Q3 2024 RTX Corp Earnings Call
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Luzzi: Good day, ladies and gentlemen, and welcome to the RTX 3rd Quarter, 2024 earnings conference call. My name is Luzzi, and I will be your operator for today. As a reminder, this conference is being recorded for replayed purposes. On the call today, our Chris Calio, President and Chief Executive Officer, Neil Mitchell, Chief Financial Officer and Nathan Ware, Vice President of Investor Relations.
Luzzi: This call is being webcast live on the internet and there is a presentation available for download from RTX website at www.artx.com
Luzzi: Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net non-recurring and or significant items often referred to by management as other significant items.
Speaker Change: Bruce, listeners that the earnings in cash flow expectations.
Speaker Change: is an end-is-call, our subject to risk and uncertainties.
Speaker Change: RTX SEC filings including his forms 8K, 10Q and 10K provide details on important factors that could cause extra results to differ materially from those anticipated in the forward-looking statements.
Speaker Change: Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate.
Speaker Change: To ask a question, you will need to press star 1-1 on your telephone. You may ask further questions by re-inserting yourself into the QS time permits.
Speaker Change: With that, I would turn the call over to Mr. Calio.
Mr. Calio: Thank you for the morning everyone. As you saw from our press release this morning, RTX delivered another strong quarter of performance, building on our momentum from the first half of the year.
Mr. Calio: The man across the business, including double-digit growth and commercial aftermarket in defense, remains robust, and drove 8% organic sales growth. Our focus on execution drove 100 basis points of segment margin expansion in the quarter, and free cash flow was strong at 2 billion.
Mr. Calio: Based on these results and our expectations for the remainder of the year, we are again raising our full-year outlook for adjusted sales in EPS and Neil will take you through the details here in a few minutes.
Mr. Calio: Also, of note in the quarter, we completed the accelerated share repurchase program we initiated last October, returning 10.3 billion of capital to shareholders.
Mr. Calio: We've now returned over 32 billion of capital to share on her since the merger. Putting us well on track to deliver on our commitment of 36 to 37 billion by the end of next year.
Mr. Calio: Looking ahead, we continue to experience robust demand for our products and services. Some credible growth in our backlog, which end of the quarter at a record $221 billion, with a book to bill of $1.8, and included $25 billion of defense and $11 billion of commercial orders.
Mr. Calio: clearly demonstrating the differentiated performance that our products and services provide to our customers and supporting our confidence in the long-term growth of RTX.
Mr. Calio: The recevral notable highlights. At Ray Heon, we booked a record 16.6 billion of awards in the quarter, driven by the continued global demand for integrated air and missile defense capabilities, with 45% of these bookings for international customers.
Mr. Calio: Keywords included 3 billion associated with our Patriot and GMT products, 1.3 billion for SM3 and 1.2 billion for AMRAM.
Mr. Calio: Importantly, we booked 1.9 billion for L-Tams. The first domestic and international production order for our next generation, 360-degree air and missile defense system.
Mr. Calio: Apparat, we rewarded a $1.3 billion contract for the continued development of the F-135 Engine Core Upgrade Program. It will deliver enhanced engine range and performance for all variants of the F-35 well into the future.
Mr. Calio: and a Collins, the FAA awarded our Connected Aviation Team, a $470 million sustainment contract, for the continued technical refresh and enhancement of our air traffic control automation system.
Mr. Calio: which is deployed at over 500 air traffic control towers across the U.S.
Mr. Calio: The system provides a real-time view of the airspace and tools to assist with air traffic management in airspace safety.
Speaker Change: Okay, let's move to slide four and I'll provide an update on how we are progressing on our strategic priorities, all of which are unable to drive best in class performance across RTX, including continued top line growth, margin expansion and strong cash flow generation.
Speaker Change: will start with executing on our commitments and first and foremost is our GTF Fleet Management Plan.
Speaker Change: and our financial and operational outlook remains consistent with our prior comments.
Speaker Change: at the end of Q3, our inspections of powder metal parts continue to progress according to plan. The Associated Fallout rate remains below the 1% expectation and the findings are consistent with the underlying assumptions of our fleet management plan.
Speaker Change: at our MRO facilities, throughput of engines is improving. PW 1100 output increased 10% sequentially and 27% on a year over year basis.
Speaker Change: The team is utilizing core practices to optimize the inspection sequence and implement concurrent assembly operations in RMRO facilities.
Speaker Change: and we've now reached supported agreements with 28 of our customers covering roughly 75% of the impacted PW-1100 fleet. The terms continue to remain in line with our assumptions.
Speaker Change: We're also leveraging our core operating system, industry 4.0 initiatives across the company to drive continuous performance improvements while expanding capacity.
Speaker Change: For example, at our Raytheons' facility in McKinney, Texas, our focus on core implementation, along with investments in capacity and automation, has significantly increased production of our 360-degree sensor suite for the F-35 known as EODAS, which stands for Electro-Optical Distributed Appeter System.
Speaker Change: Specifically, the team drove yield improvement in the streamlined test inspection operations and moved from an assembly line production process to a single piece build flow, which has resulted in a 5x increase in production capacity for EOS over the past 12 months.
Speaker Change: and at Collins, our avionics business is already benefiting from our connected equipment by deploying an automated smart-tore system resulting in zero-torth-related defects and saving over 20,000 labor hours so far this year.
Speaker Change: Across our TX, we've now connected 34 factories with our proprietary digital analytics technology, and we are in track to connect 40 factories by the end of the year.
Speaker Change: On the capacity front, continue to invest in increasing output on our key franchise programs to deliver on strong customer demand.
Speaker Change: This month, proud of going to new 845,000 square foot facility in Oklahoma City. The whole support global sustainment efforts for military engines, including the F-135, F-1117, and F-100.
Speaker Change: This state of the art facility also features automation and advanced manufacturing technologies that will streamline processes resulting in improved productivity and throughput.
Speaker Change: Shifting and innovating for future growth, we continue to execute on 14 cross-technology road maps across our TX to develop next-generation technologies and domains that support our customers long-term needs.
Speaker Change: An example is our hybrid electric propulsion technology to improve fuel efficiency.
Speaker Change: In the quarter, they're both helicopters selected Collins and Pratt Canada, support the development of a hybrid electric propulsion system for its pioneer lab technology demonstrator, which is targeting a 30% improvement in fuel efficiency out of twin engine helicopter.
Speaker Change: Bracana will provide a derivative of its PW-210 engine, combined with two electric motors from columns.
Speaker Change: and it's part of our advanced materials roadmap, Collins and Ray Fiana working together to adapt commercial break carbon, carbon technology to hypersonic missile applications. Thermal management is a critical requirement given the high level speed and high temperature environments at play.
Speaker Change: In the quarter of the team achieved technology-radeless-level six, demonstrating the ability of the parts to survive and perform an extreme environmental conditions.
Speaker Change: These initiatives highlight our commitment to developing critical next-gen products and solutions for our customers.
Speaker Change: Finally, we're focused on leveraging the breath and scale of RTX. This includes driving simplification within our digital footprint and harmonizing common processes to take cost and complexity out of the business. For ultimately help drive productivity.
Speaker Change: So far this year, we've eliminated over 265 systems to streamline our engineering, supply chain, and manufacturing processes.
Speaker Change: For example, Collins on Traktor, due to their engineering systems by 20% this year. This will help optimize the end-to-end process flow through standard work.
Speaker Change: We're also leveraging our scale within our supply chain to drive increased efficiencies, speed, and savings.
Speaker Change: through a coordinated RTX approach who've identified more than 100 million pounds of common metals across 60 unique allies that are procure-briars suppliers.
Speaker Change: We've negotiated long-term agreements for these allies that our suppliers can leverage to reduce lead times and cost. And currently, at 45 suppliers, utilizing these agreements to plan to add 16 more by year-end.
Speaker Change: We expect to realize that 10 to 15% cost savings on these alloys utilizing this approach.
Speaker Change: Okay, so overall, please with the progress we've made in our strategic priorities and the momentum we've created across our businesses. With that, I'll turn it over to Neil to take you through the third quarter results in more detail. Neil?
Neil Mitchell: Thanks Chris, I'm on slide 5. As Chris said, we delivered another strong quarter of organic sales growth, segment margin expansion, and free cash flow. RTX is adjusted sales of $20.1 billion, we're up 6% and up 8% organically.
Speaker Change: By sales channel growth was led by commercial aftermarket, which was up 11% and that's on top of 25% growth last year as global air travel continues to grow.
Speaker Change: Defense sales were up 10% organically as we continue to execute on our backlog and commercial OE was flat as favorable mix of Pratt was offset by lower narrow body volume at Collins.
Speaker Change: Segment operating profit of 2.4 billion was up 16% with segment operating margin expansion of 100 basis points versus the prior year.
Speaker Change: A Justin earnings per share of a dollar 45 was also up 16% from the prior year, driven by segment operating profit growth, a lower share count, and a lower effective tax rate, which were partially offset by expected headwinds from higher interest expense and lower pension income.
Speaker Change: The tax rate in the quarter benefited by about the seven cents per share from tax impacts principally related to a legal entity reorganization.
Speaker Change: On a gap basis, earnings per share from continuing operations was a dollar nine, included 31 cents of acquisition accounting adjustments and five cents of restructuring and other significant non-recurring charges.
Speaker Change: and Freak Assela was again strong at 2 billion as continued strength and collections helped us set some higher inventory.
Speaker Change: In the quarter, we returned 1.1 billion of capital to shareholders, including dividends and 294 million, principally related to the close-out of the accelerated share reproaches program initiated last year.
Speaker Change: On the portfolio front, we expect the sale of the Collins Hoist and Winch business to close here in the fourth quarter and the actuation business mid-next year.
Speaker Change: Okay, turning the slide six, let me share a few details on our updated outlook for the year.
Speaker Change: As you've seen through the third quarter, the performance across all three of our businesses has been strong and our end markets remain robust. As a result, we have updated our full year outlook to incorporate this performance along with our expectations for the rest of the year.
Speaker Change: Specific to commercial OE production based on our latest assessment of production rates. We now expect OE sales at the RTX level to grow roughly 10% versus prior year. Towards the low end of our prior expectation.
Speaker Change: and a column specifically commercial OE is now expected to be flat for the year and that's down for our prior expectation of mid-sugal digit growth. This outlook assumes that we're able to restart some level of shipments to Boeing in the fourth quarter and we see no change to the long-term structural demand for our OE products.
Speaker Change: But that said, strength across our other sales channels, including commercial after market, crack, original equipment, and defense is expected more than offset these impacts.
Speaker Change: All in, we're increasing our full year adjusted sales outlook to between 79.25 and 79.75 billion, up from our prior range of 78.75 to 79.5 billion.
Speaker Change: and we continue to expect approximately 8-9% organic sales growth for the full year.
Speaker Change: We are also increasing our adjusted EPS outlook by 15 cents on the low end and 13 cents on the high end, putting the new range at 550 to 558, up from 535 to 545.
Speaker Change: Improve segment profit outlooks at Pratt and raking on more than offset a change of Collins.
Speaker Change: and we have also flowed through improvements in our tax rate and to below the line items. Nathan will take you through the segment outlook updates and more detail. We've included the corresponding updated outlook for other items in the appendix of our webcast deck.
Speaker Change: On free cash flow, we remain on track to achieve our outlook of approximately 4.7 billion. In the fourth quarter, we expect powder metal related disbursements to increase, as well as payments associated with the legal and contract matters that we discussed and recorded in the second quarter.
Speaker Change: For the year, we now expect powder metal outflows to be about 1 billion down 250 million from our prior expectation. This combined with slightly lower capex is expected to offset the working capital impacts associated with the lower commercial OE volume of Collins.
Speaker Change: Before I handered over to Nathan for the segment details, just a few comments on how we're thinking about next year.
Speaker Change: Right now, we are working through our annual planning process across the company. And overall, with our current backlog and the expectation of continued global demand across our end markets, we expect another year of solid organic sales growth and segment margin expansion, as well as significant free cash flow generation.
Speaker Change: We continue to analyze scenarios around aircraft production rates, the profile of commercial aftermarket growth, and the likelihood of an extended continuing resolution for U.S. defense spending.
Speaker Change: We also continue to actively work through supply chain and inflation challenges with our mitigation strategies, including forward deploying our people to suppliers.
Speaker Change: Second-sourcing arrangements, increasing our long-term supplier agreement coverage and customer pricing initiatives.
Speaker Change: with that said, we feel good about the strength of our businesses and our underlying fundamentals. And as we always do, we will be back in January on our fourth quarter earnings call with a complete outlook for the next year, incorporating our latest assessment of these items. Okay, let me turn it over to Nathan.
Nathan Ware: Thanks, Neil. Starting with Collins on Flight 7.
Nathan Ware: Sales were $7.1 billion in the quarter, up to 6% on both an adjusted and organic basis, driven by strength and commercial aftermarket and defense, partially offset by lower commercial OE volume.
Nathan Ware: By Channel, commercial aftermarket sales were up 9%, driven by an 11% increase in parts and repair, a 16% increase in provisioning, and a 6% decrease in mods and upgrades, with mods and upgrades continuing to be against a difficult prior year compare that benefited from the 5G mandate.
Nathan Ware: Defense sales are up 14%, primarily due to higher volume across multiple programs and platforms.
Nathan Ware: and commercial OE sales for the quarter were down 8% versus the prior year, driven by lower narrow body volume, including the impact of the Boeing work stoppage.
Nathan Ware: A just an operating profit of 1.1 billion was up 53 million versus the prior year.
Nathan Ware: Drop through on higher commercial af mark and defense volume, let's partially offset by lower commercially volume, unfavorable commercially mix and higher R&D expense.
Nathan Ware: Looking ahead on a full-year basis, we continue to expect Collins Fails to grow high single digits on both an adjusted and organic basis, so likely at the low end of this range.
Speaker Change: We expect a lower commercial-away volume that Neil mentioned earlier to be partially asked that by hired a fence volume.
Speaker Change: And we are updating the outlook for operating profit to grow between $575 and $650 million versus 2023 compared to our prior range at between $650 and $725 million as we incorporate the impact of the lower OE volume and associated absorption and disruption impacts.
Speaker Change: Shifting to Pratt and Whitney on Slide A, sales of $7.2 billion, we're up 14% on both an adjusted and organic basis, with sales growth across all free channels.
Speaker Change: Commercial OE sales were up 9% in the quarter, primarily driven by favorable mix and large commercial engines.
Speaker Change: Commercial African Market sales were up 13% in the quarter, driven by higher volume in both large commercial engines and Prac Canada. In the military engines, sales were up 20% driven by higher sustain volume across the F-135 and F-17 platforms, as well as higher development volume driven by the F-135 engine core upgrade program.
Speaker Change: A trusted operating profit of $597 million was up $184 million versus the prior year, driven by drop-through on higher commercial African-American and military volume.
Speaker Change: and Laura O'Wee delivery volume and large commercial engines were offset by higher production costs.
Speaker Change: In the quarter, Prap looked over 11 billion of awards. In addition to the engine core upgrade award that Chris mentioned earlier, Prap also booked 2.3 billion of F1-17 sustainment and 6.6 billion of commercial awards.
Speaker Change: Turning to Prats Follier Outlook, we continue to expect sales to grow mid-teens on an adjusted and organic basis. Most likely towards the higher end of this range driven by stronger military volume and the favorable mix in large commercial engines that we've seen so far this year.
Speaker Change: and we are updating the outlook for adjusted operating profit to grow between 475 and 525 million dollars versus 2023, up from our prior range of between 475 million.
Speaker Change: Now, turning to Raking on Slide 9, sales of $6.4 billion in the quarter were down 1% on an adjusted basis as a result of the cybersecurity divester in the first quarter.
Speaker Change: On an organic basis, sales are up 5% driven by higher volume and land and air defense systems, including Patriot, NACAMS and Counter-UAS programs, as well as higher volume on advanced technology programs.
Speaker Change: This was partially a step by lower volume on air and space defense systems.
Speaker Change: Adjusted Operating Profit of 661Million was up 91Million versus the prior year, driven primarily by favorable mix, improved net productivity, and dropped through on higher volume, partially offset by the impact of the cybersecurity divestiture.
Speaker Change: In the quarter, net productivity improved 33 million year over year and included an unfavorable impact of 53 million related to a classified program.
Speaker Change: of note, Raytheon has now seen four consecutive quarters of year over year margin expansion.
Speaker Change: and as Chris highlighted, looking as in the quarter were 16.6 billion, resulting in a backlog of 60 billion and a book to bill of 2.6.
Speaker Change: On a rolling 12-month basis, Raytheon's book to Bill is 1.48. In addition to the awards mentioned earlier, Raytheon also booked 1.2 billion of classified awards, $737 million for Aim 9x, and $538 million for Javelin.
Speaker Change: In total, Ray Hayes' backlog is now 44% international up over 10 points from last year.
Speaker Change: Looking ahead, we continue to expect Raytheon sales to grow mid-single digits organically for the year, and due to the volume drop-through and favorable mix you've seen so far this year, we now expect Raytheon's operating profit to grow between $200 and $250 million versus 2023, up from our prior range of between $125 and $200 million, and this includes the impact of the cyber security to the legislature.
Speaker Change: with that. I'll turn it back over to Chris.
Chris Calio: Okay, thanks Nathan. Monthly light ten. As you heard today, RTX is extremely well positioned for growth. We've got an installed base in commercial aerospace that has a long aftermarket tale and leading defense franchises that are seeing record global demand. Our team remains focused on supporting our customers and executing on our commitments. It's led to our strong third quarter performance and an improved outlook for the full year. And as we continue to drive our strategic priorities, confident in our ability to deliver sustained growth in organic sales, earnings, and cash flow over the long term. Okay, with that, let's open it up for questions.
Speaker Change: In the interests of time and to allow for broader participation, you are asked to limit yourself to one question. To ask the question, you will need to press star 1-1 on your telephone.
Speaker Change: Our first question comes from the line of Rob Stollard, a vertical research. Please go ahead Rob.
Speaker Change: Thanks for watching, good morning, morning, good morning, Rob.
Rob Stollard: Chris, a question for you on the GTF. I was wondering how you managed the competing demand of the spares pool versus the Abbas line in the third pool.
Rob Stollard: Hall, and how confident you are in hitting the delivery.
Rob Stollard: and Target for the fourth court.
Rob Stollard: Thank you.
Rob Stollard: Go.
Chris Calio: Yeah, thanks Rob, obviously a critical initiative for us.
Speaker Change: Look, we've continued to ramp deliveries this year of both OE and Spares. So if you think about, you know, year-to-date and aggregate deliveries of about 16%, and also about 7% up sequentially, that's the composite.
Speaker Change: But I'll also tell you that both O.E. and Spares are up individually as part of those composite numbers. And I'll also note that we're well above our 2019 volume. So again, continuing to ramp and balancing all the needs. And that balance is going to continue as we're going to allocate amongst O.E. Spares and MRO to support the fleet. You know, our situation with the fleet and with powdered metal, we've got to continue to make those trades in order to support our customers.
Speaker Change: and a big part of that balance and supporting that balance is that we've got to continue to drive production of key part families. So I think isothermal forgings, they continue to wrap up 38% year over year. And then the other piece I would say structural castings, we've got to continue to improve in that area. There are some part numbers that have recovered to plan, some that are going to take a little bit, you know, longer, you know, to recover. But I would say all in all Rob were aligned with Airbus and what they need here in the fourth quarter and laser focused on helping them make their deliveries at the end of the year.
Speaker Change: Thanks for watching!
Speaker Change: Thank you.
Speaker Change: We're on next question, and it comes from the line of Miles Walton of Wolf Research, your question please, Miles.
Miles Walton: Thanks, good morning. I was hoping you could touch on Raytheon, obviously really good bookings, but the organic growth has been sitting around 5% for a couple of years. What's the type of acceleration we should all think about into 25 and beyond, and also from a mixed perspective that 10 points higher mix in the backlog, how quickly does that impart into a significant mix shift in the sales in 2020? 25 and 26, thanks.
Speaker Change: Hey, Myles. So, look, the story of Raytheon right now is the demand is incredibly strong, right? I mean, you think about the 16.6 billion of bookings this quarter. It's fantastic. The rolling 12 month book to bill is almost, you know, one five and they've got a $60 billion backlog today. And as you noted, the international piece of this is up over, you know, 10 points about 44% of the total backlog. Now, that's going to take some time. And, you know, to work through. That's not going to be something that's going to materialize in large measure in 2025. We've got to continue to work through the backlog, you know, that we have. And that's going to take some time. We are heartened by the fact that the supply chain.
Speaker Change: and Material Flow continues to be healthy. We've seen six straight quarters of growth, and that's going to need to continue. We've also continued to build out capacity. We've talked before about expansion efforts in Texas and Arkansas, at Redstone as well, and Tucson. So supply chains, getting healthier, capacity is being put into place, demand is there. We've just got to continue to work through this backlog. But again, I think that mixed shift that we've talked about will materialize and be, you know, tailwind to growth that Raytheon in the coming years.
Miles Walton: and Myles. Good morning, it's Neil. I would just add that we're definitely seeing the benefit of the mix already show up. And as you think about the margin improvement in the quarter, I would attribute over a hundred basis points to that to the mix alone. And the good news there as well as we're seeing you over your improvement productivity that Nathan highlighted. And that's in spite of some headwinds that we dealt with in the quarter, frankly. So still feel good about this year. You know, as Chris has talked about at length, we've got some supply chain challenges that we've been dealing with. And as those continue to free up, then we'll see the top line grow commensually with that, you know, clearly a strong backlog going forward though.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Jason Gersky of City Group. Your question please Jason
Jason Gersky: Yeah, great. Good morning, everybody. Jason. Hey, Chris, you mentioned, you made some comments, I should say, about productivity in your prepared remarks. I know Nathan talked a bit about it in his as well. Why don't you just get add some context to your views on productivity? Kind of where we are today, maybe relative to where we were pre-pandemic to cross your businesses and where you think this can all go over time. Kind of your expectations about productivity growth in the quarters and maybe multiple years ahead in kind of the expectations that you're kind of building into your plan.
Speaker Change: Yeah, thanks Jason. So, we'll look a couple of thoughts here.
Speaker Change: I would say at Raytheon, we've talked about productivity for a while now, and the lack of productivity that we've had, and we're starting to see some green shoots there. You just heard Neil talk about that. I think that's going to be a function of, again, the quality and improvements that we're making core driving improvements in shortening that period of performance. [inaudible]
Speaker Change: All the fundamentals that come with that business as we get into what I consider to be some of the core of our business there. The things we know how to do really well those legacy programs that make up a big part of that backlog. I think we'll continue to see productivity there and I already mentioned before continuing health.
Speaker Change: of the supply chain being a critical factor there. I think we've got the labor in place, but again, it's the supply chain we need to continue to get healthier. I'll say cross other parts of the business.
Speaker Change: We're driving productivity and many respects through automation in our factory 4.0. If you go into our factories today, we're continuing to drive connected factories, making sure that we've got the automation in place to take the labor hours out where it makes sense. Again, to continue to drive the kind of productivity we need to see across the business. The backlog is there. It's exceptionally strong, both defense and commercial. And as we continue to see the supply chain get healthy, as we continue to drive automation in our connected factories, the productivity, I think we'll come in this business across all three segments. And frankly, be tailwind to the margin expansion we expect across all three businesses.
Speaker Change: and maybe to add with respect to raping on, you know, we've already seen about $110 million of productivity benefit year over year.
Speaker Change: So I think really good traction we've talked about seeing about 200 on a full year basis and I think we're largely on track to do that, the backlog.
Speaker Change: Programmes that have been causing consternation in the supply chain aberrations are diminishing now, and we're replenishing that backlog with...
Speaker Change: New bookings that are priced at current prices with the current, you know, lead times kind of embedded in them. So, you know, encouraging to see the progress so far, and I think we would continue to expect that to continue, you know, at where you found it, particular, but as per set, across the portfolio, and all of our, you know, areas where we're doing long-term contract accounting.
Speaker Change: Reed Thanks.
Speaker Change: Thank you.
Speaker Change: and next question.
Speaker Change: comes from the line of Sheila Tahiyaglu, of Jeffree's, your question, please Sheila.
Sheila Tahiyaglu: Good morning, Chris, Neil. So maybe if we could talk about Collins, please, both on the OE side on the aftermarket. Collins aftermarket was up nine, OE was down eight. First on the OE, it implies two, four down 15%. Just given the flat guidance now. So what are you expecting there, just around the ships that volumes, if you could give any color. And then secondly, maybe if you could talk about the aftermarket up nine, I know tough comps in some of the businesses there, but how do you think about the correlation between OE down and aftermarket? Are you seeing any aftermarket benefit from the delay delivery? Are you?
Speaker Change: Thanks, Sheila. Good morning. Let me start on the OE side. As you heard us talk about, we did recalibrate the Collins Outlook for the rest of the year, taking to a count. The fact that our OE was down in the quarter, and that was really driven by a few things, I would say.
Speaker Change: Narrow body volumes were down, we saw a little bit both on the A320 side as well as the 737 side, we obviously had a little bit of impact from.
Speaker Change: at the start of the strike as well. And what we've done is we've calibrated a level of impact here in the rest of the year going forward. We think we got that reasonably calibrated. We do expect to resume some shipments later in the quarter. And like everybody, we're looking forward to tomorrow and the situation of Boeing getting resolved. So I think we got that calibrated. That's really what's driving the majority of that. There's also a little bit of mixed headwind going on within the wide body. Wide body in the quarter was up about a percent on the sales line. But what we saw is a little bit higher waiting towards 787 and lower 8350. And as you all know, the 787 is not a profitable line for us on the OEC side. That's been exacerbated by, you know, the movement of pedics.
Speaker Change: and Rangers from Russia into the United States and the UK. So a couple things that we're dealing with there. But I think as we look at the rest of the year, we've got that reasonably calibrated on the OEC side and that's what causes take down the number. Now on the aftermarket side, we're continuing to see good provisioning, good repair, work going through at Collins. And so still feel good about that. I think it remains to be seen about longer term how this plays out, but clearly the older platforms are continuing to fly. We've seen very low levels of retirements and that supports continued aftermarket strength that we're seeing at Collins. And I expect that to continue into next year as well. So those are, you know, a few comments there on those two items.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: An question comes from the line, Peter Ahmed, up there, your question please, Peter.
Peter Ahmed: Yeah, thanks. Good morning, Chris, Neil, Nathan. Hey, maybe Neil, just a level set us online. Maybe you've a free cash flow, kind of the cadence when you think about it going forward. You've talked about, you know, obviously this year we, if we back out the payments and everything, you guys are probably, you know, over 80% kind of conversion. You know, just thinking at a high level when you think about 25, you know, how you're thinking in terms of any moving parts or pluses or minuses, we should be thinking of it. So it's converging and improved with all of kind of the image. Chris is established on productivity and whatnot. How do we think about that? Thanks.
Speaker Change: Yeah, thanks, Peter. First of all, on 24, we remain very competent, and the 4.7 billion as I laid out in my prepared remarks. We've got a couple of moving pieces, but I think we'll be able to manage the inventory going forward to deal with the headwind that we're seeing this year. We're still counting on some significant working capital benefit this year, about $700 million.
Speaker Change: You're over year and I think that's a big opportunity for our TX as we look at our balance sheet. We've been doing the right things to protect the supply chain, we've got the significant.
Speaker Change: Sales ahead of us, so we want to be ready to deliver on that. But that's an opportunity for us to continue to, you know, convert the working capital turns, drive those up higher, you know, and deliver some more free cash flow. I think big picture, you know, we see a lot of organic strength in the free cash flow. I think that's evidenced by the $4 billion in free cash flow. We've seen year to date. [inaudible]
Speaker Change: We're expecting another strong operational fourth quarter. We've got some some some payments that we're going to deal with that are consistent with it what we talked about last quarter but as we look longer term I see no reason why the business year won't generate you know 90 to 100% you know free cash flow conversion against adjusted net income so all the right pieces in place the underlying demand is there we need to kind of calibrate around we deliveries longer term and everybody's got an eye on the broader economy and inflation but right now I think the underlying drivers of the business remain strong yeah and just add on to that peers as we've talked about I think pretty consistently a big piece of that
Neil Mitchell: You know, cash will grow through the profit growth in the aftermarket and, you know, up 23% last year, you know, year to day growth this year, 12% so still robust, continue to see strong RPK growth. You know, Collins has that installed base that's out of warranty that's about a billion dollars. V2-2500 continues to be strong. We see low retirements there. The fundamentals is Neil pointed out in the aftermarket, continue to be really strong. Big piece of that, you know, cash story.
Speaker Change: Appreciate the video, I'll see you guys next time, Neil.
Neil Mitchell: Thank you.
Speaker Change: from the line of...
Speaker Change: A wrong question, please, Ryan.
Speaker Change: Yeah, hey. Good morning, guys. Thank you. We're hopefully you can hear. You're a great candidate.
Speaker Change: So, what did it take away that seemed like, you know, after spending a couple of days at AUSA this year, that this next generation of companies seems to be getting a little bit of traction, right? So, you know, who I'm talking about, you know, the palomperes, and the roles of the world? How are you thinking about them? Are they a competitive threat? Are they potential partners? You know, how are you thinking about the sense of tech? I know you've got, you know, your RTX ventures division, but broadly, how are you thinking about that? Is it an opportunity or a threat? [inaudible]
Speaker Change: Yeah, thanks Ryan. I think it's both.
Speaker Change: I think there are areas where I think we're competing in the marketplace, and I think
Speaker Change: We remain always paranoid about competition across the landscape, established players and some of these new players. We continue to invest heavily in R&D and in our innovation, roadmaps and story. And I think one of the advantages that we've got is our ability to scale and scale production, a very sophisticated production system and be able to scale. Now there are things we also learn from our competitors. There's about agility, about low cost, about getting things out to market faster. Again, all parts of the things when we look at the competitive landscape, we're looking at and bringing in house, seeing how we can adapt. But at the end of the day, I think we've got a fantastic product portfolio.
Speaker Change: that's going to be critical to the US and our allies for decades to come. But I also, as I said up front, view it as potential partnership opportunities. There are things that they do very well, perhaps on the software side that could be of use to our products given our hardware expertise. So, again, we're looking at it both ways. And as you noted in your question, we continue to invest in early stage companies through RTX Ventures. And I'll tell you, just review this with our more. There's a few promising investments that we've made that we think will give us access to technologies that we can integrate into our established product portfolio to add capabilities and performance.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: An next question comes from the line of Goddam, Canada of TV Cohen. Please go ahead, Goddam.
Goddam Canada: Hey, thanks, good morning.
Goddam Canada: Good morning.
Goddam Canada: I was wondering if you could frame up for us when you think Raytheon defense productivity takes a more significant turn. I mean obviously this year it's a big change year over year.
Speaker Change: He do have some...
Speaker Change: Challenge programs that it's important to imagine are also kind of a negative to that lecture. When does those kind of roll loss?
Speaker Change: and do we ever get back to the...
Speaker Change: Kind of pre-print pandemic, you know, 200 million plus is favorable and if so, when is that realistic?
Speaker Change: Thanks!
Speaker Change: Thanks for the question, and welcome to the call, I want to thank Kai for over 50 years of following our company so welcome to following us, got a little bit of good to work with you. Just a comment on the Patreon, not the Patreon, on the productivity year.
Speaker Change: We've seen $110 million year-over-year improvement, like I said, expect that to be close to 200, so I think we're certainly turning the corner there and as you pointed out there are still some headwinds in there and I think there always will be programs will go well and some will have some challenges we do difficult stuff.
Speaker Change: Um, you know, won't get into specifics for next year but we expect that to continue to improve as we go forward.
Speaker Change: One of the we get back to the same levels of the kind of productivity I think depends entirely on the mix and the environment that we're operating in. Now we clearly have...
Speaker Change: A lot of backlog, which allows us to buy material at large volumes.
Speaker Change: and that's where we tend to drive the majority of our productivity. What we really need to do to see greater levels of productivity relative to the bidding margins here is to have
Speaker Change: Productivity in our factories as well on the assembly side, and that'll come with improvement in the supply chain and we already talked about the importance of rocket motors to that value stream. So, those are the kinds of things we're watching, but I would say that there is a lot of good positive productivity embedded in the business. We're working through the backlog where the pricing was not aligned with the cost inflation that we've experienced over the last few years, and we're seeing the international mix improve. I think longer term. We'll start to see altams and other large franchises come into play as well, and those will give us more opportunities for productivity. So, bottom line hard to put a number on it, but we're going to see that margin improvement. We're seeing it this year. We expect to see more of that next year, and I think this business is turning.
Speaker Change: Corner in terms of productivity steps forward that we're all hoping for.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Seth Siffman of JP Morgan, please go ahead, Seth.
Seth Siffman: Thanks very much, and good morning. I wanted to follow up on Collins. There was a shortfall in the quarter. The guide is down, I think, about 75 million, which is, you know, around what you guys missed my estimate in this quarter. And, you know, you talked about the guide down, relating to, you know, absorption and the flowing strike and all that, which seems like it should be ahead of us. But it would seem that you kind of need to kind of pick up in the margin at Collins in the fourth quarter. And I wonder if you could talk about what's what's driving that and, you know, how much kind of that absorption really impacted Q3 versus versus other stuff.
Speaker Change: Sure Seth, let me take that one. Let me talk about a few of the moving pieces on the Ross for the quarter. You know, first of all, we did see positive lift of about 300 basis points from higher volume in Collins commercial aftermarket defense channels. So that was good to see and that dropped through offsetting that we saw about 200 basis points ahead when from the lower commercial OE volume and the associated absorption and disruption impact. And unfavorable mix in the quarter. So we did experience some unfavorable mix and drop through on that. The volumes are down sequentially and year over year on the OE side. So I already talked about some of the moving pieces there.
Speaker Change: Talk to you now.
Speaker Change: 787 volume, you know, being a little bit higher inside of the wide body and so that creates headwind as well.
Speaker Change: And third, we saw about a hundred basis points ahead when from a combination of a few things. We had higher R&D, about $40 million. I attribute that to mostly timing within the year. That was within our avionics business as we continued to invest in upgrades to those platforms.
Speaker Change: Slightly higher SGA. And we saw a little bit of headwind in our interior business. We've talked in the past about some of the first class in business class seating.
Speaker Change: Certification challenges at the business is seeing we've heard about that with us and more broadly across the industry.
Speaker Change: So we did have about $35 million of contract headwind in the quarter. Again, don't expect that to repeat. So as we look from Q3 to Q4, you see about 130 basis points at the midpoint.
Speaker Change: of our Outlook.
Speaker Change: Margin Uptick, and I think that's going to largely come from the mitigation actions that we're undertaking to address the temporary reduction in the OE deliveries at Collins in particular. And of course the absence of the EAC had went on the interior business that we saw here in the third quarter. So I kind of characterize these items as short term in nature one time. You know, there's good strong underlying strength in the business. The aftermarket is really strong. We're getting good drop through there. The fence has been very, very strong. And you know, Collins is taking good proactive measures here to make sure we balance keeping our supply chain, you know, warm and our factories moving so that we're prepared to restart deliveries as soon as Boeing gets the work stoppage behind them.
Speaker Change: Thank you, and a question comes from the line of Noah Poppineck of Goldman Sachs. Please go ahead and know her.
Noah Poppineck: Hey, good morning everybody. Morning Noah. You know, just following up there on the Collins margin, you had a 25 framework implied that segment margin, you know, just below 20% and had the incremental stepping up a lot next year. Is that still the directional framework or have just a lot of things moved around? And then on the GTF powdered metal.
Noah Poppineck: Any numbers you can put around how many engines have actually gone through the process and our back in service. And then of the engines we can see are off-wing. How many of them are in a shop versus in line to get in a shop?
Speaker Change: Yeah, no, I'll start with the powdered metal and then Neil can chime in on the Collins Martin question. So, again, just to reiterate, I've been pretty consistent on this, you know, everything coming off the line today going to the air framer has the full life powdered metal parts.
Speaker Change: MRO, again, it's a balance of the material and of that, you know, allocation and it's going to be a ramp, you know, again, as I said throughout the year, I would say, you know, you're going to, you're going to really start to turn the corner on the insertion of powder metal parts as we head into 2025. As we continue to ramp up the isothermal forging, as I said, 38% you know up year over year and we're putting in place continued capacity in all pieces of that value stream. To continue to ramp in 2025, so we have to do less balancing of that material in 2025.
Speaker Change: So that's the story on powder mill. In terms of what's being inducted in what's in the parking lot, yeah, there's still remain a significant number of engines that are awaiting induction.
Speaker Change: Again, that's the...
Speaker Change: A big part of what it's going to take us to power through this particular situation over a multi-year period. I would say the turnaround times, however, are still in line with what we've talked about previously, the shop visit mix, still consistent between heavy and light. And as I've said before, when we get our gate to...
Speaker Change: which is our material accumulation into a healthy spot. We've had pockets of this throughout our MRO shops.
Speaker Change: Our turnaround times in particular on heavy work scopes has been exceptional. So again, we've got to continue to get the material flow going again. Try to get to a point in 2025 where that balance has to become less pronounced. And once we do, we'll start to see that flow through our engines and get inductions in within a better spot. [inaudible]
Speaker Change: Thanks, Chris. On the margins, no, let me just talk a little bit about not going to get ahead of ourselves on 25 and provide specific guidance today. We'll be back in January to do that. But as I think about the Collins business, there are a few things we're watching.
Speaker Change: Notably the OE levels, I think that's an important ingredient and as we get through the fourth quarter here we'll have a lot more clarity on what that's going to look like. As we've talked about for a long time now, the Collins business is capacitized to deliver at volumes.
Speaker Change: that are much higher than where we are today and frankly, you know.
Speaker Change: In some cases, much higher than what we were in 2020 and certainly in 2019. So absorption is a really important part of the Collins OE story.
Speaker Change: and we need to see the volumes increase to get better, you know, unit cost on the deliveries. That's a watch item for us.
Speaker Change: You know, like everybody, we're continuing to update, you know, renew our long-term agreements and with that comes some pressure on the cumulative effect of inflation over the years. So, something that we also want to make sure we get calibrated into our outlooks for next year. But underlying all this is really, really strong, Collins demand. They're on the right platforms. The provisioning has been strong. Repairs are strong. We see the demand for the OE side continuing both Airbus. The OE side is on the right. [inaudible]
Speaker Change: Bowling in every air.
Speaker Change: So, it really is strong fundamentals, but a few watch items that we need to kind of calibrate into the margin story. That said, I expect the margins to grow at Collins, we expect good
Speaker Change: operating profit growth next year, and we expect that to convert to free cashflow growth as well. So the fundamentals of the business are there and remain strong for both next year and years to follow. And maybe just to add, Noah, I think, you know, Neil laid it out well. Obviously the installed base, the $100 billion out of warranty equipment, going to continue to drive aftermarket and profitability and margin expansion accounts. But the part that I'll accentuate here is the cost reduction actions that are key part of this. There's the tactical. You heard Neil talk about some of those cost curtailment actions that Troy and the team have put in place as a result of the, you know, the work stoppage and the lower all we volume. So I've been pretty aggressive there, but also talk about the more structural.
Speaker Change: All-Cost reduction that's happening there, the movement of 2.7 million hours, so low cost areas, the formation of centers of excellence-like electronics to get economies of scale and important parts of the value stream. So that's the other piece of the column's story that the team's focused on. As Neil said, on the right platforms, that's going to continue to provide tailwind. The focus on cost is going to be really important as well. I really appreciate all that. Neil, did you quantify the EAC in Collins in the quarter? Yeah, it's about $35 million on that interior side.
Speaker Change: Okay, thanks so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes on the line of David Strauss, a barclays, a question please, David.
Speaker Change: Thanks for more ain't.
David Strauss: So, I wanted to fall upon GTF and the spend there. I think, Neil, you had talked about it ramping up in Q3. It doesn't look like it did. It sounds like your play on spending less this year, maybe if you can help us what the path looks like from here as it relates to the 25 and 26. But I guess just high level, if you're reaching compensation agreements with your customers, your customers have a lot of aircraft on the ground out of service. I guess why aren't you paying more? Are you swapping, you know, maybe cash payments for something else in the future? Thanks.
David Strauss: Jordan, David, happy to...
Speaker Change: Provide a little more color there. First of all, just so everyone's...
Speaker Change: Grounded, we do expect to make about a billion dollars worth of payments this year. We've made a little over 300 million year-to-date [inaudible]
Speaker Change: We've talked about the number of customer agreements that we have in place. It's 28 now.
Speaker Change: Cooper's about 75% of the A.O.G. And so what we do as a matter of, you know, our practice years work.
Speaker Change: We're crediting the customers as the AOGs occur.
Speaker Change: We consider that a cash payment when that credit is applied to a customer account or we make a cash payment.
Speaker Change: Um, so that's how we're quantifying it. It's a cash equivalent if you will, in fact, to us during the year.
Speaker Change: Coming down a little bit because it's taken some time to get these agreements in place and once we have agreements then we're following the terms of those agreements and issuing those credits or making those payments.
Speaker Change: We do expect that to ramp up now in the fourth quarter.
Speaker Change: What I can say is, overall, all of the underlying financial assumptions that gave rise to the charge we took and the reserve we put up remain consistent and the agreements that we've executed also remain consistent with those underlying assumptions. So, we'll get into specifics around when we expect the ultimate payments to make place, but we'll continue to provide the same level of transparency about what we're spending and how much we're spending so that we all and you all have a good...
Speaker Change: Good look at the underlying organic performance of the business.
Speaker Change: So that's where I would say we are today. We'll certainly see the fall out of these payments take place over the next couple of years as those A.O.G.s continue to exist and then come down as planned as we move through next year and into 26.
Speaker Change: So, thanks for that. I think you said 1.5 next year and then 200 million dollar tail and 26. Does that, that doesn't hold anymore. It's more likely to kind of shift out to the right. Well, I would just say that, you know, some time over the next two years, we're going to make the full amount that we've accrued for at this time. The assumptions remain the same. You know, we'll provide an update on that in January as well. Again, given everybody the visibility and transparency to exactly what we're assuming. If it's different, you know, the update are outlooks accordingly.
Speaker Change: Alright, thank you. Welcome. Thank you. Our next question comes from the line of Doug Barnett, Upverance Dean and Company. Please go ahead, Doug.
Doug Barnett: Good morning. Thank you.
Doug Barnett: on Ray Fiong. You've got great orders here strong in an arsenal. Focus very much on missiles and missile defense.
Doug Barnett: So that's very good, as I see it from marching in Spanish and going ahead.
Doug Barnett: Can you talk a little bit about the other side of the business, the airborne and space systems which have been more difficult for you, for growth. What's going on there in terms of strategy and how you see that part playing out?
Speaker Change: Yeah, thanks, Doug. I think you're right. It has been a more challenged story for us. As you pointed out, when you look at the demand in the backlog today, significant strengths in that integrated air and missile defense, and that's going to be a driver of Raytheon in 25 and beyond, frankly, when you look at the size of this backlog, it's going to be a lot of work.
Speaker Change: There are other pieces of the business that we're evaluating Doug. I think we've got, for instance, some real strength.
Speaker Change: and our Space Business.
Speaker Change: Now, is it where we've historically been strong and will that continue into the future? That's what we're evaluating. There are certain parts of that space domain today that have been really, really difficult for anybody to make into a sort of profitable business right now. We don't want to go chase.
Speaker Change: Business and by business at really, really difficult margins on fixed price development programs. That's not who we want to be in that space. We've got to play to our strengths.
Speaker Change: Things like space protection, ISR, you know, C2. So those are the areas that we're continuing to look at. How do we strengthen the foundation? And other, other pieces of this business that we either need to invest further in, or decide that's not where we see the growth in that portfolio coming.
Speaker Change: is the retirement frame that you can see where you'll pretty much have a new strategy in place and position for growth.
Speaker Change: Well, well, first of all, I think Raytheon is exceptionally well positioned for growth, I would say, writ large, Doug, as you kind of, you know, you're getting the question. In these particular areas, yeah, we're undergoing a portfolio evaluation across the board, as we always do, to determine which parts of the business, while, you know, might be strong historically, aren't necessarily going to be a part of the, you know, the business going forward. That's ongoing, we do that, you know, every year around this time of year, and we'll make some of those decisions as we head into 2025. Now again, these are a long cycle businesses, you know, Doug, so, you know, pivoting a strategy in some of these areas will take, you know, take some time, and we're going to be thoughtful about it.
Speaker Change: yeah
Speaker Change: That's a very good thank you.
Speaker Change: Thank you.
Speaker Change: An ex-question comes from the line of Gavin Parsons of UBS. Your question please, Gavin.
Speaker Change: Thanks for watching!
Speaker Change: Kevin.
Gavin Parsons: I know we'll learn tomorrow on the Boeing front, but I just wanted to learn more tomorrow anyway. But we wanted to clarify that you've said your full stop, and if your expectation is that you would resume when Boeing resumes or if you'd think there's some possibility for destocking there.
Speaker Change: Kevin, so yeah, you know, like you, we'll be watching closely tomorrow, you know.
Speaker Change: Pleased about the news regarding potential resolution. We'd be good news, you know, not just for going for us but for the industry. I think everyone's certainly rooting for that. We've actually in Neil reference this in a prior answer. We've continued to try to keep our value streams healthy, our supply base and our factories. That means we've continued to take in material on certain, you know, higher volume programs and continued to build, you know, product. [inaudible]
Speaker Change: and once this work stoppage is over and whatever has to happen logistically for Boeing to start receiving material, we want to be prepared to be able to do that. Obviously, Boeing is going to want to ramp in 25 and beyond, and we want to make sure that all facets of the value stream are healthy enough to do that. So we haven't just stopped cold turkey, that just wouldn't be healthy for the supply chain, wouldn't be healthy for our factories. So we've continued to do that. There are other parts of the Boeing product portfolio that we have that have stopped and we've taken certain cost curtailment measures. But by and large, we've continued to, again, to take in material and build product because we want to be ready when the...
Speaker Change: Rampe Rides.
Speaker Change: Richard. Appreciate that you do.
Speaker Change: Thank you. Our final question comes from the line of Scott Dysler of Deutsche Bank. Your question, please, Scott.
Scott Dysler: Hey, good morning, Chris seems like there's a lot of 77's already built sitting in Charleston. I think waiting for seats, I think mostly for Louis Tons on American. It's Collins the seating supplier for either of those airlines, but then you have any sense for where you're at on the FAA review there for those customers.
Scott Dysler: Assuming Colin's actually is...
Scott Dysler: Seenings Player Friday.
Nathan Ware: Ware those. Yeah, 50.
Speaker Change: If it is God, it's a seeding supplier on certain of those, not all of them, but certain of them. And yes, you're absolutely right. We're working through the certification with both, you know, Boeing and the FAA. So that is ongoing. All that's ongoing. We're, you know, continuing to, you know, drive the supply chain to make sure that we've got the material we need so that when that gets behind us. [inaudible]
Speaker Change: We can go make deliveries and then note they can continue their flow and get it out to the customers who are obviously looking for the lift and again I said this before you know as the strike has happened 7-8-7 to your point is not a part of that and so we've just been full steam ahead on making sure that as Boeing decides it wants to take rate up that we're we're we're there and ready to do it and you'll reference heat exchangers and what we need to do there in terms of the environmental control system there are other parts of the 7-8-7 content that we've got to continue to ramp to support Boeing we know that's going to be a crucial part of their recovery and we want to make sure we're poised to help them there
Speaker Change: Thank you, and Neil, sorry if I missed this, but is there any directional framework you can share on how to think about military aftermarket growth of Pratt next year? Given the install base, I would think would be growing a lot, and other delivery holders have been listed.
Speaker Change: of the Symphlate Activity Search Your Ramp Up.
Speaker Change: Thanks.
Speaker Change: No problem, thanks Scott. Yeah, don't want to get too far ahead of us, but I mean we saw really strong 20% military growth at Pratt in the quarter I would say the aftermarket was right in line with that [inaudible]
Speaker Change: So as the install base, as you pointed out, continues to grow. I do expect Pratt to continue to see the benefits of the top line growth there. I won't put a number around it today, but it's going to be continued strong growth on the military business of Pratt. That's a great business there, and we're seeing the margins.
Speaker Change: Grow as well as the mix shift goes from sort of a baseline of, oh, we levels of production that then grows on the top line on the sustain inside. And it's not just F-135, it's F-117 as well as we pointed out in our prepared remarks. So continue growth there, the orders in the quarter at Pratt were 2X, what they were a year ago, and even more so at Raytheon. So again, the backlog remains really, really strong in all of our defense. It's as we look ahead. Let's go ahead.
Speaker Change: Thank you.
Speaker Change: Thank you with that. I would now like to turn the conference back to Nathan Ware.
Nathan Ware: All right, thank you, Oteef. That concludes today's call as always the Investor Relations Team and I will be available for follow-up questions. So really appreciate everyone joining and have a good day.
Nathan Ware: and his name is Andrew Hayes.
Nathan Ware: Music
Nathan Ware: me
Nathan Ware: and John Ware.
Nathan Ware: and John Ware.
Nathan Ware: and John Ware.