Earnings Call Transcript - TXT Q1 2023

Operator, Operator

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. 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.

Eric Salander, Vice President of Investor Relations

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.

Scott Donnelly, Chairman and CEO

Thanks, Eric, and good morning, everyone. We had a solid first quarter. Revenues at 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 in the first quarter to $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 commands confidence from 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 an order from the Polish National Police for four additional BEL407s, which will expand their fleet to seven aircraft. At Textron Systems, we saw 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 crafts 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 in 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 thermoplastic composite underbody battery protection skid plates. The 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. During the quarter, we displayed Pipistrel's Panthera and Velis Electro aircraft receiving significant customer interest in both models. With that, I'll turn the call over to Frank.

Frank Connor, Chief Financial Officer

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 was $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.

Operator, Operator

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

Sheila Kahyaoglu, Analyst

Thank you and good morning, guys.

Scott Donnelly, Chairman and CEO

Good morning.

Sheila Kahyaoglu, Analyst

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?

Frank Connor, Chief Financial Officer

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.

Sheila Kahyaoglu, Analyst

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?

Scott Donnelly, Chairman and CEO

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 pricing net of inflation as a positive going forward.

Sheila Kahyaoglu, Analyst

Thank you.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Douglas Harned, Analyst

Good morning. Thank you.

Scott Donnelly, Chairman and CEO

Good morning.

Douglas Harned, Analyst

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?

Scott Donnelly, Chairman and CEO

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.

Douglas Harned, Analyst

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?

Scott Donnelly, Chairman and CEO

Well, look, I think it's a lot more around utilization, right? So flight hours are 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.

Douglas Harned, Analyst

Very good. Thank you.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Seth Seifman, Analyst

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.

Scott Donnelly, Chairman and CEO

Well, so I think what you did see us do is step things up here in the first quarter. We've always said that 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 repurchases at this time.

Seth Seifman, Analyst

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

Scott Donnelly, Chairman and CEO

All right. Thank you.

Operator, Operator

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

Cai Von Rumohr, Analyst

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 the 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?

Scott Donnelly, Chairman and CEO

The supply chain situation remains largely the same. Our labor situation has improved significantly since last year, as we brought in many resources during the third and fourth quarters. However, this has led to some disruptions, particularly affecting our operational efficiency in the first half of this year. Overall, we are staffed at our desired levels, which is an improvement. Despite this, we are still facing challenges with suppliers that create inefficiencies in our plant operations, causing us to work out of sequence. While the situation is not worsening, it is also not improving, and we recognize that resolving issues with one supplier can lead to problems with another. We anticipate these challenges will persist for much of the year, but we’re not surprised by this ongoing situation. On the orders side, our book-to-bill ratio is above one, which is encouraging. We are pleased with demand in both jets and turboprops, placing us in a relatively positive position.

Cai Von Rumohr, Analyst

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?

Scott Donnelly, Chairman and CEO

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.

Cai Von Rumohr, Analyst

Fabulous. Thank you very much.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Robert Stallard, Analyst

Thanks so much. Good morning.

Scott Donnelly, Chairman and CEO

Good morning.

Frank Connor, Chief Financial Officer

Good morning.

Robert Stallard, Analyst

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?

Frank Connor, Chief Financial Officer

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

Robert Stallard, Analyst

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?

Scott Donnelly, Chairman and CEO

It's important to monitor the situation closely. We are generally on track with our plan. We expect to see some softness in certain short-cycle consumer areas, but strong performance continues in industrial and commercial applications. In terms of our production allocations, we are prioritizing our capacity and volume towards serving commercial industrial applications over consumer products. While there is some uncertainty, we are observing sufficient demand across various markets to support continued growth, and I anticipate this trend will persist throughout the year.

Robert Stallard, Analyst

Okay, that's great. Thank you.

Operator, Operator

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

David Strauss, Analyst

Thanks, good morning.

Scott Donnelly, Chairman and CEO

Good morning.

David Strauss, Analyst

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?

Scott Donnelly, Chairman and CEO

Well, Dave, I mean, for sure, but it's a couple of aircraft, right? I mean I think it's something that 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.

David Strauss, Analyst

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

Scott Donnelly, Chairman and CEO

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.

David Strauss, Analyst

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?

Scott Donnelly, Chairman and CEO

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 efforts, that's going to be at lower margins than 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 guidance 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 from 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.

David Strauss, Analyst

Okay, that's helpful. Thank you.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Myles Walton, Analyst

Thanks. Good morning.

Scott Donnelly, Chairman and CEO

Good morning.

Myles Walton, Analyst

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.

Scott Donnelly, Chairman and CEO

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 expecting 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 really high-quality individuals that know our space very well.

Myles Walton, Analyst

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.

Scott Donnelly, Chairman and CEO

I believe there are two main components of fixed price. One involves program management and operations, which is relatively low risk and well understood. Additionally, there are several deliverables under the full program, including the Engineering Manufacturing Development phase, which includes around eight aircraft designated for development testing and limited user testing for the Army. Also, the initial production aircraft and materials associated with them are set at a fixed price; however, the structure is primarily cost-plus.

Myles Walton, Analyst

Thanks again.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

George Shapiro, Analyst

Good morning.

Scott Donnelly, Chairman and CEO

Good morning, George.

George Shapiro, Analyst

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?

Scott Donnelly, Chairman and CEO

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 are still issues; turnover is 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, which is appropriate for our business is still something we expect to realize for the total year.

George Shapiro, Analyst

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

Scott Donnelly, Chairman and CEO

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

George Shapiro, Analyst

Okay. Thank you very much. Good report.

Scott Donnelly, Chairman and CEO

Thanks.

Operator, Operator

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

Peter Arment, Analyst

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

Scott Donnelly, Chairman and CEO

Good morning.

Peter Arment, Analyst

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?

Scott Donnelly, Chairman and CEO

Certainly, Peter. We monitor this closely. While the percentages might seem significant, they are derived from small numbers. When considering the used market for aircraft aged zero to ten years, it represents only a tiny fraction of our overall fleet, which consists of over 7,000 aircraft. Specifically, we're aware of nine aircraft that are under ten years old. Although these figures indicate a trend in the market, it's important to note that they are relatively minor in absolute terms. The available used aircraft for sale amounts to less than a few percent, with roughly half of them being over 20 to 25 years old. Overall, the environment remains very positive concerning the availability of used aircraft for sale.

Peter Arment, Analyst

Thanks so much. I appreciate the color.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Pete Skibitski, Analyst

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?

Scott Donnelly, Chairman and CEO

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 Army's infrastructure 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.

Pete Skibitski, Analyst

Okay. I appreciate the color.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Kristine Liwag, Analyst

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?

Scott Donnelly, Chairman and CEO

I think we will continue to monitor the market for opportunities as they arise. However, our primary focus remains on organic growth. We have been making significant investments in our existing businesses, and these efforts are yielding positive results in terms of organic growth. Currently, we have a strong balance sheet with ample cash reserves and robust cash flow from our operations. We will carry on with our share buyback programs. If an opportunity arises that aligns with our goals in the acquisitions and development space and offers better value for our shareholders than continuing with buybacks, we would consider it. However, any opportunity would need to be a clear benefit, and we would always weigh it against our ongoing share buyback initiatives.

Kristine Liwag, Analyst

Great. Thank you.

Scott Donnelly, Chairman and CEO

Sure.

Operator, Operator

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

Ronald Epstein, Analyst

Hey, good morning guys.

Scott Donnelly, Chairman and CEO

Good morning, Ron.

Ronald Epstein, Analyst

Scott, could you walk us through some of the opportunities you see for growth in defense, particularly in Bell and Systems? Please highlight a few that you find particularly interesting for the company.

Scott Donnelly, Chairman and CEO

Sure, Ron. The FLRAA win is extremely significant for our future. Our team has put in a great effort over the past decade to invest and position ourselves effectively. The FLRAA program continues to progress, though it is a few years behind schedule. Nevertheless, I believe our team has made the right investments and assembled the right people who have developed a product that I believe will be very successful. We are all eagerly awaiting developments on the engine side, but Army activities are ongoing in risk reduction, which shows increasing support for that program. I see it as a fantastic opportunity with a strong solution. There are also publicly known activities related to future systems for the Navy and Marine Corps, where a lot of our technology, especially in tilt rotor, could be an excellent fit, building on previous investments in the 280 program. These would likely involve adaptations, but from a technological perspective, we are well-positioned for future opportunities. High-speed VTOL is a bit more distant, but it's another avenue where we can leverage our core capabilities to achieve higher speeds and longer-range assets. Overall, I believe we have a remarkable franchise surrounding tilt rotor technology, and there are many opportunities to expand that franchise through various adaptations in the future. Regarding systems, there are many programs underway. The win on the Sentinel program with Northrop is a growth driver for us as it transitions from early development to production. We've also secured new wins in munitions with XM204s and XM250s, which continue to be a strong and growing franchise. Additionally, our selection for FTUAS is promising, and the Future Tactical UAS with the Army represents a significant opportunity. There are several major land vehicle programs, such as ARV for the Marine Corps and OMFV for the Army. I don't want to overlook these opportunities, but there are numerous prospects out there where we have either won contracts or been shortlisted, and we are definitely a strong competitor. While we won't win every opportunity, there are enough prospects that position us favorably for substantial organic growth in that business.

Ronald Epstein, Analyst

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 Ukraine? Are you seeing orders for stuff that maybe 18 months ago, you wouldn't have expected better?

Scott Donnelly, Chairman and CEO

No, we're really not involved in that type of munitions. There has been some discussion about land vehicles, but they are primarily surplus items from the army that would be refurbished and sent over. There's some conversation around various UAS systems. So far, we haven't had any substantial developments. There may be some relatively smaller opportunities in the future, but they won't have a significant impact on us. Sure.

Operator, Operator

And with that, ladies and gentlemen, today's conference will be available for replay after 10 A.M. Eastern today through April 27, 2024. You may access the AT&T replay system at any time by dialing the 1-866-207-1041, entering the access code 4732406. International participants may dial 402-970-0847. And those numbers again are 1-866-207-1041 and 402-970-0847, again, entering the access code 4732406. That does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.