Textron - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered adjusted EPS of $1.28 and GAAP EPS of $1.13 on $3.306B revenue; Bell drove the quarter with broad-based strength across military (FLRAA, sustainment) and commercial helicopters while Aviation operations improved toward pre-strike performance levels.
• Results were modest beats versus consensus: revenue $3.306B vs $3.255B est; EBITDA $358M vs $355M est; adjusted EPS $1.28 vs $1.14 est; GAAP EPS roughly in line at $1.13; the beat was led by Bell volume/mix and Aviation aftermarket growth, partially offset by Aviation mix and lower Industrial volumes (Values retrieved from S&P Global)*.
• 2025 guidance reaffirmed: GAAP EPS $5.19–$5.39; adjusted EPS $6.00–$6.20; net cash from ops (manufacturing group) $1.2–$1.3B; manufacturing cash flow before pension $800–$900M; tax rate ~18% (adjusted), corporate expense ~$160M; interest expense trending up slightly through the year.
• Strategic actions: Powersports business (Arctic Cat) was sold on April 23; Q1 buybacks of $215M; Aviation factory recovery and supply chain/labor stability underpin expected margin improvement in H2, making Bell strength and Aviation ramp catalysts for stock narrative.

What Went Well and What Went Wrong

• What Went Well

  • Bell posted strong growth: revenues up $256M YoY to $983M, with military +$154M (FLRAA and sustainment) and commercial +$102M; segment profit +$10M to $90M; 29 commercial helicopters delivered vs 18 LY; backlog $7.1B.
  • Aviation operations improving; aftermarket revenue +$27M YoY with 6% growth; production ramp underway, productivity/attrition metrics recovering toward pre-strike levels, supporting H2 margin uplift.
  • Guidance confidence: Management reaffirmed full-year EPS and cash flow ranges; CFO cited an adjusted tax rate of ~18% for FY25; corporate expense guidance maintained at $160M; share repurchases of $215M in Q1.

• What Went Wrong

  • Aviation profit fell $16M YoY to $127M on aircraft mix (31 jets vs 36 LY; turboprops 30 vs 20 LY), partially offset by stronger aftermarket volume; segment backlog $7.9B still solid.
  • Industrial segment revenue down $100M YoY (Specialized Vehicles -$62M; Kautex -$38M), reflecting lower volume/mix; segment profit flat at $30M, aided by restructuring cost reductions.
  • Cash usage: manufacturing cash flow before pension contributions was a use of $158M (vs $81M LY), driven by inventory build at Aviation and timing of Bell program receipts moving to Q2; net cash used from manufacturing ops of $114M.

Transcript

Operator (participant)

Good morning, everyone, and a warm welcome to the Textron Q1 2025 earnings call. My name is Emily, and I'll be moderating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so at any time by pressing star, followed by the number one on your telephone keypad. I will now hand over to Scott Hegstrom, Vice President of Investor Relations, to begin. Scott, please go ahead.

Scott Hegstrom (VP of Investor Relations)

Thank you, Emily, and good morning, everyone. Before we begin, I'd like to mention that we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.3 billion, up $171 million from last year's first quarter. Segment profit in the quarter was $280 million, down $10 million from the first quarter of 2024. During this year's first quarter, adjusted income from continuing operations was $1.28 per share, compared to $1.20 per share in last year's first quarter.

Manufacturing cash flow before pension contributions reflected a use of cash of $158 million, compared to a use of cash of $81 million in last year's first quarter. With that, I'll turn the call over to Scott.

Scott Donnelly (Chairman and CEO)

Thanks, Scott. Good morning, everyone. Overall, revenues were up 5%, led by Bell, partially offset by lower revenues in industrial. During the quarter, aviation delivered 31 jets and 30 commercial turboprops, compared to 36 jets and 20 commercial turboprops in last year's first quarter. Aviation operations continued to improve as the factory progressed toward pre-strike performance levels while ramping production. Textron Aviation's fleet utilization remained strong in the quarter, contributing to aftermarket revenue growth of 6% as compared to last year's first quarter. Aviation announced the sale of seven King Air 260 training aircraft that will be used to train pilots for the Royal Canadian Air Force. In February, the FAA announced certification of the GE Aerospace Catalyst turboprop engine, marking an important milestone for the Beechcraft Denali program. To date, the program has amassed more than 2,700 flight hours and across 1,000 flights with three test articles.

At Bell, revenues were up $256 million, up 35% compared to last year's first quarter, driven by strong growth in both military and commercial product lines. On the military side, execution of the FLRAA and strengthened military support programs contributed to significant growth from last year's first quarter. As we progress through the FLRAA program, the focus this year includes design maturation and deliverables toward subsystem and weapon system critical design review, our next major program milestone. On the commercial side, Bell delivered 29 helicopters, up from 18 in last year's first quarter. During the quarter, Bell was awarded a contract for five additional V-22 aircraft. This award extends production through 2027. Bell announced a purchase agreement with Air Methods for 15 IFR-configured 407GXis and an option for 12 additional aircraft, with deliveries expected to begin later this year.

Moving to systems, revenues in the quarter were slightly lower as compared to the prior year, largely resulting from the cancellation of the Shadow program in 2024. Strong execution in the quarter drove a 13.5% segment profit margin, up 110 basis points as compared to last year's first quarter. During the first quarter, systems received a contract valued at up to $100 million from the U.S. Navy for support software development updates for its unmanned mine-sweeping operations. Also, during the quarter, systems delivered the 13th Ship-to-Shore Connector aircraft to the U.S. Navy. Moving to industrial, we saw lower revenues in the quarter compared to last year's first quarter, consistent with our expectations, with segment profit essentially unchanged as cost savings from our previous restructuring activities offset the impact of lower revenues on segment profit.

Within specialized vehicles, we have completed the previously announced strategic review of the Powersports product line, resulting in the sale of the Powersports business, including the Arctic Cat brand and its operations. Also, during the quarter, aviation successfully completed the first hover flight of the Nuuva V300, a long-range, large-capacity hybrid electric VTOL unmanned aircraft. This milestone marks an advancement in the development of sustainable and versatile unmanned aerial systems. With that, I'll turn the call over to David.

David Rosenberg (CFO)

Thank you, Scott. Good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues of Textron Aviation of $1.2 billion were up $24 million from the first quarter of 2024, largely reflecting higher aftermarket revenue of $27 million. Segment profit was $127 million in the first quarter, down $16 million from a year ago, primarily reflecting the mix of aircraft sold, partially offset by higher aftermarket volume. Backlog in the segment ended the quarter at $7.9 billion. Moving to Bell, revenues were $983 million, up $256 million from the first quarter of 2024. The revenue increase in the quarter was driven by higher military revenues of $154 million, primarily due to higher volume from the U.S. Army's FLRAA program and military sustainment programs, and higher commercial revenues of $102 million, primarily due to higher volume and mix.

Segment profit of $90 million was up $10 million from a year ago, primarily due to higher volume mix of products and services. Backlog in the segment ended the quarter at $7.1 billion. At Textron Systems, revenues were $296 million, down $10 million from last year's first quarter, largely due to lower volume, which included the impact of the cancellation of the Shadow program in 2024, partially offset by higher volume for the Ship-to-Shore Connector program. Segment profit of $40 million was up $2 million from last year's first quarter, primarily due to lower research and development costs, partially offset by lower volume. Backlog in the segment ended the quarter at $2.3 billion. Industrial revenues were $792 million, down $100 million from last year's first quarter, largely due to lower volume and mix.

Textron Specialized Vehicles revenues decreased $62 million, reflecting lower volume and mix, primarily in golf, and Kautex revenues decreased $38 million, largely due to lower volume. Segment profit of $30 million was essentially unchanged from the first quarter of 2024, as the impact of lower volume and mix was offset by the benefit of cost reductions from restructuring activities. Textron eAviation segment revenues were $7 million in the first quarter of 2025, and segment loss was $17 million as compared with the segment loss of $18 million in the first quarter of 2024. Finance segment revenues were $16 million, and profit was $10 million in the first quarter of 2025, as compared to segment revenues of $15 million and profit of $18 million in the first quarter of 2024. Moving below segment profit, corporate expenses were $43 million. Net interest expense for the manufacturing group was $25 million.

LIFO inventory provision was $29 million. Intangible asset amortization was $8 million, and the non-service component of pension and post-retirement income were $66 million. Our adjusted effective tax rate for the first quarter of 2025 was 15.3%. For the full year, we still expect a rate of 18%. During the quarter, we repurchased approximately 2.9 million shares, returning $215 million in cash to shareholders. To wrap up with guidance, we are reaffirming our expected full-year adjusted earnings per share to be in a range of $6-$6.20. We also expect full-year manufacturing cash flow before pension contributions of $800 million-$900 million. That concludes our prepared remarks. Operator, we can open the line for questions.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question today, you may do so now by pressing star, followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star, followed by the number two to withdraw yourself from the queue. Our first question today comes from the line of Robert Stallard with Vertical Research. Robert, please go ahead.

Robert Stallard (Partner)

Thanks so much. Good morning.

Scott Donnelly (Chairman and CEO)

Good morning.

Robert Stallard (Partner)

Scott, maybe to start with you, on the Arctic Cat disposal, congrats on getting that done. Are you considering any further portfolio actions here?

Scott Donnelly (Chairman and CEO)

Nothing that we're announcing, Rob. We're always looking at the portfolio, but we certainly would never pre-announce anything.

Robert Stallard (Partner)

Yeah. Okay. The other major issue, of course, at the moment is tariffs and the trade war. I was wondering if you've given any consideration to what the impact could be on the Textron businesses going forward from here.

Scott Donnelly (Chairman and CEO)

Sure. Look, I think the tariff issue is one that everybody's talking about. I would say that when you look at our businesses, first of all, our largest businesses in the aviation space, whether it's fixed wing or rotorcraft, we are principally a North American manufacturer. The vast majority of that manufacturing is in the United States. Certainly, we have operations in Mexico and in Canada. The good news is that with USMCA compliance, we're not having tariffs as things are crossing over that border. We do have quite a process that we're sort of in the middle of, just going through and validating USMCA compliance, but I think so far we've seemed to be in very good shape. We haven't seen a tariff impact in terms of anything moving amongst our North American operations.

If you look at the Kautex business, as you know, we have manufacturing operations all around the world. You need to be close to those OEMs. As a result, all those products that we manufacture in different regions around the world are consumed in those regions around the world. We are not subjected to tariffs on any of that. Certainly, in all of our businesses, we do have some parts and suppliers that are either in Europe or in Asia. So far, the impact of that has been pretty de minimis. I think we will just continue to monitor that as the situation evolves. At this point, we certainly do not see it as being something that is a material impact to the company.

Robert Stallard (Partner)

That's great. Thanks, Scott.

Operator (participant)

Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila, please go ahead.

Sheila Kahyaoglu (Equity Research Analyst)

Thank you. Morning, Scott and David. David, I just want to say congratulations on keeping up with the eight-minute typescript that Scott and Frank have. Congrats on that with a prepared remark.

Scott Donnelly (Chairman and CEO)

Thank you. Thank you.

Sheila Kahyaoglu (Equity Research Analyst)

Scott, maybe first one on Bell, just really outstanding performance there. Revenues up 35%, equally split between military and commercial. How do you think about the puts and takes on maybe the FLRAA revenue contribution and profitability from here?

Scott Donnelly (Chairman and CEO)

Sure. Sheila, I think we had a very big increase, obviously, on a Q1 to Q1 basis. We did have very strong performance in terms of deliveries on the commercial helicopter side, but we also had a very large increase on the FLRAA program. Q1 was sort of still early in the program. Obviously, we're full run at this point. It's not only our internal level of activity, but a lot more suppliers on board as we're starting to issue drawings and get things on purchase authorizations and actually start to build first parts in many cases. We're seeing a real step function. I do still believe if you look at FLRAA on a year-over-year basis, it's probably going to be up 20% or so. It will be a contributor through the course of the year.

I think the margins are roughly in line with where we guided. I think that'll be relatively consistent through the course of the year as we see a large mix of the FLRAA program driving a lot of the growth and commercial helicopters. OEM deliveries, as you know, also tend to be a little bit dilutive to our overall margin rate. I think all in all, Bell had a great quarter, and we would expect to continue to see nice growth and solid performance through the balance of the year.

Sheila Kahyaoglu (Equity Research Analyst)

Can I also ask on industrial how the Arctic Cat and certain product line sales impact revenues and profitability for the remainder of the year?

Scott Donnelly (Chairman and CEO)

Yeah. We'll be down a little bit on revenue. When we did the guide, we assumed first quarter, which obviously there's revenue in line with what we expected here in Q1. We did have some revenue through the balance of the year and expectation that we would need to run this as an aftermarket business. Obviously, as a result of the sale, which was really our desired outcome, we won't have that revenue in the next three quarters, but it's a pretty de minimis number. I think we'll still be in the guide range on the revenue side and probably have a little bit of movement towards the upper end of the guide in terms of the margin.

Sheila Kahyaoglu (Equity Research Analyst)

Great. Thank you.

Scott Donnelly (Chairman and CEO)

Sure.

Operator (participant)

Thank you. Our next question comes from Noah Poponak with Goldman Sachs. Noah, please go ahead.

Noah Poponak (Managing Director)

Hey, good morning, everyone.

Scott Donnelly (Chairman and CEO)

Good morning, Noah.

Noah Poponak (Managing Director)

Scott, maybe you could just talk about the demand environment in the private jet market. Obviously, hard to predict the future, but in the past, when we've had macro concerns, we've at least seen some pause in orders. Year one Q book-to-bill was still pretty healthy, even though the equity market highs were early March, but April 2 was after the quarter ended. I know it's never super useful to break it apart month by month, but just curious to what you're seeing and hearing from your customers.

Scott Donnelly (Chairman and CEO)

No, I mean, look, I think as you point out, anytime there's a great deal of uncertainty in the world, you can see some folks pause a little bit. We're not seeing a dramatic impact. There's still order activity and flow that's happening, which I think is encouraging.

I do think part of it, Noah, is the fact that unlike the last decade or so, when you have an uncertainty or a ripple in the system, it's easy for people to say, "Well, I'll wait till next quarter." I think the backlog situation helps people say, "Okay, look, I'm talking about an aircraft that's going to deliver 18 months from now." I think it's a different dynamic when you're thinking about deliveries that are out there 18 months to two years even, as opposed to, "Geez, what do I do with this quarter or next quarter?" Yeah, some customers are taking a pause, but a lot of other customers are continuing with order activity. I think we still feel like the demand environment is solid, and we continue to press on.

Noah Poponak (Managing Director)

Okay. Maybe you could just give us your updated plan on production and delivery growth through the rest of the year as you continue to recover from the strike but have demand to deliver more airplanes.

Scott Donnelly (Chairman and CEO)

Sure. Look, I think we will see the ramp continue as we guided originally. We expected the first half to be a little bit lighter and to be a little bit lighter on the margin rate because you had a lot of that disruption still kind of working its way through and aircraft that were in part built last year and still getting delivered through the first of this half of this year. I still think we're very confident in where we guided, and we'll see these a couple hundred basis points below our guide here in the early part of the year and make up for that in the back half.

The encouraging part is, as we leave the quarter, the metrics that our teams track around productivity and attrition and earned hours and all those sorts of metrics that Ron and his guys drive every day, leaving the quarter, we're getting back to kind of where we were in the pre-strike. I would say that we do feel very comfortable that we've recovered from that disruption. Those aircraft that we're now manufacturing, largely which will deliver in the second half of the year, are seeing the impacts of the productivity and efficiencies that we expected. That model of sort of a ramp through the course of the year and improving margins, particularly in the back half, I think is going to be what we're going to see.

Noah Poponak (Managing Director)

Okay. Thank you.

Operator (participant)

Thank you. Our next question comes from Peter Arment with Baird. Please go ahead, Peter.

Peter Arment (Managing Director)

Yeah. Thanks, Scott. Good morning, Scott and Dave. Hey, Scott.

Scott Donnelly (Chairman and CEO)

Good morning.

Peter Arment (Managing Director)

On the continuing resolution, I know you had limited new starts in the first half, but now we've got a full-year CR. Any impacts from that on systems or any of the other businesses?

Scott Donnelly (Chairman and CEO)

That's a good question, Peter. I would say that in general, no. When you look at this full-year CR, which is obviously a very unusual situation, there were quite a few so-called amendments to that that provided specific guidance that allowed programs to increase. FLRAA is a good example. That was in there at the number that we always expected in terms of the appropriation process. That's why you're seeing this ramp on the FLRAA side. I think we're in good shape there. Similarly, on Ship-to-Shore Connector, the next tranche of craft was in that number. We are in the process of getting that added to the contract, working with the Navy in sort of real-time here. Other programs, look, money was appropriated in that FY 2025, so it's there.

We are hoping to understand final resolution here on things like RCV and FTUAS later on in the year. The good news is, generally speaking, order flow, contract activity in systems has been looking pretty good so far.

Peter Arment (Managing Director)

That's great to hear. Just a quick follow-up on in aviation, just the latest on Denali. I saw the GE engine certainly certified in February. How's the rest of the program going?

Scott Donnelly (Chairman and CEO)

The rest of the program is going very well, Peter. The milestone of getting the engine certified is hugely important to us. As you guys know, as we saw delays on that side of the program, we've always continued to the flight test program. In terms of all the formalities, we would kind of put other things in front of it, like Ascend and some of these Gen2s on CJ3s and things like that. We kind of have, I would say we have Denali back in the queue here in terms of working through the balance of certification. As we've always said, the good news is this issue around the engine with the certification was challenging, but the performance has been very, very good. The aircraft is flying really, really well. We're thrilled with it.

We're sort of back in the queue now with the FAA, and we'll be working through the aircraft-level certification.

Peter Arment (Managing Director)

Appreciate the details. Thanks.

Operator (participant)

Thank you. Our next question comes from David Strauss with Barclays. David, please go ahead.

David Strauss (Managing Director)

Thanks. Good morning.

Scott Donnelly (Chairman and CEO)

Good morning.

David Strauss (Managing Director)

Hey, Scott, you talked about Kautex, no real tariff impact given the localized production. How do you think about the demand environment for Kautex, given what's going on with tariffs?

Scott Donnelly (Chairman and CEO)

Yeah, David, like I said, good question. If there's any risk to a lot of the stuff in general, economically, it's more so than tariffs. It is what happens to macro demand. We try not to, we don't generally forecast on that. We kind of follow IHS. As you know, it's one of the only businesses really where we're not the end market guy. I don't have any crystal ball to pontificate on what's going to happen to the global automotive markets. The Q1 numbers were in line consistent with what we have expected. So far, that's true in Q2. What happens to global automotive demand is, I suppose, anybody's guess. We obviously will roll with that one way or the other.

David Strauss (Managing Director)

Okay. Dave, I mean, it sounds like industrial margin may be a little bit higher. Can you maybe just walk us through if there are any other moving pieces relative to the original guide, maybe corporate? Corporate's a little bit lower than what you thought for the year. If there's anything else we should know.

David Rosenberg (CFO)

Yeah. I mean, I think we would still expect corporate expense to normalize through the year. So we'll maintain our guide of $160 million. Interest expense will continue to trend up slightly throughout the year as we expected, just based on the turnover of our debt at a higher interest rate and the expected lower cash on hand, which generates interest income. On industrial, I'd say the sequencing remains the same. We talked about as the year went on, the restructuring impact will continue to take effect, and we're starting to see that. You will see some sequential growth in the overall industrial number as we go through the rest of the year. As Scott said, a slight benefit as a result of the transaction with Arctic Cat that we announced today.

David Strauss (Managing Director)

Okay. Are there any proceeds from the Powersports divestiture, and are you holding on to that aftermarket piece, or did that go as well?

David Rosenberg (CFO)

The aftermarket piece went with the business, and there was some small proceeds that were immaterial that will be in the Q2 results.

David Strauss (Managing Director)

Thank you.

Scott Donnelly (Chairman and CEO)

Sure.

Operator (participant)

Thank you. Our next question comes from Seth Seifman with JPMorgan. Please go ahead, Seth.

Yeah. Hey, guys. This is Alex on for Seth. Maybe I wanted to kind of ask a follow-up regarding demand that you guys have kind of seen in aviation. Understand you guys kind of pointed to that there hasn't really been any major changes, but maybe to put a finer point on it and kind of address, I guess, the fractional/net jet sides of things. Curious if you guys kind of have any color you could add on that, whether you've maybe seen any changes in kind of data customer behavior. Typically, think of them as a little bit more macro-sensitive. Curious if you guys could kind of maybe provide some color there.

Scott Donnelly (Chairman and CEO)

Yeah. I guess we do not normally try to provide NetJets guide. I mean, we are still, I mean, NetJets are still taking deliveries of aircraft, and NetJets are still putting new aircraft on order. I guess I probably will not give a lot of color as far as the NetJets fractional end market, but certainly, order activity continues, deliveries continue. I would not break that out as a specific item one way or the other.

Okay. Understood. Maybe as a quick follow-up, maybe if we could get kind of an update on how things are trending more recently in the supply chain with regards to aviation. I know you guys talked about an expected improvement in labor productivity following the strike as well. Is everything there kind of trending towards expectations?

Yeah. I would say that we still feel very good about where the supply chain side is at aviation. I think that certainly that's one of the factors driving the improvements in productivity. We don't see nearly as much out-of-station work. Parts are there, so the flow is much cleaner. That clearly helps to drive the productivity side. Our attrition rates are also down. In terms of training and disruption, new people coming in, we're about the level of employment that we need to execute on the plan. Obviously, there's always a certain amount of hiring going on with retirements and things of that nature. Yeah, I would say that the part situation at aviation is where we expect it to be. It's in much, much better shape than it's been in a long time. There are always, as you can imagine, supply chain issues that pop up.

There always have been issues that pop up periodically. I'd say at a macro level, the supply chain at aviation is in good shape, and our workforce situation is in good shape. That's what I think will help to drive that improvement in both the volume and the productivity efficiencies and therefore margins as we go through the balance of the year.

Cool. Thank you, guys.

Sure.

Operator (participant)

Thank you. Our next question comes from Myles Walton with Wolfe Research. Miles, please go ahead.

Myles Walton (Managing Director)

Thanks. Good morning. I'm wondering on systems backlog, it looks like it declined sequentially about in line with your sales. Maybe, Scott, back to Rob's question, or maybe it was Peter's question on the demand in the defense complex. What, if anything, was ordered there, and did you have any debugs that caused that decline?

Scott Donnelly (Chairman and CEO)

No. There were no debugs, guys. I mean, we do not usually go into much detail on the systems backlog. It tends to be very lumpy, right, because it aligns with contract awards. I mean, I talked frankly about ship-to-shore is a good example, right? That was in the CR. We are in the process of negotiating with the Navy, but that number, that will not go into backlog until we have definitized that contract. It tends to be very lumpy, and I would not read anything one way or the other into the head systems backlog.

Myles Walton (Managing Director)

Okay. On the cash flow statement, could you give some color as to the larger use of cash and operating cash flow from the other category? What was that?

David Rosenberg (CFO)

Yeah. There are really two components: some additional inventory build at aviation that will normalize throughout the year, and just some payment timing at Bell from Q1 to Q2 around some government programs. Nothing really unexpected in either of those. On the payment timing with Bell, we'll get those receipts in Q2.

Myles Walton (Managing Director)

Okay. Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Jason Gursky with Citigroup. Please go ahead, Jason.

Jason Gursky (Equity Research Analyst)

Yeah. Good morning, Scott. I wanted to ask you a quick question about the defense businesses, both at Bell and Navy systems. We're clearly hearing a lot from DOD that the future is going to include a lot more unmanned, autonomous, and attritable systems. I'm just kind of curious what you're seeing both on the demand side and whether there are new programs of record that are being stood up or whether there's an increased usage of OTAs. We've got some non-traditional actors that are coming in and garnering some wins, utilizing some products that they've developed that are unmanned, autonomous, and attritable, and kind of how your company is responding to this new vector in demand and what that means for R&D and contract types that you might be working on in the future.

I'm just kind of curious if there's going to be a bit more IRAD here and firm-fixed price contracts going forward. Thanks.

Scott Donnelly (Chairman and CEO)

Sure. I guess I would say with respect to unmanned, without a doubt, there's a continued focus in that area. Obviously, things like FTUAS are on the horizon, which is all unmanned. I would say that even when you look at platforms like a FLRAA, for instance, the Army wants to make sure that that aircraft can be unmanned. Now, that doesn't necessarily mean they're going to fly it as an unmanned aircraft with 12 guys in the back going into an assault insertion, but relocations and different missions, there might be places where they want that. Certainly, one of the requirements on a new platform like that is that it needs to have the capability to perform autonomously. You may recall, the good news is we flew the actual original V-280 with safety pilots, obviously, but we flew that on an autonomous mission many years ago.

Ensuring that the capability is in these platforms for either optionally or unmanned capabilities is becoming very, very standard. In terms of other activity that's out there, we've talked in the past about our high-speed VTOL program. I think we're working with the military, sort of what are the next steps of that. Certainly, when you look at technology that's still in that in DARPA/sort of special operations, there's activity there, which, again, is very focused on unmanned capability, whether that's in the CCAs or contested logistics. That continued to be a focus, and we're participating in that area. There's no question that unmanned platforms of all types are going to continue to be a focus area. When you look at remote combat vehicles, right, again, there's an area where we've invested for the better part of a decade for autonomous land vehicles as well.

Of course, we have our custody programs and things which we continue to support and unmanned mine sweeping. As a company, we have a lot of different programs everywhere from production to working with the DARPAs of the world on unmanned platforms. It will be a continued focal point, and I think we're in a very good place. In terms of contract type, I guess I would say that I continue to see the trend being that when you're in production, the military will lean towards fixed-price contracts, and frankly, we're fine with that. When you have a production product, you understand it, you know it. I think it's in everyone's interest to try to drive fixed-price contracting. In most development activity, FLRAA is a good example. When you're in the EMD phase, you're largely cost-plus.

Most of these other contract types, where you're working with earlier development, even if it's developmental, they're tending to stay to the cost-plus or best-effort kinds of contracting.

Jason Gursky (Equity Research Analyst)

Right. Okay. That's helpful. I'm just kind of, as a follow-up, one of the things you didn't mention there is attritable systems. I'm just kind of curious on the munitions side or attritable mass seems to be a phrase that we hear quite a bit coming out of DOD these days. From a product perspective, what does that mean to you, and is it an area that's of interest to you?

Scott Donnelly (Chairman and CEO)

We have some areas in the classified space and IRAD space that are looking at attritable. I guess most of the stuff, for sure, that I just mentioned are sort of platforms or derivations of platforms that are certainly much higher dollar value. Those would not fall into a desire for those to be attritable. That has not been our historical focus, but for sure, there are some smaller programs that we're executing that would be more along that attritable line.

Jason Gursky (Equity Research Analyst)

Great. Appreciate the color.

Scott Donnelly (Chairman and CEO)

Sure.

Operator (participant)

Thank you. Our next question comes from Kristine Liwag with Morgan Stanley. Please go ahead, Christine.

Kristine Liwag (Executive Director)

Hey, good morning, everyone. I'm Bell. We saw a nice positive uptick in commercial helicopter deliveries in the quarter. Can you talk about the demand environment, customer profile, pricing, and whether you'd expect this strength to continue?

Scott Donnelly (Chairman and CEO)

I would say on the Bell commercial side, the demand is solid. I mean, our order activity is good. It's across pretty much all of our models, all of our product lines, everything from the 505 up through the 412s. As you know, we have our initial 525s booked. We just, at Verticon, signed a deal with Omni to get 525 out into their routes to do route proving. I would say pretty much across the board, whether it's paramilitary, border patrol, medical, oil and gas, we're seeing strong demand across pretty much all of the helicopter product lines.

Kristine Liwag (Executive Director)

Great. Thanks. Scott, if I could add another one on business jets, I mean, on aviation. Historically, we've seen a strong correlation of U.S. investment spending and demand for medium-sized business jets. With this administration focused on bringing manufacturing back to the U.S., are you seeing any early indication of increased demand from corporate clients who may want to reshore manufacturing or anything like that?

Scott Donnelly (Chairman and CEO)

As I said, I think we continue to see a strong demand environment. I do not know if I know how to correlate that to a company that is bringing reshoring per se, but I would say, in general, despite the fact that there is a great deal of uncertainty and, without a doubt, the tariff situation is helping create some uncertainty, I think most companies in the mid to long term feel pretty good about where things are. I mean, tax policy, obviously, is hugely important. That does not get talked about here a lot just because of all the other things that are going on. I think most people view the mid to long term as a favorable environment. I think that is partly what is driving that, reshoring and growth in the U.S. helping that. It could be.

I don't know that I have any anecdotal that would say, "Hey, this particular company who's reshoring is talking about a jet." It is a good environment.

Kristine Liwag (Executive Director)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Gavin Parsons with UBS. Please go ahead.

Joel Santos (VP and Equity Research Analyst)

Hi, Scott. And David, this is Joel Santos for Gavin Parsons from UBS. Given the current demand environment for business jets, can you give us some more color on how net pricing and performance have been year-to-date and if those align with your expectation for 2025?

Scott Donnelly (Chairman and CEO)

As I said, I think the environment for business jets remains solid. Our order activity continues to flow. You saw that in the first quarter in terms of book to bill. As I said earlier, I think you'll have some people that will take a brief pause here just for some of the uncertainty. Given the nature of the backlog and the overall, I think, people's longer-term economic outlook, we continue to see good order activity.

Joel Santos (VP and Equity Research Analyst)

All aviation aftermarket, can you guys give us some more color on the strategy in place for continuing to grow the segment and how that's impacting the overall profitability?

Scott Donnelly (Chairman and CEO)

Oh, okay. The aftermarket business was up 6% in the quarter, which is good growth. We see flying hours stays robust. Our service centers are busy. Parts flow into the aftermarket is obviously strong. That's a really important part of our overall company. As you guys know, we serve a huge installed base, and that's largely driven by flying, and people are flying.

Joel Santos (VP and Equity Research Analyst)

Perfect. Thank you.

Operator (participant)

Thank you. Our next question comes from Ron Epstein with Bank of America. Please go ahead.

Ron Epstein (Senior Equity Analyst)

Yeah. Hey. Good morning, guys. Maybe changing gears a little bit. With the electric aviation segment, is there an opportunity to take some of the technology you guys are developing there and moving it over to some of your other aircraft, for example, an electrified Caravan?

Scott Donnelly (Chairman and CEO)

Look, Ron, there's a number of companies out there that are electrifying caravans. It's been sort of one of the preferred choices, frankly, for folks that are working in that space because it has just such a huge useful load, right? To the extent that you have a penalty in terms of battery weight and stuff like that, a caravan can absorb an awful lot of weight and still provide really good performance with a good payload and still hundreds of miles of range, even with a lot of battery load. Caravans have actually been used by a lot of companies as test beds for this activity. Now, again, where that goes and is it the right answer? Do you have a hybridized version of it? That, I think, is all still to be determined. For sure, a caravan is one where you can electrify.

People have electrified caravans. We have worked to support those companies. We are not doing that ourselves, but we are working with those guys to support their efforts towards ultimately, hopefully, certification where you would have an electrified caravan.

Ron Epstein (Senior Equity Analyst)

Now, if there's meat on that bone, is that the market you'd want to get into? I guess that's what I'm getting at, right? Given that you have in-house technology anyway.

Scott Donnelly (Chairman and CEO)

Yeah. I mean, I won't go into all the gory details here, but I mean, a couple of companies we've worked with, and we do have arrangements where, like I say, if they're doing the work, we're supporting them and providing them information. They would own, let's say, a supplemental type certification that would let you take a Caravan and modify it to put it into service as an electrified aircraft. And we have the ability to take that and incorporate that STC basically into our production line. So if we see sufficient volume, sufficient demand, we would absolutely look at incorporating that and turning that into a production product.

Ron Epstein (Senior Equity Analyst)

Got it. Got it. Maybe just one last one, changing gears. Nobody's really asked much about on the M&A front. Is there much out there? I mean, you guys are looking at stuff. Defense tech seems to be a space where there's a lot of interest in kind of software-driven hardware and that kind of thing. Are you guys thinking about anything like that, or if you'd just give us a broader feel about how you're thinking about the current M&A environment?

Scott Donnelly (Chairman and CEO)

Sure, Ron. Look, I mean, we continue to look all the time. We've been in a number of deals, but we do look at what do the multiples look like, what do the earnings look like, and is it something that we can do that would be accretive? If it's something that we thought we could get a price point where it's accretive, we would absolutely entertain adding things like that, obviously, particularly in our A&D space. Look, I mean, things may be here a little rocky with some of the uncertainty in the world, but a lot of these deals were just kind of a little bit on the nutty side in terms of multiples and not something that we thought could be accretive for our shareholder.

Ron Epstein (Senior Equity Analyst)

Yeah. Got it. All right. Cool. Thank you.

Operator (participant)

Thank you. Our next question comes from Pete Skibitski with Alembic Global. Please go ahead.

Pete Skibitski (Director of Aerospace and Defense Equity Research)

Good morning, guys. Hey, Scott, the release stated that, and I think you might have mentioned that Bell military sustainment volume was up year over year. Can you talk about where that's coming from? I assume maybe it's H-1 and V-22. I don't know if it's weighted one way or another, but can you talk about that and maybe if that's sustainable or if it was just a timing thing?

Scott Donnelly (Chairman and CEO)

Sure. Look, you're right. I mean, it is the so-called legacy platform. H-1 and V-22, we continue to have ongoing contracting activity with parts, with PBLs, and things of that nature. That, as you know, is always also a little bit lumpy, right? We often find ourselves in a situation where we're out there building because we know the demand is there, and then just contracting takes a while. When those contracts get definitized, stuff that we have that would move from company-funded long lead gets put up against that contract. You always do have a little bit of lumpiness. Yes, it's related to H-1 and V-22 programs, but I expect that to continue to be there.

These aircraft are flown every day, and they generate a lot of aftermarket demand, and we expect to continue to support that for many, many, many years to come.

Pete Skibitski (Director of Aerospace and Defense Equity Research)

Okay. Thank you. I just want to follow up on Jason's question earlier about unmanned, but sticking kind of to the unmanned surface vehicle area where you've participated in the past with the CUSV, and I think you guys are now the TSUNAMI family. I just want to ask, is this a marketplace on the USV side that's really growing rapidly? You mentioned you dropped in Classified earlier in your comments, and I ask because I think there's been a couple of startups that have emerged out of stealth mode fairly recently with some money behind them.

I'm just wondering if this is an area on the surface side that's really kind of poised to grow or if you're maybe more balanced type of a view and you think it's going to be a few more years of experimentation before we see something there out there.

Scott Donnelly (Chairman and CEO)

I do think it's growing. I think the analogy I would go back to when you think about early days of unmanned aircraft systems, the proliferation of those missions and different types and whatnot has grown dramatically from just ISR to weaponization. Obviously, you've got very long-range, high-altitude stuff. You've got very tactical all the way down to almost micro versions of these systems. I think you're seeing the same thing happen in the unmanned surface vessel area. Obviously, we've been a player in this from the very, very early days of it with CUSV. It's not surprising that the first applications that everyone knows of that are out there are around mine hunting. This is a place you'd like not to be as a person when you're out there doing mine hunting operations. Whether it's sweeping or interdiction, that's an area that we've played.

We continue to do that. We work very closely with the Navy and have for quite some time in supporting that mission and also supporting now the integration of new platforms onto those sorts of craft. I think they have a roadmap that shows more craft of different types and different missions going into the future. We are working with them on that all the way to the extreme. You mentioned it, Pete, is something like Tsunami, right, which is sort of in that attributable, higher volume, lower cost, again, with different mission payloads going forward. That is a good example. Everybody talks about sort of these new companies. I am putting money behind it. We have been putting money behind this for a very long time, and we have programs to show for it. These things do take investment upfront for sure.

I think Tsunami is a good example. Shows you can go compete with all these new upstart companies, and we actually won because we too have put a lot of money behind this and invested in future applications.

Pete Skibitski (Director of Aerospace and Defense Equity Research)

That's great. Thanks for the call.

Scott Donnelly (Chairman and CEO)

Sure. Thanks.

Operator (participant)

Thank you. We have no further questions. This concludes today's call. Thank you, everyone, for your participation. A replay will be available until Thursday, May 1 at 11:59 P.M. Eastern Time. You can access the replay by dialing the United States local number 929-458-6194 and use the access code 826596. Thank you, everyone, for joining us today. You may now disconnect your line.