Seth Seifman

Seth Seifman followed up on the frigate program, asking if it will ramp up quickly given the 2028 delivery target, the potential magnitude of revenue lift at Ingalls, and its impact on the mix, considering the National Security Cutter (NSC) was a profitable ship. He also inquired about the use of excess cash by year-end 2026, specifically regarding share repurchases.

Answer

President and CEO Christopher Kastner stated it's too early to provide specific top-line upside numbers for the frigate, but sales will ramp. He cautioned against assuming NSC-like profitability, reiterating the objective of achieving a 9-10% blended margin. Regarding cash, he emphasized that cash flow can be lumpy in shipbuilding and that the overwhelming opportunity is to continue investing in the shipyards to improve both top and bottom lines.

Seth Seifman from JPMorgan Chase & Co. asked about the frigate program's revenue ramp-up towards a 2028 delivery target, inquiring about the potential magnitude of growth at Ingalls and its impact on the segment's mix, given the profitability of the NSC program. He also questioned the company's capital allocation strategy for excess cash by year-end 2026, specifically regarding share repurchases versus continued shipyard investments.

Answer

President and CEO Chris Kastner stated it's too early to provide specific top-line upside for the frigate program but confirmed the objective of achieving 9%-10% blended margins. He emphasized that the overwhelming opportunity for value creation lies in continued investment in the shipyards to improve both top and bottom lines, rather than share repurchases.

Seth Seifman from JPMorgan Chase & Co. questioned the implied step-down in HII's fourth-quarter shipbuilding margin, which would result in the company finishing below the midpoint of its annual guidance if a key contract isn't awarded in Q4. He asked what factors drive this potential margin reduction, considering the underlying segment margins.

Answer

EVP and CFO Tom Seeley clarified that the potential margin impact is related to the timing of booking performance and capital incentives associated with the 15-boat award. He indicated a degree of conservatism in the guidance but expressed confidence in finishing around the midpoint, with no underlying issues or concerns regarding segment performance.

Seth Seifman asked about the implied step-down in Q4 shipbuilding margin if the anticipated contract award does not materialize, questioning if this reflects conservatism or potential negative adjustments, given the underlying margins.

Answer

Tom Seeley, EVP and CFO, clarified that the guidance reflects the potential timing of the 15-boat award, which includes performance and capital incentives. He stated that the math around booking these incentives could incrementally change the margin, leading to a slightly conservative guide. Mr. Seeley reiterated that shipbuilding margins have been stable through Q3 and he expects to finish around the midpoint of the guidance range, with no underlying issues or concerns.

Seth Seifman of JPMorgan Chase & Co. asked for details on the timing and financial magnitude of the expected Virginia Block VI and Columbia Build II contract awards. He also questioned if recent wage increases were immediately factored into productivity assumptions for existing contracts.

Answer

President and CEO Christopher Kastner and EVP and CFO Thomas Stiehle confirmed they expect the awards in the second half of the year, and the guidance range already accounts for this timing. They noted the awards primarily affect cash flow and incentives this year, not margins. Kastner clarified that wage hikes are not immediately booked into estimates; the company must first see proven performance improvements.

Seth Seifman asked about the cash flow impact of the new Virginia-class contract and its inclusion in Q2 guidance. He also inquired about the strategic potential of the new partnership with Hyundai for accelerating U.S. shipbuilding.

Answer

EVP and CFO Thomas Stiehle confirmed that the contract and its associated cash incentives were already factored into the Q2 and full-year free cash flow guidance. President and CEO Christopher Kastner described the Hyundai MOU as an early-stage, broad relationship to explore best practices, noting that collaboration with allies to expand capacity is logical but outcomes are not yet defined.

Seth Seifman sought clarification on which specific submarine contract awards are assumed in the 2025 guidance and questioned the basis for management's confidence that these awards would be secured within the year, particularly with a new administration.

Answer

President and CEO Christopher Kastner clarified that the guidance assumes the successful negotiation of the FY '24 two-boat contract, followed by the Block VI and Columbia build 2 contracts. He expressed high confidence in finalizing the FY '24 boats in the first half of the year, noting that while his interactions with the new administration are limited, he has been assured that shipbuilding is a top priority, which supports the expected progression to subsequent contract negotiations.

Seth Seifman inquired about the impact of increased outsourcing on financial returns and whether the 3-4% long-term shipbuilding growth target remains valid given the reduced capital expenditure plan.

Answer

CEO Christopher Kastner confirmed that outsourcing will increase and that the associated cost premium is being factored into future contract negotiations. CFO Thomas Stiehle affirmed the 3-4% growth target is still appropriate, describing the CapEx reduction as a prudent short-term measure that does not change the strong long-term demand profile and value equation for HII.

Seth Seifman from JPMorgan Chase & Co. inquired about the proportion of Common Processing Architecture (CPA) in the sales mix, its expected trajectory over the next one to two years, and the company's plans for its growing cash balance, which is now over $300 million.

Answer

Chairman and CEO Bill Ballhaus stated that the company does not quantify CPA's exact percentage of the business but noted successful ramp-up, strong execution, and continued growth potential with healthy demand and technical differentiation. EVP and CFO Dave Farnsworth added that some CPA programs are fully ramped, while others are still scaling. Regarding cash, Farnsworth indicated that the ideal balance is $100-150 million, with the current higher balance reflecting prudence. Ballhaus emphasized that the primary focus for cash remains delevering.

Seth Seifman inquired about the approximate proportion of Common Processing Architecture (CPA) in the sales mix and its expected growth, as well as the company's strategy for its cash balance, which has risen above $300 million.

Answer

Chairman and CEO Bill Ballhaus and EVP and CFO Dave Farnsworth did not quantify CPA's sales mix but expressed optimism for its growth potential. They stated the target cash balance is $100 million-$150 million, with current priorities focused on delevering the debt.

Seth Seifman asked if the 31% gross margin seen in Q4 is sustainable and whether the low Q4 operating expense levels are an appropriate run rate for fiscal 2026.

Answer

EVP & CFO David Farnsworth stated that while gross margins are expected to increase over the long term, quarterly fluctuations are possible. CEO William Ballhaus added that current OpEx levels are in the 'right ZIP code' for the near term, providing a solid foundation for future operating leverage as the company scales.

Rocco, on behalf of Seth Seifman from JPMorgan Chase & Co., questioned if the sequential revenue decline in Q3 was caused by the previously announced pull-forward into Q2 and if this acceleration also explains the implied flat revenue growth for Q4.

Answer

CEO Will Ballhaus confirmed that the sequential revenue decline was influenced by a significant pull-forward of approximately $30 million from Q3 into Q2, driven by a focus on accelerating customer deliveries. He affirmed that this timing shift is consistent with their prior expectations and is the reason for the implied flat year-over-year revenue in Q4, with the full-year outlook remaining unchanged.

Seth Seifman asked for clarification on the 'above market' growth target, including the definition of the market, and questioned the role the Common Processing Architecture (CPA) will play in achieving this growth.

Answer

CEO Bill Ballhaus defined the target market as the Tier 3 defense electronics market, which historically grows at 5-6%, and noted Mercury is focused on faster-growing subsegments like processing at the edge. He explained that the CPA contributes to growth by unlocking follow-on bookings, enabling new revenue-generating deliveries, and freeing up capacity to burn down unbilled receivables, which converts prior work into cash.

Seth Seifman asked about the expected revenue mix from common processing architecture (CPA) programs once at full production and questioned the sustainability of the lower SG&A expenses observed in the quarter.

Answer

Executive David Farnsworth clarified that while CPA is a significant contributor, no single program accounts for 10% of revenue, and he declined to provide a specific future mix percentage. Regarding SG&A, Farnsworth acknowledged historical cyclicality but stated the company expects operating leverage to improve through the second half of the year.

Seth Seifman noted that the margin forecast for the year is around the Q1 level, which seems conservative given Q1 is typically seasonally weaker and margins usually ascend. He asked if there are reasons other than conservatism for this. He also inquired about how to anticipate the margin reset after the three pending acquisitions are integrated.

Answer

CEO Mike Lisman attributed the conservatism to the potential ramp-up of the lower-margin commercial OEM segment and the early stages of integrating recent acquisitions. He confirmed a healthy dose of conservatism in the margin outlook. For the pending deals, he indicated that typical margin dilution is expected, with specific guidance to be provided post-close.

Seth Seifman inquired about the conservatism in the full-year margin forecast, which is similar to Q1's performance despite Q1 typically being seasonally weaker and margins usually ascending throughout the year. He also asked about the expected margin reset impact from the three pending acquisitions.

Answer

CEO Mike Lisman attributed the margin forecast to conservatism, potential headwinds from higher-growth, lower-margin commercial OEM sales, and conservative estimates for the new acquisitions. He confirmed that, consistent with past acquisitions, the pending deals are expected to dilute the overall margin slightly, but specific guidance will be provided upon closing.

Seth Seifman asked how the volatile market environment is affecting M&A models and seller expectations. He also inquired about the primary risks to the commercial aftermarket growth forecast, particularly from potential airline capacity cuts.

Answer

President and CEO Kevin Stein noted the main change in the M&A environment is the willingness of others to pay "aggressive multiples," but TransDigm's disciplined approach remains unchanged. Regarding aftermarket risk, Stein stated that while they monitor headlines, their order book remains strong with no signs of a downturn, but they are prepared to react quickly on costs if conditions change.

Seth Seifman asked if the strong Q1 aftermarket performance alters the outlook for the rest of the year and posed a hypothetical question about using pricing concessions to pay for an acquisition.

Answer

Co-COO Joel Reiss reiterated that the aftermarket is lumpy and they are maintaining their existing guidance despite the strong start. Regarding the hypothetical acquisition, CEO Kevin Stein stated that such a scenario has never occurred and is not their usual process, though they remain opportunistic in all dealings.

Seth Seifman asked about the allocation of new capacity with customer support, specifically how much is dedicated to the customer versus available for other customers, and the impact of customer support on ROI. He also inquired about the airframe growth being more pronounced in the second half of the year and the current inventory stocking situation.

Answer

CEO Kim Fields explained that customer-supported investments ensure capacity availability with right of first refusal for negotiated amounts, but ATI can flex beyond that. She noted the alignment with customer demand and abbreviated qualification processes. She reiterated that project returns exceed 30%, with customer capital enhancing these returns. For airframes, Kim Fields stated that inventories are normalizing, expecting modest improvement in order rates and demand in the second half of 2026, especially with Boeing's progress.

Seth Seifman asked about the allocation of new capacity with customer support, specifically how much is dedicated to the customer versus ATI's disposal, and the impact on ROI. He also inquired about the airframe growth outlook, the inventory stocking situation, and visibility for the second half of the year.

Answer

Kim Fields, President and CEO, explained that customer-supported capacity ensures security of access, with customers having a right of first refusal for negotiated amounts, while ATI retains flexibility for other business. She noted that customer-contributed capital helps drive robust returns above ATI's 30%+ threshold. Regarding airframe, Ms. Fields stated that inventories are normalizing and expected to be right-sized by 2026, anticipating modest improvement in order rates and demand in the second half, with Boeing's progress being encouraging.

Seth Seifman asked about a change in an HPMC contract structure from materials and conversion to conversion-only, inquiring if more such changes are anticipated and what determines them. He also sought clarification on the timeframe for growth in the Specialty Energy market and its linkage to nuclear energy or other factors.

Answer

Don Newman, Executive Vice President and CFO, ATI, clarified that a specific contract converted to conversion-only at the customer's request, impacting revenue recognition but not the bottom line, and confirmed it was an isolated situation, not a trend. Kim Fields, President and CEO, ATI, expects Specialty Energy growth to begin next quarter and accelerate into 2026, driven immediately by gas turbines (data centers, energy demand) and longer-term by commercial nuclear facilities, leveraging ATI's differentiated materials and flexible assets.

Seth Seifman asked about a contract structure change in the HPMC business, moving from materials and conversion to conversion-only, inquiring if this is a trend and what determines such shifts. He also questioned the time frame for growth in the specialty energy market, which has seen little growth recently, and its linkage to nuclear energy or other factors.

Answer

Don Newman (EVP and CFO, ATI) clarified that the contract structure change was an isolated situation for a specific contract, reducing recognized revenue but not negatively impacting the bottom line, and he does not foresee it as a broader trend. Kim Fields (President and CEO, ATI) stated that growth in specialty energy is expected to begin next quarter and accelerate into 2026, driven immediately by gas turbines (due to data centers and energy demand) and longer-term by nuclear energy, where ATI is a unique Western supplier of zirconium. She highlighted ATI's differentiated materials and flexible assets as key to leveraging demand in these profitable niche markets.

Seth Seifman inquired about the airframe outlook, specifically regarding wide-body inventory levels in the channel, and asked about ATI's capacity utilization for jet engines and its ability to increase volumes into 2026.

Answer

President & CEO Kimberly Fields acknowledged ongoing airframe inventory destocking but noted signs of demand returning in the second half for specific alloys. She highlighted that new long-term agreements position ATI for growth as build rates accelerate. Regarding capacity, both Fields and EVP & CFO Don Newman confirmed ATI is well-positioned to meet 2027 targets, citing discrete debottlenecking investments and a new nickel melting project expected to add 8-10% capacity next year with modest capital expenditure.

Seth Seifman asked about the drivers of the 15-20% jet engine growth forecast and the outlook for titanium demand from widebody aircraft programs.

Answer

Kim Fields, President and CEO, attributed the jet engine growth to a mix of prior CapEx investments in downstream debottlenecking, improved upstream reliability, and productivity gains. Regarding widebodies, she noted demand is starting to build and highlighted that ATI's new titanium capacity in Oregon is coming online to support the ramp. She also announced a new 5-year, nearly $1 billion agreement with Airbus, positioning ATI as a leading flat-rolled supplier.

Seth Seifman inquired about the specific product and market drivers for growth in 2025, particularly within titanium and engine products, and asked for the expected margin progression in the High Performance Materials & Components (HPMC) segment.

Answer

President and CEO Kimberly Fields highlighted strong engine growth driven by MRO activity and the GTF program, with an expected 50% sales increase in 2025 for the latter. Executive Vice President and CFO Don Newman projected HPMC margins to start 2025 in the 20-21% range and ramp to over 23% later in the year, driven by higher volumes, better absorption, and favorable mix from jet engine demand.

Seth Seifman of JPMorgan Chase & Co. asked about demand trends for wide-body aircraft like the 787 and 777X, and whether the current market slowdown presents an opportunity to drive operational efficiencies.

Answer

President and CEO Kim Fields identified the 787 program as a 'bright spot' with increasing demand forecasts for 2025, while noting the 777X delay was disappointing but not substantially built into near-term forecasts. EVP and CFO Don Newman agreed that any pause in the production ramp is an opportunity to accelerate efficiency and yield improvements, but emphasized this would not slow progress toward their 2025 margin targets of 18-20%.

Seth Seifman asked if the near-term funding situation around DHS and CBP, following recent events and the CR expiration, would have a notable impact on the company's revenue or cash outlook for the back half of the year.

Answer

Ajay Mehra, EVP and CEO, clarified that the current issues are not related to border security but rather other matters concerning ICE, implying no notable impact on the company's outlook.

Seth Seifman asked about increasing international demand for security products, specifically if any regions or countries are leading in urgency or size of opportunity. He also inquired if the contentious near-term funding around DHS and CBP, following recent events, would notably impact revenue or cash outlook for the back half of the year.

Answer

Ajay Mehra, EVP and CEO of OSI Systems, identified the U.S., internationally, and the Middle East as key areas for security product demand, noting that countries are increasingly focusing on scanning for trade issues. He characterized it as an immature market with demand varying year by year. Regarding DHS/CBP funding, he stated that the current issues are not related to border security itself but other matters, implying no notable impact on the company's outlook.

Rocco, on behalf of Seth Seifman, asked about the expected timing of cash flow in fiscal 2026, questioning if it would be front-loaded due to Mexico payments. He also sought to identify the specific contracts or geographies driving the strong double-digit revenue growth when excluding the Mexico business.

Answer

EVP and CFO Alan Edrick stated that while he couldn't provide quarterly guidance, he expects operating cash flow to be strong throughout fiscal 2026, in both the first and second halves. CEO A. J. Mera attributed the robust ex-Mexico growth to broad-based international demand in aviation and cargo, solid domestic performance, and a strong future pipeline fueled by both international markets and new US government funding for agencies like CBP.

Seth Seifman from JPMorgan Chase & Co. asked if the proposed $1.1 billion in homeland security funding is entirely additive and if it creates new opportunities for AI solutions. He also inquired about the potential for receivables reduction in Q4 and the specific revenue contribution from the RF acquisition.

Answer

President & CEO Ajay Mehra confirmed the $1.1 billion is on top of the baseline budget and presents multi-year opportunities for equipment, integration, and AI solutions like their CertScan software. Executive President & CFO Alan Edrick noted a significant opportunity to improve working capital and free cash flow by reducing receivables over the next six months. He also disclosed that the RF acquisition contributed $29 million in revenue for the quarter.

Seth Seifman asked about the sustainability and potential for margin expansion in the CSD business, which has a healthy 25% margin. He also sought clarification on how tactical radio appropriations shook out.

Answer

CEO Chris Kubasik expressed optimism for CSD's margin improvement through commercial business model efficiencies and AI adoption, with best practices shared within the newly formed segment. He confirmed some reductions in tactical radio line items but remains optimistic about growing the tactical radio business in 2026. CFO Ken Bedingfield added that the 25% CSD margin accommodates investments in product modernization and growth, with potential for further increases through operational improvements and continued investment in modern waveforms and international partnerships.

Seth Seifman asked about the sustainability and potential for margin expansion in the CSD business, which has a healthy 25% margin, considering its commercial model. He also sought clarification on how appropriations for tactical radios ultimately shook out.

Answer

CEO Chris Kubasik expressed optimism for increasing CSD margins through volume, efficiency, and AI adoption within its commercial business model, noting that best practices will be shared across the newly formed segment. Regarding tactical radios, he acknowledged some reductions in line items but remains optimistic about growing the business in 2026 through competitive wins and continued investment in capabilities. CFO Ken Bedingfield added that the 25% CSD margin accommodates ongoing investments in product modernization and growth, and reiterated L3Harris's commitment to investing in modern waveforms and software-defined radios for both domestic and international partners.

Seth Seifman asked about the margin expansion expectations for 2026, specifically whether gains from 2025, such as non-strategic product line or IP sales, would create a difficult headwind to overcome.

Answer

SVP, CFO, and President of Aerojet Rocketdyne Kenneth Bedingfield stated that he does not expect 2025 gains to be a difficult headwind for 2026 margin expansion. He emphasized confidence in program performance, noting a shift from negative EACs in the first half of 2025 to positive in Q3, which should offset any one-time gains from monetizing non-strategic assets, focusing on core business growth and consistent program execution.

Seth Seifman from JPMorgan Chase & Co. asked for an update on the Mission Networks business within the SAS segment, including its current size and future opportunities with the FAA.

Answer

Chairman and CEO Christopher Kubasik described the business as a roughly $1 billion portfolio with good margins, focused on its 'sweet spot' of telecommunications infrastructure, broadcast, and data services. He highlighted the recent Newark Airport upgrade as an example of future opportunities at thousands of sites, while clarifying L3Harris will not be a prime integrator for a new air traffic control system.

Seth Seifman of JPMorgan Chase & Co. asked for an update on the Mission Networks business within the SAS segment, including its current size and future opportunities with the FAA.

Answer

Chairman & CEO Christopher Kubasik explained that the business, around $1 billion in revenue, is focused on telecommunications infrastructure upgrades for the FAA, such as the successful Newark Airport project. He noted dozens of similar opportunities exist and clarified L3Harris will focus on its telecom and data services niche, which has more upside now than a year ago, rather than prime a new air traffic control system.

Seth Seifman asked about L3Harris's confidence in its European sales prospects, particularly for communications and radios, given geopolitical tensions and the presence of local European suppliers.

Answer

CEO Christopher Kubasik expressed strong confidence, citing recent major orders like a $1.1 billion deal with the Netherlands. He emphasized that customers in Poland, Germany, and Eastern Europe prioritize the superior, proven technology, interoperability, and crypto capabilities of L3Harris's software-defined radios for their modernization programs, viewing it as more critical than politics, especially given the current sense of urgency.

Seth Seifman followed up on the space program charges, asking about their magnitude, the completion timeline for the troubled programs, and the level of remaining risk.

Answer

CFO Kenneth Bedingfield revealed that the company took approximately $100 million in negative EACs on a couple of classified space programs in 2024, which were largely offset by performance elsewhere. He expects the risk to be mostly resolved in 2025. CEO Christopher Kubasik added that these are legacy fixed-price development programs, some pre-merger, that are now in their final stages of completion.

Seth Seifman asked about the revenue cadence at Aerojet Rocketdyne (AR), seeking the source of confidence for the significant sequential step-up required in the fourth quarter to meet guidance.

Answer

CFO Kenneth Bedingfield explained that while revenue growth takes time as capacity investments are made, the benefits are starting to kick in. He noted that integration costs and legacy contracts created some near-term headwinds. However, the timing of supply chain cost flow-through in the fourth quarter provides confidence in achieving the full-year revenue guidance for the AR segment, reinforcing their positive long-term outlook.

Seth Seifman asked about the margin path for Aerospace through product transitions (G700, G800, G600) and whether the supply chain is a chief impediment. He also inquired about expectations for future Columbia and Virginia submarine contracts, including timing and differences from past agreements.

Answer

President Danny Deep and Chairman and CEO Phebe Novakovic explained that Aerospace margins are expected to improve due to better pricing, efficiency, lower overheads, and reduced R&D costs, despite headwinds from tariffs and supply chain cost increases. For submarine contracts, Ms. Novakovic stated that the timing is unknown and depends on the government.

Seth Seifman asked about Aerospace profitability, the margin path through product transitions for the G700, G800, and G600, and whether the supply chain is a chief impediment. He also inquired about expectations for future submarine contracts for both Columbia and Virginia classes, including timing and how they differ from past agreements.

Answer

Danny Deep, President, explained that Aerospace margins are expected to improve due to better pricing, efficiency, lower overheads, and reduced R&D costs, despite headwinds from tariffs and supply chain cost increases. Phebe Novakovic, Chairman and CEO, stated that the company does not have specific information on the timing of future submarine contracts, as it is up to the government.

Seth Seifman asked about the future growth potential for the Combat Systems segment, considering both headwinds like Stryker and tailwinds from munitions and European demand, and the extent to which the G650 replacement cycle is driving recent G800 orders.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, confirmed that Combat Systems has potential for accelerated growth, driven by increasing international vehicle demand (especially in Europe with indigenous production) and munitions, offsetting U.S. combat vehicle headwinds until new tank deliveries accelerate. She noted the G800 successfully replaced the G650ER, leading orders demand, with the G700 acting as a market expander.

Seth Seifman asked about the slowdown in Aerospace services during the first half, its underlying causes, and the implied second-half deceleration for the Technologies segment given its unchanged full-year guidance.

Answer

Chairman and CEO Phebe Novakovic addressed Aerospace services, noting that while the business grows with the fleet, quarterly margins are highly variable due to mix. For the Technologies segment, EVP Amy Gilliland cited a slower pace of contract awards impacting GDIT's second-half outlook. EVP Jason Aiken added that Mission Systems' H1 strength was partly from less predictable transactional business, warranting caution.

Seth Seifman asked if the strong Q1 margin in the Marine segment and potential new contracts reduce the margin risk profile for the year. He also asked about the interplay between Q1 share repurchases and potential interest expense from debt refinancing.

Answer

Phebe Novakovic, Chairman and CEO, acknowledged that stimulating productivity reduces risk but reiterated guidance for Marine margins to hover in the upper 6% range for the year. Kim Kuryea, CFO, clarified they are watching market rates for refinancing and expect slightly more interest expense for the year. Phebe Novakovic added that share repurchases were opportunistic as the stock was a good buy.

Seth Seifman from JPMorgan Chase & Co. asked about the Aerospace segment's long-term delivery outlook and the path from the forecasted 150 units to the previously discussed 170. He also sought quantification of the extra costs impacting margins and inquired about the drivers of margin pressure in the Technologies segment.

Answer

Phebe Novakovic, Chairman and CEO, explained that the 2025 forecast of 150 deliveries is a prudent and conservative approach reflecting supply chain realities, but she remains confident in future margin expansion. For the Technologies segment, she attributed the year-on-year margin pressure to a business mix shift, with growth concentrated in the lower-margin GDIT business as it onboards new programs.

Seth Seifman of JPMorgan Chase & Co. inquired about the future profitability trajectory for the Aerospace segment, considering the G700 delivery challenges and the upcoming G800 introduction. He also asked about the growth and margin outlook for Combat Systems, particularly after the 155mm shell facilitization phase.

Answer

CEO Phebe Novakovic stated that while supply chain issues still cause out-of-station work, she anticipates a 600-700 basis point gross margin improvement on the G700 over time and sees very strong future margins for the Aerospace group. For Combat Systems, she noted that facilitization is largely complete, and while Q4 growth will be flat due to acceleration in H1, the business is positioned for solid future growth supported by a strong backlog and demand environment.

Seth Seifman asked about Textron's cash deployment strategy and the concurrency risk associated with moving the MV-75 program directly into LRIP.

Answer

Lisa Atherton, CEO of Textron, stated that cash will continue to be deployed for appropriate research and development, MV-75 acceleration, and share buybacks. David Rosenberg, CFO of Textron, added that the company is comfortable with its current debt levels and expects to maintain its mid-triple B rating. Atherton expressed high confidence in the MV-75 program, citing 15 years of development, over 200 flight hours on the demonstrator, and 100% first-pass yield on parts from digital engineering, which mitigates concurrency risks.

Seth Seifman asked about Textron's cash deployment strategy, including R&D, MV-75 investments, and share buybacks, given available cash and no debt due. He also questioned the concurrency risk of moving directly into MV-75 LRIP and the confidence against future charges.

Answer

CEO Lisa Atherton stated that Textron will continue to deploy cash appropriately, focusing on R&D, MV-75 acceleration, and share buybacks. CFO David Rosenberg added that the company expects to deploy similar percentages of free cash flow as in the past, maintaining a comfortable debt level and mid-triple B rating. Lisa Atherton expressed high confidence in MV-75, citing 15 years of program work, over 200 flight hours on the demonstrator, and 100% first pass yield on parts from digital engineering, which has wrung out many concerns typical of older development programs.

Seth Seifman asked about the factors enabling the expected significant uptick in Textron Aviation's profitability in the fourth quarter. He also inquired about additional contractual provisions to protect the company from concurrency risk with the accelerated MV-75 LRIP units.

Answer

Scott Donnelly, Chairman, President, and CEO of Textron, attributed the anticipated Q4 margin strength to higher volume and improving production flow. He stated that no new contractual changes are expected for LRIP and expressed low concern about concurrency risk, citing the program's solid base configuration and extensive prior testing of eight aircraft before the first LRIP unit.

Seth Seifman asked about the factors enabling the anticipated significant uptick in Textron Aviation's profitability in the fourth quarter. He also inquired about additional contractual provisions to protect Textron from concurrency risk when bringing forward MV-75 LRIP units.

Answer

Scott Donnelly, Chairman, President, and CEO, attributed the expected Q4 profitability increase for Textron Aviation to the normal progression of the year, with a significant bump in volume driving good margins. Regarding MV-75 LRIP units, Mr. Donnelly stated that no contractual changes are expected, and the company is not concerned about concurrency risk due to the program's derivative nature from the V-280 Valor and the extensive number of aircraft (eight) that will have been built and tested before the first LRIP unit.

Seth Seifman from JPMorgan asked about the outlook for the Textron Systems segment following recent program changes and inquired if there was potential upside to the Industrial segment's performance.

Answer

Scott C. Donnelly, Chairman, CEO & President, acknowledged the surprise program terminations at Systems but noted that growth in other areas like the ship-to-shore connector and Sentinel programs should offset the impact this year. For the Industrial segment, he expressed confidence in the current performance, citing successful restructuring post-powersports disposition, but was not ready to revise guidance upwards.

Seth Seifman asked why Bell's Q4 performance came in below the raised guidance from Q3 and also inquired about the composition of Aviation orders, specifically the mix between NetJets and retail customers.

Answer

Scott Donnelly, Chairman and CEO, explained that Bell's Q4 results were affected by unfavorable program adjustments, specifically the exercise of a lower-margin, fixed-price option on the FLRAA program. Regarding Aviation orders, he stated that the mix between fleet and retail customers is generally stable over the course of a year, though some quarter-to-quarter variability can occur based on the timing of orders and deliveries.

Seth Seifman questioned the underlying Q3 Aviation margin, which appeared below guidance ex-strike, and asked about the margin outlook for Bell as the lower-margin FLRAA program ramps up.

Answer

CEO Scott Donnelly attributed the Q3 Aviation margin pressure to strike-related costs like idle facilities and lower volume against fixed overheads. For Bell, he stated the focus is on growing absolute profit dollars, with a strong commercial mix helping to offset the margin impact from the growing FLRAA program.

Seth Seifman asked about the KC-46 tanker program's recent charge, its implications for future performance, the overall state of the BDS business, and preparations for production increases, such as for PAC-3 seekers and potential multi-year contracts.

Answer

Kelly Ortberg, CEO, clarified that the KC-46 charge was discrete, primarily due to increased 767 commercial airplane production costs and higher resources needed to ensure 2026 deliveries (19 planned vs. 14 in 2025). He emphasized the focus on repricing the follow-on tanker contract. For BDS, he noted investments ahead of contract for CH-47 and PAC-3 capital, expecting a multi-year PAC-3 contract without significant new CapEx as major investments are already made.

Seth Seifman inquired about the defense business, specifically the nature of the KC-46 charge, signs of the program "turning the corner," the overall state of Boeing Defense, Space & Security (BDS), and how Boeing is preparing for increased production demands, including potential multi-year contracts for PAC-3 seekers and associated investments.

Answer

Kelly Ortberg, Boeing's President and Chief Executive Officer, clarified that the KC-46 charge was discrete and primarily due to increased resources needed to ensure delivery commitments (14 tankers in 2025, 19 planned for 2026). He emphasized focus on repricing follow-on tanker contracts. Ortberg noted proactive investments in F-47 and PAC-3 capital, expecting a multi-year PAC-3 contract without significant new CapEx, as major investments have largely been made.

Seth Seifman inquired about the cadence of 787 production rate increases, key internal and supply chain factors being monitored (e.g., structures, engines), and progress towards cash profitability for the 787 program, including any remaining concessions.

Answer

EVP and CFO Jay Malave explained that the next 787 rate increase will be from 8 to 10 per month next year, which will be more challenging due to supply chain constraints, particularly seat certifications. He noted that the general supply chain for the 787 lacks the buffer seen in the MAX program, emphasizing the need for stability at rate 8 before moving to 10. He did not specifically address concessions or cash profitability for the program.

Seth Seifman from JPMorgan Chase & Co. asked about the expected progression of Boeing Commercial Airplanes (BCA) margins, considering program ramps and any impact from the MAX -7 and -10 certification delays.

Answer

EVP & CFO Brian West stated that any margin impact from the certification delay is 'modest.' He reiterated that BCA margins are expected to be negative for the full year but should improve sequentially in each quarter of the second half. West added that while it's too early to characterize 2026, there is nothing to suggest the segment cannot return to historical margin levels long-term.

Seth Seifman requested more detail on the cost impact of tariffs, asking to size the financial effects and understand the duty drawback process, as well as how Boeing is managing suppliers who may pass on tariff-related costs.

Answer

CEO Robert Ortberg described the duty drawback process for exported aircraft and noted efforts to help suppliers benefit from it, prioritizing supply continuity. CFO Brian West quantified the net annual impact of input tariffs as manageable at less than $500 million, citing pre-tariff inventory and hedging. He added that the potential China delivery impact, while over $1 billion, was contemplated in the company's conservative annual plan.

Seth Seifman asked about the financial implications of winding down the 737 and 787 'shadow factories,' including the impact on cash flow and profitability, and the expected financial effects of the Spirit AeroSystems integration.

Answer

CFO Brian West explained that the shadow factories for the 787 and 737 are expected to close in early and mid-2025, respectively. While the costs are factored into the 2025 outlook, the primary financial benefit will be improved BCA margins in 2026 and beyond. He stated that the financial impact of the Spirit integration would not be detailed until the deal closes.

Seth Seifman from JPMorgan Chase & Co. asked about the root cause of persistent charges in the defense business and for a definition of the 'normal production rates' Boeing aims to achieve by the end of next year.

Answer

President and CEO Kelly Ortberg acknowledged that while some defense contracts are tough, Boeing needs better discipline in risk management and execution on factors within its control. EVP and CFO Brian West clarified that achieving 'normal production rates' for the 737 means getting back on track to the pre-strike plan of 38 aircraft per month, after which the company will seek FAA approval for further increases.

Seth Seifman sought clarification on the continuation of dividend payments and how Northrop Grumman plans to utilize its remaining cash flow, specifically regarding repaying debt, potentially holding more cash on the balance sheet, or anticipating significant near-term capital investments.

Answer

Chair, CEO, and President Kathy Warden confirmed that dividend payments would continue, with the annual increase reviewed by the board in May. CFO John Green elaborated that the company sees opportunities for investment, including increased capital deployment, potentially scaling up day-to-day cash holdings, and evaluating early repayment of high-coupon debt. He emphasized the strong cash conversion cycle.

Seth Seifman sought clarification on the continuation of dividend payments and asked about the allocation of remaining cash flow after dividends and debt repayment, specifically if more cash would be held on the balance sheet or if significant near-term capital investments are anticipated.

Answer

Ken Crews, CFO of Northrop Grumman, confirmed that dividends will continue, with the annual increase reviewed in May. He noted great investment opportunities, leading to increased capital deployment, and mentioned potentially scaling up the day-to-day cash position and repaying debt with a high coupon. He emphasized the outstanding cash conversion cycle and smart deployment decisions.

Seth Seifman asked about the opportunity in Iron Dome and missile defense in space, specifically the maturity of missile warning satellites and the role of SDA/HBTSS, and followed up on the duration of the government shutdown and its potential impact.

Answer

Kathy Warden, Chair, CEO, and President, expressed satisfaction with the administration's urgency on homeland protection, noting a broad range of opportunities in missile defense. She indicated that the architecture and spend plan for Iron Dome are not public but that Northrop Grumman is providing operational analysis. She expects more clarity from the department in the coming months. Regarding the shutdown, she reiterated that current guidance assumes it ends within a few weeks (mid-November); prolonged duration could lead to further delays in funding, awards, or payments, impacting cash flow.

Seth Seifman of JPMorgan Chase & Co. asked if the previous long-term outlook for B-21 and Sentinel as a percentage of company sales should be revised upward given new funding, and what the corresponding impact might be on the 2028 free cash flow target.

Answer

Chair, CEO & President Kathy Warden indicated that depending on the final agreement for the B-21 production ramp, the program could exceed 10% of total company revenue in the future, but it was too early to be definitive. She stated that while Sentinel is not expected to reach that level in the next few years, it could be revisited in the production phase. She noted that any updates to the long-term cash flow outlook would be provided once the business arrangements, including company investments and returns, are finalized.

Seth Seifman asked for a quantification of the B-21 charge, specifically the split between the process change and higher material costs, and whether the process change was solely driven by the need for higher production rate optionality.

Answer

CEO Kathy Warden stated that due to the program's classification, she could not quantify the split but confirmed the process change cost was larger than the material cost. She affirmed the change was made to reduce risk while scaling and to provide the government with optionality for future production rates.

Seth Seifman of JPMorgan Chase & Co. asked how the rise of defense start-ups and commercial technology influences Northrop's portfolio strategy and capital deployment, and also inquired about the long-term outlook for international sales.

Answer

CEO Kathy Warden stated that while Northrop embraces new entrants and often partners with them, it does not change the core strategy of technology differentiation, though it sharpens investment focus. She also noted that international sales are expected to see double-digit growth in 2025 and that this trend could continue for multiple years, driven by a strong backlog and pipeline for products like IBCS, E-2D, and Triton.

Seth Seifman of JPMorgan Chase & Co. asked about the durability of demand for missiles and munitions within the Defense Systems segment, given the significant industry investments in solid rocket motor capacity.

Answer

Chair, CEO and President Kathy Warden affirmed that demand is expected to be enduring for multiple years, driven by the need for the U.S. and its allies to replenish stockpiles donated to Ukraine. She confirmed Northrop Grumman is investing to triple its capacity and is confident that demand will support this expansion, though the company continues to monitor the market balance.

Seth Seifman inquired about RTX's perspective on missile defense and the Golden Dome initiative, specifically the administration's expectation for contractors to front R&D, given Raytheon's capabilities and current program workload.

Answer

Chairman and CEO Chris Calio viewed Golden Dome as an opportunity, citing RTX's multi-layered architecture solutions (Patriot, GEM-T, SPY-6, Coyote) and potential in space. He mentioned efforts to increase capacity and accelerate production by addressing long lead time items and supplier rejuvenation. CFO Neil Mitchill added that RTX's 2026 R&D will approach $3 billion, with a healthy portion in Raytheon, indicating a willingness to invest in good business.

Seth Seifman asked about RTX's perspective on missile defense and the Golden Dome initiative, particularly the administration's expectation for contractors to front R&D for space-based interceptors, considering Raytheon's capabilities and current program ramp-up.

Answer

Chris Calio, Chairman and CEO of RTX, views Golden Dome as a significant opportunity, believing RTX has multi-layered architecture solutions (Patriot, GEM-T, SPY-6, Coyote) and unique capabilities in space. He emphasized efforts to increase capacity, rejuvenate suppliers, and accelerate production for future awards. Neil Mitchill, CFO, added that RTX is prepared to invest in good business, with 2026 R&D approaching $3 billion, a healthy portion in Raytheon.

Seth Seifman sought clarification on the implied 14% GTF deliveries growth for the year and asked about RTX's capital deployment strategy going forward, balancing cash return with investment requirements, particularly in defense, as the balance sheet improves.

Answer

CFO Neil Mitchill clarified that GTF engine growth for the year would be in the high single-digit range (8%-10%). On capital deployment, he highlighted debt paydown, prioritizing the dividend (expected to grow with earnings), and significant investments in R&D and CapEx ($2.5 billion to $2.7 billion this year). CEO Chris Calio emphasized that defense investment ($1.5 billion/year company-funded) is an 'and, not an or' situation, driven by long-term government demand signals.

Seth Seifman followed up on GTF deliveries, asking if the 14% growth target for the year, implying a strong Q4, was still in effect. He also inquired about the company's capital deployment strategy moving forward, balancing cash returns with investment requirements, particularly on the defense side, as the balance sheet improves.

Answer

CFO Neil Mitchill updated GTF engine growth expectations to high single digits (8-10%) for the year. He outlined capital deployment priorities: continued debt paydown, dividend growth aligned with earnings, and strategic investments in R&D and CapEx. CEO and Chairman Chris Calio emphasized that the company can pursue both capital deployment and defense investments, citing historical company-funded investments in defense capacity and R&D.

Seth Seifman of JPMorgan asked about the potential role RTX could play in the modernization of the Federal Aviation Administration (FAA) infrastructure, following recent reports and funding initiatives.

Answer

Christopher Calio, Chairman & CEO, described FAA modernization as a critical, bipartisan priority and a significant opportunity for RTX. He noted the $12.5 billion in recent funding as a 'good down payment' and highlighted RTX's strong market share in installed radars and tower automation systems. He also pointed to opportunities for the Collins Aerospace business in aircraft equipage for ground control systems.

Seth Seifman asked about recent order activity in the shorter-cycle areas of the Collins aftermarket and which parts of the business might be most exposed to a potential slowdown in air traffic.

Answer

CFO Neil Mitchill reported that Q1 order activity was strong and no major changes in customer behavior were seen in early April. He noted that while aftermarket demand remains robust, the company's guidance range is built to absorb some potential softening later in the year. CEO Christopher Calio added that RTX uses a bottoms-up analysis with airline customers to monitor buying patterns daily.

Seth Seifman of JPMorgan Chase & Co. inquired about the drivers of Collins Aerospace's aftermarket growth, particularly the effect of aircraft coming off warranty, and also requested the expected number of large engine deliveries for Pratt & Whitney in 2025.

Answer

CFO Neil Mitchill explained that as more recently delivered aircraft come off warranty, it creates a growing tailwind for the Collins aftermarket. He also noted the V2500 aftermarket remains robust. For Pratt & Whitney, he clarified that large commercial engine unit deliveries are expected to grow by about 14% in 2025, similar to the growth seen in 2024.

Seth Seifman of JPMorgan Chase & Co. followed up on Collins Aerospace, asking for the key drivers behind the expected margin improvement in Q4, given the Q3 shortfall and reduced full-year guidance.

Answer

Executive Neil Mitchill detailed the Q3 margin headwinds, including 200 basis points from lower OE volume and unfavorable mix, and 100 basis points from higher R&D and a $35 million contract headwind in the interiors business. He explained that the Q4 margin is expected to increase by about 130 basis points due to mitigation actions addressing the temporary OE slowdown and the non-recurrence of the Q3 interiors contract charge.

Seth Seifman inquired about the funded backlog, considering the depressed Q3 award situation, asking where Booz Allen Hamilton expects to end the year on funded backlog and if that level would be sufficient to support growth in fiscal year 2027. He also asked about increased competition from new players and commercial competitors, inquiring if there are specific areas in the business where this threat is more acute or already evident.

Answer

Executive Vice President and Chief Operating Officer Kristine Martin Anderson noted accelerating awards and positive signs in funding, with a focus on building momentum for the next fiscal year. She mentioned strong funding in December and January, an improved demand environment, and an active proposal landscape. Chairman, CEO, and President Horacio Rozanski acknowledged the evolving competitive market and emphasized Booz Allen's unique relationships with the tech world, citing collaborations with AWS on agentic AI platforms and NVIDIA, which position the company advantageously to co-invest and co-create solutions.

Seth Seifman inquired about Booz Allen Hamilton's expected year-end funded backlog and its sufficiency to drive growth in fiscal year 2027, given the Q3 award situation. He also asked about specific areas where increased competition from new players and commercial competitors is most acute or already observed.

Answer

Executive Vice President and COO Kristine Martin Anderson noted accelerating awards and strong funding in December and January, with a focus on building momentum for the next fiscal year, emphasizing an improved demand environment and robust pipeline. Chairman, CEO, and President Horacio Rozanski explained that the competitive market has evolved, and Booz Allen views this as an opportunity to leverage unique relationships with the tech world, citing collaborations with AWS and NVIDIA to co-create solutions in areas like agentic AI.

Seth Seifman (JPMorgan Chase & Co.) inquired about CACI's addressable market from the reconciliation bill, focusing on counter-UAS (CEOs) and Merlin, and the projected market growth, also asking about specific drivers for CACI's mid-teens growth in the civil business despite a generally negative demand environment.

Answer

CEO John S. Mengucci clarified that counter-UAS is part of CACI's Electronic Warfare (EW) market, estimating tens of billions of dollars added to the addressable market from reconciliation funding, which contributes to CACI's $300 billion total addressable market. He highlighted Merlin's role and the expanding acquisition infrastructure for counter-UAS. For civil business growth, Mr. Mengucci attributed it to strong performance in CBP, DHS work, and the ramp-up of NASA and NCAPS programs, noting it represents a distinct segment of the civil market.

Seth Seifman asked if the acceleration of funded awards ahead of the government shutdown would mitigate near-term impacts and if there's a specific shutdown length that would pose a risk to CACI's guidance. He also inquired about the current hiring environment and how shutdowns typically affect the applicant pool.

Answer

CFO Jeff MacLauchlan stated that accelerated funding better positions CACI, minimizing disruption, and affirmed guidance, noting the range encompasses various outcomes with most work being essential or recoverable. CEO John Mengucci added that CACI's national security focus and funded backlog provide resilience, with any short-term impact recoverable within the fiscal year. Mengucci reported an all-time high in applicant volume (half a million in FY2025), with CACI's technology focus helping to mitigate concerns about shutdowns, and hiring continuing despite recent wins.

Seth Seifman inquired about the current hiring environment, asking if government shutdowns tend to impact the applicant pool, either by attracting federal agency employees or deterring potential candidates from the industry.

Answer

President and CEO John Mengucci reported that CACI is experiencing an all-time high in applicant volume, with half a million applicants in fiscal year 2025. He noted that 40% of hires come from referrals and highlighted a large intern program, indicating no slowdown in hiring despite shutdown concerns, particularly due to CACI's technology-focused nature.

Seth Seifman of JPMorgan Chase & Co. asked about the expected cadence of revenue and organic growth in FY26, noting an apparent acceleration in the second half. He also inquired about opportunities or risks related to the Army's Next Generation Command and Control (NGC2) initiative.

Answer

CFO Jeffrey MacLauchlan confirmed the expected growth acceleration, attributing it to the continued ramp-up of major programs like Focus Fox, Beagle, and ITAS, as well as the anniversary of recent acquisitions. Regarding NGC2, President and CEO John Mengucci acknowledged it as a highly competitive area and stated that CACI is evaluating its strategy but supports the Army's modernization goals.

Seth Seifman asked how the government's focus on software-defined capabilities changes CACI's relationship with hardware providers and inquired about the difference between gross and net bookings in the quarter.

Answer

CEO John Mengucci explained that the software focus fosters supportive partnerships, not fractures, as CACI provides software for platforms built by hardware providers, citing examples in optical communications and the Spectral program. He stressed that software offers the speed and agility required to counter evolving threats. CFO Jeff MacLauchlan clarified that the difference in bookings was due to a program ending in early January and using less of its ceiling than anticipated, an event unrelated to the current environment.

An associate on behalf of Seth Seifman from JPMorgan Chase & Co. asked about CACI's confidence in growing in competitive areas like communications and Counter-UAS, and whether its 6% of revenue from other federal civilian customers is at risk.

Answer

CEO John Mengucci expressed high confidence, citing CACI's deep mission understanding and software-defined approach as key differentiators against new entrants. CFO Jeffrey MacLauchlan clarified that the risk within the 6% civilian revenue varies, with work for agencies like NASA and the Department of Justice likely being more insulated from potential cuts.

Seth Seifman inquired about the margin trajectory for Commercial Engines & Services (CES) beyond 2026, considering accumulating headwinds like OE/aftermarket mix and increased GE9X, alongside tailwinds such as LEAP OE and aftermarket profitability, specifically asking about the direction from the 26.6% CES margin in 2026.

Answer

Chairman and CEO Larry Culp highlighted achieving the $10 billion operating profit milestone two years ahead of schedule (2026 vs. 2028 outlook), emphasizing commercial services as the primary driver of profit growth through installed base expansion and utilization. He expects LEAP and 9X to improve profitability and remains confident in reaching or exceeding the $11.5 billion operating profit target for 2028. CFO Rahul Ghai added that the 2028 margin guidance (21%-ish) was already met in 2025, providing a higher starting point, and noted improving LEAP service profitability and strong wide body programs.

Seth Seifman inquired about the long-term margin trajectory for CES beyond 2026, considering accumulating mixed headwinds from OE and 9X, even as LEAP OE becomes profitable and aftermarket continues to improve.

Answer

Chairman and CEO Larry Culp highlighted achieving the $10 billion operating profit milestone two years early in 2026, driven by commercial services. CFO Rahul Ghai added that the 2028 margin guidance of 21% was achieved last year, providing a better starting point. He emphasized continued strong performance from CFM56 (2,300-2,400 shop visits through 2028), improving LEAP service profitability through external channels and repairs, and strong widebody program performance.

Seth Seifman focused on the spares performance, noting it significantly outpaced departure growth and the initial 2025 outlook, asking if material availability, LEAP shop outfitting, or CFM56 engines were the primary drivers.

Answer

Rahul Ghai, CFO, attributed the strong spare parts performance to significant pent-up demand, as worldwide shop visits remain below 2019 levels. He also highlighted increased work scopes on widebody engines (GE90, GEnx, LEAP) and improved material availability as key factors, projecting continued demand outperformance relative to departure growth into 2026 due to a double-digit increase in engines needing shop visits.

Seth Seifman focused on GE Aerospace's spares performance within services, asking if material availability, outfitting LEAP shops, or CFM56 engines were the main drivers for spares growth significantly outpacing departure growth and initial 2025 outlook.

Answer

CFO Rahul Ghai explained that strong spare parts performance was driven by pent-up demand (worldwide shop visits still below 2019 levels), increasing work scopes (e.g., GE90 second shop visits being heavier), and improved material availability. He projected that spare parts demand would continue to outpace departure growth into 2026 due to a higher number of engines requiring shop visits.

Seth Seifman of JPMorgan Chase & Co. asked about the margin trajectory from the implied lower second-half 2025 level to the higher 2028 target, seeking to understand the bridge between the two points.

Answer

SVP & CFO Rahul Ghai advised against over-indexing on a single half due to the timing of R&D, corporate costs, and GE9X shipments, suggesting the full year is a better baseline. He noted strong momentum from supply chain improvements and a stable services growth algorithm (LEAP installed base growth, widebody work scopes, pricing) will drive performance into 2026 and beyond.

Seth Seifman of JPMorgan Chase & Co. asked about the mechanics of duty drawbacks within the supply chain and how GE is managing its suppliers in light of tariffs.

Answer

Chairman and CEO H. Culp stated that GE is focused on strengthening its supply base and is not reducing inventory, given the strong demand outlook. While suppliers on firm-fixed contracts bear the initial tariff burden, GE will work with them. CFO Rahul Ghai added that GE is actively sharing its knowledge on mitigation programs and will provide necessary documentation to help suppliers claim their own duty drawbacks.

Seth Seifman asked about the impact of provisioning third-party MRO shops on spares growth and the long-term balance of internal versus external LEAP maintenance work.

Answer

CFO Rahul Ghai explained that while internal shops currently handle about 90% of LEAP visits, the external network is ramping up. In 2025, he expects about 15% of visits to be external. Over time, as this external volume grows, it will drive higher spare part sales and improve overall program margins. He also noted that margins on internal service contracts remain stable due to durability improvements.

Seth Seifman of JPMorgan Chase & Co. asked if lower-than-expected 2025 engine deliveries would result in smaller original equipment (OE) losses and whether LEAP aftermarket profitability is expected to improve next year.

Answer

Executive Rahul Ghai confirmed both points. He agreed that lower engine output should reduce engine losses, though other factors are at play. He also stated that LEAP aftermarket profitability is 'shaping up to be a lot better' than expected, driven by durability improvements and growing, high-margin spare part sales to the external MRO network. Executive H. Culp added that the delayed 777X ramp and higher-for-longer CFM56 utilization are also key factors for 2025.

Seth Seifman inquired about the allocation of the $100 million in identified savings, specifically how much would be reinvested into growth-driving initiatives versus flowing to the bottom line, and its contribution to next year's EBITDA expectations. He also asked about the core competencies and strengths Jim Reagan sees within SAIC's portfolio.

Answer

Interim CEO Jim Reagan explained that next year's guidance reflects cost reductions already implemented, with further work planned. A substantial portion of the $100 million will be reinvested into resources like account management, business development leadership, and improving proposal development processes. He highlighted SAIC's strengths in deep customer understanding, strong scientific and application development capabilities, and a passion for mission. He emphasized improving the alignment of innovation and R&D investments with pipeline opportunities and better listening to customer's future needs.

Seth Seifman asked about the rationale for the continued prevalence of cost-plus contracts and whether the incoming administration transition poses a timing risk to achieving the 1.2 book-to-bill target.

Answer

CFO Prabu Natarajan and CEO Toni Townes-Whitley explained that shifting from cost-plus to fixed-price contracts is a core strategy, as it offers efficiency for the government and better returns for SAIC, citing past successes. Regarding timing risk, Toni Townes-Whitley expressed confidence in hitting the 1.2 book-to-bill target in H1 FY26, citing a significant backlog of submitted bids, $0.5 billion in awards under protest, and continued high submission volume as mitigating factors.

Seth Seifman of JPMorgan asked about the drivers behind the high volume of submitted bids in the first half and the potential risks to the book-to-bill targets from factors like a Continuing Resolution (CR), the election, and contract protests.

Answer

CEO Toni Townes-Whitley attributed the increased bid velocity to the centralization of the business development function, which improved resource allocation and process efficiency. While on pace to exceed the $22B full-year submission target, she noted that some large Q4 bids could slip. CFO Prabu Natarajan addressed the risks, stating that the high volume of bids awaiting adjudication provides a buffer, so the movement of one or two awards would not have a material negative impact on their book-to-bill expectations.

Seth Seifman inquired about the future trajectory of the air and aerospace business, considering its decline in the quarter, the impact of decreased sales to Asia, and recent drone orders. He also asked about emerging opportunities in directed energy solutions, particularly outside of Israel, following progress on Iron Beam.

Answer

CEO Bezhalel Machlis stated his belief in continued growth for the aerospace segment, highlighting the embedded drone mix in Western platforms, revenues from international OEM sales, and significant demand for UAVs and loitering munitions. He noted 20 international customers for Hermes 900 and a growing market for various UAV types. CFO Kobi Kagan added that the aerospace segment grew 9% over the past three quarters and expects single-digit revenue growth, aligning with the U.S. budget. Regarding directed energy, CEO Bezhalel Machlis confirmed opportunities outside Israel, mentioning Elbit's role in Israel's ground high-powered laser program (Iron Beam) with deployment expected by year-end and future orders. He also highlighted Elbit's leadership in airborne high-powered laser systems under development, seeing it as a potential game-changer and a significant future growth engine, alongside other confidential energy weapons.

Seth Seifman asked about the expected ramp-up of Valkyrie production with the Marines over the next several years and the qualitative framework for Kratos's progression towards becoming cash flow positive.

Answer

Eric DeMarco, President and CEO of Kratos, detailed the Valkyrie program of record with the Marines, projecting near-term infrastructure build-out, mid-term full-rate production, and long-term annual production of 'dozens and dozens' of aircraft. He stated Kratos has 'absolute line of sight' on becoming cash flow positive, but noted that increasing program opportunities and associated bid/proposal costs could influence the exact timing.

Seth Seifman from JPMorgan Chase & Co. asked about the source of the KGS segment's outperformance, the allocation of the full-year revenue guidance increase, and the strategic plan for capital allocation following the recent debt paydown.

Answer

CEO Eric DeMarco could not comment on the specific hypersonic mission driving KGS results, while CFO Deanna Lund confirmed the revenue guidance increase was primarily in KGS. Mr. DeMarco detailed the capital allocation strategy, which involves investing in new facilities for major program wins like Poseidon, Anaconda, and Helios, positioning the company for significant cash flow generation starting in the 2027-2028 timeframe.

Seth Seifman of JPMorgan Chase & Co. asked about the revenue and profitability drivers for the MACH-TB contract and sought guidance on modeling future investment levels and cash flow beyond 2025, given the significant planned capital expenditures.

Answer

CEO Eric DeMarco explained that MACH-TB is an aerial test contract with a significant revenue ramp expected in 2026 and beyond, following initial work on long-lead items in 2025. CFO Deanna Lund clarified that while most 2025 facility investments are non-recurring, the Prometheus JV investment will be a major factor in 2026, along with the completion of the new turbojet facility.

Seth Seifman of JPMorgan Chase & Co. requested an update on the Prometheus program, asked if it was factored into the 2025 forecast, and inquired about the primary end-markets for the company's planned large-scale turbine production.

Answer

CEO Eric DeMarco described progress on Prometheus as being on the 'five yard line,' anticipating a major announcement soon and calling it a potential top catalyst for Kratos. He clarified that Prometheus is factored at 'zero' in the company's forecasts, representing pure upside. The primary destination for the high-volume turbine production, he explained, will be new, low-cost cruise missile programs that emphasize affordable mass.

Seth Seifman asked for clarification on the capital investment required for programs transitioning from R&D to production and why 2025 CapEx is expected to underrun initial forecasts.

Answer

CEO Tom Bell confirmed that the majority of CapEx for production programs has already been made, noting a willingness to accept a higher CapEx rate in the defense business due to customer pull for specific lethal products, while leveraging the overall portfolio. CFO Chris Cage stated that 2025 CapEx underspent original expectations due to prudent management and delays in customer decisions, such as for the Australian airborne ISR business, with some expenditures potentially shifting to early 2026, all while ensuring attractive returns.

Seth Seifman asked for clarification on the capital investment required for defense programs transitioning from R&D to production and why 2025 CapEx is currently underspending initial forecasts.

Answer

CEO Tom Bell confirmed that most CapEx for current production programs is already made, but the defense tech business has increased flexibility for resources due to strong customer demand for lethal products. He expects higher CapEx in defense, balanced by other segments. CFO Chris Cage attributed 2025 CapEx underspending to prudent management and delays in customer decisions, with some expenditures potentially shifting to early 2026, all while maintaining affordability.

Seth Seifman of JPMorgan Chase & Co. requested clarification on the size of Leidos's scanning business and the scale and timing of opportunities related to non-intrusive border and TSA equipment funded by the reconciliation bill.

Answer

CEO Thomas Bell outlined billions in addressable markets, including $2-3 billion in non-intrusive inspection and border surveillance. He emphasized that Leidos has field-ready products that are resonating with the Department of Homeland Security. CFO Chris Cage specified that the integrated security, detection, and automation (SES) business, which includes ports and borders, is on the order of a $600 million business.

Seth Seifman asked about the challenge of achieving profitable growth with the North Star 2030 strategy, given the emergence of new, low-cost-of-capital competitors focused on rapid growth.

Answer

CEO Thomas Bell stated that Leidos is aware of and often partners with new entrants. He emphasized that the company's growth pillars are intentionally focused on areas where Leidos has existing and accelerating differentiation. He expressed confidence in their ability to leverage these current capabilities to stay ahead of the pack.

Seth Seifman asked about how Sage Core fits into the U.S. Army's Next Generation C2 plans and its potential as a growth driver. He also inquired about the current ship set for IMS and Columbia class programs, and the progress towards pricing stabilization.

Answer

COO and incoming CEO John Baylouny explained that Sage Core is DRS's operating system for edge computing, enabling platforms to sense, think, and fuse information independently, which is critical for Next Generation C2 in disrupted communication environments. CFO Michael Dippold clarified that DRS works on three Columbia class shipsets simultaneously. He noted that the second chipset, bid at a lower price, will be retired in 2025, leading to more consistent margin output from 2026 onwards, with further expansion expected from the South Carolina facility in 2027.

Seth Seifman asked about how Sage Core fits into the U.S. Army's Next Generation C2 plans and its potential as a growth driver. He also inquired about the current ship set for IMS and Columbia class programs, and the progress towards pricing stabilization.

Answer

COO and incoming CEO John Baylouny explained that Sage Core is DRS's operating system for edge computing, enabling platforms to sense, think, and fuse information independently, which is critical for Next Generation C2 in disrupted communication environments. CFO Michael Dippold clarified that DRS works on three Columbia class shipsets simultaneously. He noted that the second chipset, bid at a lower price, will be retired in 2025, leading to more consistent margin output from 2026 onwards, with further expansion expected from the South Carolina facility in 2027.

Seth Seifman of JPMorgan Chase & Co. inquired about specific opportunities in the electric power and propulsion business, particularly related to the Charleston facility, and asked about the bookings outlook for the second half of the year.

Answer

Chairman & CEO William Lynn highlighted the Columbia program as the core, with the South Carolina facility enhancing efficiency. He identified steam turbine generators as a key opportunity to help the Navy increase submarine throughput. EVP & CFO Michael Dippold added that the Columbia portion of the facility will come online in late 2026 and that the company expects to exit the year with a higher backlog, anticipating a book-to-bill ratio above 1.0 for the full year.

On behalf of Seth Seifman from JPMorgan Chase & Co., an analyst asked for a high-level explanation of the expected margin expansion throughout the year and questioned DRS's potential to increase its role in current ship classes given new shipbuilding funding.

Answer

CFO Michael Dippold explained that margin expansion is expected as quarterly revenue increases, creating greater operational leverage over fixed G&A costs. CEO William Lynn confirmed significant opportunities in shipbuilding, citing the Columbia-class program, Navy investment for second-sourcing steam turbines, and discussions to support Virginia-class submarine throughput, all leveraging the Charleston facility.

Seth Seifman questioned the drivers of the Q4 EBITDA margin forecast, whether the profitability step-up in the IMS segment is sustainable, and if the company is considering capital return options beyond M&A.

Answer

CFO Mike Dippold attributed the Q4 margin strength to volume leverage and a favorable mix, particularly the Columbia program moving to higher-priced shipsets. He confirmed this is an ongoing mix change, not a one-time event, supporting the path to 14% margins. CEO Bill Lynn stated that while M&A is the highest priority, the company will also consider other methods of returning cash to shareholders.

Seth Seifman asked for expectations regarding EBITDA or free cash flow for the current year. He also sought details on the key milestones for the Eclipse launch, outlining the progression from the current stage to the collaboration with Northrop Grumman for next year's launch.

Answer

CFO Darren Ma indicated that Firefly is currently guiding to annual revenue, focusing on hitting operational metrics linked to financial performance. CEO Jason Kim elaborated on Eclipse milestones, including Miranda flight engine testing (over 90 hot fire tests), engine bay development and testing, tank fit checks, and the subsequent integration steps leading to a joint launch campaign with Northrop Grumman at Wallops.

Seth Seifman asked about the company's expectations for EBITDA and free cash flow for the current fiscal year. He also sought clarification on the key milestones and the collaborative path with Northrop Grumman leading up to the inaugural Eclipse launch next year.

Answer

CFO Darren Ma stated that the company is currently guiding to annual revenue, focusing on operational metrics linked to financial performance rather than specific EBITDA or free cash flow guidance. CEO Jason Kim detailed Eclipse milestones, including Miranda flight engine testing (over 90 hot fire tests), engine bay development and testing, and fit checks for tank integration, all in preparation for delivery to Northrop Grumman for final integration and launch campaign.

Seth Seifman asked for expectations regarding EBITDA or free cash flow for the current year. He also sought an update on the key milestones for the Eclipse launch, outlining the path to its inaugural launch next year in collaboration with Northrop Grumman.

Answer

CFO Darren Ma stated that the company is currently guiding only to annual revenue, focusing on hitting operational metrics linked to financial performance. CEO Jason Kim detailed Eclipse milestones, including over 90 Miranda flight engine hot fire tests, engine bay development, tank fit checks, and the subsequent integration steps with Northrop Grumman for the launch campaign.

Seth Seifman inquired about the revenue cadence for the Engine Services segment for the remainder of the year and asked for quantification of the margin dilution from new programs like LEAP and CFM56.

Answer

Chairman and CEO Russell Ford confirmed the second-half outlook remains strong, driven by the CF34 program. He explained that while new program ramps are dilutive, the company's overall margin still expanded by 80 basis points, indicating significant underlying strength in core programs. Ford noted that the new programs are on track to reach profitability late in the current year or early next year as losses narrow.

Seth Seifman asked about StandardAero's confidence in the CF34 platform's growth despite some airlines signaling slower capacity, and also inquired about the current M&A environment and the company's appetite for deals.

Answer

CEO Russell Ford stated that engine MRO is non-discretionary and historically not impacted by short-term volatility in passenger traffic, as airlines cut other discretionary spending first. Chief Strategy Officer Alex Trapp added that the company has ample balance sheet capacity and free cash flow to pursue a robust pipeline of attractive M&A targets.

Seth Seifman inquired about the primary drivers for the strong low double-digit to mid-teens growth forecast in commercial aerospace and asked for clarification on the working capital assumptions within the 2025 cash flow guidance.

Answer

CEO Russell Ford explained that robust growth is anticipated across several key platforms, with the CF34 and turboprop segments showing strong performance and the CFM56 expected to be the largest revenue growth driver in 2025. CFO Dan Satterfield added that while there will be an incremental working capital build to support growth, particularly for the LEAP and CFM56 programs, it is expected to remain around 25% of revenue going forward.

Seth Seifman inquired about the expected performance of the new LEAP and CFM56 programs over the next few years, the current contracting environment, and how to interpret additional MRO investments by GE and Safran in relation to StandardAero's workshare. He also asked for the cash flow expectation for the fourth quarter.

Answer

CEO Russell Ford explained that the outlook for the CFM56 program is robust, justifying the Dallas-Fort Worth facility expansion. He views OEM investment in the LEAP MRO network as a positive indicator of long-term demand. CFO Dan Satterfield added that Q4 cash flow is expected to improve sequentially as significant one-time costs from the IPO and acquisitions will not recur.

Seth Seifman of JPMorgan Chase & Co. inquired about the progress and upcoming milestones for the signals intelligence (SIGINT) and ISR business, including the partnership with Palantir, and whether the NGI CDR success would lead to content on other interceptors.

Answer

CEO Dylan Taylor confirmed the ISR business is growing robustly, supported by a software-focused M&A pipeline and the 'Vista' edge computing initiative with Palantir and NVIDIA. He also highlighted the recent LEO Cloud acquisition to bolster space-based cloud services. Taylor affirmed with a definitive 'Yes' that passing the NGI critical design review gives the company high confidence that its technology will be specified for additional missile defense programs.

Seth Seifman of JPMorgan Chase & Co. asked about the contribution of the F-35 program to the defense business and the company's outlook for the program, given concerns about future production rates.

Answer

Executive Chairman and CEO John Plant highlighted two positive volume drivers for the F-35. First, the spares business for engine products has reached a tipping point, now exceeding OE production volume, a trend expected to continue as the fleet grows. Second, destocking in the structures business (bulkheads) has ended, with orders now matching Lockheed's production rate. Plant expressed optimism for solid F-35 production rates of 150 per year through the end of the decade.

Seth Seifman of JPMorgan Chase & Co. asked how much slowing air traffic growth matters to Howmet's outlook, given the strong OEM backlogs and spares demand.

Answer

Executive Chairman and CEO John Plant acknowledged that while end-market travel demand is important for long-term planning ('26-'27), Howmet is protected for a significant period by high aircraft backlogs, the need for more fuel-efficient planes, and strength in defense and IGT. He noted the uncertainty is a reason to further strengthen the balance sheet.

Seth Seifman asked how management views the Engineered Structures business's place in the portfolio now that its margin performance is improving significantly.

Answer

Executive Chairman and CEO John Plant reiterated his view that the Structures business could achieve high-teens margins and expects to sustain its recent performance into 2025. He stated that strong performance earns the business the right to receive more capital investment. While he does not see it reaching the intrinsic margin levels of the Engine business, he affirmed it is a valuable contributor to the portfolio and there are no concerns about its place.

Seth Seifman sought to clarify whether strong aftermarket demand is primarily driven by new engines or by legacy fleets remaining in service longer.

Answer

Executive Chairman and CEO John Plant confirmed that both factors are significant drivers. He noted that shop visit peaks for legacy engines like the CFM56 have been pushed out to 2026-2027. Concurrently, new engines are creating substantial demand due to time-on-wing issues and a long-term trend of more frequent maintenance, creating a dual tailwind for the spares business.

Seth Seifman of JPMorgan Chase & Co. asked about the effectiveness of the Q4 charge in derisking the Aeronautics classified program, the potential for future charges, and the impact on the company's multiyear financial targets.

Answer

CFO Jesus Malave stated that the risk on the program has been 'significantly reduced' due to a comprehensive review, a conservative cost reset, and enhanced monitoring processes. He noted that the 2025 outlook of 4-5% growth is an improvement from the prior baseline, reflecting realized opportunities and growing confidence in operational throughput, which will inform the outlook for 2026 and beyond.

Asked for a go-forward outlook on the Interiors business's profitability and revenue, and for clarification on which aftermarket programs might be declining to offset the strong growth seen in others.

Answer

The Interiors business has been rightsized, and the Boeing settlement was significant. The full-year EBITDAP margin for Interiors is expected to be around 6%, returning to double digits in the long term. In the aftermarket, some end-of-life programs and a temporary pause on V-22 spares were down, but key growth drivers like the 787, 777, and NG are strong and expected to continue growing.

Asked about potential destocking at Boeing, the impact of the Airbus rate ramp delay, and concerns over the V-22 grounding affecting defense results.

Answer

The company has adjusted its backlog for Boeing's MAX pushouts. The Airbus delay has a modest impact due to already robust rates. The V-22 grounding has caused some near-term softness in military results, but the long-term outlook for the platform remains strong.

Sought clarification on the long-term Boeing production rate assumptions baked into the fiscal '26 plan and asked for the specific end-market growth rates (commercial OE, aftermarket, etc.) assumed in the fiscal '25 sales forecast.

Answer

The company has adopted conservative assumptions for Boeing rates, reducing expected revenue by about $70 million, and is waiting for official new schedules before providing more detail. They have confidence in Boeing's recovery plan. For fiscal '25, they did not provide specific end-market growth rates but highlighted that the overall trend is continued growth in the high-margin aftermarket business.

Seth Seifman of JPMorgan Chase & Co. asked for clarity on the 737 delivery trajectory for 2024, questioning if the rate would be 31 per month plus the Q1 backlog, and how the excess fuselages would be delivered over time.

Answer

CEO Pat Shanahan explained that the production rate will remain a steady 31 aircraft per month for the year, with the existing inventory of undelivered fuselages acting as a 'buffer' or 'surge capacity' for when Boeing is ready to increase its rate. CFO Mark Suchinski added that Q2 cash deliveries would be consistent with Q1, with an increase in Q3 and Q4 to average approximately 31 per month for the full year.

Seth Seifman of JPMorgan Chase & Co. asked for clarity on the 737 delivery trajectory for 2024, questioning how to reconcile the Q1 delivery shortfall with the stated production rate of 31 aircraft per month.

Answer

CEO Pat Shanahan explained that the inventory of undelivered fuselages serves as a 'buffer' or 'surge capacity' for when Boeing is ready to increase its rate to 38 per month. CFO Mark Suchinski added that Q2 cash deliveries will be consistent with Q1, with an increase in Q3 and Q4, aiming for a full-year average of approximately 31 deliveries per month.