Peter Arment: Scott and Frank, nice results. Scott, on Systems, the performance there continues to be really, really good, and there was obviously a bullish tone down the USA around just a lot of the modernization efforts. How are you feeling about the kind of visibility of that business going forward?
Scott Donnelly: Peter, I think they’re in a very good place. I mean a lot of the things that we’ve been working on for a very long time are starting to kind of come to roost. We had a nice strong growth in the quarter. That’s driven by things like XM250, which — as you know, we’re sort of decade-long investments in IRAD for some of these new munition systems, which are doing well. The sentinel program, obviously, we’re one of the partners with Northrop Grumman that program continues to grow nicely. We had some very important down select here just in this quarter around the RCV program with the Army, the ARV program with the Marine Corps. The FUS down select with the Army. So I think the business is performing well. The margins are strong.
We’ve got this business back into a growth mode, and we have several additional opportunities out there that are material, do you win all of them or not, I don’t know. But I mean, we have probably 4 or 5 pretty significant opportunities that we’ll close here over the next couple of years. So I think the business is executing well. They’re delivering on their existing programs very well. And I think they’ve got a lot of pretty significant growth opportunities that we’ve been — are clearly in the pipeline.
Peter Arment: Appreciate that color. And then just Frank, a quick one on do you have the — what services growth was in Aviation for the quarter?
Frank Connor: Yes, it was 3%, and aftermarket was 33% of revenue for the quarter.
Operator: Next, we go to Ron Epstein with Bank of America.
Ronald Epstein: The Industrials business did well. So my question is this. In the past, Scott, I think you’ve intimated or maybe more direct than that, that it’s core. Is that still how you’re thinking about it or not? I mean how do we think about the Industrials business in the context of the kind of greater Textron, which seems to be evolving quickly towards a bigger A&D company?
Scott Donnelly: Ron, I mean the way we’re looking at industrial right now is us providing good growth and strong performance improvements and generate good cash. That’s how we think about it.
Ronald Epstein: So is it — so I guess is it core? Is it not core?
Scott Donnelly: We’ve never defined core or noncore. I certainly have never said that. Look, I get what we have said, Ron, is when we think about M&A activity in the company, we certainly would view that the places that we would additionally or add additional capital would probably be in our Aerospace and Defense portfolio. And that’s kind of how we look at the M&A world as opposed to thinking that we should increase the size of our Industrial business. But certainly, to the extent that we can drive organic growth in these businesses, and make smart investments and generate good returns for shareholders. That’s the best thing we can do for the shareholders is make sure there’s performance. Those businesses are performing as well they can perform.
Ronald Epstein: Yes. Fair enough. And then on the M&A front like you mentioned. What’s it like out there right now? Are there opportunity? Are there directions that you want to go in terms of A&D. Are you more A focused or D focused or agnostic? How should…
Scott Donnelly: Yes, probably agnostic. We’ve done some small deals here in recent times, largely around expanding some of our services footprint. Obviously, we did the Pivotal deal, which has turned out to be, I think, a great acquisition for us to help grow our focus in the future for our Aviation business. Obviously, there’s some opportunities there. There could be massive opportunities in the future or not. We don’t know. But I think that’s a nice acquisition that’s given us some real additional capability in the company. Again, as I said, most of what we look at in terms of any material M&As in that A&D space. As you know, Rob, there’s deals only come along so often, so you kind of keep an eye out. And look at things that come down the pike.
So we’ll — that’s what we’ve been doing, and we’ll continue to do that. And if something makes sense, that we think is a great deal. It will be good for our shareholders, and we would certainly be willing to participate in that. We obviously have the capacity to do a fairly material deal, but it has to be something that financially makes sense.
Operator: Our next question is from Pete Skibitski with Olympic Global.
Peter Skibitski: Just want to follow up on Myles’ question and maybe see if we can get into the gory details of the NetJets deal a little bit. But my main question is Scott, is there a minimum number of aircraft that they’re obligated to take each year under this deal? And if so, how does that compare to the prior deal?
Scott Donnelly: No, they don’t. Look, guys, the relationship and the way this works is that I mean, our friends at NetJets are out every day selling aircraft. And they’re selling those shares. And by the way, I think that’s a very robust strong market right now, which is fabulous but they sit down with us in real time. I mean, every quarter, looking out a year out and given where the market is and what sales activity looks like, what their pipeline looks like, firming up. Those aircraft that we’re going to deliver in roughly that 1-year window. So when the market is strong, they’re selling. We expect that thing to continue to grow. If there was a slowdown, and we expect to see that number come down. So it’s a total 100% alignment around that end market.
Peter Skibitski: Okay. And how do you think about the high end — I mean, on average, 100 aircraft a year would be more than 50% of your deliveries this year. How do you think about contemplating if you could ever get to the high end of that deal?
Scott Donnelly: Well, again, that’s based on the market, right? I mean if the end market continues to be that robust, but I would — I guess, what I would say is if the end market is going to be that robust on the fractional side and all like it’s also going to be that robust in the whole aircraft side. So you have to expect to see overall production output growing, not locked into where it is in the 2023 number.
Operator: And we have a follow-up from David Strauss with Barclays.
