Textron Inc. (TXT) Q1 2023 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to the Q1 2023 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host Mr. Eric Salander, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Bradley, and good morning, everyone. Before we begin, I'd like to mention 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 Frank Connor, 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 billion, up $23 million from last year's first quarter. Segment profit in the quarter was $259 million, down $18 million from the first quarter of 2022. During this year's first quarter, we reported net income of $0.92 per share. Adjusted net income, a non-GAAP measure, was $1.05 per share compared to $0.97 per share in last year's first quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $104 million in the quarter compared to $209 million in the first quarter of 2022. With that, I'll turn the call over to Scott.

Thanks, Eric, and good morning, everyone. We had a solid first quarter. Revenues up Aviation, Industrial and Systems largely offset by lower revenues at Bell, consistent with our expectations. At Aviation in the quarter, we delivered 35 jets, down from 39 last year and 34 commercial turboprops, up from 31 in last year's first quarter. Aviation continued to see solid demand across jet and turboprop products. Backlog grew $136 million and in the first quarter at $6.5 billion. In the quarter, Aviation received an initial award on the U.S. Navy Multi-Engine Training System contract for 10 King Air 260 aircraft and associated support equipment. This contract includes options for up to 64 aircraft with deliveries in 2024 through 2026. Textron Aviation's fleet utilization remained strong in the quarter, contributing to aftermarket revenue growth of 9% as compared to last year's first quarter. Moving to Bell. We announced the appointment of Lisa Atherton as the CEO, succeeding Mitch Snyder, who will retire at the end of April. Lisa returned to Bell in January after more than five years as the President and CEO of Textron Systems. She's done an outstanding job building strong teams at Bell and Textron Systems in her 16 years with the company and certainly confidence for our military customers. I want to thank Mitch for his leadership. During his tenure, he oversaw significant wins at Bell's military business, along with development of new technologies and product innovations. Earlier this month, the FLRAA contract protest was denied and the U.S. Army subsequently canceled the stop-work order allowing work on the contract to proceed. On the commercial side of Bell, we delivered 22 helicopters, down from 25 in last year's first quarter. During the quarter, we saw solid customer activity across all our commercial products and in markets, including order from the Polish National Police for four additional BEL407s, which will expand their fleet to seven aircraft. At Textron Systems, we saw a good margin performance on higher revenues across our programs. During the quarter, Systems Aerosonde Hybrid Quad was among five competing unmanned air systems that were down selected for Increment-2 of the Army's future tactical unmanned aircraft system competition. Also during the quarter, systems delivered craft 105 of the U.S. Navy Ship-to-Shore Connector program, the seventh craft delivered to the Navy. There are now two craft remaining to be delivered under the detailed design and construction contract. Moving to Industrial. We saw higher revenues in the quarter, driven by higher volume, both in Specialized Vehicles and Kautex. Specialized Vehicles, the golf business continues to see strong demand and pricing for its lithium product. At Kautex, we announced the first Pentatonic order from an automotive OEM for a thermoplastic composite underbody battery protection skid plates. Skid plate is part of the company's new Pentatonic battery system product line, supporting battery electric vehicle production. Moving to eAviation. During the quarter, we announced two new U.S. distribution partners on the East Coast to further expand Pipistrel's existing distribution network. Also in the quarter, we finalized the route with Mesa Airlines for 25 Alpha Trainer aircraft and an option for 75 additional aircraft. At [indiscernible] during the quarter, we displayed the Pipistrel's Panthera and Velis Electro aircraft receiving CW customer interest in both models. With that I'll turn the call over to Frank.

Thank you, Scott. Good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.1 billion were up $109 million from the first quarter of 2022, reflecting higher pricing of $58 million at higher volume of $51 million, which included higher defense and aftermarket volume. Segment profit was $125 million in the first quarter, up $15 million from a year ago, largely due to favorable pricing net of inflation of $17 million and the impact from the higher volume and mix, partially offset by an unfavorable impact from performance of $17 million. Backlog in the segment ended the quarter at $6.5 billion. Moving to Bell, revenues were $621 million, down $213 million from last year, as expected, on lower military revenues, reflecting lower spares and support volume in V-22 and H-1 production volume. Segment profit of $60 million was down $31 million from last year's first quarter, primarily reflecting lower volume and mix, partially offset by a favorable impact from performance of $29 million, reflecting lower research and development costs. Backlog in the segment ended the quarter at $4.6 billion. At Textron Systems, revenues were $306 million, up $33 million from last year's first quarter, largely reflecting higher volume. Segment profit of $34 million was up $6 million from a year ago, primarily due to a favorable impact from performance. Backlog in this segment ended the quarter at $2 billion. Industrial revenues were $932 million, up $94 million from last year's first quarter, largely due to higher volume and mix at both Textron Specialized Vehicles and Kautex. Segment profit of $41 million was up $2 million from the first quarter of 2022, primarily due to higher volume and mix and a favorable impact from pricing, net of inflation, principally in the Specialized Vehicles product line, partially offset by an unfavorable impact from performance. Textron eAviation segment revenues were $4 million and segment loss was $9 million in the quarter, primarily reflecting research and development costs. Finance segment revenues were $12 million and profit was $8 million. Moving below segment profit. Corporate expenses were $39 million. Net interest expense was $17 million, LIFO inventory provision was $25 million, intangible asset amortization was $10 million, and the non-service component of pension and post-retirement income were $59 million. In the quarter, we repurchased approximately 5.2 million shares, returning $377 million in cash to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in a range of $5 to $5.20. We also continue to expect full year manufacturing cash flow before pension contributions of $900 million to $1 billion. That concludes our prepared remarks. So Bradley, we can open the line for questions. Bradley?

Of course. And our first question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Thank you and good morning, guys.

Good morning.

I wanted to ask about Bell profitability. Frank, I think you mentioned some favorable performance in there. But with the FLRAA protest now cleared, how does this change the trajectory of Bell profit? And how are you thinking about the dilution just given the development work? And just thinking about the bid overall, Textron's development value was nearly two times Lockheed. So how do we think about this in terms of revenue contribution?

Well, I'd say that we had anticipated or we had planned basically for a delay in FLRAA when we gave our guidance. So FLRAA is going to roll in consistent with how we had seen Bell in terms of the $3.3 billion of revenue and eight a quarter, nine a quarter not guidance. Obviously, we had margins above that for this quarter. So we do expect to be within that margin range that we had guided to. We do expect to see revenue growth. So we think this will be the low quarter for Bell from a revenue standpoint. So as FLRAA kicks in, we talked about that being a lower contribution margin. We'll see ultimately kind of where we get in terms of booking rates on that, but we'd expect volume growth with some margin headwinds associated with that revenue coming in. But overall, the team did a really nice job from a cost structure standpoint in this quarter, offsetting that decline in volume, and we feel good about kind of how Bell is positioned in the performance of the business.

And then just maybe, Scott, one for you. How do we think about Aviation pricing? I think you mentioned $58 million of a gross price or 5%. Is that sort of what we should expect on the growth side and how do we think about that as the dynamics of the market are changing?

Yes. I think so, Sheila, look, I mean, obviously, the pricing is well built into the backlog. I think we are on track in terms of our expectations on costs. So I would continue to expect to see pricing net of inflation as a positive. Demand is still good in the marketplace. I think pricing is stable out there as we look out into the future bookings. So again I think it's a reasonable expectation to think that we're going to continue to see price net of inflation as a positive going forward.

Thank you.

Sure.

And our next question comes from the line of Doug Harned with Bernstein. Please go ahead.

Good morning. Thank you.

Good morning.

When you look at the first quarter and orders in Aviation. Yesterday, we heard from General Dynamics that Gulfstream had some hiccups around the banking crisis that Silicon Valley Bank collapse had actually delayed a lot of decision-making in pushing orders through. How did you find that period at Aviation? Have you seen similar things there in terms of order flow?

Look, I don't know that I would pin something specifically to Silicon Valley Bank, but when we had a positive greater than one-to-one book-to-bill in the quarter, which is good. We kind of guided to around a one-to-one book-to-bill. I think the lead time that we have right now in aircraft is in a pretty healthy place. And that's kind of what we're targeting. I guess I would say that any time you have financial disruption or adverse events out there in the economy in general, it's certainly easy for people to say, hey, look, let me think about it or wait a little bit. I think the good position we have right now is we have enough backlog out there that even if you have a quarter where you're down below one-to-one, that's not the end of the world. If somebody defers out there for a few months, that's not a problem. That's the beauty you have in the backlog. So unlike previous periods where you had some interruption and you'd see a delay, then that would hit you in terms of revenue and profit in the near term. I think we have sufficient backlog out there that even if you do have something where somebody waits a little bit, then that's fine.

And then when you look forward and you're talking about a book-to-bill in the order of one this year. When you look beyond that, how do you think about the aftermarket. I mean, we might look at this as the aftermarket should grow somewhat proportionate to the fleet, but do you expect other factors to give you more growth there, such as more content for airplane or pricing?

Well, look, I think it's a lot more around utilization, right? So flight hours is more closely correlated with the growth in the aftermarket as opposed to necessarily the fleet numbers. I mean, our fleet is so huge that even adding small numbers in any given quarter doesn't make any real impact. So I think it's primarily driven around utilization and utilization in the fleet remains very high.

Very good. Thank you.

Sure.

And our next question comes from the line of Seth Seifman with JPMorgan. Please go ahead.

Okay. Thanks very much, and good morning. You saw the share repurchase amount step up nicely in the quarter. I guess, can you talk about your thinking around that and maybe where you expect share repo to come in for the year? I guess you guys might have some additional cash coming in from a recent verdict and so what your thoughts are on repo this year and whether maybe it's time to step things up.

Well, so I think what you did see us do is step things up here in the first quarter. We've always said that that's our primary return of capital will be through share repurchase. And to do that opportunistically, we feel we've still been sort of in a good place to be buying. And so we stepped up $377 million in the quarter. Our cash flow in the company continues to be strong. We have a lot of cash on the balance sheet, as you guys know. And so I think consistent with what we guided at the beginning of the year, we expect to probably buy back somewhere in that 5% to 6% of the outstanding shares. So the first quarter was indicative of doing that. In terms of that, what's been out there in the media and the press around this intellectual property, verdict. Obviously, we're not going to comment much on that as it goes along through the legal process, but that's not something that we would expect to see cash come in any time in the near future. There's appeal processes, who knows how that's going to play out. So that doesn't factor into our thinking in terms of share repossession at this time.

Okay, great. I'll leave it there this morning and pass it on. Thanks very much.

All right. Thank you.

And our next question comes from the line of Cai Von Rumohr with Cowen. Please go ahead.

Thanks for taking the question and nice results. So at Aviation, maybe give us some color in terms of relative trend you're seeing in supply chain? And also, what was the commercial biz jet book-to-bill because obviously you also got some defense orders there in the quarter?

So the supply chain side, Cai, is largely unchanged. I would say that kind of as we've talked about earlier, I think our labor position is in a much better place than it was. We did bring a lot of resources in the third and fourth quarter last year. Obviously, that does create some disruption, which, as you know, affects some of our conversion here is some of that inefficiency on lines here in the first half of this year. But we're largely staffed at the levels where we want to be. So I would say on that front, things are certainly improved. But we continue to have suppliers have issues that are causing us to do things out of sequence and driving still some inefficiencies in how we operate the plant. So it's -- I'd say it's not getting worse, but it's not necessarily getting better. Sometimes it's frustrating. If you get one kind of resolved and another supplier becomes a problem. And I -- we kind of expected that to be an ongoing issue through most of the balance of this year. So I don't think there's any big surprises there, but it's still a challenge. As far as order, look, our book-to-bill was greater than one. We feel good about that. It's -- we don't break it out down to the individual models or programs, but certainly, we're -- I'd say we're happy with how the demand is going in both jets and turboprops. So I think we're in a pretty good place.

Okay. And then a follow-up to Seth's question. 5.2 million shares is like 2.5%. So essentially, in one quarter, you've done half of your buyback target for the year. You won FLRAA, you had this bluebird of the DGI patent suit. What's the chance that basically the 5% to 6% is exceeded in terms of the repo?

Well, look, I think, again we're going to continue to press on this opportunistically, Cai, and we'll see how it plays out through the balance of the year. But I mean, as you know, it's not really formal guidance. We just kind of indicate to you guys how we're thinking. And there's no change in how we're thinking it continuing to be our primary means of returning value to shareholders.

Fabulous. Thank you very much.

Sure.

And our next question comes from the line of Robert Stallard with Vertical Research. Please go ahead.

Thanks so much. Good morning.

Good morning.

Good morning.

First of all, Frank, you said you were holding the EPS and cash flow guidance for the year. Are there any changes in the divisional guidance for 2023?

No, it's roughly in line with where we had been.

Okay. And then, Scott, one for you. Industrial double-digit growth in the quarter is pretty healthy performance. How sustainable do you think that is given the economic backdrop that we're seeing particularly on your shorter cycle products?

Well, look, it's something to keep an eye on. I'd say that we're kind of roughly to the plan that we thought. I think you're -- we certainly expect to see and have seen softness in some of the short-cycle consumer side of things. But we're seeing strong performance still or, let's say, in some of the industrial and commercial applications. And when we look at our production allocations, for instance, we're certainly pushing some of our capacity and our volume to serve commercial industrial applications more so than on some of the consumer side. So that's one where -- obviously, there's some uncertainty, we keep a close eye on it. But net of all those things, there's enough demand across all of the different markets that we serve to drive that kind of growth. And I think we'll continue to see that through the balance of the year.

Okay, that's great. Thank you.

And our next question comes from the line of David Strauss with Barclays. Please go ahead.

Thanks, good morning.

Good morning.

Scott, biz jet deliveries in the quarter, were those a little lighter than you were anticipating? Just looking at how much inventory, I know you always built some inventory in Q1, but there was a pretty big inventory build in the quarter. So I don't know, some deliveries, you missed some deliveries or kind of where you came in relative to what you were thinking?

Well, Dave, I mean, for sure, but it's a couple of aircraft, right? I mean I think it's something is going to pressure us all year long, but we also factored in, in terms of our plans, what we thought we would see in terms of headwinds. So I don't think we're very disconnected from what we indicated in terms of the guide for the year.

Okay. Was that supply chain related, customer decision? What drove those delays?

Most of the delays we're going to see through the course of the year are supply chain related just getting parts and being able to get things sequenced and through test. We haven't seen any real change in customer behavior that's impacted anything.

Okay. And then I was wondering if you could maybe give a big picture look or how we should think about Bell given all the various moving pieces, thinking beyond this year. Obviously, with FLRAA now in-house, H-1 and the V-22 rolling off, I think not sure what the outlook is for V-22 aftermarket. But how should we think about the growth profile for Bell thinking out over the next couple of years given all these moving pieces?

Sure. Well, look, I think Frank kind of indicated this as well. We certainly expect revenues to be increasing in Bell through the balance of the year and into next year as the FLRAA program is ramping up. So I think on the revenue growth side, we feel very good about that. Clearly, as we bring in a higher proportion of primarily cost plus development effort that's going to be at lower margins and those production program volumes on V-22 and H-1 that have been going down. So you do have that mix issue. That's kind of where that led us to the guide that we have out there this year and I think that's kind of where we would expect to be as we go forward. So we're going to get this thing back into a growth mode, but it is going to be heavily weighted towards a cost-plus relatively lower margin piece of the business that's going to be offsetting lost revenue that's a higher margin. But I think it's going to stay as a healthy business, but it's certainly not going to be at the margin levels that we've seen in the past number of years.

Okay, that's helpful. Thank you.

Sure.

And our next question comes from the line of Myles Walton with Wolf Research. Please go ahead.

Thanks. Good morning.

Good morning.

Scott, in the last 12 months, I guess, or 18 months, last two additions to your Board of Directors where a couple of defense executives and Richard Ambrose and Tom Kennedy. And I'm curious if sort of the trend there is indicative of where you want to be taking the portfolio directionally more towards defense? And if so, is it indicative of the organics with FLRAA obviously being a contributor or more inorganic from an M&A interest? Thanks.

Sure. Look, these are both guys who have, to your point, a lot of deep experience in the aerospace and defense world. Our company has always been sort of in that 30% defense with the growth that we're expecting to see in the systems business with the growth, obviously, we're expected to see in FLRAA and ongoing opportunities in the near future here, I think, of future opportunities in Bell and systems. I felt like it made a lot of sense for us to beef up a little bit more on the A&D side of the company. But these guys are recent retirees, their current. They know acquisition, they know defense and they know aerospace technology. So I think they're two great adds onto the Board. So there's no real super underlying message, but obviously, these are a couple of real high-quality individuals that know our space very well.

Okay. Very good. And there was just 1 clarification, if I could. On the FLRAA disclosures from the protest, you talked about cost-plus incentive portion and fixed price incentive version. Can you just illuminate us on maybe where the fixed price risk you've taken on is and isn't? Thanks.

Well, I think there's two principal pieces of fixed price. One is kind of a program management and operation layer, which I think is low risk. We sort of understand what that is. And then as you guys know, there are several deliverables under this full program. There's the EMD phase, which has about eight aircraft that are part of the development test -- limited user test for the Army. And then there's a craft that are the [indiscernible] first initial production craft and the material that's in there is at fixed price. So -- but it's heavily weighted towards the cost plus.

Thanks again.

Sure.

And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead.

Good morning.

Good morning, George.

Scott, the supply chain issues, I mean, led to an incremental margin of 14% in aviation this quarter. That's the same that you had in the fourth quarter. And the performance impact, $16 million, $17 million is similar. So do you expect that the rest of the year? Or can you overcome some of the supply chain issues that you had mentioned are going to continue?

Sure, George. Look, I think it will abate in the back half of the year. As we talked about, a lot of those efficiencies are things that were experienced in the back half of last year. A lot of that obviously goes through inventory. So that releases with the aircraft deliveries here in the first half of this year. Obviously, that anticipates that performance and disruption will be less in the first half of this year than it was in the last half of last year. And I think more or less so far, we're seeing that. I think our factory is running better. That's largely as I said, attributable to the fact that we've got the resources on board. There's still issues turnovers higher than we would like. There's still more churn than historical. But certainly, the plant is running in a more efficient way. Now supplier issues still pop up, as I said. But net of all that, I think that we will see better lower impacts of those efficiencies in the back half of the year than the first half of the year. So even with that 14%, which again is kind of where we expect it to be. I think for the total year, the overall conversion, which is sort of 24 so percent, which is appropriate for our business is still something we expect to realize for the total year.

Okay. And then have you changed anything about deliveries expectation for the year?

No. Not really. I think we're still tracking to what we guided.

Okay. Thank you very much. Good report.

Thanks.

And our next question comes from the line of Peter Arment with Baird. Please go ahead.

Yeah, thanks. Good morning, Scott. Frank. Nice results.

Good morning.

Hey, Scott, you've had a lot of questions on Aviation. I'll just ask one quick one. There's been a slight kind of increase in used aircraft out there. I'm sure it's in-production aircraft still remains very low. Just maybe any comments that you're watching or from your perspective on the used market?

Sure, Peter. Look, obviously, we watch this very carefully. And you see numbers coming out, and they look like big percentages, of course, there are big percentages on very small numbers. So I think when we look at the used available -- when you look at kind of that zero to 10 years old, it's less than -- it's around a couple of tenths of a percent of our fleet. So it's a really, really small number. I mean, we're talking about nine aircraft that we know of right now that are under 10 years old versus our fleet size of over 7,000 aircraft. So look, it's a trend of we see in the marketplace, but remember, these are -- on an absolute basis, these are very small numbers, right? So the available for sale is less than a few percent, and about half of those are 20, 25 plus year old aircraft. So still a very, very positive environment in terms of used aircraft available for sale.

Thanks so much. I appreciate the color.

Sure.

And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead.

Hey, good morning, Scott and Frank and Eric. A little bit of a follow-on to, I think it was Myles' question on FLRAA. Typically, congrats, you get past the GEO review on FLRAA, big milestone there, but now you have to kind of switch to a keep-sold strategy, right? So I'm just wondering, Scott, from your perspective, what your view is on the technical and schedule risk to the development contract as you kind of move from the aircraft in your configuration to the exact production configuration as the Army wants. I'm just wondering kind of how you gauge the risks and if there are any important milestones that we should be on the lookout for?

Sure, Peter. Look, I think the way the Army has conducted this acquisition, and as you guys know, this goes back a decade, really, right, of both guys going through design, development, producing prototype aircraft, flying them, lots of soldier touch points, Army pilots flying them. As you know, as we went even through the formalities of the formal RFP and during this whole period of time, the proposal valuation, there was ongoing effort under the OTA for the CRR program, which was continuing to reduce risk and finalize design activities and risk reduction even whilst the proposal evaluation was going on. And so I think the good news here is we have a really, really solid technical baseline for the aircraft itself. We have a great team that's in place, ready to go, that is being reassembled here to now go execute the EMD program. Obviously, there's a lot of new stuff here around the mission systems and development of that capability in the MOSA system for the - and ensures the architecture of the mission systems and how they accommodate changes over time. But I think that we have a really, really good technical baseline. The aircraft that we're about to go design and build and fly is very, very close to the aircraft that we've already designed and built and flown. So I think there's a big chunk of a risk that has been very effectively reduced and we're ready to go get at it.

Okay. I appreciate the color.

Sure.

And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead.

Hey, good morning. Scott, Frank, when you look at the portfolio today, it's clearly stronger this cycle versus the last. Aviation has got a backlog, Bell secured FLRAA, Industrials is stable now. With the balance sheet pretty low, what's your appetite to expand into another vertical and tap into secular growth markets?

Look, I think that we -- as we've always said, we'll -- we keep an eye on things as things come to market or there's opportunities out there. But obviously, our plan is still built around organic growth. Investments in the businesses that we have, which I think we've been making substantial investments and those are paying off for us in terms of what organic growth we're seeing. And at this point, look, I think we do have a very strong balance sheet. We have a lot of cash on hand. We have strong cash generation in the business. We'll continue to execute on our buyback programs. If something came along that we thought made sense that was, frankly, in the A&D space and was something that we knew could be accretive and a better value to our shareholders than just continuing share buyback, we would look at it. But as I said, it would have to be something where it's a clear win and always contrasting that with what's going on with our share buyback program.

Great. Thank you.

Sure.

And with that our last question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Hey, good morning guys.

Good morning, Ron.

Scott, could you kind of walk through -- you mentioned earlier on the call, is kind of back to Myles' question about positioning the company for some more growth in defense and the opportunities ahead of you in Bell and Systems. But if you could walk through a couple of those that maybe you find particularly interesting for the company.

Sure. Well, Ron, I would say that the FLRAA win on a stand-alone basis is hugely important to our future. I think our guys have done a great job over the past decade in investing and positioning for that. Obviously, as you know, the FLRAA program continues. It's a few years behind the FLRAA program, but one where, again, I think our team has made the right investments. We've got the right people that have developed a product that I think is going to be a home run. As you know, we're all kind of waiting on the engine side to have that thing fly. But again, the Army activity continues in risk reduction and further affinitizing that program. So clearly, I think that's a great opportunity. I think we have a great solution. There are activities, which, again, are publicly out there in terms of the future systems the Navy and the Marine Corps are looking at, which I think a lot of our technology, particularly in the tilt rotor space, will potentially be a great solution and can leverage off a lot of the investment that we've already made on the 280 program. Those were likely to be adaptations. But again, from a technological standpoint, I think we're in a really good place for some of those future opportunities. High-speed VTOL Bell arguably provide a little bit further off, but that's another step I think that leverages, our fundamental core capabilities to go to even higher speed, higher performing, longer range assets. So I think Bell in my view, Ron, I guess I would say I think we have a phenomenal franchise around tilt rotor, and I think we have a lot of opportunities to continue to grow that franchise on a number of different adaptations of that technology into the future. On the system side, okay, that's -- there's a lot of programs in there. I think we've -- the win on the Sentinel program with Northrop is a driver of growth for us going forward as that moves ultimately from EMD into its production phases here in the future. We have some great new wins on the munition side with XM204s and XM250s. Again a great franchise for us for a long time, which is really growing. I mentioned our down-select on FTUAS. Shadow continues to be a good program for us, but the Future Tactical UAS with the Army is certainly a big opportunity. There's a couple of big land vehicle programs, as you know, ARV on the Marine Corps side, OMFV on the Army side. So I mean I don't want to wrap up those stuff, but there's lots of opportunities out there for which we've either won or we've been down selected or I think we're certainly a viable competitor. You're not going to win all these things, but there's enough opportunity, and I think we're in good enough place that we can see a lot of organic growth being driven out of that business as well.

Got you. And then maybe 1 follow-on, if I can. Maybe in the shorter term, are you seeing much demand being driven from the war in the Ukraine? Are you seeing orders for stuff that maybe 18 months ago, you wouldn't have expected better?

No, we're really not, Ron. We're not in that sort of munition space. I mean there has been some dialogue around some land vehicles, but they're largely EDA things that are in surplus in the army that would come out being refurbished and put over there. There's some talk of different UAS systems. So there's some -- there are -- we've had nothing so far. And there's probably some relatively speaking, smaller opportunities going forward, but it's not going to be a material impact to us.

Got it. Thank you.

Sure.

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