Textron (TXT) Q2 2026 earnings call transcript

Scott Hegstrom, Vice President, Investor Relations. Please go ahead.

Thanks, Regina. 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 Lisa Atherton, our Chief Executive Officer, and David Rosenberg, our Chief Financial Officer.

Our earnings call presentation can be found in the Investor Relations section of our website. With that, I'll turn the call over to Lisa. Thanks, Scott. Good morning, everyone. In the second quarter, Textron grew revenue by 3%, continuing a strong start with growth in each of our manufacturing segments, contributing to higher revenues of $500 million, or 7%, through the first half of the year, Compared to the first half of last year, we continue to see healthy commercial and military demand environments illustrated by the aviation backlog and a favorable fiscal year 2027 and future years defense program or FIDAP budget request for our military franchises. We also recently achieved a couple of key milestones across the business with the rollout of the 500th Citation CJ4 and the 700th Bell 505 helicopter.

These milestones reflect the strength of our teams and our ability to design, develop, manufacture, sell, and support products that remain highly valued by customers over many years. Before I turn to the segment-level comments, I'd like to reiterate my key priorities that I laid out at the start of the year.

First, portfolio focus. We quickly took action last quarter when we announced our intent to separate the industrial segment, putting us on the path to be a pure-play aerospace and defense company. Second is our execution and resilience. I will talk more about this as I go through each of the segments, but there are two fundamental themes here. First of all, customer demand remains very strong. Simply put, people want our products, and we have multi-year backlogs in many areas.

With that, we must become more efficient at meeting that demand. We need to more fundamentally address productivity, and that is where I am focusing the organization. When we assess our production challenges, I see opportunities both externally and internally. Externally, while the supply chain has improved in most areas, we still experience issues with some key components. At the same time, the issues are not just external. They are internal as well. We have a much newer workforce, and we must utilize our engineering team to improve produceability for that workforce.

We recognize there is more work to do in order to improve our execution, and I'll touch on that more in the segment discussion. Now, moving to the segment results. Textron aviation had $1.5 billion of revenue in the second quarter, up 1% from the prior year, reflecting higher revenue for both aircraft and aftermarket. Demand across jets and turboprops continued to be robust during the quarter, supporting a backlog of $8 billion. We delivered 40 jets and 44 commercial turboprops in the quarter, compared to 49 jets and 34 commercial turboprops in last year's second quarter. In terms of our operational efforts at aviation, our focus is centered on three areas, investing in the workforce, improving factory execution, and strengthening the supply chain.

Developments in these areas include, on the direct labor front, attrition has improved materially, aided by our investment in Textron Aviation's Career and Learning Center. After spiking during COVID and remaining elevated, attrition has now returned to more normalized levels, with the improvement even more pronounced among early career hires. In addition, hiring levels have returned to a more normalized pace. As our workforce gains experience and stability improves, we expect to see corresponding gains in productivity and efficiency. In factory execution, we are investing in both our people and our capacity. On the factory floor, we have significantly increased engineering production support as we prioritize engineering resources to improve producibility. Within operations, we are adding targeted capacity in areas such as landing gear, milling, and paint to support improved throughput and execution.

We are also investing in producibility and process improvements across the King Air and Light Jet production lines. In supply chain, we are expanding dual sourcing initiatives to strengthen supplier resiliency and support more consistent parts availability in the factory. At the same time, supply chain conditions continue to improve. While we are still managing a handful of pain points, parts availability has improved significantly in recent years, leaving us with a more finite set of issues. We remain actively engaged with these key suppliers.

Alongside our operational focus, aviation continued to advance its product portfolio and sales momentum during the quarter. In terms of new product development, our Gen 3 light jet development programs continue to move toward Federal Aviation Administration certification. The CJ4 Gen 3 and M2 Gen 3 are currently in the flight test phase of development, and the CJ3 Gen 3 is expected to achieve first flight in the third quarter, with all three aircraft expected to enter service next year. Also, the Denali continues to advance through its final phases of flight testing and its pacing to interservice in 2027. From a customer perspective, we entered into a multi-aircraft fleet purchase agreement with Platoon Aviation that positions it to become the largest Citation Longitude fleet in Europe.

Textron Aviation also entered into an agreement with SD Aviation for two M2 Gen3 jets and a CJ3 Gen2 jet with options for three additional light jets. We delivered the first Sky Couriers into both the Philippines and the Republic of the Marshall Islands. In both cases, customers took the 19-passenger variant equipped with the optional passenger to freighter conversion kit, enabling the aircraft to transition between full passenger and full cargo configurations. In addition, we expanded our global service footprint, highlighted by the opening of a new Melbourne service facility, and continued ramping deliveries of the Ascend with NetJets taking its first five aircraft in the quarter.

Moving over to Bell, we had another quarter of solid growth with revenue up 6% from a year ago, driven by increased military and commercial revenue. We continue to make progress on the MV75 Cheyenne program, which remains a key long-term growth driver for our company. This includes completing the first two wing structures, representing an important step forward in the program's build and development progression. Building on decades of experience with the V-22, the first wing was fabricated with 90% fewer labor hours compared to the initial V-22 wing build, and the second wing build was produced with an additional 40% reduction on that, highlighting the team's focus on affordability and production readiness. As we previously disclosed, the U. S. Army is pursuing an above-threshold reprogramming request for an additional $350 million of government fiscal year 2026 funds for the MV75 program.

We anticipate Congress to complete this process within the third quarter. Absent these funds, Textron has made the determination to move forward on a self-funded basis to support the program through the remainder of the government's fiscal year. We believe that it is the best long-term interest and underscores our firm commitment to the U. S. Army and the MV75 program to continue working during this period. We remain confident in the Army's commitment to the MV75 Cheyenne, as evidenced by the ATR process and their robust funding request in the FY27 budget, and we continue to stay closely engaged with our customer in support of program execution. Bell's other military and commercial businesses delivered solid performance in the quarter.

We continue to drive advancements across our installed base, including progress on our V-22 Nacelle Improvement Program, which has produced a 75% reduction in maintenance hours, resulting in a significant boost in operational readiness and maintainability. On the commercial side, Bell delivered 36 helicopters, up year-over-year from 32 in last year's second quarter. From an operational perspective at Bell, our focus is centered on two critical areas, strengthening the supply chain and improving factory execution.

The supply chain team continues to focus on the dual sourcing of critical raw materials needed to support gearbox and rotor blade manufacturing, including gear steel, castings, and extrusions. Capital investments made at our drive system center and rotors facility began in the quarter. These improvements are aimed at increasing capacity and throughput while reducing touch labor. We also have a new AI-enabled shop floor scheduling tool that was born in Bell's Manufacturing Technology Center, which has completed testing and started to roll out across Bell's fabrication centers.

Alongside our operational focus, Bell continued to see demand across its portfolio, including an order for three additional Bell 407s by Life Flight Network, the largest not-for-profit air medical program in the country, which currently operates 35 Bell aircraft. At Systems, the business had another great quarter with revenue growth of 7%, driven by execution across its programs. Through the first half of the year, Systems generated revenue growth of 10%, reflecting positive momentum in the segment.

During the quarter, we began production of the mobile strike force vehicle at our Slidell, Louisiana facility for delivery of 65 units to Ukraine. In addition, following the $450 million pre-production development award from the U. S. Marine Corps earlier this year, the Advanced Reconnaissance Vehicle, or ARV, program completed its systems functional review and continued design work in preparation for delivering 16 prototype vehicles.

Our ATEC business also had a good quarter, driven by new contracts kicking off with the U. S. Navy and the U. S. Marine Corps. At industrial, TSV experienced strong growth in the PTV, while its core easy-go golf business has stabilized as the lease renewal cycle normalizes. Caltech secured another new business award for its pentatonic battery systems, representing progress in supporting electrification and future growth opportunities within the segment. I'd also like to thank the teams at Caltechs and TSE as they continue to successfully operate the businesses while also supporting the work associated with the separation process.

We recently launched the process to pursue a sale of industrial and are proceeding according to plan. This is an important step as we advance on the path of becoming a pure play aerospace and defense company. As we look ahead, I am encouraged by the enthusiasm our customers have around our products and the commitment our employees have as we continue to work to improve operational performance. We are clear-eyed about the future, and we are committed to executing on our strategy.

With that, I'll turn the call over to David. Thank you, Lisa, and good morning, everyone. Turning to slide 11 of the earnings presentation, revenues in the quarter of $3.8 billion were up 3%, or $111 million, from last year's second quarter. Segment profit in the quarter of $353 million was in line with the second quarter of 2025. During this year's second quarter, adjusted net income was $1.62 per share, compared to $1.55 per share in last year's second quarter.

Manufacturing cash flow before pension contributions totaled $154 million, compared to $336 million in last year's second quarter. During the quarter we repurchased approximately 2 million shares returning million in cash to shareholders Now let review how each of the segments contributed starting with Textron aviation On slide 12 revenues of Textron aviation of billion were up 1 or million from last year second quarter reflecting higher aircraft revenues of $17 million and higher aftermarket parts and service revenues of $5 million. The increase in aircraft revenues was primarily due to higher pricing, partially offset by lower volume and mix. The decrease in volume in mix largely reflected lower citation jet and defense volume, partially offset by higher commercial turboprop volume.

Segment profit was $165 million in the second quarter, down $5 million to 3% from a year ago, primarily due to an unfavorable impact from manufacturing inefficiencies and lower aircraft volume and mix, partially offset by lower warranty costs. Backlog at the end of the second quarter was $8 billion. Looking at Bell, revenues of $1.1 billion were up 6%, or $58 million, from the second quarter of 2025. The revenue increase in the quarter was driven by higher military revenues of $47 million, largely due to higher volume on H-1 production in the MB-75 program. Commercial helicopters, parts, and service revenues increased $11 million, compared to the second quarter of 2025, primarily due to higher pricing. Segment profit of $75 million was down $5 million, or 6% from last year's second quarter, primarily due to an unfavorable impact for program performance and from the mix of military programs partially offset by lower research and development costs.

As Lisa mentioned, the Army has focused on its reprogramming efforts for the government's fiscal year 2026. With that, we continue to execute on the MV75 Cheyenne program on a self-funded basis as we wait for the ATR process to conclude. Backlog in the segment ended the quarter at $7.5 billion. At Textron's system, revenues of $347 million were up 7%, or $23 million, from the second quarter of 2025, primarily due to higher volume on armored land vehicles and military training and support services provided by Airborne Tactical Advantage Company, or ATAC. Segment profit of $44 million was up $4 million, or 10%, compared with a second quarter of 2025, primarily due to lower research and development costs. Backlog in the segment ended the quarter at $3.3 billion.

Looking at industrial's revenues were $848 million, up $9 million from last year's second quarter. However, CalTex's revenue increased $17 million, largely due to a favorable impact from pricing and from foreign exchange rate fluctuations. Textron specialized vehicle revenues decreased $8 million, reflecting lower volume and mix and the impact from the disposition of the power sports business, partially offset by higher pricing.

Segment profit of $59 million was up $5 million or 9% the second quarter of 2025, primarily due to higher pricing, net of inflation, partially offset by lower volume and mix. Pricing net of inflation includes tariffs recovered in the second quarter of 2026 that were previously imposed as part of IEPA.

Finance segment revenues were $14 million and profit was $10 million in the second quarter of 2026, as compared to segment revenues of $15 million and profit of $8 million in the second quarter of 2025.

To wrap up with guidance, we are reiterating our expected full-year adjusted earnings per share to be in the range of $6.40 to $6.60. We are also reiterating our expected full-year manufacturing cash flow before pension contributions to be in the range of $700 million to $800 million. Our full-year guidance assumes receipt of additional FY26 funding for the MB75 Cheyenne program. Absent the receipt of any additional funding and inclusive of other outlook assumptions, our adjusted EPS could be negatively impacted by $0.20 to $0.30, and cash flow could be negatively impacted by $150 to $250 million. This concludes our prepared remarks. We are happy to open the line for questions.

Thanks so much. Good morning. Morning, Robert. Lisa, I was wondering if I could start with you. I was wondering if you could give us an update of what you think the aviation business will be doing in the second half of this year, and whether these supply chain issues could be alleviated.

Yeah, thanks, Robert. So, look, I think the dynamics at aviation are just exactly how we frame them out. We have very strong demand, and we have to continue to drive better operational efficiency. When we talk about labor, I mentioned that our attrition rate had spiked. It remained elevated for quite some time, but that's now stabilized, which has significantly helped.

But we continue to have that newer workforce that just has to further season through the manufacturing floor. Just to put a finer point on that, we have about 50 percent of our workforce that has less than five years of experience compared to 2019, We are continuing to make great progress there with that learning center, and I think it's going to continue to prove out as a successful investment into our factory.

We've made some very intense and intentional investments here along with the Career and Learning Center. It gets the right people in the door. It screens them effectively. It sets them up for a better transition when we get them out in the factory, but we've also increased the engineering resources out there on the factory floor. That helps us with the learning curves. It's going to help us with issue resolution more quickly on the factory floor, and then just overall quality management so that we have the right products getting out the door at the right time. And I believe we'll see increasing benefit from this effort and energy over time.

So simultaneously, when we look at the workforce development, we still are navigating supplier challenges. We have largely managed through the bulk of them, but we still have some key pain points that we are focusing on. And so where we can, we are dual sourcing in these areas that can increase capacity, and it's going to protect our operations. We don't want to see out-of-station work, and so that's what we're trying to focus on to make sure that we bring that material in so that we don't have those out-of-station inefficiencies. In addition to that, we have initiated a cross-company supply chain council so that we can start approaching some of these suppliers that we see across all of our segments and just really negotiating with them with a much larger position.

So as we move to a more pure play aerospace and defense company, we're going to lean into those efficiencies across the company. So I'm very confident this is going to improve. We are taking concrete steps and really prioritizing the investment where we need to to see that improve performance.

David, if you have any other color you want to add to that? Sure. So, you know, Robert, as you've often heard us talk about, we believe the aviation business should have incremental margins of about 20 to 25 percent. If you look right now at the overall productivity challenges we're having, it's not only impacting our overall cost, But also preventing us from delivering additional new aircraft, which of course are very much creative. So looking at the overall opportunity set that Lisa just highlighted, it's probably worth about $150 million of incremental profit to us, or about 200 basis points, which would then tie to that 20 to 25 percent incremental margins. Obviously, we're not going to achieve that tomorrow, but with the focus that Lisa highlighted of our engineering resources, our capital investments back into the factory, we believe over the medium term we're going to get there.

To your overall question about the second half of the year, I would say when we look at Q3, you can expect revenue cadence to have a similar profile to Q2. In terms of margins, I would expect that we wouldn't see margin growth until Q4 of this year versus where we sit today.

Hey, Lisa, maybe just to add, like to follow up on Dave's last comment on the second half of the year kind of volume for aviation deliveries. You know, you're basically matching last year's levels currently. You're, I think, only three units less than last year, first half deliveries. Just, you know, you're investing a lot, just trying to get a better handle on, you know, when we should start to think about where that productivity starts to really flow through. You've talked about the capacity additions and the new employees, but, you know, just thinking about absolute level of deliveries. Is there the ability to kind of give a finer point on when you think that productivity starts to flow through?

Thanks. I'm not sure we're going to be able to give a finer point on the exact dates of when that flows through, I think if we look at the various aspects, when you talk about the employees in particular, it's been pretty well proven out that it takes about five to seven years to generate an employee that has all the reps and sets to be able to get through the learning curves of being out there on the factory floor. So when you talk about those new employees that started coming in around 2022, we should start to see that yield next year with employee productivity, and we are starting to see areas across the factory floor where we are seeing that improvement.

So I think in the next year, we see the learning curve starting to improve. From the out-of-station work, if we can get some of this dual sourcing addressed and bring some of these, in particular, things like SPARs into the factory, that will significantly improve our productivity. So our goal is to start seeing improvement in this area of overall product deliveries towards the middle, last part of 2027.

You know, how do we think about it from a procedural standpoint from here, the financial implications, and, you know, how are you navigating the workforce, the development program through the end of this year and potentially into next year? Yeah, sure. Thanks, Sheila. From a process perspective, as we discussed, the Army is working through their normal ATR process or above-threshold reprogramming process. That allows them to realign funds inside of their own budget, but it has to go back to Congress for Congress to sign off to move that authority from one program to the other. So they have worked through that process pretty diligently over the last several months. It's normal around this time of year for this to occur.

And our understanding at this point is that it has been approved through the OMB process and should be sent to Congress soon. We anticipate any day. But based on the congressional calendar, look, it's my expectation this could stretch out until September before Congress gets to the point where they actually sign off on the realignment of those funds. So absent that, we made the determination that really is in the best interest of the overall long-term health of the program for us to continue forward. We have communicated that well with the Army, and we are working with them to make sure that they understand the work is progressing on the development of the program as we move forward.

So, but if you look at overall Bell's results through the quarter, I mean, candidly, they actually performed very well in the quarter with revenue up 6%. It did impact their profitability because of the way we addressed this potential ATR going forward. We took a very conservative booking rate as we have not yet received that ATR, and so with that program adjustment, if we had not had that adjustment, Bell's margins would have been very comfortably inside their guidance range for the quarter.

And then relatedly on the booking rate adjustment did you assume some learning curve loss if you will in the adjustment Or why was that adjustment made if you expect the funding fairly imminently Sure So regarding the supply chain we are still working with our supply chain We have put I say minor spending caps on the supply chain to stay with inside that million range That is what we had anticipated to execute on during this quarter anyway And so we're working with our suppliers to make sure we stay inside that cap, because we want to make sure that we don't lose any momentum that we have gained with the suppliers to date.

So it's not a change in learning curve. It's a conservative approach to the booking rate because the ATR hasn't been awarded yet. And that was a Q2 impact, and then we'll see how it plays out in Q3.

So it would be roughly around that, but we don't perceive a situation where our Bell revenue guidance will change in this scenario. And to put a finer point on it is the way we look at it right now, obviously we said there's a 20 to 30 cent impact from a totality perspective. When we look at our different businesses right now, we'd expect from a guidance perspective, we would likely be above the guide at our industrial business from a margin perspective. On the high side of the guided systems, assuming Bell gets the ATR, we think we'd be comfortably in the guide, and we would expect aviation would be on the low end of the guide. So that's kind of the puts and takes overall that drive the 20 to 30 cent impact.

And overall on revenue, we see ourselves roughly in line across the businesses today.

Sorry, guys. Good morning. Can you hear me? You're back. Yep. Appreciate it. Thanks for the call around the aviation margin opportunity. That is very helpful to quantify. Is that purely internal productivity, or does that also include an assumption that the supply chain improves, and just trying to get a sense for how much of that is under your control versus dependent on external supply chains? So it's certainly a combination of both, but when you look at external suppliers, for example, you saw Lisa highlighted earlier, we can also work that via dual sourcing. So it certainly is a combination of both, and solving the external supply chain issues along with investing our engineering resources to make our planes more producible is kind of the secret sauce to improving the overall picture.

But I'd say it's certainly a 50-50 split for both, but we certainly want to drive our own destiny when it comes to our external suppliers as well.

So we are trying to manage this to the $350 million threshold that we had expected to have by the ATR, and so that's what we're internally managing to. And then, you know, on October 1st, when the FY27 budget is initiated, even if there is a continuing resolution, the government would go back to its normal spending with the company. So we are managing this over the next, say, nine weeks to make sure that we stay with inside the $350 million, but also progressing the program as needed to get it ready to continue to move forward with the desires of first flight.

First, a clarification, if you could, David, on the tariff relief. Can you decide that? And then, Lisa, on the fourth quarter, B75 program strategy, if you're under a continued resolution, do you assume that everything in the budget documents, which obviously is Do you assume that that's where you should run the program, or do you take a more approach?

Yeah, so I'll pass it over to David for the tariff. So the way the process would work with the continuing resolution is the government's only going to be authorized to spend at the levels that they were approved for in 2026, which was around $1.2 billion. They also had an additional $310 million from the reconciliation budget. So they would have a percentage of that allowable for us to spend under continuing resolution. So we would probably be somewhat conservative in the fourth quarter, but in line with what we expected to perform when we put together our operating plan. And so we've been also working that process with the Army to make sure that we continue to progress towards the goals of first flight, but feel like we're pretty solidly funded through the first, I'll say, six months of FY27 to get the government time to get through their continuing resolution process.

On the tariff question, so the big impact on tariffs this quarter was at TSV within our industrial segment. We got a gross refund of AIPA tariffs of $21 million for TSE. The net impact on the results was about $18 million.

So, I think you described 2026 very well, and I'll probably wait until January to give you guidance on 2027.

So when we met with them a year ago and laid out what the funding needs were for 27 and SUP, that is what you see reflected in the current FIDAP request that they have for 2027 and beyond. So we view this as a, I'll call it a one-time event, and then we will manage very closely to the allowable budgets going forward to meet our expectations.

So, we obviously aren't going to get into deliveries, but from a revenue perspective, we see ourselves in line versus our previous guidance for the year.

Yes, I think we're early in that process. We are kind of doing a dual path of initiating the sale process as well as the work required to do a spin. We have the wheels in motion and are talking with, candidly, a significant number of inbounds on the sale side, and so that interest has been very encouraging. And I think with the good foundation that we have at both Caltechs and TSV, we're just actually quite pleased with how that sale process is going. But we are in the early phases of those, I'll say, NDAs and talking with folks, simultaneously still working towards the spin if something were not to fall out the way we'd like in a sale process.

And in terms of how we would do that, that's yet to be seen. I think we've seen various levels of interest of all of industrial in one piece, and in some cases it's been in different parts and pieces. So we will evaluate that over the coming weeks, and you guys will be sure to know soon.

No change in our outlook right now. I'm assuming Q4, Q1 exercise, we have that in a range of $60 to $110 million.

Yeah, sure. I mean, we actually just wrapped up at Oshkosh last week. We saw lots of demand even just coming out of that event. As you can see in the backlog that we are representing here in our press release, it's very exciting for folks to kind of see these Gen 3 upgrades coming. And so I not going to give I say specifics on which ones we intend to deliver and when but I would say there a lot of energy and that reflected in the backlog that you seeing And we are very specific with how we book backlog, its deposits, and its guarantees of when we would deliver those crafts. So that is firm backlog that you see represented there for those aircraft.

We have over 850,000 hours of tiltrotor experience on the V-22 that have been built into this. So I think it's only good for the future warfighter to have tiltrotor capabilities. And you're seeing this broadly accepted across the industry. I think our experience that we have and what we've done with the MV75, you may know this. We flew this first in 2017 with our demonstrator, the V280. We flew it autonomously in 2019 on that demonstrator.

About 10 years ago, we actually have on the design board what we call the V247, which is a fully autonomous tilt rotor. And so we also have the X-76 program that we're working with DARPA Sprint, which is a tiltrotor that converts to a jet. So I think it's only positive for the industry to fully grasp and appreciate the need for range and speed for the future warfighter and, frankly, runway independence, which is key to how they operate.

I think that has increased over the last several years. We're looking to make sure that we do those all very well. I think what you saw significantly that's changed is, you know, about five, six years ago, the workforce turnover that occurred. And so that is the aspect of it that we really have to focus on. And it's not just at Cessna and Beechcraft. It's also out in our supply base. They also have that same workforce turnover. And so when those suppliers don't give us, you know, say an engine or a spar or a hydraulic unit, that impacts the out-of-station work that that newer workforce is not used to doing the workarounds. And so I think that's where we really have to lean in on this career and learning center.

We really have to lean in on training our supervisors because they're dealing with a younger workforce coming through there. And I think we'll get there. And I think the industry will get there, but it's going to take us being very diligent and focused on getting them there. So it's something I feel very passionate about, of making sure that we lean into our workforce.

I'm just curious how you think about that, and particularly as you lean into Textron becoming more of a defense and aerospace player. Kelly, you're hitting on some key strategic issues that we're going to have to take a look at and address, and I think moving to a more pure play aerospace and defense company is going to allow us to do that.

We are initiating a lot more cross talk and engineering design across the business and what we've got across the various portfolio. I think we've worked on this, I think, in the fly-by-wire aspect of this. I mean, that is an evidence of what we're doing in order to bring to bear what we can do across all of Textron underneath our own roof. But you raise the exact right point. I mean, we should be leaning into this where it makes sense in the higher end of unmanned air vehicles. I think that's one thing you'll see me push towards the higher end, not the group ones and group twos. But I think there's a lot of capability there across the company that we need to lean into.

Because one would think an unmanned Skyhawk would be fantastic. I mean, like, just such a robust vehicle and has volume. You could do it. And seemingly, I mean, you could do something pretty cool with it.

I mean, we'll take that back to the team. There's a lot there, and I think we can do across the company.

Yeah, Christine, so look, I mean, we've talked about this, frankly, with the customer pretty regularly. I'll say a significant portion of the research and development that we do across all of Textron actually does exactly what you're saying. And frankly, I feel like we've been leaning into that for probably the last 15 to 16 years. We are where we are with the MB-75 because of the investment that we made in our own company and our own technology. We are where we are with the armed reconnaissance vehicle because we made investment as a company into those capabilities. So I think we're going to continue to do that. We'll continue to watch what the requirements and needs are from the military and try to match that very quickly.

We are a commercially minded company that can take that R&D and apply it to military applications. So I think we're going to continue to do that as we've demonstrated so far.

And then with that, is there some sort of target that you would like to be regarding internally funded R&D? Is there a sweet spot for that initiative? No, I think where we've been spending at this point, I think, is the appropriate level of spend. And because we've seen it yield, I think we're in that right sweet spot right now.

Thank you.

You could be at that 200 level. And when you look at the gap, perhaps, between what you can deliver and that goal, how does that affect, if at all, order flow coming in, given that there's a fairly long backlog there right now?

Yes, I think what you're seeing is that we started there with that number and then worked our way back to the initiatives that were required in order to meet that goal. So what you're seeing as detailed this quarter is the efforts that are being made in order to meet that stated goal of 200 a year. And then what we're seeing in the demand cycle is that we can definitely support that demand cycle at that level. So these things need to line up, and what we're outlining this quarter is the steps that we're making in order to achieve that.

I think we always do, I'll say, make-buy decisions as we look to be more efficient through the factories. Where we're really stepping it up is where we have seen things have highlighted or been illuminated through the factories. I'll take SPARS again as a key example. These are very critical components, and we need to not be limited by one supplier. So we are being more diligent in finding those critical components and being more dual sourced in those areas. So I think we have always done this, but we are taking a step up at where we can see critical components and where we can get dual supply source.

But any sense on that? I think we're making great progress, and as we move towards the end of this year and we get into a guide for 27, we'll talk to you about it back then.