Peter Arment

Peter Arment asked if the defense and missile defense portion of the Flight Support Group (FSG), currently about a quarter of the segment, is expected to increase given its strong growth. He also sought insight into HEICO's positioning and opportunities related to the 'Golden Dome' initiative.

Answer

Eric Mendelson anticipates the defense and space mix within FSG will remain consistent due to robust commercial growth, while highlighting significant opportunities in defense and missile defense. Victor Mendelson explained that 'Golden Dome' involves existing programs where HEICO has a strong presence in both ETG and FSG, with new reconnaissance and tracking components expected to be additive.

Peter Arment asked if the mix of defense and space business within the Flight Support Group (FSG) is expected to change given its current growth, and sought insights into the opportunity set for HEICO related to the 'Golden Dome' initiative.

Answer

Eric Mendelson indicated that the FSG defense mix would likely remain consistent due to strong commercial growth, but highlighted massive opportunities in defense, including the defense tech community. Victor Mendelson described Golden Dome as additive, involving existing programs and new reconnaissance/surveillance/tracking efforts, noting HEICO's components on Iron Dome-related parts.

Peter Arment requested an updated view on the potential impact of tariffs on product costs and asked about the progress of PMA output and collaboration efforts with the legacy WENCORE business.

Answer

Co-CEO Victor Mendelson reiterated that the company expects any tariff impact to be largely immaterial and passed on to customers over time. Co-CEO Eric Mendelson stated that while PMA output has increased, the primary focus is on market penetration and ensuring they can fully support the new products.

Peter Arment requested more detail on the ETG end-markets driving booking strength and asked for an update on the company's leverage targets given the active M&A environment.

Answer

Victor Mendelson, Co-President, highlighted that the defense and commercial aviation parts of ETG have been extremely strong with double-digit growth, and he sees order rates bottoming out in other markets. CFO Carlos Macau noted that defense is currently about 40% of ETG sales but should grow to 50% over time. Regarding leverage, he stated the goal is to find profitable, high-margin acquisitions that keep leverage under 3x.

Peter Arment with Baird questioned the continued growth in unbilled receivables, despite a new contract and payment schedule, particularly given the 68% increase in Precision Strike product revenues for the first six months, and sought clarification on its impact on cash conversion.

Answer

Chairman, President, and CEO Wahid Nawabi and Executive Vice President and CFO Kevin McDonnell explained that unbilled receivables are still higher than targeted due to a transition period, changes in contracting office personnel, and the increasing proportion of revenue recognized over time, especially from BlueHalo's service businesses. Wahid Nawabi emphasized the focus on top-line growth and capturing opportunities, taking calculated risks to build products in advance to meet desperate customer needs. Kevin McDonnell reiterated the expectation for unbilled receivables to decrease in the second half to achieve the 50% cash conversion goal.

Peter Arment of Robert W. Baird & Co. asked about the key drivers behind the wide revenue growth range for the Autonomous Systems segment in FY26. He also sought an assessment of how key BlueHalo programs are positioned within the current defense budget environment.

Answer

CEO Wahid Nawabi attributed the wide guidance range primarily to the unpredictable timing of U.S. DoD contract awards and budget approvals. He emphasized that the combined company is 'purpose-built' for the current environment, aligning with over two-thirds of the DoD's highest priorities, including drones, counter-drones, directed energy, and space communications, positioning it for strong long-term growth.

Peter Arment asked for more details on the recently issued stop-work orders, including the reasons and potential duration. He also questioned the implied significant revenue step-up in the UnCrewed Systems (UxS) segment needed to reach the FY26 outlook and the demand drivers supporting it.

Answer

Wahid Nawabi, Chairman, President and CEO, clarified that the stop-work orders total approximately $13 million for foreign military sales (FMS) contracts and that their future is currently unclear, though he believes the customers have a serious need for the capabilities. Regarding UxS, he expressed confidence in its long-term growth, driven by new products like the P550 and major DoD programs, despite FY25 being a transition year away from Ukraine-related revenue.

Peter Arment inquired about the lower revenue in the Uncrewed Systems (UXS) segment, the overall demand environment, the timeline for P550 revenue, and the status of Replicator program deliveries and a related contract protest.

Answer

Wahid Nawabi, Chairman, President, and CEO, clarified that the UXS segment's revenue decline was an expected result of transitioning away from a large, prior-year Ukraine order. He affirmed long-term confidence in the segment, citing strong demand for Puma, a JUMP 20 pipeline exceeding $500 million, and the new P550 platform's potential in the $1 billion LRR program. On the Replicator initiative, Nawabi described AeroVironment as a "poster child," confirming significant Switchblade 600 shipments have already occurred. He also noted that while awaiting a decision on a contract protest, the company has received authorization to continue shipments.

Peter Arment of Baird asked about the potential for additional funding from programs like Replicator during fiscal 2025, the strength of the international FMS pipeline, and the company's production capacity to meet rising Switchblade demand. He also sought to confirm if the approved Taiwan FMS sale is in the funded backlog.

Answer

CEO Wahid Nawabi confirmed expectations for more Switchblade orders this fiscal year, noting a growing international pipeline with over half a dozen countries actively engaged. He stated that current capacity can support nearly $500 million in annual Switchblade revenue and that the company is already planning a new factory for future needs. Nawabi clarified that the Taiwan order, along with potential Ukraine and Replicator orders, is not yet reflected in the funded backlog but is expected to be booked during the fiscal year.

Peter Arment asked if the demand environment for Electron still supports around 30 flights per year, considering the uplift from national security launches and programs like Golden Dome, suggesting a potential upward bias. He also requested a comparison of the intensity and rate of Archimedes engine testing to the original Rutherford engine development for Electron.

Answer

Peter Beck, Founder and CEO, Rocket Lab, confirmed that the 30-flight-per-year demand for Electron is fair, with an upward trajectory expected from government HASTE and commercial launches, especially with the growth of Golden Dome. He stated that Archimedes testing is at a much higher intensity and rate than Rutherford, as it requires qualification for both ascent and descent environments, effectively doubling the testing scope.

Peter Arment asked about Karman Space & Defense's organic growth for the third quarter and sought clarification on the baseline assumption for organic growth in 2026, particularly in light of the company's 20-25% CAGR and recent acquisitions.

Answer

CFO Mike Willis explained that organic and inorganic growth quickly intertwine due to business development and integration, making a specific organic growth number difficult to provide, but affirmed that the vast majority of growth was organic. CEO Tony Koblinski stated that for 2026, with current assets, Karman anticipates consistent growth of 20-25%, noting this is a preliminary view.

Peter Arment asked about Karman Space & Defense's organic growth for the third quarter and the baseline assumption for organic growth in 2026, considering recent acquisitions and the company's revenue CAGR.

Answer

CFO Mike Willis explained that organic and inorganic growth quickly become intertwined due to cross-selling and integration, making it difficult to provide a specific organic growth number, but noted the vast majority of growth is organic. CEO Tony Koblinski stated that for 2026, with current assets, Karman Space & Defense anticipates consistent growth of 20%-25%, presenting this as a preliminary view.

Peter Arment inquired about Carmen's existing production capacity utilization across its facilities and its ability to handle future growth drivers. He also asked for insight into the 2026 backlog build, particularly concerning long-lead time initiatives like the Golden Dome program.

Answer

CEO Tony Koblinski expressed confidence in the company's capacity, citing ample square footage and ongoing capital investments to stay ahead of the demand curve. Regarding the backlog, he confirmed the record $719 million figure provides visibility into 2026 and beyond but redirected focus to executing on the strong 32% growth guided for the current year.

Peter Arment inquired about Carmen's capacity utilization across its 11 facilities to support numerous growth drivers and asked for insights into the build-up of the 2026 backlog, particularly concerning long-lead time initiatives like the Golden Dome program.

Answer

CEO Tony Koblinski expressed confidence in the company's ability to meet demand, citing ample square footage and ongoing capital investments to stay ahead of the demand curve. Regarding the 2026 backlog, he highlighted the current record backlog of $719 million and emphasized that the immediate focus is on executing the 32% year-over-year growth guided for fiscal 2025.

Peter Arment asked about the revenue recognition timeline for a potential 2026 AP1000 order and the impact of recent nuclear plant restarts (e.g., Palisades, Three Mile Island) on the company's 2028 business doubling targets.

Answer

VP and CFO Chris Barker explained that AP1000 revenue recognition would follow POC accounting, likely a 5-year (or tighter) bell curve, with some revenue in 2026 accelerating in 2027. Chair and CEO Lynn Bamford confirmed that nuclear restarts were not included in the original 2028 targets, indicating they represent an incremental tailwind. Chris Barker reiterated stronger confidence in achieving the $1.5 billion annual commercial nuclear revenue target by mid-next decade.

Peter Arment from Robert W. Baird & Co. questioned the sustainability of the robust margins in the Defense Electronics segment and asked whether the cadence for flight data recorder retrofits would be steady or accelerate.

Answer

VP & CFO K. Christopher Farkas cited restructuring, operational excellence, and pricing as margin drivers but noted caution due to an upcoming ERP implementation and a planned R&D ramp. President, CEO & Chair Lynn Bamford added that top-line drivers support margins and confirmed she expects the flight data recorder retrofit activity to accelerate, highlighting the regional jet market and a potential Airbus qualification in 2026.

Peter Arment questioned why the 2025 commercial nuclear organic growth outlook is high single-digits, compared to low double-digit growth in 2024 and the long-term target. He also asked if the projection for the nuclear business to grow fivefold is entirely organic.

Answer

CFO Chris Farkas explained that the 2025 growth rate is tempered by a cyclical headwind of fewer planned domestic outages compared to the prior year, but the company remains confident in its low double-digit CAGR target over the three-year period. CEO Lynn Bamford confirmed that the long-term fivefold growth projection is based on an organic build-up from anticipated content on AP1000s, plant life extensions, and the future SMR build-out.

Peter Arment asked about the drivers of strong performance in Defense Electronics, questioning if market share gains were a factor, and inquired about the growth trajectory for commercial nuclear from plant life extensions and Curtiss-Wright's positioning across various Small Modular Reactor (SMR) developers.

Answer

CEO Lynn Bamford credited the Defense Electronics success to organic execution, leading product offerings, and strong customer satisfaction, stating significant market share gains are future opportunities. She confirmed the bright outlook for commercial nuclear, driven by plant life extensions and restarts, and detailed the company's strategy to be a universal supplier to all major SMR designers, including Westinghouse, NuScale, TerraPower, and Rolls-Royce.

Peter Arment asked about the sustainability of the expanded margins in the health and civil segment, especially given the record medical examination volumes.

Answer

CEO Tom Bell attributed the strong performance to innovation and investment, differentiating Leidos through quality, efficiency, and timeliness of care. He mentioned expanding into rural and behavioral healthcare. CFO Chris Cage emphasized the administration's focus on serving veterans and reducing the backlog of health exams, noting Leidos' capacity and technology insertion (AI) to sustain robust margins and business levels for years to come.

Peter Arment asked about the sustainability of the expanded margins in Leidos' health and civil segment, particularly given the record examination volumes experienced.

Answer

CFO Chris Cage attributed the strong performance to innovation and investment, differentiating Leidos through quality, efficiency, and timeliness, and expects robust demand to continue. He noted expansion into rural and behavioral healthcare. CEO Tom Bell emphasized the administration's focus on veterans' backlog and Leidos' long-term technology investments, including AI, to sustain profitability and business levels for years to come.

Peter Arment of Robert W. Baird & Co. asked about the potential impact of a large, multi-billion dollar DoD IT and AI consolidation contract awarded to a competitor and the changing competitive landscape.

Answer

CEO Thomas Bell acknowledged the large award but stated it was not a surprise given the administration's focus on commercial technology. He framed it as an opportunity for Leidos to continue being a commercial disruptor, emphasizing that the company's focus on 'Trusted Mission AI' remains a key differentiator that resonates with customers and positions them well in the market.

Peter Arment of Robert W. Baird & Co. asked about the status of large contracts like NGEN amid the current contracting environment and inquired about the backlog decline in the Health & Civil segment.

Answer

CEO Tom Bell stated that the top-line revenue impact from recent administration actions was negligible and offset by new opportunities. CFO Chris Cage explained that a recent change in backlog policy, which now includes single-award IDIQs, did not benefit the Health & Civil segment as much as others, and noted key recompetes like MHS Genesis are still pending.

Peter Arment asked about the opportunity to increase the fixed-price contract mix within the Defense and National Security segments, which are currently less concentrated in that area than the Health segment.

Answer

CEO Thomas Bell stated he is "eager" to grow outcome-based contracting across all segments, as Leidos excels at using technology to deliver customer savings and shareholder value. CFO Chris Cage added that they are seeing opportunities for this in digital modernization and that future defense production programs, like those supporting IRON DOME, will likely be fixed-price.

Peter Arment asked for more color on the over $700 million in new and takeaway wins in full-spectrum cyber and where the impact of these wins is expected to be seen.

Answer

CEO Thomas Bell described the wins as a significant achievement for the National Security and Digital segment, which he called the "core of the core" of Leidos. He noted that while much of the work is for classified intelligence community customers, the company's cyber capabilities also serve as a key differentiator in other markets. CFO Chris Cage added that these investments are positioning Leidos for more robust growth in this area heading into 2025 and beyond.

Peter Arment asked about the revenue cadence and initial margin profile for the two large new contracts (uranium enrichment and depleted uranium awards), and the expected duration of the lower margin period.

Answer

Mike Fitzgerald, Senior Vice President and CFO, explained that revenue for these 10-15 year contracts would be distributed, with some front-loading for infrastructure. He anticipates lower margins for the first couple of years on these fixed-price programs, with a focus on driving higher profits later. Peter Arment also sought an update on Project PELE, specifically if the 2027 delivery timeline represents a delay from previous plans. Rex Geveden, President and CEO, confirmed the 2027 delivery is later than originally planned due to evolving program requirements and the role of national labs, but noted the program is progressing well.

Peter Arment inquired about the revenue cadence and initial lower margins for the recently booked uranium enrichment and depleted uranium contracts, asking how long this lower margin period is expected to last. He also requested an update on Project PELE, specifically if the 2027 delivery timeline is later than previously planned.

Answer

Mike Fitzgerald, BWX Technologies' Senior Vice President and CFO, explained that revenue for these contracts would be distributed over 10-15 years, with some front-loading for infrastructure. He anticipates lower margins for the first couple of years until approximately 25% contract completion, when EAC adjustments can be made. Rex Geveden, President and CEO, confirmed that the 2027 delivery for Project PELE is indeed later than originally planned due to evolving program requirements and the role of national labs, but the program is progressing well.

Peter Arment of Baird asked for clarification on whether the full Pickering life extension contract was added to backlog and inquired about any new developments on SMR projects, such as with the TVA, given the current administration's pro-nuclear stance.

Answer

EVP and CFO Robb LeMasters confirmed the booking represented the final order for the Pickering steam generators. CEO Rex Geveden added that the Department of Energy is actively encouraging the TVA's Clinch River SMR project and is leaning in hard to enable commercial SMR capability in the U.S., positioning BWXT well with its domestic manufacturing.

Peter Arment of Baird inquired about the timing and overlap of major Canadian nuclear refurbishment projects (Darlington, Bruce, Pickering) and the potential for this work to accelerate growth.

Answer

EVP & CFO Robb LeMasters and President & CEO Rex Geveden explained that as the Darlington project winds down, the Bruce and Pickering projects will be ramping up. They noted the Pickering project is a particularly rich opportunity for BWXT. LeMasters confirmed that this work is already driving an acceleration in the core commercial power business to double-digit growth in 2025, with a strong outlook for continued growth.

Peter Arment asked for the building blocks of the expected double-digit growth in commercial nuclear for 2025, an update on the Army microreactor RFP, and clarification on the 2025 CapEx outlook.

Answer

CFO Robb LeMasters detailed that 2025 commercial growth will be driven by large-scale refurbishments like Pickering, the recurring Canadian fleet business, and a ramp-up in work for the GE-Hitachi BWRX-300 SMR project. CEO Rex Geveden stated they submitted a compelling proposal for the Defense Innovation Unit RFP and are awaiting a government decision. On CapEx, LeMasters indicated 2025 spending would be similar to or slightly higher than 2024 levels but emphasized the company is committed to its free cash flow growth target regardless.

Peter Arment asked for an update on L3Harris's international business, specifically regarding strong NATO support, teaming operations, the balance with indigenous capabilities in Europe, and strategies for expanding international market share.

Answer

Chairman and CEO Christopher Kubasik highlighted significant increases in international budgets and L3Harris's long-standing global partnerships, including local production capabilities. He emphasized the company's flexibility in prime, sub, or merchant supplier roles, and its receptivity to technology transfer and offset obligations. He noted that international business is growing, currently at 22% of revenue and heading towards 25%, driven by strong demand for resilience and interoperability.

Peter Arment requested an update on the performance of the SDA program contracts and asked how they might overlap with the broader Golden Dome initiative.

Answer

CEO Christopher Kubasik reported that SDA Tranche 0 is performing well in orbit, with Tranches 1 and 2 moving along. He confirmed that the SDA tracking layer is understood to be part of the Golden Dome architecture. He noted that the RFP for the next tranche, originally a 2026 award, is now being considered for acceleration into 2025, highlighting the company's strong position with on-time, on-budget performance and the recurring nature of these satellite constellations.

Peter Arment asked for an update on the feedback and potential impact of CEO Chris Kubasik's letter to the Department of Government Efficiency (DOGE) regarding DoD bureaucracy and procurement reform.

Answer

CEO Christopher Kubasik reported receiving positive feedback from Congress and the Pentagon, stating his goal was to initiate a dialogue on accelerating capability delivery to the warfighter. He believes the cumulative effect of past risk-reduction policies has inadvertently created more risk and that L3Harris is well-positioned to adapt to the "unprecedented change" expected in 2025.

Peter Arment asked for the latest thoughts on portfolio shaping and potential divestitures. He also asked for the CFO's perspective on working capital opportunities after a year with the company.

Answer

CEO Christopher Kubasik stated that the company continues to refine its portfolio and has a couple of smaller, non-material properties currently in the market, likely in the range of a few hundred million dollars. CFO Kenneth Bedingfield explained that while they are effective managers of working capital, the primary focus is on investing for profitable growth. He emphasized that the main driver of free cash flow growth will be increased operating income from revenue growth and margin expansion, rather than aggressive short-term working capital management.

Peter Arment asked for an update on the remaining certification work for the 737 MAX 7 and 737 MAX 10 programs, including key milestones, given the extensive testing hours already completed.

Answer

EVP and CFO Jay Malave stated that the critical path remains the engine anti-ice design, which requires hardware and software modifications to test aircraft, followed by certification with the FAA. He noted that while there's still work beyond the anti-ice issue, particularly for the 737 MAX 10, it's not on the magnitude of the 777X program, and certification for both is still anticipated in 2026.

Peter Arment of Robert W. Baird & Co. asked about the long-term framework for production rates on the 737 MAX and 787, specifically questioning how high the 787 rate could go given strong wide-body demand.

Answer

President & CEO Kelly Ortberg emphasized a 'one step at a time' approach. For the 787, after moving to 7 per month, the focus is on stabilization before considering further increases, though investments are being made for future growth. For the MAX, after stabilizing at 38 per month, Boeing will approach the FAA for approval to increase to 42, with future rate hikes planned in increments of five no sooner than every six months, contingent on stability.

Peter Arment asked about the process for 737 production rate increases beyond 38 per month, specifically questioning the level of FAA involvement in subsequent rate hikes to 42 or 47 per month.

Answer

President and CEO Robert Ortberg confirmed that the plan is to use the same FAA review process for every future rate increase. The FAA will have continuous access to a digital dashboard of KPIs, and Boeing will not advance to a higher rate until the system is stable. He suggested the first rate increase may take the longest, with subsequent reviews becoming more standardized.

Peter Arment asked for a more detailed breakdown of the free cash flow dynamics for 2025, questioning the key drivers like working capital, 777X spending, and BDS losses, and whether a ~$5 billion outflow estimate was reasonable.

Answer

CFO Brian West confirmed that the 2025 free cash flow outlook is largely consistent with prior commentary, with minor negative adjustments for higher CapEx and BDS charges. He reiterated a negative first half and positive second half, resulting in a net cash usage for the year but with strong momentum exiting 2025. West affirmed that a cash outflow in the ~$5 billion range is a 'reasonable ballpark.'

Peter Arment of Baird inquired about Boeing's commitment to acquiring Spirit AeroSystems and the broader strategy regarding vertical integration and supply chain capabilities.

Answer

President and CEO Kelly Ortberg reaffirmed the company's commitment to the Spirit AeroSystems acquisition, which is expected to close next year. He stated that Boeing is already working closely with Spirit to improve quality and performance, which is critical for production ramp-ups. He believes bringing Spirit in-house will enable a step-change improvement through tighter integration.

Peter Arment asked about the expected trend of IRAD spending, its impact on AFC, and future projections, as well as updates on foreign military sales activity and the stabilization of germanium pricing and future supply.

Answer

CFO Michael Dippold stated that internal research and development investment is expected to remain at a similar percentage of revenues, around mid-3%, to maintain agility and growth. Chairman and CEO William Lynn noted an anticipated ramp-up in foreign military sales opportunities, particularly for force protection, Counter-UAS, sensors, and network computing. Regarding germanium, Michael Dippold confirmed 2025 supply is lined out, and William Lynn detailed progress in recycling and diversifying the supply base for 2026, moving away from reliance on China.

Peter Arment asked about the expected trend of IRAD spending, its impact on AFC, and future projections, as well as updates on foreign military sales activity and the stabilization of germanium pricing and future supply.

Answer

CFO Michael Dippold stated that internal research and development investment is expected to remain at a similar percentage of revenues, around mid-3%, to maintain agility and growth. Chairman and CEO William Lynn noted an anticipated ramp-up in foreign military sales opportunities, particularly for force protection, Counter-UAS, sensors, and network computing. Regarding germanium, Michael Dippold confirmed 2025 supply is lined out, and William Lynn detailed progress in recycling and diversifying the supply base for 2026, moving away from reliance on China.

Peter Arment from Robert W. Baird & Co. asked about the expected timing for the Golden Dome initiative to impact DRS's backlog and inquired about the current M&A environment, including deal flow and pricing trends.

Answer

Chairman & CEO William Lynn stated that Golden Dome orders are not expected in calendar 2025 but could begin to roll out in 2026. Regarding M&A, he noted that while DRS is actively looking, rising prices in the sector are a factor, and the company is assessing its strict financial criteria, with more flexibility on ROIC for strategically aligned targets.

Peter Arment from Baird inquired about margin progression drivers beyond the Columbia program for the 2026 targets, the market opportunity for over-the-horizon radar, and how the defense industry might adapt to a greater focus on fixed-price contracts.

Answer

CEO William Lynn explained that margin improvement is also driven by smaller sensing and force protection programs transitioning from development to production. He noted that over-the-horizon radar is a growing opportunity as DRS moves into prime contracts. Lynn also highlighted that since DRS's portfolio is already ~85% fixed-price, the company is well-positioned and expects the rest of the industry will need to adopt similar rigorous bidding and risk management processes.

Peter Arment asked about the drivers behind the ramp-up in force protection demand, related CapEx needs, the naval shipyard supply chain, and the assumptions underpinning the 2025 revenue growth forecast.

Answer

CEO Bill Lynn explained that force protection demand is driven by the strategic shift to peer competitors and the growing drone threat, noting that existing facilities are sufficient. He clarified the new Charleston facility is for insourcing to improve efficiency. CFO Mike Dippold added that the 2025 guidance already accounts for a potential Continuing Resolution, as most revenue is from existing backlog.

Peter Arment asked if the resilient bookings environment and backlog in Gulfstream would necessitate an increase in production rates, and for an update on the construction status of the first Columbia class submarine.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, stated that Gulfstream's production rates are driven by backlog and demand, and while currently comfortable, they will increase in regular order if demand continues to rise. She reported the first Columbia class submarine is about 60% complete by year-end, with major modules ready for assembly and testing, emphasizing efforts with the Navy and supply chain to accelerate delivery.

Peter Arment asked about the strong Q1 bookings in the Technologies segment, seeking visibility on GD's support for GSA efforts and the overall bookings and costing environment under the current administration.

Answer

Phebe Novakovic, Chairman and CEO, deferred to Jason Aiken, EVP of Technologies. Aiken explained that GDIT is actively working with customers to find savings and deliver mission-driven solutions. He noted some sluggishness in the award process, which is typical of a new administration, but stated the outlook remains unchanged, with more clarity expected by mid-year.

Peter Arment from Robert W. Baird & Co. inquired about the long-term growth visibility for the Combat Systems segment, given its strong order book and the current demand environment. He also asked about the potential for further margin expansion beyond current high levels.

Answer

CEO Phebe Novakovic affirmed that the segment's backlog and the global threat environment support 'nice steady growth' for the foreseeable future, both domestically and internationally. On margins, she stated that Combat Systems historically operates as a 14.5% margin business, and while there's always opportunity, she doesn't see a structural long-term improvement at the moment, expecting performance to remain in that range with some mix-driven variability.

Peter Arment inquired about the impact of the U.S. Army's recent announcement to accelerate the fielding of the MV-75 version two on the program's cost profile and overall changes. He also asked for highlights regarding Textron Aviation's strong demand in the jet market, regionally or generally.

Answer

Scott Donnelly, Chairman, President, and CEO, explained that the acceleration of MV-75 version two would not change near-term costs, as the MOSA architecture allows for future variants without impacting the basic aircraft's current development. Regarding Textron Aviation, Mr. Donnelly noted strong retail demand across the entire portfolio, robust end-market performance, improving margins, and successful certification activities for new models like the M2 and CJ3 Gen 2, with the Citation Ascend nearing completion.

Peter Arment inquired about the MV-75 program, specifically the impact of the Army's recent announcement to accelerate the fielding of version two on its cost profile, and asked for highlights regarding Textron Aviation's demand in the jet market, regionally or generally.

Answer

Scott Donnelly, Chairman, President, and CEO of Textron, clarified that the MV-75 acceleration won't change near-term costs, as it aligns with the program's MOSA architecture strategy to build variants. He noted strong retail demand across Textron Aviation's portfolio, robust end markets, improving margins, and successful certification activities for new aircraft models.

Peter J. Arment from Baird asked for an outlook on Textron Aviation's margins for the second half of the year and inquired about the current demand environment, including customer interest in new aircraft models.

Answer

Scott C. Donnelly, Chairman, CEO & President, stated that Aviation margins are on track with expectations, with a more challenged first half and an expected improvement in H2 driven by a strong production ramp. He also confirmed that demand remains strong across the portfolio, with good order flow and customer excitement for the new Gen II and Ascend models.

Peter Arment asked about the potential impacts of the full-year Continuing Resolution (CR) on the Systems business and requested an update on the Beechcraft Denali program following the GE engine certification.

Answer

Chairman and CEO Scott Donnelly stated that the CR's impact is generally minimal, as amendments allowed key programs like FLRAA and Ship-to-Shore Connector to proceed as expected. On the Denali, he called the engine certification 'hugely important,' noting the program is now back in the queue with the FAA for aircraft-level certification and that the aircraft itself is performing very well.

Peter Arment inquired about the 2025 cash flow outlook, asking for details on its moving parts, and also asked about the current demand environment for Textron Aviation.

Answer

Scott Donnelly, Chairman and CEO, stated that cash flow will be back-end loaded, with Q4 2024 cash impacted by high inventory for jets that did not deliver. He affirmed confidence in the $800-$900 million guidance range. Regarding demand, Donnelly described it as strong across the entire product line, with particular strength in light jets following the Gen 3 announcements, and projected a sustained book-to-bill ratio of approximately 1:1 for 2025.

Peter Arment asked about the business jet demand environment following the NBAA conference and the current outlook for pricing net of inflation.

Answer

CEO Scott Donnelly described demand as strong, citing over $1 billion in Q3 orders and positive reception to product updates. On pricing, he noted that while the environment remains favorable, the gap between price increases and inflation is narrowing, shifting the focus toward productivity and efficiency for future margin growth.

Peter Arment asked for an update on the long-term production ramp plans for solid rocket motors, considering how defense and space tech upstarts factor into Northrop Grumman's strategy, and followed up on whether B-21 Lot 3 is included in 2026 guidance.

Answer

Kathy Warden, Chair, CEO, and President, explained that Northrop Grumman focuses on qualifying itself as a provider for weapons where it hasn't historically been, leveraging its capacity investments to be ready. She noted that new entrants would take time to build capacity and qualify. Regarding B-21, she clarified that the Lot 3 award and Lot 5 advanced procurement are expected in Q4 2025, with the vast majority of expenditures and sales recognition starting in 2026.

Peter Arment from Baird asked for details on the recent TACAMO contract win, including its protest status and revenue contribution, and also inquired about Northrop's positioning for NGAD or CCA opportunities.

Answer

CEO Kathy Warden confirmed the $3.5 billion TACAMO award passed its protest period and is underway, with about $350 million in revenue expected in the first year. Regarding future aircraft, she stated that Northrop is well-positioned for 6th-gen opportunities based on its B-21 experience but is not including them in forecasts yet. She also noted Northrop is a contributor to the Navy's NGAD program through its Mission Systems segment.

Peter Arment inquired about the sustainability and future outlook for Raytheon's margin expansion, considering its strong backlog, accelerating growth, and higher international mix.

Answer

CEO and Chairman Chris Calio highlighted the substantial and growing international portion of Raytheon's backlog (44%) as a tailwind, along with the team's focus on the core operating system to drive productivity and efficiency. CFO Neil Mitchill noted positive productivity in Q3, building on prior improvements, and confirmed that the long-term mix of the backlog supports expanding margins.

Peter Arment asked about Raytheon's margin performance, particularly with accelerating growth and a higher international mix, and the longer-term outlook for these margins.

Answer

CEO Chris Calio emphasized the substantial backlog, with 44% being international, providing a significant tailwind. He noted the team's focus on the core operating system to drive productivity and efficiency, leading to increased production for key programs. CFO Neil Mitchill highlighted positive productivity improvements year-over-year and confirmed that the mix of the backlog supports expanding margins long-term.

Peter Arment of Baird asked about the long-term production outlook for the LTAMDS radar system, considering the recent budget step-up for PAC-3 missiles and the broader demand for missile defense.

Answer

CEO Christopher Calio emphasized that the Patriot system is a key part of near-term defense solutions like 'Golden Dome' and is seeing strong demand across Europe. Regarding LTAMDS, he noted the program achieved Milestone C, initiating production, with six units delivered to the U.S. government. He stressed the powerful opportunity to integrate the advanced LTAMDS radar with the large existing global fleet of Patriot systems.

Peter Arment inquired about the opportunity for Raytheon from the 'rearm Europe' effort, the timing of potential awards, and whether the Raytheon segment is still expected to achieve a book-to-bill ratio above 1.0 for the year.

Answer

Executive Chairman and CEO Christopher Calio confirmed that increased European Union defense spending presents a clear opportunity for Raytheon's core integrated air and missile defense systems like Patriot and NASAMS, supported by strong European partnerships. He affirmed that the company still expects a book-to-bill ratio of 1.0 or more for the Raytheon segment for the full year.

Peter Arment of Baird asked about Raytheon's alignment with new administration spending priorities, focusing on stockpile replenishment and the impact of its significant international business mix.

Answer

Executive Christopher Calio highlighted Raytheon's strong position, citing a $63 billion backlog and a 1.48 book-to-bill ratio. He detailed that U.S. demand is focused on replenishment, European demand is for integrated air and missile defense, and Asia-Pacific demand is for naval munitions, with overall international demand remaining a strong tailwind.

Peter Arment of Baird asked for a high-level perspective on the future cadence of free cash flow, particularly for 2025, and whether cash conversion is expected to improve with new productivity initiatives.

Answer

Executive Neil Mitchill affirmed confidence in the current year's $4.7 billion free cash flow target, highlighting working capital as a significant opportunity for improvement. Looking long-term, he stated there is no reason the business won't achieve 90% to 100% free cash flow conversion on adjusted net income. Executive Christopher Calio added that strong profit growth in the high-margin aftermarket business is a fundamental driver of this expected cash flow growth.

Peter Arment inquired about the timeline for resolving the headwind from factory capacity allocated to unbilled receivables and asked for a normalized target for net working capital as a percentage of sales.

Answer

CEO William Ballhaus stated that while precise timing is difficult, he expects to work through the unbilled receivables headwind significantly during fiscal 2026. EVP & CFO David Farnsworth added that the company's long-term target for net working capital is in the 35% of sales range, depending on the business mix.

Peter Arment of Robert W. Baird & Co. asked for an update on the LTAMDS program as it moves into production and for more detail on the significant increase in deferred revenue.

Answer

CEO Will Ballhaus stated that Mercury is ramping up LTAMDS production in line with its customer's schedule and is excited about its growth prospects. CFO Dave Farnsworth explained that the rise in deferred revenue stems from improved contract terms with milestone-based payments, including upfront customer payments for end-of-life component buys, which can also increase inventory.

Peter Arment inquired about the rationale behind the breakeven free cash flow forecast for the second half of the year, considering the strong progress on unbilled receivables and the growth in deferred revenue.

Answer

CFO Dave Farnsworth explained that first-half cash flow was ahead of expectations, partly due to achieving contract milestones which significantly increased deferred revenue. He clarified that in the second half, the company will perform work against this collected cash, leading to a reduction in the deferred revenue balance. This drawdown is expected to offset cash generation from other activities, resulting in a roughly breakeven free cash flow for the period.

Peter Arment inquired about the timeline for the unwinding of unbilled receivables as programs transition to production and asked if R&D spending is expected to return to its historical level of around 12% of revenue.

Answer

CEO William Ballhaus described the reduction in unbilled receivables as a gradual transition as development programs conclude and shift to production, noting that engineering resources are now allocated to support this ramp. Regarding R&D, he anticipates an incremental increase to fund innovation but does not expect any major swings back to historical percentage levels.

Peter Arment from Robert W. Baird & Co. asked about the impact of the Golden Dome initiative on the Target Drone business and for an updated ranking of the company's primary growth drivers.

Answer

CEO Eric DeMarco explained that Kratos is exceptionally well-positioned for Golden Dome, providing ground systems, hardware for interceptors, and the target drones needed for testing. He updated the growth driver ranking to: 1) Hypersonics, 2) Air defense and missile systems hardware, and 3) Jet engines, noting that tactical drones could leapfrog to the top if and when major contracts are awarded.

Peter Arment of Baird inquired about Kratos's role and expected benefits from the Golden Dome program and asked for the timeline of test flights for the new landing gear-equipped Valkyrie variant.

Answer

CEO Eric DeMarco explained that Kratos's involvement is in ground systems (C2, TT&C, SATCOM), which benefit as more space assets are deployed for programs like Golden Dome and for space domain awareness. Regarding the Valkyrie, he confirmed the landing gear variant is tracking to fly "soon this year" but declined to provide further details for security reasons.

Peter Arment inquired about Kratos' involvement in the Golden Dome program and the expected benefits as tranche three progresses, also Valkyrie landing gear test flights.

Answer

CEO Eric DeMarco discussed Kratos' role in ground command and control and telemetry for the Golden Dome program. He also mentioned the Valkyrie landing gear variant is expected to fly this year.

Peter Arment from Baird asked for more details on the recent foreign source selection for a tactical drone, progress on tactical fire jet opportunities with the U.S. Navy, and the anticipated production ramp-up for the company's turbojet engines following recent investments.

Answer

CEO Eric DeMarco stated that while details on the foreign Valkyrie selection are limited, it is a significant development not yet included in the 2025 forecast, representing potential upside. He noted progress on tactical fire jets like Apollo and Athena, highlighting their relevance to non-Air Force customers. Regarding engines, DeMarco anticipates initial low-rate production orders in the first half of 2025, with 2026 potentially being a 'breakout year' for small jet engine production.

Peter Arment from Robert W. Baird & Co. Incorporated requested an update on CACI's strategy of investing ahead of need, focusing on space optical terminals and initiatives like Golden Dome. He also asked about the impact of IT acquisition contracts moving to the GSA.

Answer

President and CEO John Mengucci reported great success and strong demand for its technology, noting progress on space optical terminals for Tranches 0, 1, and 2, despite some supply chain-related production slowness. He sees no significant impact from IT contracts moving to the GSA, as CACI's major DoD and intelligence community IT programs are expected to remain with their respective agencies.

Peter Arment from Robert W. Baird & Co. questioned whether potential reductions in the civilian national security workforce could create outsourcing opportunities for CACI and asked for the company's target leverage ratio.

Answer

CEO John Mengucci affirmed that a reduction in government staff presents a growth opportunity for CACI to provide technology and expertise, similar to what occurred during sequestration. CFO Jeffrey MacLauchlan reiterated that the company's target leverage range is 2.5x to 3.0x, with the quarter ending at 2.9x.

Peter Arment of Robert W. Baird & Co. asked about productivity trends, noting that some divisions are producing more with fewer people, and questioned how this dynamic is playing out, especially in the Engine Products segment which has been hiring significantly.

Answer

Executive Chairman and CEO John Plant acknowledged that productivity has been solid in three of four divisions. He explained that the aggregate productivity in the Engine business is weighed down by the significant hiring in preparation for future capacity. While automation has helped, the current focus is on investing capital for capacity and market share. He stated the company will "go back and mop up" remaining productivity opportunities in 2027 or 2028 once the major capacity ramp is complete.

Peter Arment inquired about Albany's alignment with aerospace OEM build rates, the key factors that could influence second-half results toward the high or low end of the guidance range, and the latest progress on the CH-53K program ramp-up.

Answer

President & CEO Gunnar Kleveland explained that the company is gradually ramping up with Boeing and has reached contractual inventory levels for the LEAP program. He noted that second-half performance depends on Machine Clothing recapturing lost revenue and AEC's growth in commercial programs. For the CH-53K, Kleveland expressed confidence in reaching the two-per-month production rate by year-end, citing that all assembly jigs now have parts in them.

Peter Arment inquired about the LEAP program's inventory status and production ramp-up potential, opportunities for growing the AEC backlog in areas like hypersonics, and the progress on the CH-53K program following lower EAC adjustments.

Answer

President and CEO Gunnar Kleveland stated that while Safran is currently using some inventory for the LEAP program, Albany expects to reach required levels by the end of H1 2025 and sees potential upside in the second half. He confirmed new business opportunities exist in space and missile programs, allowing Albany to be selective. Regarding the CH-53K, Kleveland noted that the improvement plan is working effectively due to better leadership, training, and onboarding, leading to lower EACs and optimism for continued progress.

Peter Arment of Baird asked for clarification on the conservative LEAP program outlook, questioning if it was due to inventory issues or general caution regarding Boeing. He also inquired about the specific challenges and improvement path for the CH-53K program and the expected cadence for working capital in 2025.

Answer

CEO Gunnar Kleveland confirmed the cautious LEAP outlook is a function of both inventory burn-off and prudence regarding Boeing's recovery, noting alignment with Safran. He expressed confidence in the CH-53K program's path forward, citing new leadership and talent additions in supply chain, planning, and operations. CFO Robert Starr added that the company can ramp LEAP production quickly and will continue to focus on improving working capital balances, particularly by integrating Heimbach.

Peter Arment of Robert W. Baird & Co. Inc. inquired about the progress of the Gulfstream contract, the revenue potential from new classified defense work, and the drivers behind the strong Q4 EBITDA guidance for the AEC segment.

Answer

President and CEO Gunnar Kleveland reported no material changes to the Gulfstream contract and noted significant but unspecified opportunities in classified defense, pointing to the growing backlog. Robert Starr elaborated on the Q4 AEC guidance, expressing high confidence based on higher-margin volume growth and expense controls, which implies a midpoint margin of 17.5%.

Peter J. Arment of Baird asked about the 'Golden Dome' initiative, seeking to understand the quantifiable opportunity for Lockheed Martin and the timing for its potential inclusion in the backlog. He also inquired if F-35 milestone payments would improve with TR-3 now completed.

Answer

CEO James Taiclet stated that 'Golden Dome' is not yet a formal program with contracts, so the opportunity cannot be quantified for backlog, though Lockheed is actively discussing the architecture with the government. CFO Evan Scott confirmed they expect a strong second half for cash flow, driven by F-35, with the Lot 18-19 award being a significant cash liquidation event that will improve working capital.

Peter Arment of Baird asked if the 'Golden Dome' opportunity has been quantified and when it might impact the backlog. He also inquired if F-35 milestone payments are expected to improve now that TR-3 is completed.

Answer

CEO James Taiclet responded that while Lockheed Martin is discussing architecture with the government, there are no contracts or bid proposals for Golden Dome yet, so it cannot be quantified for the backlog. CFO Evan Scott confirmed a strong cash second half is expected, led by the F-35, with the Lot 18-19 award anticipated to be a significant cash liquidation event.

Peter Arment of Baird asked about the opportunities to continue growing the company's record-level backlog in 2025 and inquired about any significant international pursuits.

Answer

CEO James Taiclet suggested that policy changes like more multiyear contracts could accelerate backlog growth. CFO Jesus Malave confirmed a clear line of sight to further growth in 2025, highlighting several multi-billion dollar opportunities, including the F-35 Lot 19 order (~$10B), a JASSM/LRASM multiyear contract, F-35 sustainment, and the CH-53K Lot 9 contract.

Peter Arment requested an update on how TransDigm's OE purchase order rates are tracking against Boeing's production targets, referencing a similar update from the prior quarter.

Answer

Co-COO Mike Lisman responded that the situation is component-specific and varies across operating units based on Boeing's inventory. He stated that, in aggregate, purchase orders are "in and around sort of that rate per month ballpark on the MAX that you would expect," but with puts and takes across their businesses.

Peter Arment questioned the higher-than-historical CapEx guidance for fiscal 2025, which implies nearly 3% of sales, and asked about the specific investments driving this increase.

Answer

CFO Sarah Wynne explained the increase is driven by investments in newly acquired businesses and significant new productivity projects, such as robotics. Co-COO Mike Lisman added that these CapEx investments are crucial for driving cost structure improvements and margin expansion.

Peter Arment asked for clarification on the remaining percentage of recompetes for the year, whether the large new pursuits include international deals, the debt reduction target, and the business impact of the full-year Continuing Resolution (CR).

Answer

SVP and CFO Shawn Mural clarified that remaining recompetes are minimal, down to 1-2% of 2025 revenue. President and CEO Jeremy Wensinger confirmed that large, billion-dollar pursuits include international opportunities. Mural added that the company is comfortable with its leverage ratio and expects it to improve sequentially, and noted that the impact from the CR has been modest and has not caused significant perturbations.

Peter Arment asked about the potential for converting cost-plus contracts to outcome-based, fixed-price models, the impact of the Continuing Resolution (CR) on 2025 guidance, and for clarification on the financial contribution and phasing of the Warfighter Training Readiness Solutions (WTRS) program.

Answer

President and CEO Jeremy Wensinger confirmed V2X has a history of converting mature programs to fixed-price and continuously presents these opportunities to customers, aligning with the administration's focus on outcomes. Both Wensinger and CFO Shawn Mural stated the business is largely immune to the CR, and guidance assumes a resolution. Mural clarified the WTRS program is expected to add approximately $120 million in revenue year-over-year, primarily in the second half of 2025.

Peter Arment from Robert W. Baird & Co. requested more color on the operational drivers behind the strong growth in the INDOPACOM and Middle East regions and asked about the ramp-up timeline for the large Warfighter Training Readiness Solutions (W-TRS) contract.

Answer

President & CEO Jeremy Wensinger explained that INDOPACOM growth is tied to the long-term Pacific Deterrence Initiative, while Middle East activity is more dynamic and driven by current events, with V2X's presence allowing for rapid response. SVP & CFO Shawn Mural confirmed the W-TRS program will begin to ramp in the second half of 2025 from its initial $225 million booking. Wensinger added that the team is already developing offerings for allied nations under the contract framework.

Peter Arment of Baird asked if the strong 12.8% operating margin in the Defense & Space segment was sustainable or if it included any one-time benefits.

Answer

CFO Mark Suchinski confirmed the performance was sustainable and in line with their 12-14% target range, with no significant one-time items. He attributed the result to 'really good execution' by the team, highlighting specific improvements in the CH-53K program. He expects the segment to continue performing to its margin targets.

Peter Arment of Baird asked if the strong 12.8% operating margin in the Defense & Space segment was sustainable or if it included any one-time benefits.

Answer

CFO Mark Suchinski confirmed the performance was not due to one-offs but was the result of strong execution, particularly on the CH-53K program. He stated the margin was 'right in the sweet spot' of their 12-14% target range and that he expects the team to continue performing at this level.

Asked for more details on the expected margin recovery in the Interiors business and for confirmation of the medium-term 20% total company EBITDA margin target.

Answer

The company is confident in the Interiors margin recovery in Q4, driven by productivity initiatives, pricing discussions with customers, and increased volume from competitors who are not ramping. The 20% EBITDA margin target remains the goal, though the exact timing is being revisited, with confidence supported by higher-than-market revenue growth.