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Operator: Welcome to the Textron First 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 a.m. Eastern Time today through April 25 of 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, Liah, 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 a higher segment profit at Aviation, Bell and Systems. At Aviation in the quarter, we delivered 36 jets, up from 35 last year, 20 commercial turboprops down from 34 last year’s first quarter. Aviation continues to see strong demand across our product lines. The result in backlog growth of $177 million, and in the first quarter $7.3 billion. Textron aviation’s fleet utilization remains strong in the quarter, contributing to aftermarket revenue growth of 6%, as compared to last year’s first quarter. Throughout Q1, we saw continued improvements in our supply chain and hours attained in the factory, supporting delivery growth throughout the remainder of the year.

At Bell, revenues in the quarter were up, driven by higher military volume, reflecting the continued ramp of the 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 and delivery to Nigeria of 12 AH1Z helicopters. For V22, the recently enacted FY ‘24 budget includes five additional aircraft scheduled for delivery in 2027. On the commercial side of Bell, we delivered 18 helicopters down from 22 in last year’s first quarter. During the quarter, we continued to progress toward FAA certification on the 525, expected later this year.

Bell recently received its first order for 10 525 helicopters from Equinor, a Norwegian state energy company. Moving to Textron systems, revenue was flat, and margin was up versus last year’s first quarter. During the quarter, we received notification from our government customer of the termination of the Shadow program. We’re currently working with the Army on winding this program down. This decision reflects the Army’s transition from Shadow to the future tactical UAS system to fulfill the need of organic intelligence, surveillance, and reconnaissance. Earlier this month, we received notification that we were awarded options three and four of the EQAS program, and we remain one of two competitors for this next generation program. Also in the quarter, Systems was down selected with one other competitor to design, develop, and manufacture a 30 millimeter autocannon advanced reconnaissance vehicle prototype for the U.S. Marine Corps.

This two year effort will develop an innovative combat vehicle that provides mobile protective firepower for the Marines. In addition, the Army’s FY ‘25 budget request funds the design of the XM-30 ground combat vehicle in preparation for the prototype build and testing portion of Phases 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 in the specialized vehicles. Caltech’s revenues were flat in the quarter. We’re encouraged by recent trends in the hybrid space where industry is experiencing increased customer demand and new OEM investments in hybrid platforms. At 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 up $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 than $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 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 E-Aviation segment revenues were $7 million and segment loss was $18 million in the first quarter of 2024, compared with a segment loss of $9 million in the first quarter of 2024, primarily related to higher research and development costs. Finance segment revenues were $15 million and profit was $18 million. Moving below segment profit, corporate expenses were $62 million, net interest expense was $15 million, LIFO inventory provision was $20 million, intangible asset amortization was $8 million, and the non-service component of pension and post-retirement income was $66 million. In the first quarter of 2024, we incurred $14 million in special charges under the 2023 restructuring plan, largely related to headcount reductions to improve the cost structures of the Textron Systems and Bell Segments in light of the cancellations of the shadow and FLRAA 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 headcount 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 pre-tax 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 Liah we can open the line for questions.

Operator: Thank you. [Operator Instructions] And we’ll start with David Strauss with Barclays. Please go ahead.

David Strauss: Thanks. Good morning, everyone.

Scott Donnelly: Good morning, David.

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

Scott Donnelly: Sure. I think that we certainly expect to see nice growth on a year-over-year basis. The supply chain does continue to improve the number of hours that we’re able to get in the factory in terms of labor hours that are productive hours. You know, post-training and whatnot does continue to improve. So I think we feel pretty good about how things progressed through the quarter. What we always have a few aircraft that we would like to have gotten delivered. We definitely had some things that got late in the corner, it 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, you know, a nice increase in volume on a year-over-year basis.

David Strauss: Great. Thanks very much.

Scott Donnelly: Sure.

Operator: Next, we go to 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, 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, I think we talked last year, Robert, towards the end of the year, and in our guide, you know, that we expected to see the high-end consumer dollars, recreational, personal transportation stuff soften. And we’re seeing that. It’s probably even a little bit softer than we would have expected. 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, was a little bit softer than we would have expected. And that’s part of what we want 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 on a run rate basis. And we’ll realize a fair amount of that by the end of 2024, but that will roll into 2025 as well. The incremental cash is about $20 million in ‘24 for the additional restructuring, and we’ll just absorb that into our cash guidance. And overall cash for the restructuring for ‘24 is in the area $60 million to $65 million. So but additional $20 million versus where we had been.

Robert Stallard: Okay. That’s great. Thanks, Frank.

Operator: Next, we move on to Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu: Thank you. Good morning, Scott, Frank, and David. Can we start off with maybe Bell? Scott, if we look at margins, they expanded up 130 basis points at Bell to 11%, despite maybe $180 million of FLRAA 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 an initial property-related lawsuit that gave us a little bit of a boost in the quarter. But I would say the team is performing well. You know, as you know, we did restructuring actions to try to deal with the loss of the FLRAA program. We were able, you know, in a number of cases to take some of the appropriate engineering talent and move that over to the FLRAA program, which helps ramp that program up. But we also had to take some cost actions, you know, both as a result of the loss of the FLRAA 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 order.

That gets that line back up and going again. The extra five on V-22, which is above the original program record, is certainly a nice add. And we’ll start to see some of that flow through in the latter part of the year. 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 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 1 time. Maybe if you could provide any color on what you’re seeing from your customers? One of your competitors noted interest rates are potentially prohibiting orders, if you could just comment on that?

Scott Donnelly: You know, 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 years from now. So from a financing standpoint, I don’t know, we don’t, [Indiscernible] as much about that, but the order activity was staying pretty strong. So positive.

Sheila Kahyaoglu: Great. Thank you.

Scott Donnelly: Sure.

Operator: Next, we go to Myles Walton with Wolfe Research. Please, go ahead.

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

Scott Donnelly: Sure. Look, the Bell supply chain continues to, I would say, improve. We always have a number of parts that are our 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 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, you know, a little lighter maybe than we expected Q1, but I think we’re in good shape. And order activity there also remains, you know, very healthy. So I think Bell’s in a good place. 525 flight test is going very well. The FAA flight testing, you know, portion, we’re well into that.

We have a few more performance flight tests. And then we go through sort of what they call FNR, which is about 150 hours of just durability, reliability, flying. And obviously, as you guys know, we’ve been flying that aircraft for a long time. It’s proven to be a very durable, reliable aircraft, so I don’t think we’ll have any issues going through there. So we’ll — we should wrap up flight testing here as we get to mid-year and you know as you know there’s a fair bit of paperwork processing and you know final documents and all that kind of stuff 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’d target over the next few years?

Scott Donnelly: Yes, we haven’t released a production rate on the 525.

Myles Walton: All right. Thank you.

Scott Donnelly: Sure.

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

Peter Arment: Yes, good morning, Scott and Frank.

Scott Donnelly: Good morning, Peter.

Peter Arment: Hey, 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 enough that it helped the margin rate a little bit in the quarter.

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

Scott Donnelly: Yes, as you know, that bounces around depending on where the share price is, but kind of we expected it, 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.

Peter Arment: I appreciate it. Thanks, guys.

Operator: Next, we have a question from Cai von Rumohr with TD Cowen. Please go ahead.

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

Scott Donnelly: I don’t know, Cai. I mean, I thought we feel pretty good about our deliveries. We always would like to get another couple jets here and there, but I think we’re doing pretty good and feeling good about where we are on the labor front where we expected to be. So I don’t see a problem with our labor situation in Wichita. I think everybody has been challenged by higher turnover rates just in terms of the amount of churn and that’s really been one of the biggest impacts to us on the 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 need to be. And I expect we’ll continue to see a ramp on deliveries as we go through the year.

Cai von Rumohr: Great. And so that maybe going back to Myle’s question, so energy prices are up 5 to 5, it’s clearly targeting that market. You’ve got an order for 10. Do deliveries 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 timeframe. I think we’re in a very good place in terms of the cycle, as you allude to. Obviously, Equinor is an energy company, and those are for oil and gas offshore applications. And we have several other customers whom we’re 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.

Cai von Rumohr: Terrific. Thank you.

Operator: Next, we go to Seth Seifman with JPMorgan. Please go ahead.

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, you know, should we think about the $14 million of year-on-year pricing, you know, being a relatively high level, compared to what we’re likely to see for the rest of the year given that those compares get harder?

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 you know most of the work as we go through the course of the year is just managing you know the inflation numbers around you know supply base and things like that. So — but I would expect to see positive price overinflation through the course of the year.

Seth Seifman: Right. Okay, Okay. Thanks. And then just to follow-up, I think you talked earlier about potentially some upside at Bell, talked about being in good shape at Aviation. I mean, when we think about where industrial came in, in the first quarter and where the guidance is, 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.

Scott Donnelly: Yes, I think that 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, which is why we’re comfortable holding our guide for the overall company.

Seth Seifman: Great. Thank you very much.

David Rosenberg: Next, Liah. Liah, go ahead with them.

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

Noah Poponak: Hey, good morning everyone.

Scott Donnelly: Good morning Noah.

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

Scott Donnelly: No, I think you’ll still see some pressure in second quarter, no. Remember, a lot of these aircraft are inventoried, a lot of that cost is inventoried, so it usually takes, you know, the first-half of the year to bleed out, you know, in the performance levels and productivity levels that we saw in the back half, you know, of the previous year in 2023 in this case. So I still think we see some pressure for that, but let’s say the good news is that when we look at the metrics in the factory and the efficiencies, productivity and things of that nature, you know, we are starting to see some of the benefits that we expect to see in a more stable, you know, production environment, less supplier disruption, you know, fewer onboarding, you know, so less you know 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 to follow-up on the Bell margin, I know that FLRAA is still ramping and it’ll kind of exit the year at a different revenue run rate than it achieved in the first quarter. But it’s also ramped a decent amount. And I think this year you’ll get pretty close to what the run rate is in the sort of medium term. And this Bell margin just keeps outperforming. I mean, the amount of margin compression that was discussed out there in the market, I guess, in the medium term, is that kind of off the table? Or I guess how do you see this dollar margin hanging in ‘24, or ‘25, ‘26, just in the medium term as you continue to ramp borrow?

Scott Donnelly: Well, look, I mean, I think, yes, the term 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 five E-22s, these things are all helpful. I guess I would also note, you may have seen if you look at the FY ‘25 budget request, one of the allocations of sort of the elimination of FLRAA 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 FIDAP. So I do think that 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 FIDAP.

So that’s, you know, another $200 million probably revenue step as we get into the next year. So we’ll continue to stay very focused on the cost side and executing and performing against all these programs. And as I said, I think that’ll drive us to the higher side of the revenue guide, or the margin guide for this year. And we’ll certainly get back to you on the FY ’25 guide sometime in January or 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 deviation did, finance did, tax rate, corporate, interest even. Is it worth updating those on a full-year basis or are they all just kind of still looking like they’ll land in the range of what you 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 I guess we’re probably a little better on interest expense, excuse me, relative to the 90, depending on what interest rates do for the year. You know, our investment in cash is a little better than we had thought, given the continuing higher interest rates, so there’s probably benefit there. But the other stuff is kind of in the range of what we had talked about.

Noah Poponak: Okay. Thank you.

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

Doug Harned: Thank you. Good morning. I wanted to go back to your discussion around pricing at aviation. You know, 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: You know, 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 ended 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, you know, catch-up in price, but 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 think the 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 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 net, you know, have pricing, you know, positive overinflation.

Doug 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 is 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 timeline of FLRAAs contribution to margins to proceed?

Scott Donnelly: Well, I mean, I think that, as you described it, that’s kind of what you would nominally expect for any of these large, you know, defense contract programs, far as a very big program, right? So the EMD phase of this thing, you know, goes out through, you know, into, you know, 2030. Now you’ll start to see, I would suspect initial production loss. 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 timeframe. But certainly the next several years is very much dominated by the EMD program.

Doug Harned: Okay. And that would be dilutive in that period?

Scott Donnelly: Yes, correct.

Doug Harned: Yes. Okay, and very good. Thank you.

Scott Donnelly: Sure.

Operator: Next we go to the line of Jason Gursky with Citi Group. Please go ahead.

Jason Gursky: Good morning, everybody.

Scott Donnelly: Good morning.

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

Scott Donnelly: Sure. So, look, I think there’s, obviously a couple pieces that are in here, right? There’s the Pipistrel business, which I think is doing well. We’re seeing, we saw a significant increase in number of deliveries 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 Velis Electro, which is fundamentally a training aircraft. So I think that will help us pick up volume as we can now sell those and use those for training in the U.S. domestic market. It’s already been accepted, and we’ve seen nice growth in the international markets. We have a couple of new products that are in that product line that I think will do well.

So I think we feel very good about how the Pipistrel guys are doing and how that’s performing. On the R&D, which is really the dominant piece of what’s driving the financials in that segment, we have the Nexus program, which is progressing well. We’re doing the full integration and testing of the first craft. We’ll probably see — we’re already sort of doing ground testing and evaluation already. We’ll probably see flight tests later on this year on the Nexus front. That program is also, I’d say progressing well. Most of the supplier selections are done. Parts are coming in. We’re starting to build the first airframe. We have expectations that we would probably fly that sometime next year. So that’s really what drives the financials. Now I would say that 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 that level of spending is probably going to level out going forward. So we’ll start to see some EBIT increase contribution on the Pipistrel product sales side. So I think that’s clearly a segment that the investments in Nexus and in the in the newer program are going to continue to have us in a lost position, but it probably stabilizes going out the next few years.

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: Look, as 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 guys, 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 be, it’s going to be a massive return on investment.

Jason Gursky: Okay, great. Thank you very much.

Scott Donnelly: Sure.

Operator: Next we go to George Shapiro with Shapiro Research. Please go ahead.

George Shapiro: Yes, good morning.

Scott Donnelly: Good morning, George.

George Shapiro: Scott the incremental margin in Aviation, as people were talking about, I mean, like 4%. 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 incremental’s for the rest of the year run somewhat higher than kind of your objective of 20%?

Scott Donnelly: Well, so 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 in 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. I don’t know, 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 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 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.

George Shapiro: Okay. Thanks very much.

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

Ron Epstein: Yes, good morning, guys.

Scott Donnelly: Good morning, Ron.

Ron 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, I mean, obviously you’ve looked 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 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 balance and other things in systems, but not something that’s directly tied to these supplementals.

Ron Epstein: Got it. Got it. And then kind of back to Aviation. Broadly, how’s the 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 that’s just kind of short in supply?

Scott Donnelly: Well, look, Ron, as we said, the randomness is part of what drives us crazy, right? And they change over time, but you’re absolutely right. Windshields have been a problem now for several years. And it’s, I say, probably getting better. But it’s been a big problem. It’s been a problem for us in terms of production builds. And frankly, it’s been a big problem for us in terms of our customers. If somebody has a damaged windscreen 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 and service. It is certainly has been and remains one of the top problem items by category.

Ron Epstein: Yes, when I heard that I was astonished. But yes, I guess the current supplier shutdown the other supplier. So whatever. All right, cool. Thanks, guys. Yes, have a good one. Bye.

Scott Donnelly: Sure. Thanks.

Operator: Next, we go to Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine Liwag: Hey, Scott. Earlier, you mentioned on industrials how you’re seeing incremental weakness in the high-end consumer. Could 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 [Conyers] (ph) and 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 [Indiscernible], right, Cessna 172s, the 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 M2s are 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 of 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.

Kristine Liwag: Great. Thanks, Scott. I’ll keep it to one.

Scott Donnelly: Sure.

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

Gavin Parsons: Thanks. Good morning.

Scott Donnelly: Good morning.

Frank Connor: Good morning.

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

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

Gavin Parsons: Got it, okay. What is the transition from shadow to FTUAS look like in terms of revenue and margins over the 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 a RFP out on the street for the ultimate EMD production decisions, sounds like they’re probably pulling that forward to where that RFP could come out as early as even late this year, which would lead to an early ‘25 calendar year award, which would be great. So the exact size and scope and therefore the revenue and the margin is, we just don’t have visibility to that at this point.

Gavin Parsons: That’s helpful. Thanks.

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.