longitude out there and the latitude, where we have products that have a stronger appeal, we think, to the corporates. Those folks are just starting to come back. And as corporate aviation departments start to fly more, I think we'll see more activity, particularly in those classes of aircraft in that corporate world. But in the meantime, it is that customer base that we've historically seen. You're just seeing new customers of that same demographic, I guess, as you refer to it, you know, that are coming into the market. Ron Epstein: Got it, got it. And then your cash levels are relatively high versus history, pre-COVID, call it, you know, PC. Are you still interested in industry consolidation? I mean, how are you thinking about deploying that capital? Scott Donnelly: Well, look, at this point, Ron, we're - we kind of watch opportunities, as we always do. I don't think there's anything pending. We'll certainly let you guys know when that happens. But in the meantime, we continue to allocate the bulk of our cash into stock buyback, and I think we'll continue to do that. As Frank said, we made a couple of debt payments here in the quarter. We don't have any more corporate payments until the 2024 time frame. So I think we have a lot of flexibility around cash. But at this point, our principal allocation of that is towards share buyback. Ron Epstein: Great. Thank you very much. Scott Donnelly: Sure. Operator: Thank you. Our next question comes from the line of Noah Poponak with Goldman. Please go ahead. Noah Poponak: Hi. Good morning, everybody. Scott Donnelly: Good morning, Noah. Noah Poponak: Questions on the guidance revisions. In order to get into the middle of the new EPS range, EPS in the third and fourth quarter would have to be essentially exactly flat from the second quarter, actually technically down slightly. And seasonally, the business usually ramps through the year and you have end markets that are improving through the year. So if you could just walk me through how that happens. And then the earnings raise is - looks like $45 million, $50 million of net income, and then you've taken the free cash up $200 million, if you could just bridge that difference? Scott Donnelly: I'm not sure how much detailed modeling I can go with you on the call. But look, I think we are seeing a little bit of linearity. As you guys know, when we came through the COVID period. Obviously, there was a lot of inventory reductions across the company. We're trying to be more linear in how we do that. I mean, I think Aviation is a good example. We're not having some of the historical where you get this big inventory build through the first couple of year - you know, quarters and most leads off on three and four. We're seeing a little more linearity, a stronger delivery here in Q2. And that's helping to give us a more linear - better manage working capital, I would say. So in terms of the modeling around EPS, you know, that kind of helped a little bit here is think about Aviation being up a couple of $100 million on revenue and a couple of 100 basis points of better margin versus the guide. Systems, a couple $100 million - I'm sorry, a couple of 100 basis points of better margin versus our initial guide. I don't think Bell's - Bell's about where we expect it to be. They're performing well, but they're performing more or less to the guide. And I think Industrial will probably be around in that same area, right. I mean, I would like to thought we had some upside. We probably are going to be a little bit softer just because of the challenges on some of the supply chain. But again, strong performance, certainly on year-over-year revenues margins are up. But it's a little more challenged in terms of capitalizing on some of that end market demand, but the opportunities are there, so. Noah Poponak: Okay. I understand. And Scott, your response earlier to the question around the prior Cessna jet production plan, recovering half of the '20 decline and then getting back to '19 and '22. It sounds like you're sort of just reiterating that, despite the strength in the market. And maybe that's just because it's been strong, but for a short - relatively short period of time, you want to see that sustained, you don't want to get ahead of yourself. But I wondered also how much of that is that you're looking at pricing over volumes. And you had the experience of having to reduce price and then changing the strategy to hold firm on price, instead of chasing volume. And I wonder if you could just speak to how you'll handle that now that the market is stronger. Can we expect a bigger focus on price over volume even as demand increases? Or how are you going to handle that? Scott Donnelly: It's a good question. And I do think that part of the dynamic here is that, as you know, we've gone through a very long period of time where book-to-bill was just - the backlog just wasn't strong enough to support, let's say, a 6 to 9 month order delivery window. There was too much short cycle sale going on, as it's particularly challenging for the factory to do that, to load things the right way, to not have rework when people buy on short cycle and you're reconfiguring and tailoring the aircraft too late in that manufacturing cycle. So there's no doubt that this business - I think this industry is healthier when you've got more like a 6 to 9 month backlog. And it gives you better visibility. It's - I think it's better for the customer in the end in terms of the ability to customize and again the configuration of the aircraft straight. So that's a lot of what we look at. So obviously, we are increasing the volume consistent with what our expectations were for the year. And obviously, you're feeling good about that, you know, increased rate as we go into next year given the backlog. But for sure, we want to be cautious here and not increase volume and get back to a situation where you just got too much short cycle sales going on. Noah Poponak: Okay. Thank you. Operator: Thank you. Our next question comes from the line of David Strauss with Barclays. Please go ahead. David Strauss: Thanks, good morning. Scott Donnelly: Good morning. David Strauss: Scott, on Cessna Aviation, can you talk about where headcount levels are? Have you started to add back where you think headcount needs to go and whether you're you know, any - seeing any challenges in terms of getting the workforce that you need? Scott Donnelly: So we are increasing headcount you know, commensurate with the increase in the production volume as we've gone through the year. We started hiring programs probably about a month or so ago to bring folks in to ramp back up again. Obviously, a number of those folks or people that have been laid off and have come back into the company. But we're having to do additional hiring beyond that. And look, it's - I think everybody in the country is having the same challenge with some of the programs that are out there, but those programs should wind down as we get, I think, into that Labor Day time frame. So we are hiring. It is a challenge. I think hiring will get easier as the year goes on, we get off some of these unemployment programs that are frankly, creating huge disincentives for people not to work. David Strauss: Okay. And I guess a bigger picture question on Kautex. Can you talk about how Kautex will play in a EV world or as EV penetration continues to pick up in the future? How that business - the potential for that business to transform itself and participate in that? Thanks. Scott Donnelly: Sure. Sure. Look, there is two steps to this EV world in Kautex. The first, which we're already participating on. And frankly, it's a very good business for us is the move from straight gas to the - a lot of the hybrid vehicles, right. So the fuel systems have some unique technologies for those hybrid applications, and we've done well in that space. And the volume of that, frankly, continues to grow. And it's growing even faster now sort of post-COVID than even it was on pre-COVID. So our participation on those platforms is very good and a good part of our business and growing part of the business. On a pure BEV world, I think that we will see a transition just as we saw, frankly, Kautex became Kautex because you moved from metal gas tanks to plastic or composite gas tanks. And we think the same opportunity is there for battery enclosures. And we're working with a lot of the OEMs right now on opportunities to move from these metal battery and closure systems to a composite closure system. It's lower weight. It's lower cost. So it's very beneficial to the OEM and to the platform, and we're working through qualifications of those technologies as we speak. David Strauss: Great. Appreciate the color. Thanks. Scott Donnelly: Sure. Operator: Thank you. Our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead. Seth Seifman: Hey. Thanks very much. And good morning. I wonder, Scott, if you could talk a little bit more about the aftermarket in Aviation. It sounds like it was up about over 30% in the quarter, we see really high activity. Is that something where it's still accelerating as we head into the back of the year? And what kind of growth do you expect for 2021 there? Scott Donnelly: Yeah, it is. It's up around that number on a year-over-year basis. It's up about double-digit on a sequential basis. So what's happening, Seth, is, as I referenced, the utilization of the aircraft is up as high as we've seen it in a long time. So people are flying, the aircraft are being utilized. And that obviously correlates to service and parts consumption. So we have seen it ramping up nicely, as aircraft have gone back into service, and we do expect it to continue to grow through the balance of the year. Seth Seifman: Okay. Okay. And then just, I heard your comments earlier, the focus on share repurchases for now, which makes sense. When you think about opportunities for M&A, do you think at all about the Defense side of the business, and we see this major focus at the Pentagon on JADC2. And is there a need to - in terms of thinking about the future of the Defense business to be more focused on communications technology and might that at some point become an area for M&A? Scott Donnelly: Well, look, I think - I guess I would say broadly, Seth, that the A&D space is primarily where we look on the M&A side. I guess I wouldn't talk about any specific technology or obviously a particular opportunity. But that is the space where we tend to be to be looking. So - and from a cash standpoint, look, I think our balance sheet is in very good shape. We'll continue to do share buybacks. And if there was something out there that we needed to do. I think we have plenty of access cash on the balance sheet or financing through debt. So I think from a cash standpoint, we'll continue to do the buyback without being too concerned about our ability if we need to do M&A. But I would say that the - I won't talk specifically around communications, but certainly, the A&D space is where we look. Seth Seifman: Okay, great. Thanks very much. Operator: Thank you. Our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead. Robert Stallard: Thanks so much. Good morning. Scott Donnelly: Good morning. Robert Stallard: Scott, I just wanted to follow up on that comment you made earlier about the 6 to 9 month window for Aviation lead times. Are you actually in that window yet? Or is it still a little bit shorter than you would like? Scott Donnelly: I think we're in that window. Robert Stallard: Okay. That's nice and easy. And then secondly, again on Aviation, similar to Ron's question earlier, are you starting to see more interest from the fleet buyers? Or are you actually quite happy like going with these individual customers because generally you get better pricing on them? Scott Donnelly: Well, our - I mean, our fleet sort of activity tends to be centered really around NetJets, obviously, which is very important customer for us, and I mean that's sort of the fleet. Obviously, at the NetJets sales level, that's individual customers buying share. So I - that's the bulk of what we look at on, I think what you would kind of call fleet. I mean, obviously, there's other opportunities out there where we have customers that want to buy numbers of aircraft. You probably saw the announcement around the Caravan deal. Obviously, we've had programs with SkyCourier, for instance, with FedEx, which are large aircraft acquisitions. But I don't think we've seen anything different or unique going on or the difference between fleet or retail and our bias one way or the other. If there's a good fleet opportunity, and that will compete hard for that. But the bulk of our sales, when you look at this you know, the order book and what's going on our individual aircraft sales. Robert Stallard: Right. That makes sense. Okay. Thanks so much. Operator: Thank you. Our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Good morning. Scott, I want to pursue, you said that you have - you're comfortable with getting jet deliveries halfway back from the last couple of years. But that would imply like if it's 165 or 170, not much of an increase in Q3 or Q4. And usually, Q3 is kind of maybe a little bit better than Q2, but Q4 is usually at least 20 airplanes above the prior quarters, which should suggest that deliveries should get back more to like 180 or 190. So I'm just curious as to where my math is wrong. Scott Donnelly: Yeah, George. I would say that if you look at what we're trying to do, and I kind of refer to this earlier. We're trying to get to a much more linear delivery flow. So when you look at, again, considering the demand environment, we're able to flow this thing in a lot smoother fashion. The order book, the backlog supports that so that we don't have this extreme spike when you get into fourth quarter, which has been delivered by or driven historically by later sales in the year. So I think when you look at the order book, what's happening is you're getting a more linear operation, you're getting a lot more backlog, longer lead time on aircraft and that lets us be a lot more linear in terms of our deliveries through the course of the year. George Shapiro: Okay. So you're obviously not expecting that big bounce in the fourth quarter like we've traditionally seen? Scott Donnelly: No, George. Look, I think it's always a little bit stronger in the rest of the year, but nowhere near as non-linear as you've seen for the last decade for instance... George Shapiro: And given - Scott, given the backlog that you're seeing now, do deliveries next year get above the 2019 level? Scott Donnelly: We're probably not quite ready to guide next year, but it's certainly you know, as I - we can't give you any filler [ph] or we're trying to aim to get that back into that 2019 range. Is it [indiscernible] few aircraft we'll probably give that guidance in January. George Shapiro: And could you tell us what percent of the orders this quarter were to NetJets or other fleet providers? Scott Donnelly: No, we don't break that down, George. George Shapiro: Okay. I figured, I'd try. Thanks. Scott Donnelly: I was really close to giving you to you by serial number, but… George Shapiro: Okay. Thanks. Operator: Thank you. Our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks a lot. And good results, guys. So could you comment a little bit about pricing at both Bell and Aviation? And kind of if you get the good orders and better pricing, I mean, I assume that would start to show up more in the next couple of quarters? Scott Donnelly: Well, yeah. I mean, you'll see in the Q, Cai, that when you look at Aviation, particular dollar pricing, probably $11 million net of inflation. So again, I think the pricing environment is certainly stronger than it has been, and we'll continue to press on that. I mean, we - there's no doubt we feel like the margins in this business need to be better and volume and productivity and efficiency are all part of it, but prices has to be part of that as well. So - and we don't usually get into any kind of price discussion around Bell, so I don't think we need to do that. But I would suffice to say that we're pleased with the commercial side of the business, the order activity, much like what we've been talking about on the Textron Aviation side of things is strong. Cai von Rumohr: Got it. And so I was a little surprised by the vigor of the margins at Bell, given that most of the volume came from commercial where the margins tend to be lower, and the R&D was still strong. Can you give us some color are the margin is going to be level or as we go on with the R&D for FARA and FLRAA, could there be more margin pressure? Scott Donnelly: Well, I mean, we did put, obviously, the pressures of increased R&D spending in the FEL programs into our guide. And I think we're pretty comfortable that we're on track to hit that guide even with those R&D pressures. Cai von Rumohr: Excellent. Thank you very much. Scott Donnelly: Sure. Operator: Thank you. Our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hi. Good morning, everyone. Scott Donnelly: Good morning. Kristine Liwag: Thanks. Scott, following up on your comments in Aviation, if you're in that 6 months backlog window right now, if we continue to see a strong order activity. Can we see bring forward some of this volume in 2021 and accelerate production? Scott Donnelly: The lead times of the aircraft make it difficult to have much movement. I mean, you can always do an aircraft or two depending on what that demand looks like. But inside of 6 months, it's pretty hard to adjust that, just given the long cycle nature of particularly some of our supplier components. Kristine Liwag: I see. So if we see this order activity, let's say, book-to-bill is strong for the rest of the year, that's really more of a 2022 story then? Scott Donnelly: Yes, that's correct. Yeah, we would incorporate that production ramp into what would end up being 2022 deliveries for sure. Kristine Liwag: Great. And then also on aftermarket, you mentioned, right, we're seeing strong bridge jet utilization. Also, we see that with takeoff and landing at a 12 year high. How much of a pricing upside do you have in aftermarket? And how do we think about the margin differential between aftermarket and new aircraft deliveries in Aviation? Scott Donnelly: Well, we don't break out those margins. I mean, but it's - the fact that we're seeing increased demand on the aftermarket side, in general, that tends to be a good margin business for us. And so it's generally a good mix, but I don't think there's a real material change and what that's doing for the business. It's highly dependent on, as you said, we're seeing at least in modern time, record levels of utilization, be a takeoff or landing cycles, average deal utilization, and that's going to continue to drive aftermarket growth, which is certainly good for the overall mix of the margin of the business. Kristine Liwag: Thank you. Eric Salander: Okay. Tony, I believe that's all the questions in the queue at this time. Operator: Yes, that is correct. Eric Salander: Okay. Could you announce the replay number? Operator: Great. Thank you. Just one moment. Ladies and gentlemen, this conference will be available for replay beginning at 10 A.M. Eastern today. You can access the digitized replay information at any time by dialing 1866-207-1041 and enter access code 7854134. International participants may dial 402-970-0847. Those numbers again are 1866-207-1041 and 402-970-0847 with access code 7854134. That does conclude our conference for today. We thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.

Operator: And ladies and gentlemen, thank you for standing by. Welcome to the Textron First Quarter Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to your host, Eric Salander, VP of Investor Relations. Please go ahead, sir. Eric Salander: Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $2.9 billion, up from $2.8 billion in last year's first quarter. During this year's first quarter, we reported net income of $0.75 per share. Adjusted net income on a non-GAAP measure was $0.70 per share for the first quarter of 2021 compared to $0.35 per share in the first quarter of 2020. Adjusted net income for 2021 excludes $6 million of pretax special charges, $0.02 per share after tax related to the 2020 restructuring plan and $15 million of pretax gain on the sale of TRU Canada, $0.07 per share after tax. Segment profit in the quarter was $256 million, up from $156 million in the first quarter of 2020. Manufacturing cash flow before pension contributions totaled $71 million, up $501 million from last year's first quarter. With that, I'll turn it over to Scott. Scott Donnelly: Thanks, Eric, and good morning, everyone. Overall, the first quarter was a strong quarter for Textron. Segment margins were up 330 basis points in the quarter, driven by strong execution across all of our segments. At Bell, revenues were up in the quarter on higher commercial revenues, partially offset by lower military revenues. On the commercial side of Bell, we delivered 17 helicopters up from 15 in the last year's first quarter. We saw solid order activity in the quarter across our commercial models, both domestically and internationally and across multiple end markets, including corporate, private, utility, and emergency medical services. On future vertical lift, that was awarded a contract modification of $293 million for the second phase of the competitive demonstration and reduction program for FLRAA. As we conclude final flight activity on the V-280, I think it's important to highlight the impressive performance milestones that the aircraft has demonstrated in over 215 flight hours over the past 3-plus years. This included 305 knots of demonstrated true airspeed, level 1 handling qualities and autonomous flight. On FLRAA, Bell is continuing with its build of the Invictus 360 prototype, where we are about 1/3 of the way through the manufacturing process in anticipation of first flight in Q4 of next year. Moving to Textron Systems. Revenues were flat in the quarter while the business continued to execute well with improved operating margins. In the quarter, Systems was awarded a contract to up to $607 million from the U.S. Army for the sustainment and modernization of existing shadow systems to the upgraded Block III configuration. Also in the quarter, Systems successfully participated in the U.S. Army's Future Tactical Unmanned Aircraft Systems rodeo at Fort Benning and completed direct soldier flight demonstrations of our platform, the Aerosonde HQ. Systems is currently responding to the FTUAS RFI, which will help inform the next phase of that program. Systems also delivered the first RCV medium prototype to the Army customer as they look to test these vehicles and define requirements for the future of robotic combat vehicle programs. At ATAC, we are continuing to ramp F1 flight hours at the operating sites related to the 3 awards of the U.S. Air Force CAPCAS program. At the end of the quarter, we had 16 F1 aircraft certified for operation and deployed across our customer sites. In Aviation, revenues were up - I'm sorry, revenues were eventually flat in the quarter with slightly lower volume, reflecting lower aftermarket revenues, partially offset by higher pricing. We delivered 28 jets, up from 23 last year and 14 commercial turboprops, down from 16 in last year's first quarter. Order activity was strong in the quarter, resulting in backlog growth of $450 million to $2.1 billion at quarter end. In the quarter, we delivered our 1,560 XL-based Citation jet. This milestone delivery is a testament to the value and performance of this platform as well as Textron Aviation's commitment to the ongoing support of the fleet. We also announced the new CJ4 Gen2 and delivered 5 aircraft in the quarter. This model upgrade is another example of our continued investment in our existing portfolio of aircraft. On the new product front, the Cessna SkyCourier aircraft certification program continues to progress well as we work towards entering to service targeted towards the second half of this year. Moving to Industrial. Revenues were up from last year's first quarter, primarily driven by higher volume and price in our Specialized Vehicle product line. At Specialized Vehicles, we continue to see strong retail demand across our customer end markets. At Kautex, we saw our volume of fuel systems for hybrid electric vehicles more than double to about 9% of our total production volume in the quarter, the startup of 4 new models. While the retail demand in industrial-owned markets has been improving, channel inventory remains below targeted levels as we work through supply shortages and disruptions, which we expect will improve throughout the course of the year. In summary, it was a great start to the year. We've seen improving customer demand in our end markets, increased commercial order flow at Aviation and Bell and continued solid execution in our military businesses with strong cash generation in the quarter. With that, I'll turn the call over to Frank. Frank Connor: Thanks, Scott. Good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $865 million were down $7 million from a year ago, largely due to lower aftermarket volume, partially offset by higher pricing. Segment profit was $47 million in the first quarter, up from $3 million of profit last year, primarily due to a favorable impact from performance and the mix of products sold. Backlog in the segment ended the quarter at $2.1 billion. Moving to Bell. Revenues were $846 million, up $23 million from last year on higher commercial revenues, partially offset by lower military revenues. Segment profit of $105 million was down $10 million, primarily due to higher research and development in the quarter, largely related to future vertical lift programs. Backlog in the segment ended the quarter at $5.2 billion. At Textron Systems, revenues were $328 million, flat with a year ago. Segment profit of $51 million was up $25 million due to a $27 million favorable impact from performance and other. Backlog in the segment ended the quarter at $2.4 billion. Industrial revenues of $825 million were up $85 million from last year, primarily from higher volume and mix as well as price at Specialized Vehicles and foreign exchange fluctuations. Segment profit was $47 million, up $38 million from the first quarter of 2020, primarily due to higher volume and mix, price, net of inflation and favorable performance at Specialized Vehicles. Finance segment revenues were $15 million, and profit was $6 million. Moving below segment profit, corporate expenses were $40 million, and interest expense was $35 million. With respect to our 2020 restructuring plan, we recorded pretax charges of $6 million on the special charges line. We also completed the sale of TRU Canada in the quarter and realized a pretax gain of $15 million. Cash performance in the quarter was strong with $71 million on manufacturing cash flow before pension contributions, a $501 million improvement over last year's first quarter as we continued our focus on inventory and working capital management. In the quarter, we repurchased 1.8 million shares, returning $91 million in cash to shareholders. To wrap up with guidance, we're raising our expected guidance of adjusted EPS to a range of $2.80 to $3 per share, up $0.10 from our prior outlook. We're reiterating our outlook for manufacturing cash flow before pension contributions of $600 million to $700 million with planned pension contributions of $50 million. That concludes our prepared remarks. So Brad, we can open the line for questions. Operator: [Operator Instructions]. Our first question today comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Guys, the $2.1 billion in backlog in Aviation, it kind of seems like it's putting through a real positive start of a cycle for you guys. Are we just at the point where the young used aircraft availability is just so low that customers are really forced to come to you guys? Is that kind of what you're seeing out there? Scott Donnelly: Well, Peter, I think the correlation between availability of young used aircraft and what that means in terms of new aircraft sales, for sure, are correlated. And I think if you look at what's happened here over the last period of time, we've been seeing that number come down. And at this point, we're down below 1% of the fleet that's out there that's under 10 years old available for sale. So without a doubt, I think that's helping. I think the overall demand environment is also more positive, right, so you've got more people that are looking to acquire aircraft than we've seen in quite some time. So the level of activity, the number of customer interactions is certainly quite strong. And so when that's happening, and again, the small number of young used is off to a factor in that. But I think part of it is just there's just strong demand in the market right now. Peter Skibitski: Yes. I mean, I think that's the biggest backlog you have in like 10 years, as far as I can tell. So are you forced to kind of look at production increases at this point? Scott Donnelly: Look, I think we'll look at it through the course of the year. Obviously, at this level of demand keeps up, we always are constantly looking and tweaking the production schedule. So I think we'll continue to monitor it and adjust accordingly. Peter Skibitski: I guess last one for me. Similar volumes to the first quarter of '20, but the margin is about 5 points higher. So is Aviation - and you touched on pricing, I don't know if you know kind of the level of pricing you're getting right now, but is Aviation a structurally higher-margin rate segment at this point do you see going forward just from the cost takeout? Or do we really need a lot more pricing to reach that level? Scott Donnelly: Well, Peter, I think there's two things going on. One is, I mean we did take cost out, but a lot of that had - obviously had to do with volume. So there's - I think the business is executing stronger from an overall performance standpoint. There was a price, and frankly, we're seeing a nice rebound, particularly in the parts side of the aftermarket business, and that's a good mix for us. So you saw some pricing contribution, and frankly, some good mix as you go into Q1 and saw overall aftermarket was actually down slightly. But the mix of part demand driven by increased utilization was a positive for us. Operator: And we do have a question from the line of David Strauss with Barclays. David Strauss: Scott, you touched on pricing a little bit in the Aviation. But could you talk about kind of across the board on - in all of your commercial businesses, kind of the pricing environment relative to raw material inflation that you might be seeing? Scott Donnelly: Sure. What we're - there's no question that inflation is out there. We're seeing it in a number of cases, but I think what our strategy has been is to try to keep pricing ahead of inflation, and we've been successful doing that. So you're right, it doesn't matter. Aviation, Bell through the industrial businesses, we're seeing a positive price environment. David Strauss: Right. Okay. And then can you remind us at the Aviation, how much of the business, I guess, on the new aircraft side is kind of Fortune 500, 1000 large corporate? And what are you seeing in that portion of the market? Is that rebounding at all yet? Scott Donnelly: Well, we don't usually track that specifically or give that out. But it's - I mean, we are seeing the corporate aviation departments are starting to come alive. There's more dialogue going on, and I expect that will continue to increase through the balance of the year. I think - and again, data sort of anecdotally, you can't give a specific breakout of this. Obviously, the number of cycles on aircraft continues to increase, particularly domestically in the U.S. March was actually up over where it was in 2019. These comps for 2020 are obviously kind of flaky, but if you look going back to 2019, the cycles domestically were up for our aircraft, which is great. I think it's still predominantly driven by a lot of personal travel and things like that, but we are clearly starting to see some corporate travel coming back. I mean I just - personally as I'm traveling around to our businesses and out and about, you go out the restaurants, you're meeting, I mean, suppliers are starting to travel. Customers have starting to travel. You're starting to see more of that. And I think as that happens, we'll see more and more corporate level, flight department, buying activity pick up. Operator: And we do have a question from the line of Ron Epstein with Bank of America. Ronald Epstein: So what products in Aviation are you seeing the most increase in your own product line, Latitude, Longitude, smaller, bigger? I mean, where are you seeing the most higher ticking going up? Scott Donnelly: Well, the good news here, Ron, is it's virtually every model of jet and turboprop that we have is seeing strong activity, which is good. So it's literally, it's across the entire portfolio of all of our jet and turboprop products. Ronald Epstein: Got it, got it, got it. And then if you could give us a quick update on kind of what you're hearing, seeing, feeling on future vertical lift. Scott Donnelly: Future vertical lift is progressing exactly as the Army said. As I said, we - obviously, we and our competitor got the contracts for Phase 2. You know the draft RFP had come out late last year. Comments went back. Response to those questions have now come in. We expect an industry day and then ultimately, the real RFP to drop here sometime probably in that May or so timeframe. So those guys are staying very much on schedule in terms of what they've told us. We've just wrapped up our V-280 flight activity, which I think was a hugely successful program that demonstrated everything we wanted to demonstrate. So right now, the team is focused on the objectives of the second phase of the program, which is continuing to do risk reduction. So this thing makes a smooth transition from the risk reduction phase into a full-blown program record. And it's kind of a parallel path of working that with the Army, at the same time that the formal RFP activity is going on in proposal development. And I'd say it's progressing exactly as the Army told us it would. Ronald Epstein: And with the skinny budget that was dropped by the administration, do you feel any better, any worse, the same about the prospects for the program longer term? Scott Donnelly: Well, I think the expectations were that we'd see pretty flattish budget. And I think that's what we're seeing. And I mean, for sure, I could argue it's down a little bit based on inflation-adjusted and such. But the Army has been really clear about the importance of modernization. Their top priorities are still getting enormous amount of focus. They've always been very responsible about their intention on how they would pay for this. They were never expecting some big top line adjustment. They have always said that they would fund this by reducing legacy funding, so they could put their focus on modernization. I think if you listen to what General McConville says every time he speaks publicly, it's the - it's been very, very consistent, and I think that's absolutely their intent. So I think that, again, we've only seen the skinny budget, right? We haven't seen details down below that. But certainly, in terms of the top line support and everything that the Army is talking about, the focus on modernization is continuing. Operator: And we do have a question from the line of Peter Arment with Baird. Peter Arment: Scott, you've called out some good performance at Specialized Vehicles. Maybe you could just give us a little color on what you're seeing there and what's driving that? Scott Donnelly: These guys are executing well. Demand on the - on all those product lines, exception probably is the ground support equipment is still a little bit soft, although activity is starting to pick up in that area as well. But if you look at the core businesses of Golf and PTV and then, of course, all the off-road, the retail demand environment, is very strong. We've also seen solid pricing. I think the business is executing well. It's - it is a struggle some days. I mean, tactically, just getting supply chain stuff worked out is kind of a battle every day. But the team is doing a nice job of working through that. We would like to continue to drive higher volumes and get some more product out there in terms of inventory levels, but I think that just bodes well for the future, and the guys are executing well and driving improved profitability. Peter Arment: And just to follow up on the supply chain comment. We continue to hear about supply chain stress from other industrials, especially around the semi chips and things like that. What are you seeing, I guess, across your businesses? Are you seeing the same impacts or is it different? Scott Donnelly: So we're not seeing as much impact in the aerospace pieces of that. And I think a lot of that has to do with the fact that a lot of those businesses, because they also have defense businesses, kind of kept operating through a lot of the pandemic. It certainly was true of our businesses for the most part. So that supply chain has come back up and is running better. And obviously, in many of these cases, you share demand with a lot of the commercial stuff, which is still down, so there's capacity out there. So we haven't seen a lot of challenges yet in that space. It's more on the industrial side of things, and those supply chains are getting back up and operating. Obviously, there's a lot of shipping issues, there's all kinds of stuff. But they are tactical challenges, and the guys pretty much work through them every day. But I think as we go forward, there's certainly opportunity to see higher volumes to not only to meet that strong demand, but also get inventory levels restocked. Operator: And we do have a question from the line of Seth Seifman with JPMorgan. Seth Seifman: Good quarter. I was wondering if you guys could talk a little bit. I think initially, we talked about first quarter deliveries being sort of assessment being sort of flattish year-on-year and then improvement in Q2, Q3 up in the fourth quarter. So I guess sort of you when you probably think about that, do you see the Q2 and Q3 numbers now up a little bit from where you've seen them now based on what we've seen in the backlog, given that Q1 came in above expectations as well? Scott Donnelly: Yes, I mean, I think that's exactly what we would expect, right? I mean there's a normal cyclicality to the business. Q1 is usually a lighter delivery quarter. Q4 is obviously, usually the very strong delivery quarter. The big difference is, usually, you don't see a whole lot of order activity in Q1. And clearly, we saw that this year. So I think absolutely, that bodes well for future quarters. And frankly, part of our raise on our guide is an anticipation that we'll see better performance than what we had guided in terms of the Aviation full year number. Seth Seifman: I guess - and then on that point, putting up the first quarter margin kind of similar to what you'd expected for the year, I mean, I would think with higher volumes Q2 and Q3 and then especially Q4, is there some color you can give us around where you think the Aviation margin might come out now, given that it seems like it should clearly be higher than the initial guide? Scott Donnelly: Well, I think you're right, Seth. It will be higher. We're probably not going to go back and reguide the percentages in each one of the segments. But when you think about the guide that we put in, I think you can expect in terms of how you model a part of that, is our expectation is that we'll see stronger margins on the Aviation side. And the other is, obviously, we also had a very strong first quarter on Systems. And I think well, that's also part of our raise in the guide is we'll probably do somewhat better on a margin rate at Systems than our original guidance as well. Operator: And we do have a question from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: So my first question is on Bell. Can we just talk about the magnitude and timing of the future vertical lift investment? I'm guessing it's all FLRAA now. Is the FARA investment sizable and comparable to FLRAA? And then on FLRAA, are you done on the company-funded R&D side? Scott Donnelly: So right now, part of the challenge of the increased R&D spending in 2021 is that we have both FARA and FLRAA activities going on. So the FARA program has kind of ramped to full speed ahead here. And obviously, we've initiated - starting to produce the first aircraft and to get the first flight in the latter part of next year. So we're seeing a lot of FARA activity, and that's all under OTA, which is a 1/3 cost share that we have with the government. And then that FLRAA program, so that $290-or-so million dollars that were just awarded, that program sort of runs from now through next March. And that's also a 1/3 company-funded program as well. So that's part of the headwind we have on the R&D front right now, Sheila, is that you have both FARA and Phase 2 of FLRAA going on simultaneously. Sheila Kahyaoglu: Okay. Cool. And then maybe just a bigger picture question on Aviation because the backlog was so good. There's DoorDash, Uber, Netflix, you name it, a technology element in every industry. So I guess with Aviation, as some of these charter and fractional operators mature in their technology models or whatever it might be, are you seeing a change in your customer composition, say, over the next 5 years, where these guys become a bigger customer portion for you because they're emerging not only wheels up because they've been very good to you guys for a while. But in general thought, are you seeing that? Scott Donnelly: Well, we haven't seen a mix shift really at this point. I mean, obviously, there's a good part of our business that's been with Wheels Up on the fixed-wing side. As you know, we just announced doing the same on the rotorcraft side with Bell helicopters going into the Wheels Up fleet. We're continuing to see terrific strength through our NetJets relationship. I mean, I think the NetJets guys are also doing very well in the fractional side of the business. So we're seeing strong demand there as well. But we haven't seen to be a big mix shift over. So you're seeing strength right now and everything from charter operators to the membership kind of providers like the Wheels Up up through that fractional providers like NetJets. So it seems like the growth in the demand is across all those different business models right now. Operator: And we have a question from the line of Noah Poponak with Goldman Sachs. Noah Poponak: Scott, 1Q is usually your seasonally lightest order quarter in Aviation. Do you expect that order number to improve sequentially as you move through the year? Scott Donnelly: Well, Noah, I think our level of sales activity is continuing to be strong. So I would expect that in the market, given the demand that we're seeing, I expect to see continued strength through the course of the year. Now as we've talked about before, we do expect to start to see more sort of those corporate flight departments and larger corporate operators as you see more business travel coming back, and I think we're starting to see that, right? So there's folks that were not flying and corporate departments that weren't - frankly, were largely shut down for a lot of the pandemic have started to come back, and so there's more dialogue there as well. So I'm not sure we would guide our book-to-bill at this point, but it's - the demand environment is remaining strong, which is good. Noah Poponak: Okay. The end market has had some head fakes over the last few years. And the data would look better and then maybe kind of stall out. The leading indicator data right now looks particularly good. But the pandemic seems to have brought in new flyers where there's maybe some questions around whether or not they go back to commercial once the virus is in a better place. Just overall, a bigger picture, I mean, we see the data, you talk to the customers. How are you thinking through sustainability here versus something that could reverse on us again? Scott Donnelly: Well, when we're seeing people buy aircraft, right? So that's not something that someone's likely to revert back out of that. So if someone's made the commitment and bought a fracture, bought a whole aircraft, and I think those folks are going to stay in the market. Are there some people that might be using charter kind of on-demand stuff that might revert back to commercial? Absolutely. But I think over time, you see people that come into this market, they can afford to be in the market. And once they become accustomed to the convenience and the productivity of it, I think almost those people are going to tend to stay with it. Noah Poponak: Okay. And then just on the Systems margin, it ramped in the back half of last year, landed where it did in the first quarter. Maybe just level set us on how you're thinking about the durable, sustainable margin over time at Systems. Scott Donnelly: Well, I think it is very durable. I mean, I think the team has been executing really well. As you know, over the last a couple of years, we had a lot of investment that was going into programs like the ATAC F1 program, and you had to make that expense and that investment ahead of winning those contracts in order to be eligible for those contracts. So we went through a period of having those expenses with no revenue. Those assets are now gainfully employed and out there generating revenue and margins. So some of those swings, I think, are helping to strengthen the margins in the business. I think overall, the performance of the business has been quite strong. As you know, we're transitioning. We'll see this as we go forward on the transition from the development side of the ship-to-shore and the production side of the ship-to-shore, which clearly will have better margins than the development side. So I think as you look at those macro things, this is a performance that has a lot of good performing elements to it. And I expect they will continue to perform really well. As I said earlier, I think part of our guide increase is that we expect that we will probably have margins that are stronger than what we originally guided on the Systems side. I'd say also that business is pursuing an awful lot of new opportunities that will continue to come to roost over the course of the next couple 2, 3 years. So I think they're in a really good place. I do think we'll have a little bit of headwind, Noah, as we get in the back half of the year here on some of our fee-for-service in Afghanistan. That wind-down will take down some of our sites. I think we've been very conservative about how we run that business in terms of asset values. But - and I think there are opportunities to redeploy those to other locations, which I think will happen, but you probably have a little bit of a gap between the sites that are operating today and the future sites. So it's not a big impact, but it's enough that it will reduce a little bit of revenue and margin here probably in the back half of the year. But I would expect to continue to see really good strong margins and good strong performance in that segment. Operator: And we do have a question from the line of Carter Copeland with Melius Research. Carter Copeland: Scott, kind of an unorthodox question, but one, I'd really love to get your perspective on this. Obviously, a lot of capital out there supporting VTOL, eVTOL investments in SPAC land and whatnot. And I wonder, as you look at your technology portfolio inside Bell and all the various projects you might have in some phase of R&D and you think about what to fund and what not to fund and kind of that whole relative hierarchy, is there a model that makes sense to maybe pull some of that stuff out and put it in a vehicle like that and accelerate funding or take advantage of the ample capital that's out there in the market and all that sort of excitement? How do you think about that? Scott Donnelly: It's a good question, and I think it's a little early for us to make that call. We have some very strong R&D capability. We have a lot of technology, frankly, that already exists in the company, obviously. That's a space that, as you know, we've been looking at for a while. We continue to look at it. And look, we take a view so we actually know how to make aircraft. We know how to make VTOL aircraft. The architecture you see that's likely to be the winner in some of this urban air mobility space, frankly, our small tiltrotors. And we actually know how to make tiltrotor. So a lot of the technology we obviously have on the shelf are stuff that our guys are very capable and are working on. We actually know how to certify our craft in many of these categories. But the issue for us is, what's the right time to here. And in fact, a lot of that's driven by the battery technology. We want to make sure that when we make a move in the space, however, the structure of that move is that we know where the technology is around the propulsion system. This has always been hugely important in our industry. We would never go undertake a new airplane, fixed-wing or vertical takeoff and landing without having the right propulsion system to make sure that it's going to be successful. And I think largely, that comes down to the battery technology. So we've got teams, obviously, that have been following that and working on that, and we'll make our move when we think it's the right time. And as to what the structure that might look like, that's sort of to be determined at this point. Carter Copeland: Is it safe to say you prefer it to be organic and wholly owned in that regard? Scott Donnelly: Well, I don't think we're committed one way or the other. I mean, I think clearly, we own the technology. And we're - we know we can go do it in terms of is there a structure that's more preferable than another. I mean, I think we'll look at all options at this point. We want to make sure that we have the right technology and the right ability to make a successful product. And right now, that's really more in the R&D phase as opposed to worrying about capital structure. Operator: And we do have a question from the line of George Shapiro with Shapiro Research. George Shapiro: Scott, the release says that mix was a big help in the Aviation profit in the quarter. But if I look at the mix, I mean, it's not clear why. I mean, M2 is 4 deliveries higher and Sovereign was actually 1 delivery less. King Airs were less in the quarter. So if you could just expand a little bit on what the favorable mix actually was. Scott Donnelly: So the mix favorability really has to do within the aftermarket, what's the mix of parts versus service center labor. We saw a strong part demand which has been rebounding from where it was, and that's a good mix for us. George Shapiro: And yet, you said the aftermarket was down, what I assume a couple of percent. Scott Donnelly: Well, it was down very, very modestly, but more importantly, the mix within that aftermarket was more heavily weighted to parts than service. George Shapiro: Okay. And if I look at the implied orders this quarter and go back in time, orders are pretty similar in Q1 of '19. They were actually somewhat below Q1 of '18. And then we kind of petered out after that. So what's your confidence that this time, it's not going to peter out like we saw some in '18 and '19? Scott Donnelly: George, all I can tell you is we're at the level of activity, we're seeing a number of customer dialogues. It's strong right now. I can't really represent where it's going to be 6 months from now or 9 months from now. I mean we think that the macro environment has been - we've talked about this for the last couple of quarters, it's is as strong as we've seen. And by every metric, when you look at a number of new people coming in, we're - as I said, we're seeing flight hours now that are back up over where they were in 2019, not just comparing to 2020. The used young aircraft that are available for sale, the pricing environment, it's all positive. I promised to tell you 3 months from now, 6 months from now, 9 months from now, how we feel 3, 6 or 9 months from now. George Shapiro: And then my last quick one, why isn't the guide for the year substantially low? I mean you did $0.70 this quarter. If you just annualize that, you get to the low end of your new guidance, and we know that this quarter is the weakest quarter for Aviation probably pretty substantially. So what are you figuring weakens in subsequent quarters to offset the Aviation strength that's given you only a guide of $2.80 to $3? Scott Donnelly: Well, George, I think we're - we raised our guide because of outperformance here in Q1, and our expectation is that we'll continue to see strength in Aviation and some stronger profitability in Systems. And that's kind of how we're looking at it right now. Obviously, as the year goes on, I think we're going to still be a little bit conservative here in terms of making sure that the economies around the world don't have any issues that the pandemic recovery continues. Right now, everything feels very strong. And it's - again, the end market demand, whether it's in our industrial or aerospace and defense businesses feels good, but we'll continue to keep an eye on that as the year plays out. Operator: We do have a question from the line of Jon Raviv with Citi. Jonathan Raviv: A question on - just on biz jet. What's the general lead time when you guys look at production rates going higher? And what could that mean for margin? Essentially, what needs to happen to get back to that double-digit number, which we've been thinking about not too long ago. How much of that's in your control? Scott Donnelly: Well, look, I think that generally speaking, we look at about a 6, 9-month sort of lead time. Obviously, there are some longer lead items in there around engines and stuff like that, but we maintain an awful lot of close dialogue with those critical suppliers to understand what flexibility we would have to tweak production rates up or down. And that's a real-time process, right? It's not like it's an annual thing. We maintain that dialogue on a very regular basis. And that gives us some flexibility that I think is out in that 6-to-9-month window. Jonathan Raviv: And then just on the margins, Scott. What you got to do maybe to get to those double-digit numbers, which you've been talking about not too long ago. Scott Donnelly: Look, as the volume, we're still running at fairly low volumes. And I think that these are - tend to be pretty good gross margin products. So as we see that volume grow in the business, a lot of that drops to the bottom line. And that's clearly the path to get back to that double-digit margin business. Jonathan Raviv: Got it. And then on capital deployment, repo in the quarter, a bit light, still carrying a pretty big cash balance. How are you thinking about M&A or other capital deployment options at this point? And if M&A, where would you focus and what kind of size you're looking at? Scott Donnelly: Well, again, any M&A activity would be something that we think that comes along as appropriate. Our focus has certainly been more in that A&D space, and that's the areas where we'll continue to look. As to the capital deployment, we continue to focus on stock buyback as sort of our default opportunistically. Again, we're a little conservative in Q1, just to get - see how the economy is doing and how the businesses are doing and performing, and we would expect to clearly see that ramp as we go through the year. Operator: And we do have a question from the line of Robert Stallard with Vertical Research. Robert Stallard: Scott, Ingersoll Rand announced they were selling their special vehicles business quite recently for a pretty good price. And I was wondering, if you've seen any expressions of interest in your portfolio? Scott Donnelly: We're not going to comment at all on the specifics of any kind of M&A activity at this point. Robert Stallard: Is this something you would be open to thinking about? Scott Donnelly: We're not going to comment at all on M&A activity at this point. Robert Stallard: Okay. Maybe something else then. Frank, just a couple of small ones for you. You mentioned that I think it was other was an item in - I think it was TS this quarter. I was wondering if you could give us some more color on that. And then maybe not wanting to sound like George, but you didn't raise the cash guidance for the year. And I wonder if there's any specific reason for that. Frank Connor: Yes, look, the other piece of that, there's no other. It's just the category. It's the way we talk about it in the Q. So that's just part of the description of that category. So everything else was kind of clean in terms of price performance, everything. So there was no other piece. But in terms of cash flow, we obviously saw a very good cash flow performance in the first quarter. We expect that to continue. We're probably leaning towards the high end of our guide or the higher end of that range certainly, given the provision to earnings, but we left the cash number where it is for now. Operator: And we do have a question from the line of Cai von Rumohr with Cowen. Cai von Rumohr: So at Aviation, your margin was up to your full year target. You mentioned aftermarket, but could you give us some color on other factors and the relative importance? For example, price on your aircraft, preowned profits or losses, R&D, those kind of things because you still haven't explained very well why the numbers were quite so good at Aviation. Scott Donnelly: Cai, I think the part margins is true in all of our industry. It tends to be the strongest. So that mix is a significant contributor. We did see positive price over inflation, which is good. We saw positive pricing, I think, that what we'll see going into our order book, which is good for future quarters. I think you'll start to see, frankly, given the environment that's been out there, our balance of used aircraft is dropping and the pricing environment in terms of what it takes to move those aircraft has been improving. And so all of those factors are contributors to seeing a healthier margin come back into the business. And as you know, we need to see increased volume coming back into the business to get up to where we were back to a 10% margin in '19. And I think as we see that volume grow through this year and into next year, that's where we're heading. So it's not one spot, which is actually good, right? It's been good mix, it's good pricing on product. And most importantly, it's going to - as a result of strong book-to-bill, lead to higher volumes. Cai von Rumohr: So if that's the case, I mean, basically, you're clearly going to blow away your 5.5% margin target for the year. And you said that Systems is kind of better than you thought. So your guide looks low, but what am I missing? Is there something else that's going south to offset the obvious goodness in Aviation and Systems? Scott Donnelly: No, there's not. I think things are good. And we'll continue to keep an eye on it through the course of the year. As your friend George noted, we never know what the order rate is going to be 30 days, 90 days, 120 days downstream. So if we continue to see the kind of strength that we're seeing in the end market and the demand, I'm sure there's opportunity for us to further raise that guide. Cai von Rumohr: And the last one, to follow up to Carter's question, people are throwing money at people who have never built planes before. You guys actually have some technology that's relevant to the whole urban mobility. Assuming you have clients who clearly, are oriented that way, what's it going to take? I mean, do you feel that you could miss an opportunity by not moving and taking some money and kind of getting into the fray quicker? Because I assume the guy who has a reasonable product and gets certified first is going to have a first-mover advantage. Scott Donnelly: Well, Cai, I'm not worried about missing anything here. I think our ability to execute on the design and development of an aircraft and the certification of an aircraft is quite proven. We've done this many times. I think we're sitting on an enormous amount of technological capability in terms of what we've done in the past and obviously, the technology of our teams. I mean, it takes some really talented people to go design and build and certify an aircraft, the fixed-wing or VTOL. We do think there's a potential for a very, very large market out there in that urban air mobility, but you have to make sure that all the technology you need to have in place to have a useful aircraft is there. And as I said earlier, I think in my mind, it largely comes down to around the battery technology. So we have a great team of people. As you know, we created a sort of a breakout of a group called the eAviation that Rob Scholl is running for right now and pulling together the efforts and technology and engineers from across both the fixed-wing aviation, those at Textron Aviation as well as at Bell, some key resources out of our Systems business. So we are actively working on this. But again, you have to have the right propulsion system to make this work. And that's really going to be the gating item. And that's one that we're working on, and we're keeping an eye on it. But look, am I worried about some of these guys that have never certified an aircraft obviously going to dominate a market? I'm not worried about that at all. We're working on this, but we don't need to be wildly public or out there making crazy claims at this stage of the game. We're executing, and we'll pick our time and place to do it. And I think we could have a very successful business in that space. Operator: Our last question comes from the line Kristine Liwag with Morgan Stanley. Kristine Liwag: Scott, following up on these E-Z-GO questions. It's clear that you have aircraft technology and certification down. But a lot of these new entrants are planning a vertically integrated solution where they also own the direct-to-consumer access point, operations and manufacturing. Should you go into this industry, what's your appetite to expand into the other parts of the value chain and provide your own vertically integrated solution versus staying within manufacturing? Scott Donnelly: Well, that's very much to be determined, okay? To be honest with you, I personally don't understand it. We've been in this game for a long time and why someone who produces in services and sells aircraft needs to also operate the aircraft. I mean I'm not opposed to the idea, but there's a difference between designing and building and certifying aircraft and operating aircraft day in and day out. I think maybe people don't fully appreciate what that business model is and how you have to run such a business. I mean, look, we look at people like Wheels Up. We look at people like NetJets. I mean, look, operating big Part 135 operations is not easy. It's a big business. It's a complex business, and it's - that's totally different than designing and building and certifying an aircraft. So I'm not saying that the existing term of someone who's totally vertically integrated can't exist, but I don't know why - I guess, I don't know why it has to be that way. Well, frankly, I guess my view would be why it's exclusively one way or the other. So look, we're working, as you know, with guys like Wheels Up. I mean Kenny and our companies have a really good relationship. He's obviously a master of providing that on-demand lift and aircraft in aviation today and running a big complex 135 operation. And I think there's probably as much opportunity to help accelerate these kinds of end markets. They're working with the expertise that's out there as opposed to trying to reinvent the wheel, frankly. Kristine Liwag: That's helpful. And then, Scott, if you were to think about when the earliest year would be where we would see a fully operational UAM, E-Z-GO flight, revenue passenger flight for customers, when do you think that would be? Scott Donnelly: Well, this is why we haven't put a date out there, right? Because I think it's going to be gated largely around what's the battery technology is there to support making a useful vehicle. And when I say a useful vehicle, I mean, something that can have a kind of range practical in terms of what we know needs to be there from a certification standpoint, what needs to be there in terms of margins, and that's the piece that, frankly, is why I'd say. That's in my mind, the pacing item and what will drive that date. Now does that mean you can't fly something sooner than that? Of course, you can fly something sooner than that. But to certify it and really put it into an actual real Part 135 passenger carrying operation, that's the piece, that's the question mark. And that's why, again, I'm not worried about the timing of this. I think you do the work. And you pull the trigger when you think that you're going to have something that's a certifiable practical useful air vehicle. Eric Salander: Okay. Brad, that concludes the questioning queue. Operator: And with that, ladies and gentlemen, that does conclude your conference for today. 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