Noah Poponak

Noah Poponak asked for a breakdown of factors contributing to the Flight Support Group's (FSG) improved incremental margins in Fiscal 2025 versus 2024, specifically regarding mix impacts and pricing philosophy changes. He also inquired about missile and missile defense revenue and expected capital deployment for acquisitions in 2026 compared to 2025.

Answer

Carlos Macau attributed margin improvement to a favorable mix shift towards heavier PMA and DER repairs, expanded avionics repairs, and a shift in specialty products towards defense over commercial OE, noting these are durable. Eric Mendelson declined to size missile and missile defense revenue for competitive reasons. Carlos Macau expects capital deployed for acquisitions in 2026 to be at a similar or higher pace than 2025, given the strong pipeline and financial capacity.

Noah Poponak sought clarification on Flight Support Group (FSG) margin drivers, specifically regarding mix items and pricing philosophy. He also asked about the revenue generated from missile and missile defense, and how capital deployed for acquisitions in 2026 might compare to 2025.

Answer

Carlos Macau explained FSG margin improvements from 1-3 points of price covering labor inflation, increased gross margin in repair and overhaul (PMA/DER, avionics), and a shift in specialty products towards defense. Eric Mendelson declined to size missile and missile defense revenue for competitive reasons. Eric Mendelson, Carlos Macau, and Victor Mendelson collectively expressed expectations for a high pace of capital deployment for acquisitions in 2026, similar to or higher than 2025, driven by a strong pipeline and HEICO's financial capacity.

Noah Poponak asked about growth expectations for the Electronic Technologies Group (ETG) in the second half of the year, the potential timing for defense PMA revenue, and current airline demand trends for the Flight Support Group (FSG).

Answer

EVP & CFO Carlos Macau projected ETG's full-year absolute growth in the mid-to-high single digits. Co-CEO Eric Mendelson noted that defense PMA revenue is a post-2025 story and that FSG demand remains very strong as airlines focus on cost savings amid high travel demand and an aging fleet.

Noah Poponak of Goldman Sachs followed up on previous discussions about pricing strategy, asking if HEICO was leaning more into price increases to close the gap with OEMs or continuing to prioritize market share gains. He also asked about trends in the ETG's defense, space, and aero segment.

Answer

Eric Mendelson, Co-President, reiterated that HEICO has not aggressively pushed pricing, keeping increases in the low-single-digits to cover costs and deliver value. Carlos Macau, EVP and CFO, and Victor Mendelson, Co-President, addressed ETG, noting strong Q1 growth in defense and space, expecting continued lumpiness but an overall positive trend for the year, with a potential recovery in other electronics markets.

Noah Poponak of Goldman Sachs inquired about the sequential decline in the Flight Support Group's Q4 margin, the persistent weakness in ETG's non-A&D end markets, and the reason for a higher corporate expense level in the quarter.

Answer

CFO Carlos Macau characterized the FSG margin dip as "noise" and expects future gains from SG&A leverage. Co-President Victor Mendelson anticipates a reversal of the destocking trend in ETG's other industries in the first half of fiscal 2025. Carlos Macau explained that corporate expense was in its typical range of 1.4-1.5% of sales, reflecting normal inflation and business growth.

Noah Poponak asked for a quantification in absolute dollars of the lumpy or pulled-forward aerospace aftermarket revenue in 2025. He also sought to quantify LEAP and GTF aftermarket revenue for 2025 versus 2024 and inquired about the significant slowdown in aerospace segment incremental margins in the guidance.

Answer

CFO Bill Lacey stated it's difficult to quantify the exact amount of advanced purchases but noted a $50 million sales growth from 2024 to 2025, with a portion being advanced purchases. Chairman and CEO Chip Blankenship clarified that LEAP and GTF repair activity (excluding spare end items) is gaining on legacy, expecting a crossover in late 2026/early 2027. Mr. Lacey attributed the slowdown in incremental margins primarily to the growing OEM mix within aerospace, which is a mix down but beneficial for building the installed base.

Noah Poponak asked for a quantification in absolute dollars of the lumpy or pulled-forward aerospace aftermarket revenue in fiscal year 2025. He also sought to quantify LEAP and GTF aftermarket revenue for 2025 versus 2024 and questioned the aerospace segment margin guidance, specifically the significant slowdown in incrementals, asking if it was due to prior benefits or other factors.

Answer

CFO Bill Lacey stated it's difficult to quantify the exact amount of pulled-forward revenue, but noted a $50 million sales growth from 2024 to 2025 in the 10K footnotes, which includes both normal growth and advanced purchases. Chairman and CEO Chip Blankenship clarified that LEAP and GTF repair activity (excluding spare end items) is gaining on legacy, with a crossover expected in late 2026 or early 2027. Mr. Lacey attributed the slowdown in aerospace incremental margins primarily to the growing OEM mix, which represents a mix down.

Noah Poponak of Goldman Sachs asked for details on the aerospace investments impacting Q3 margins, the reasons for the reduced free cash flow guidance, and whether the strong implied Q4 aerospace margin serves as a new baseline for next year.

Answer

CFO Bill Lacey explained the investments were in personnel to drive productivity, not a direct margin rate hit. He stated the free cash flow reduction is due to a strategic investment in working capital, specifically inventory, to meet customer demand amid supply chain volatility. He cautioned that the strong Q4 margin is not necessarily the new baseline for FY26.

Noah Poponak inquired about the conservative Aerospace margin guidance, the growth trajectory for the LEAP aftermarket, and the specific drivers of Aerospace segment growth.

Answer

CFO William Lacey explained that a mix shift towards defense OE and caution around tariffs led them to maintain the margin guidance. CEO Charles Blankenship confirmed that LEAP aftermarket volumes have been doubling year-over-year and are on track with long-term targets. He also noted that both price and volume contributed to the segment's 13% growth.

Noah Poponak questioned the aftermarket revenue contribution from LEAP and GTF engines, whether the 2025 guidance assumes a significant ramp, and how the Q1 commercial OE results compared to internal expectations given the Boeing shutdown.

Answer

Executives explained that LEAP and GTF aftermarket revenue is growing nicely as modeled but off a low base, and while factored into guidance, it won't be a major needle-mover until closer to 2028. CEO Charles Blankenship noted the Q1 OE performance was not a surprise, as the wide guidance range was set with the Boeing pause in mind. He added that Woodward is rooting for Boeing to achieve its aggressive second-half recovery goals.

Noah Poponak challenged the seemingly conservative aerospace aftermarket outlook, asked if strong defense OE growth was a margin headwind, and questioned if the company was considering further asset sales.

Answer

CEO Charles Blankenship tempered aftermarket expectations by citing physical MRO capacity constraints but acknowledged upside from heavier work scopes. CFO William Lacey confirmed the high defense OE mix was a headwind to Q4 incremental margins. Blankenship stated that the company continuously evaluates its portfolio as part of its standard product management discipline.

Noah Poponak inquired about the medium-term growth outlook for Aerojet Rocketdyne, including the desired backlog duration, potential for faster than double-digit growth, and expectations for new competition in solid rocket motors.

Answer

Chairman and CEO Christopher Kubasik noted that Aerojet Rocketdyne's growth opportunities and revenue significantly exceed initial acquisition projections, driven by capacity expansion and investment in new facilities. SVP, CFO, and President of Aerojet Rocketdyne Kenneth Bedingfield confirmed confidence in Aerojet Rocketdyne growing at double digits for the foreseeable future, emphasizing its diverse portfolio beyond solid rocket motors, including space propulsion, and the ongoing efforts to increase capacity and deliver products to customers.

Noah Poponak of Goldman Sachs inquired about the expected trend for bookings through the rest of the year and whether the company's growth rate could accelerate beyond the 4-6% range given strong orders and opportunities like Golden Dome.

Answer

Chairman and CEO Christopher Kubasik stated that while the record 1.5 book-to-bill is hard to repeat, he expects ratios well over 1.0 for the rest of the year and hopes to exceed the 4-6% growth outlook. SVP and CFO Kenneth Bedingfield concurred, anticipating a growing backlog by year-end and potential for outsized growth in 2026 and beyond.

Noah Poponak from Goldman Sachs asked about the expected trend for bookings through the rest of the year and whether strong orders and opportunities like Golden Dome could lead to a growth rate breakout above the guided 4-6%.

Answer

Chairman & CEO Christopher Kubasik stated that while the 1.5 book-to-bill is hard to repeat, he expects to be "well over one" in Q3 and Q4 and for the backlog to grow by year-end. SVP & CFO Kenneth Bedingfield added that while no single award is key, if several large opportunities go their way, it could drive "outsized growth" beyond 2026.

Noah Poponak asked about the path to the reiterated $23 billion revenue target for 2026, which now implies higher organic growth, and questioned the risk of contract delays. He also asked for a breakdown of the 2025 EPS guidance increase.

Answer

Executive Kenneth Bedingfield detailed the path to 7% growth in 2026, citing new classified and international awards, a return to growth in Space, continued growth at Aerojet Rocketdyne, and the F-35 headwind abating. CEO Christopher Kubasik added that he sees no abnormal slowdown in contract awards. Regarding EPS, Bedingfield attributed the increase to solid operational performance and capital deployment actions like the pension buyout and share repurchases, declining to parse the exact contribution of each.

Noah Poponak questioned the primary drivers of Howmet Aerospace's current incremental margins, specifically whether price or productivity is more impactful, and if the company can sustain incremental margins above its historical 30%-35% range in 2026 despite tougher comparative periods.

Answer

Executive Chairman and CEO John Plant explained that incremental margins are a multifaceted outcome of volume leverage, automation, yields, content, and pricing. He acknowledged a temporary drag from significant labor hiring and training costs but anticipates this impact to diminish as the revenue base grows. He also noted expected content improvement in 2026 from new technology programs like LEAP-1B and GTF Advantage, projecting overall incrementals to remain above the 29% EBITDA margin.

Noah Poponak from Goldman Sachs sought clarification on the drivers behind Howmet Aerospace's consistently high incremental margins, specifically asking whether price or productivity is the larger contributor, and if the company can sustain these above-historical-target incrementals into 2026 despite tougher comparisons.

Answer

Executive Chairman and CEO John Plant explained that incrementals are a combination of volume leverage, automation benefits, yield improvements, content increases, and pricing. He noted that high labor ingestion and training costs are current negative factors, but anticipated that the drag would lessen as the denominator grows. Plant expects continued hiring into 2026 and 2027 due to new equipment and increased demand. He also highlighted improving content as the company transitions to new technology generations (Leap1B, GTF Advantage), indicating that incrementals should remain above the 29% EBITDA margin for next year, while deferring specific 2026 targets to the February call.

Noah Poponak of Goldman Sachs asked for a framework to quantify the return on increased CapEx, such as the expected run-rate revenue gain, and inquired about the timeline for CapEx to become a free cash flow tailwind.

Answer

Executive Chairman and CEO John Plant stated that while he wouldn't provide specific revenue guidance from the CapEx yet, the investments are expected to drive growth in 2026 and 2027. He anticipates CapEx will remain elevated through 2026 before potentially moderating in 2027-2028. Plant emphasized that organic growth provides the best return on capital for Howmet, justifying the increased spending over share buybacks or M&A, and noted the company is pleased to have more growth opportunities than it can currently fund.

Noah Poponak questioned the discrepancy between strong Q3 shipbuilding revenue growth and the modest full-year guidance increase, seeking clarity on whether this indicates sustainable higher growth or a one-time event. He also asked for details on the $250 million cost reduction initiative, specifically if it's a gross number and how much is already reflected in current guidance. In a follow-up, he asked why throughput and top-line growth might improve faster than margins.

Answer

Tom Seeley, EVP and CFO, attributed the Q3 shipbuilding revenue growth to increased throughput, wages, outsourcing, and higher material volumes, particularly in surface combatants. He indicated some pull-ahead from Q4 but noted positive underlying trends, suggesting that the previous 4% midterm growth target for shipbuilding is likely in the rearview mirror. Chris Kastner, President and CEO, confirmed the $250 million cost initiative is fully incorporated into current guidance. Regarding margins, Mr. Kastner and Mr. Seeley explained that while improved throughput retires risk, it doesn't immediately translate to higher profitability in EACs, as contracts are long-term and require sustained performance to drive booking rate improvements.

Noah Poponak from Goldman Sachs followed up by asking for a philosophical and mechanical explanation of why HII's throughput and top-line growth might improve at a faster rate than its margins.

Answer

President and CEO Chris Kastner clarified that while achieving throughput targets mitigates significant risk, it doesn't immediately translate into higher profitability in EACs due to the long-term nature of contracts. EVP and CFO Tom Seeley added that consistent good performance over time is necessary to retire cost risk, which then serves as the catalyst for increasing booking rates and ultimately improving the bottom line.

Noah Poponak from Goldman Sachs probed the gap between significant government funding and HII's modest guidance improvement, the relative importance of hiring versus attrition, and the outlook for cash taxes and capital expenditures.

Answer

President and CEO Christopher Kastner attributed the pace to the time required to work through pre-COVID contracts, while noting hiring and attrition are directly linked. EVP and CFO Thomas Stiehle added that the recent tax benefit has some tailwinds in future years, and he expects CapEx to remain elevated above the long-term average for the next couple of years, contingent on new submarine contracts.

Noah Poponak asked why the Submarine Industrial Base (SAS) language was dropped from a recent executive order, questioned the drivers of improved workforce attrition, and sought specifics on the sequential margin decline guided for Q2.

Answer

President and CEO Christopher Kastner said that while the SAS name was dropped, the critical investments it identified are being funded through new contracts. He attributed lower attrition to hiring more experienced labor rather than broad wage hikes. EVP and CFO Thomas Stiehle described the Q2 margin guidance as conservative for both segments.

Noah Poponak asked when pre-pandemic contracts would finish flowing through the financials and requested a new framework for recurring free cash flow after the company withdrew its multi-year target.

Answer

CFO Thomas Stiehle estimated that post-COVID contracts will constitute the majority of work in the 2027-2028 timeframe. He explained that the 5-year free cash flow target was withdrawn because the significant miss in the first year made it prudent to wait for more clarity on performance and new contract structures before issuing a new long-term forecast, though he stressed the long-term investment thesis remains intact.

Noah Poponak inquired about the 737 production ramp, specifically whether the 42 units per month rate would be sustained through year-end, the cadence for future rate increases (47, 52), and the FAA approval process for these ramps.

Answer

President and CEO Dave Calhoun confirmed that Boeing is currently operating at the 42-per-month rate and expects to exit the year soundly at this rate. He reiterated that subsequent rate increases (e.g., to 47, then 52) would not occur earlier than six-month intervals, emphasizing the need for demonstrated stability. He also stated that the same capstone review process used for the 38-to-42 rate increase would be applied for future FAA approvals, which he does not foresee as an impediment.

Noah Poponak inquired about the 737 production ramp, specifically if 42 units per month will be achieved for the remainder of the year, the buffer for increasing rates from 42 to 47, the need for a new production line beyond 47, and whether the six-month increment assumption for rate increases is aggressive.

Answer

EVP and CFO Jay Malave confirmed that Boeing is currently loading at the 42 rate and plans to exit the year soundly at 42 a month. He reiterated that rate increases will not be earlier than six months apart to ensure stability. He noted that significant inventory will help the ramp from 38 to 42 and 42 to 47, but rates above 47 will depend more on supply chain readiness. The FAA approval process for future rate increases will use the same established metrics and capstone review.

Noah Poponak of Goldman Sachs sought clarification on the 2025 free cash flow outlook and asked if the long-term $10 billion free cash flow target is still achievable, making it a question of 'when,' not 'if.'

Answer

EVP & CFO Brian West affirmed the ~$3 billion cash usage for 2025 is a reasonable assumption, with Q4 expected to be positive. President & CEO Kelly Ortberg addressed the long-term view, stating he sees 'nothing structural' that would prevent Boeing from reaching the $10 billion free cash flow target. He agreed it is a matter of 'when, not if,' but declined to provide a specific timeline.

Noah Poponak asked for specifics on how Boeing achieved a 50% reduction in traveled work so quickly and maintained a positive defense margin. He also inquired about the extent to which recent operational improvements are attributable to new leadership's 'blocking and tackling' efforts.

Answer

CEO Robert Ortberg credited the reduction in traveled work to a new 'travel-ready' process that stops the production line if work is incomplete, forcing discipline. He attributed the defense performance to a renewed focus on collaborative, 'win-win' contract management with customers. CFO Brian West added that the tanker issue in the quarter was minor and did not have a significant financial impact.

Noah Poponak pressed for details on the specific causes of recurring cost growth on the T-7A program, how the new acquisition approach mitigates this, and how management can be confident in near-term cash flow improvement given these fixed-price contracts.

Answer

CEO Kelly Ortberg identified the core issue as a fixed-price development contract paired with fixed-price production options where the supply chain was not secured at fixed prices. He explained that new MOAs with the Air Force reduce risk by eliminating production-test concurrency. Confidence in future performance comes from the ongoing process of locking in the supply chain, which is the source of the current charges.

Noah Poponak from Goldman Sachs sought confirmation that Boeing expects negative free cash flow for the full year 2025 and asked for the key drivers of this forecast, as well as a timeline for restoring MAX production to pre-strike levels.

Answer

EVP and CFO Brian West confirmed the expectation for negative free cash flow in 2025, citing peak investment in the 777X program and uncertainty around the production ramp pace. President and CEO Kelly Ortberg declined to give a specific timeline for the MAX recovery, highlighting that the restart must be done right, not fast, and will depend on factors like retraining, supply chain stability, and FAA approvals for rate increases.

Noah Poponak asked if the consensus estimate of 12% total company revenue growth for 2026 versus 2025 is achievable or too steep, given potential lingering destocking. He also questioned why Hexcel's operating margin is down compared to pre-pandemic levels, unlike many other aerospace suppliers, and if the company is looking to change contract terms for better profitability protection.

Answer

CEO Tom Gentile considered the 12% revenue growth estimate for 2026 'a little aggressive,' preferring a conservative outlook despite expecting a healthy increase. He attributed Hexcel's lower margins to its heavy focus on original equipment (OE) for commercial aerospace, where production recovery lags air traffic, unlike companies with significant aftermarket exposure. For future contracts, he indicated a shift towards shorter terms, tiered pricing based on volume, and more pass-through clauses for uncontrollable costs to reflect a more dynamic environment.

Noah Poponak questioned the achievability of a 12% total company revenue growth for 2026 and asked why Hexcel's operating margins are down compared to pre-pandemic levels, unlike many other aerospace suppliers. He also inquired about Hexcel's plans to change contract terms in future negotiations to improve profitability protection.

Answer

Tom Gentile, CEO, Chairman, and President, indicated that 12% revenue growth for 2026 might be 'a little aggressive,' though a healthy increase is expected. He attributed Hexcel's lower margins to its heavy tilt towards original equipment (OE) commercial aerospace, where production recovery lags air traffic recovery (75% overall, 50% for wide bodies), unlike suppliers with significant aftermarket exposure. He stated that future contracts would be shorter, more volume-tiered, and include more pass-through clauses for uncontrollable costs to adapt to a more dynamic environment.

Noah Poponak of Goldman Sachs sought to clarify Boeing's message to its supply chain during the strike, asking if it was a 'full stop' or 'keep building.' He also asked about the progress of the planned divestiture of the Austrian industrial facility.

Answer

CEO Tom Gentile clarified that Boeing issued 'stop ship' orders but encouraged suppliers to continue building inventory to be ready for a quick restart, which Hexcel did. He also stated that the divestiture process for the Austrian plant is 'midway through.' Executive Patrick Winterlich added that the 737 MAX is not Hexcel's largest program, so the impact was marginal.

Noah Poponak sought clarification on how the government deems essential work during a shutdown and the expected shape of CACI's fiscal year 2026, particularly regarding Q2 performance and the back half of the year.

Answer

CFO Jeff MacLauchlan confirmed the broad shape of FY26, with a less pronounced first-half to second-half step-up due to the strong Q1 performance. President and CEO John Mengucci explained that CACI's current position, with more long-term tech programs, self-funded enhancements, and purchase order sales, leads to a de minimis shutdown impact compared to past events. He noted that essential work definitions vary by agency, but CACI's work is largely critical and recoverable.

Noah Poponak asked about the significance of counter-UAS funding, whether it can impact larger companies, and the baseline of CACI's current counter-drone revenue. He also sought more clarity on how the government deems essential work during a shutdown and if the historical Q2 flat/back-half up sequential revenue shape holds for FY2026.

Answer

CEO John Mengucci reiterated that CACI's EW portfolio, including counter-drone, generates approximately $2 billion annually. He confirmed it's a burgeoning market with two funding streams: Golden Dome ($150 billion, with multiples of billions for layered defense against unmanned systems) and DHS funding for border security. He emphasized the need for new technology beyond traditional radar and CACI's decades of experience and self-funded advancements. CFO Jeff MacLauchlan confirmed the broad shape of the year holds, but the first-half/second-half step-up will be less pronounced due to the strong Q1. Mengucci added that CACI's increased long-term tech programs and purchase-order-based sales lead to a de minimis shutdown impact, though 'essential' definitions vary by agency.

Noah Poponak questioned the quarterly revenue and margin pacing for FY26, the potential financial impact and timing of the Golden Dome initiative, and the drivers behind the growing deferred revenue balance.

Answer

CEO William Ballhaus maintained a 'relatively flat' first-half revenue outlook and suggested the margin progression is clearer if the recent $30M revenue shift is excluded. He stated Golden Dome's timing is TBD and not in the FY26 outlook. EVP & CFO David Farnsworth explained that deferred revenue is growing due to improved contracting terms where customers pay upfront for items like end-of-life component buys.

Noah Poponak of Goldman Sachs inquired about the potential for free cash flow growth in fiscal 2026, the timeline for burning through the low-margin backlog, and the methodology for defining and booking new contracts at higher margins.

Answer

CEO Will Ballhaus indicated that FY26 free cash flow will be a function of both the steady-state 50% conversion from EBITDA and further cash released from balance sheet improvements, with more color to come next quarter. He suggested the low-margin backlog will burn off over "several quarters." CFO Dave Farnsworth clarified that booking a new contract's margin involves a rigorous start-up process that pressure-tests risks and opportunities, rather than just using the initial bid price.

Noah Poponak asked to reconcile Amentum's strong market positioning with its low growth rates, questioned the stability of the 1% revenue headwind from administration changes, and probed the valuation of the Rapid Solutions divestiture.

Answer

CEO John Heller pointed to the company's alignment with enduring government priorities and a strong bid pipeline as drivers for future growth. He expressed confidence that the 1% headwind estimate for FY25 is stable. CFO Travis Johnson declined to comment on the divestiture valuation beyond the publicly disclosed sale price and the business's contribution of ~1% to total EBITDA.

Noah Poponak of Goldman Sachs & Co. asked management to reconcile the strong total pipeline with the decline in funded backlog. He also questioned if the 4-6% organic growth framework from the Capital Markets Day is a reasonable starting point for 2026 and requested a specific revenue figure for the current nuclear business.

Answer

CFO Travis Johnson attributed the funded backlog dip to timing-related effects from contracting officer workforce issues and stated it's not a concern. CEO John Heller added that significant JV wins, which are not in the reported backlog, drove the imputed book-to-bill to 1.8x. While not confirming the 4-6% growth for 2026, Johnson reiterated the business's strong trajectory and quantified the front-end nuclear business at approximately $700 million in annual revenue.

Noah Poponak sought clarification on the company's growth outlook, asking how to reconcile strong market positioning with low growth rates, the impact of JV accounting changes, the risk of administrative headwinds increasing, and the valuation of the Rapid Solutions divestiture.

Answer

CEO John Heller pointed to long-term growth opportunities in key markets like space, defense, and energy, and alignment with government priorities. He reaffirmed the 1% administrative impact for FY25 is stable. CFO Travis Johnson clarified the JV transitions will impact full-year revenue by over $100 million. Regarding the divestiture, Johnson reiterated the $360 million sale price for a business representing about 1% of total EBITDA but declined to comment on a specific multiple.

Noah Poponak inquired about the drivers behind the Q4 low double-digit revenue growth forecast, questioning if it implies an end to aerospace inventory destocking and whether the Q4 exit rate could serve as a guide for 2026. He also asked about the significant improvement in Q2 cash flow and the potential to reach the company's annual conversion target.

Answer

SVP & CFO Suman Mookerji and Chairman, President & CEO Stephen Oswald clarified that the Q4 growth will be driven by both a modest commercial aerospace recovery and continued strength in the defense business, particularly in missiles and radar. Oswald noted that destocking at Boeing and Spirit will likely persist through year-end. Regarding cash flow, Mookerji attributed the strength to improved working capital management and higher profits, noting year-to-date free cash flow conversion is at 55% of adjusted net income.

Noah Poponak from Goldman Sachs inquired about the expected pace of revenue growth through 2025, the year-end target for the Engineered Systems revenue mix, whether Q1's operating margin represents a low for the year, and the full-year free cash flow conversion outlook.

Answer

Suman Mookerji outlined that second-half growth will be driven by commercial aero recovery, defense strength, and the ramp-up of transitioning programs. He projected the Engineered Products mix to be 23-24% organically, rising above 25% with an acquisition. He also indicated that while Q1's record 15.9% EBITDA margin had some favorable mix, a full-year figure around 16% is a good target. For cash flow, he expects continued improvement on the 40% conversion rate from 2024, as the company works toward its long-term goal of 100% conversion of adjusted net income.

Noah Poponak from Goldman Sachs asked for specifics on the guided second-half organic growth for Federal Solutions, the risks involved, and the drivers behind the segment's recent margin decline.

Answer

CFO Matt Ophelis confirmed the H2 Federal organic growth forecast is just over 20% (ex-confidential contract), driven by existing program ramps. CEO Cary Smith added that July's results support this outlook. Mr. Ophelis explained the Q2 margin dip was due to lower volume from a high-margin confidential contract and investments in bids and strategic hires. He expects margins to recover to the low 9% range for the full year.

Noah Poponak of Goldman Sachs asked about the risk to a confidential contract's funding, the resolution of a CMS recompete, the drivers of the 2025 Critical Infrastructure margin outlook, and the rationale behind the 2025 cash flow guidance.

Answer

CFO Matt Ofilos and CEO Carey Smith addressed the questions by stating the confidential contract's funding is unlikely to go to zero, the CMS work was retained on a different vehicle, and 2025 margin expansion will be driven by the CI segment. CFO Matt Ofilos explained that 2025 cash flow guidance is impacted by a $30 million one-time 401(k) timing change and a business mix shift, following two years of exceptionally high cash conversion.

Noah Poponak asked for more detail on the two contracts creating the 5% to 15% recompete range for the next year. He also requested the approximate Q4 margin guidance by segment and an update on the final timing for the remaining legacy work in the Critical Infrastructure (CI) segment.

Answer

CEO Carey Smith identified one contract as the large confidential one and the other as a contract that has been receiving extensions, which may or may not continue. CFO Matt Ofilos guided to Q4 margins of high-9s to low-10s for Federal Solutions and low-7s for CI. Carey Smith stated the last legacy project is expected to reach substantial completion within the next few weeks, a slight delay from Q3 due to additional systems work.

Noah Poponak of Goldman Sachs questioned the implied Q4 aftermarket growth acceleration needed to meet full-year guidance. He also asked if the commercial OEM business is expected to 'snap back' due to easy comparisons and alignment with production rates.

Answer

Co-COO Mike Lisman stated that with year-to-date aftermarket growth at 10%, the full-year guidance is well within reach. He confirmed the commercial OEM destocking is viewed as temporary, with a return to positive growth expected in Q4. Lisman added that visibility into channel inventory is limited due to sales through sub-tiers.

Noah Poponak questioned the M&A activity level, noting a lack of large deals despite a "very busy pipeline" commentary, and asked for clarification on the full-year free cash flow guidance, particularly regarding working capital.

Answer

President and CEO Kevin Stein defended the M&A activity, stating they have screened numerous large targets but must remain disciplined on valuation and strategic fit, highlighting that last year was their second-best ever for acquired EBITDA. CFO Sarah Wynne reiterated the full-year free cash flow guidance of approximately $2.3 billion, expecting working capital to end the year in line with historical levels as a percentage of sales.

Noah Poponak questioned why full-year margin guidance implies flat performance for the rest of the year despite a strong Q1, and asked for commentary on the commercial transport aftermarket growth rate.

Answer

Co-COO Joel Reiss explained the guidance is conservative, factoring in the dilutive effect of recent acquisitions and the unusual Q1 mix shift from the Boeing strike. CEO Kevin Stein noted the aftermarket performance reflects market "lumpiness," with freight being a drag while engine-related businesses performed strongly, and was slightly better than internal expectations.

Noah Poponak requested the book-to-bill for short-cycle businesses in H1 and challenged the cautious H2 organic growth outlook, given the small size of the cited pull-forward. He also asked for details on Digital Imaging margins, including the impact of any charges.

Answer

Executive Chairman Robert Mehrabian reported that book-to-bill for both Instrumentation and Digital Imaging was over 1.0x for H1. He acknowledged the Q3 forecast is cautious and that the company hopes to outperform it. On margins, he explained that strong performance at FLIR is offsetting weakness at DALSA E2V, where margins were impacted by a business downturn and approximately $5.3 million in Q2 restructuring charges.

Noah Poponak requested book-to-bill figures for short-cycle businesses, questioned the projected growth deceleration in the second half given the small pull-forward amount, and asked for the outlook on Digital Imaging margins.

Answer

Executive Chairman Robert Mehrabian provided book-to-bill ratios, which were at or above 1.0 for Instrumentation and Digital Imaging. He acknowledged the Q3 forecast was conservative by design. Regarding margins, he explained that continuous improvement at Teledyne FLIR is offsetting weakness at the DALSA e2v businesses, which incurred $5.3 million in restructuring charges, resulting in a nearly flat overall segment margin.

Noah Poponak requested first-half book-to-bill data for short-cycle businesses and challenged the conservative back-half growth guidance, noting the potential pull-forward seemed small. He also asked about the Digital Imaging margin outlook and the value of restructuring charges.

Answer

Executive Chairman Robert Mehrabian provided H1 book-to-bill figures, with Instrumentation just over 1.0x and Digital Imaging showing a Q2 uptick. He acknowledged the conservative Q3 stance is a strategic choice. On margins, he highlighted that improving FLIR margins are offsetting a temporary dip in DALSA E2V margins, which were impacted by approximately $5.3 million in Q2 restructuring charges.

Noah Poponak asked for clarification on Teledyne's 2025 revenue growth guidance, seeking a breakdown between organic and acquisition contributions, and inquired about the financial impact of the pending Excelitas acquisition. He also questioned the assumptions behind the organic growth forecast, particularly regarding the recovery in short-cycle businesses.

Answer

Executive Chairman Robert Mehrabian clarified that the 2025 sales growth forecast of approximately 4% consists of 3.2% organic growth and about 1.1% from recent acquisitions like Micropac. He estimated the Excelitas acquisition would add about $15 million in revenue per month once closed. Mehrabian then provided a segment-level breakdown for the organic growth target, noting expectations for growth across all segments, including Instruments, Digital Imaging, and Aerospace and Defense.

Noah Poponak from Goldman Sachs asked about the MV75 revenue profile over the next few years, the price-cost outlook for the fixed-price LRIPs, and the supply and delivery ramp at Cessna for the remainder of the year and into 2026.

Answer

Scott C. Donnelly, Chairman, CEO & President, indicated that MV75 revenue should continue to grow over the next couple of years but the full production ramp is still being defined with the Army. He acknowledged the first eight LRIP aircraft were bid at a challenging fixed price. For Cessna, he stated the production ramp is proceeding as planned and communicated to suppliers, but declined to provide specific 2026 delivery guidance.

Noah Poponak inquired about the current demand environment for the private jet market amid macro uncertainty and asked for an update on Textron Aviation's production and delivery ramp for the remainder of the year.

Answer

Chairman and CEO Scott Donnelly acknowledged that while some customers might pause, the overall demand environment remains solid, supported by a strong backlog that gives customers confidence for deliveries 18-24 months out. He reaffirmed that the production ramp continues as guided, with the first half being lighter on margins but expects to recover in the second half as factory productivity returns to pre-strike levels.

Noah Poponak questioned the 2025 cash flow guidance, noting it seemed low relative to net income and asking about working capital assumptions. He also requested more detail on the drivers behind the expected decline in Bell's margin.

Answer

CFO Frank Connor explained the cash flow guidance reflects headwinds from military payment timing, higher inventory needs for the 2025 production ramp, and increased CapEx for growth and FLRAA preparation. CEO Scott Donnelly added that Bell's 2025 margin will be diluted by its primary growth drivers: the FLRAA program ramp and higher commercial OEM deliveries, both of which carry lower margins than the segment average.

Noah Poponak requested the expected Q4 Cessna jet delivery figure, clarity on whether production will be fully recovered by 2025, and an update on the medium-term incremental margin framework for Aviation.

Answer

CEO Scott Donnelly declined to provide a specific delivery number but stated the factory should be operating smoothly by January 1, 2025, with 2025 revenue expected to exceed the original 2024 guidance. He also reaffirmed that the long-term incremental margin target for the Aviation segment remains at 20-plus percent.

Noah Poponak of Goldman Sachs asked if the implied segment margins for the second half of 2025 represent a new sustainable run rate and requested an update on the MFC classified program, which previously had planned future charges.

Answer

CFO Evan Scott indicated that while the goal is to drive margins up, they will provide more detail on out-year margins after their long-range planning process. Regarding the MFC classified program, he expressed confidence in its current positioning and monitoring, noting it is managed with the same rigor as the Aeronautics program. CEO James Taiclet added that there could be future margin upside, particularly in MFC, as one-time write-offs are absorbed.

Noah Poponak of Goldman Sachs asked if the implied segment margins for the second half of 2025 represent the new run rate for the foreseeable future and requested more details on the review of the MFC classified program.

Answer

CFO Evan Scott indicated that while the goal is to drive margins up incrementally, some one-time step-ups occurred in the first half, and more guidance on out-year margins will be provided later. Regarding the MFC classified program, he expressed confidence in their current position due to close monitoring. CEO James Taiclet added there could be future margin upside, especially in MFC, as one-time write-offs are absorbed.

Noah Poponak sought clarity on the Missiles and Fire Control (MFC) segment's margin performance, questioning if recent results reflect genuine operational improvement or simply the timing of loss accruals on a classified program, and asked about the outlook for these losses in 2025.

Answer

CFO Jesus Malave clarified that the segment's underlying performance is strong, citing a 14.4% margin in Q3 excluding the classified program losses. He confirmed that the bulk of the year's guided loss ($225 million) is expected in Q4. For 2025, he provided a baseline assumption of $250 million to $300 million in losses for the program, noting that the accounting for such losses is subject to a continuous assessment of facts and circumstances.

Noah Poponak of Goldman Sachs asked if the improvement in aftermarket MRO capacity was a step-function change or more of a stabilization, and sought clarity on the nature of the R&D-related cash flow benefit.

Answer

CEO Christopher Calio clarified that the GTF MRO output growth is driven by improving velocity and efficiency within existing 'workhorse' shops, not just by adding new facilities. CFO Neil Mitchill explained the R&D cash benefit is a complex but sustained tailwind resulting from new tax legislation that lowers taxable income, rather than a one-time refund.

Noah Poponak noted that full-year guidance implies flat to slightly down margins sequentially for Pratt and Collins and asked how much of this is due to fundamental business drivers versus conservatism or a cushion for potential tariffs.

Answer

CFO Neil Mitchill acknowledged the strong Q1 margins but cited ongoing uncertainty. He noted that higher OE engine installs at Pratt will create a natural margin headwind in subsequent quarters. He stated that at this point in the year, the current guidance range provides room to absorb potential market softening, and the company will reassess its outlook in 90 days.

Noah Poponak of Goldman Sachs asked which of the original 2025 segment margin targets from 2021 remain achievable and which have structurally changed. He also asked for the latest assumption on the final year of GTF powder metal cash headwinds.

Answer

CFO Neil Mitchill asserted that all original long-term margin targets are achievable, despite headwinds like inflation. Executive Christopher Calio added that conviction in the businesses' fundamentals remains strong. Regarding the GTF cash impact, Neil Mitchill stated the residual amount is currently planned for 2026, which should create a tailwind from 2025.

Noah Poponak of Goldman Sachs asked if the 2025 margin framework for Collins is still valid and requested quantification on the number of GTF engines that have completed the powdered metal inspection process.

Answer

Executive Christopher Calio addressed the GTF question, stating that while progress is being made, the major ramp-up of new full-life parts will occur in 2025 as forging capacity increases. Executive Neil Mitchill addressed the Collins margin, declining to provide 2025 guidance but confirming that OE volumes and absorption are key watch items. He expects Collins' margins and operating profit to grow next year, supported by strong demand and structural cost reduction actions.

Noah Poponak from The Goldman Sachs Group, Inc. asked about the duration of pent-up aftermarket demand and whether the 2028 forecast assumes its normalization. He also asked if a single major supply chain bottleneck had been resolved.

Answer

Chairman & CEO Lawrence Culp stated it's difficult to quantify the duration of pent-up demand but pointed to the $175 billion backlog as the best indicator of the work ahead. He confirmed the outlook is based on executing this backlog. He also reiterated that supply chain improvement is a result of broad, continuous efforts, not the resolution of a single bottleneck.

Noah Poponak of Goldman Sachs asked about Q1 free cash flow performance relative to plan, the cash recovery timeline for duty drawbacks, and how the current environment affects capital deployment strategy.

Answer

Chairman and CEO H. Culp stated that the duty drawback cash cycle is typically 4-5 months and reaffirmed the plan to return over $8 billion to shareholders in 2025. Executive Blaire Shoor added that Q1 free cash flow was in line with expectations and projected a strong Q2 with cash flow conversion over 100%.

Noah Poponak of Goldman Sachs asked for quantification of the 777X/GE9X headwind moving out of the 2025 forecast and questioned why the implied Q4 CES margin is flat sequentially despite mix headwinds.

Answer

Executive Rahul Ghai addressed the margin question by outlining several puts and takes for Q4 CES: strong services growth is partially offset by a ramp in OE deliveries, including the GE9X, and a step-up in R&D. Regarding the 777X, he confirmed a headwind exists in the 2025 plan but could not yet quantify it pending final volume discussions with Boeing. He reiterated that this headwind will grow as deliveries ramp before peaking later in the decade.

Noah Poponak from Goldman Sachs asked about the balance of opportunity and risk in the push for more outcomes-based and fixed-price contracts, and requested quantification of how much "on-contract growth" could offset new business delays.

Answer

CEO Toni Townes-Whitley acknowledged that fixed-price contracts add risk but also present a tailwind opportunity for higher margins, noting SAIC's track record of managing them. She stated they haven't seen a wholesale procurement shift yet. CFO Prabu Natarajan quantified on-contract growth, stating it reached 5-6% of revenue last year and Q1 was in line with that, providing a viable path to guidance even with some new business delays.

Noah Poponak from Goldman Sachs asked if management could rule out a year of revenue decline over the next three years, given the numerous industry and company-specific factors at play.

Answer

CEO Tom Bell stated that while he can't say 'never,' he does not envision a revenue decline and considers it a low probability. He expressed high confidence that the NorthStar 2030 growth pillars are aligned with robustly growing customer needs and administration priorities, with a plan to maintain profitability while driving top-line growth.

Noah Poponak sought clarification on the timeline for the VBA work within the Health and Civil segment and asked if a 20%-plus adjusted segment operating margin is a reasonable medium- to long-term expectation.

Answer

CEO Thomas Bell laid out the timeline: Leidos is currently on an option year, expects a new two-year award in the coming weeks, and a multiyear recompete will follow. CFO Chris Cage confirmed this and stated that a margin of "20-ish-plus percent for this segment going forward" is in the "right ZIP code," expressing increased bullishness on sustaining that level of performance.

Noah Poponak asked for details on the Q1 cash use, which appeared larger than seasonal norms, and inquired about the risk of back-half loaded programs slipping into 2026, as well as the initial margin profile of the ramping WTRS program.

Answer

SVP and CFO Shawn Mural confirmed the Q1 cash use was planned and driven by working capital, with some collections slipping just past quarter-end. He reaffirmed the full-year target of over 100% cash conversion. He also stated the WTRS program margin will be accretive to the company average in the second half. President and CEO Jeremy Wensinger expressed confidence that awards would remain on schedule, citing the current pace and the team's focus.

Noah Poponak asked for more detail on the Technologies customer dialogue, specifically the balance between requests for cost reductions versus opportunities to add revenue through new efficiencies, and the role of contract structure in margins.

Answer

Jason Aiken, EVP of Technologies, described the situation as 'all of the above,' with the government looking for reductions while GD provides technology solutions that enable those efficiencies. He noted that a shift to fixed-price, outcome-based contracts, which GD welcomes, should bring opportunities for better margins when taking on more risk, ultimately providing better value to the customer.

Noah Poponak from Goldman Sachs asked if the large Flexjet order was incremental to existing plans and questioned why the 2025 free cash flow guidance was lower than recent performance.

Answer

CFO Antonio Garcia confirmed the Flexjet order is 100% incremental, with deliveries from 2026. Regarding cash flow, he explained the lower 2025 guidance is due to the timing of significant Defense prepayments received in Q4 2024 that were originally expected in 2025. He noted that the combined 2024-2025 cash flow aligns with their 50% EBITDA conversion target.

Noah Poponak sought clarification on the full-year margin guidance after the strong Q2, asking if it included one-time items. He also asked about the medium-term margin progression for the Defense segment as the KC-390 program mix shifts.

Answer

CFO Antonio Carlos Garcia explained they are tracking to the high end of guidance but are not raising it yet due to supply chain volatility. For Defense, he described an inflection point where the margin mix is improving. He projects a move from mid-single-digits this year towards high-single-digit or low-teen margins next year as new export contracts replace domestic ones.

Noah Poponak from Goldman Sachs inquired about Kratos's role in the Sentinel program, the rationale for the significant increase in capital expenditures, and the status of Valkyrie customers, particularly the Marine Corps versus the original intended customer.

Answer

CEO Eric DeMarco clarified Kratos's Sentinel role is in above-ground missile transporters, separate from the underground infrastructure under review. CFO Deanna Lund and CEO DeMarco detailed that the CapEx increase is tied to specific, contracted programs like MACH-TB and a new facility in Israel, with costs expected to be recovered. DeMarco confirmed the Marine Corps' Valkyrie program is on track and noted the original customer's program is now one of 17 protected programs by the DoD.

Noah Poponak from Goldman Sachs asked if the ramp-up of new business jet capacity was creating a temporary drag on Civil margins and whether past acquisitions have been accretive. He also inquired about the potential for Civil margins in a normalized environment and the status of remaining legacy defense contracts.

Answer

COO Nick Leontidis confirmed that new centers in Las Vegas and Savannah are still ramping up, causing some margin drag. CEO Marc Parent stated past acquisitions have been accretive and that there is 'ample room' for future margin growth in a normalized environment. Management also clarified that five legacy defense contracts remain after one more rolls off this fiscal year, and they are on track with managing the risk on the remaining programs.

Asked if the long-term free cash flow outlook has improved beyond the last update, what the implied Interiors margin is within that outlook, and for an opinion on Boeing's ability to ramp up MAX production.

Answer

Recent achievements provide much higher confidence in the existing long-term targets, but they have not been officially updated. Specific segment details for the long-term plan are not available yet. The company is optimistic about Boeing's MAX ramp-up, believing parts availability will not be a limiting factor and that the workforce will come together.

Questioned the significantly different magnitude of free cash flow seasonality compared to prior years, asked for specific working capital figures, and inquired about the pricing realization in Q1.

Answer

The cash flow profile is more exaggerated this year due to timing of customer payments and a larger working capital build from production delays, which will reverse in the second half. They did not provide specific working capital numbers but reiterated the quarterly cash flow cadence. Pricing is being realized as planned and remains a tailwind.

Questioned the significant reduction in the fiscal '26 free cash flow target, asked about the drivers of working capital use in fiscal '25, and inquired about the large margin miss in the Interiors business during the quarter.

Answer

The free cash flow target was reduced because the divested business had higher margins and growth, and the new forecast uses conservative assumptions about Boeing rates and does not yet factor in future debt refinancing. Working capital use in '25 is to protect inventory for the eventual production ramp-up. The Interiors margin miss was due to operational execution and cost estimation issues on transferred work, which are now being addressed by a new leadership team.