L3HARRIS TECHNOLOGIES, INC. /DE/ Q3 FY2024 earnings call

• The company had a very strong quarter with record order volume, an impressive book-to-bill, robust segment operating margins, and solid free cash flow. • Its strategy of acting as a prime, sub, or merchant supplier with a platform agnostic approach provides a unique advantage. • Key acquisitions such as Aerojet Rocketdyne and Tactical Data Links, along with divestiture of non-core assets, have helped hone the portfolio and reinforce the national security focus. • There is a strategic partnership with Palantir to deliver advanced solutions. • Progress is being made on the innovative LHX NeXt program. • The company is on track to exceed the 2024 run rate cost savings target of $400 million, now expecting at least $600 million by the end of the year and confident of reaching the $1 billion cost savings target a year early. • Consolidated revenue in the third quarter increased by 8%, operating margins improved to 15.7%, non-GAAP EPS grew by 5%, and pension-adjusted EPS rose by 8%. • Total backlog reached a new record of $34 billion.

Communications Systems (CS) saw revenue increase by 10%, supported by rising domestic and international demand for resilient communications equipment, related waveforms, and higher volumes of night vision devices. Integrated Mission Systems (IMS) revenue grew 7% year-over-year, driven by increased avionics product volumes, higher aircraft integration volumes for both international and domestic customers, and increased volumes of advanced electronics for space and munitions programs. Space and Airborne Systems (SAS) revenue was roughly flat due to the divestiture of the antenna business in Q2, lower F-35-related volumes as TR-3 development slowed, and challenges with classified development programs in the space business, but had an organic revenue growth of 2%. Aerojet Rocketdyne contributed approximately $600 million to the overall revenue in the third quarter.

• Total company revenue guidance is increased to $21.1 billion to $21.3 billion. • Segment operating margin is approximately 15.5%. • EPS range is $12.95 to $13.15 per share. • Free cash flow guidance of $2.2 billion is reiterated. • The company is on track to achieve the top end of the full-year guidance range of 9% to 11% pension-adjusted EPS growth.

• There is a risk of not meeting program targets and facing cost pressures on certain classified development programs. • Supply-chain risks that could impact product delivery. • Competition from new entrants in some markets that may affect market share.

Q: Could you talk about the biggest drivers of the acceleration in the long-term revenue target?

A: It is aligned with important areas of the U.S. budget, opportunities in CS NATO software-defined radios, space growth, Aerojet Rocketdyne expansion, and IMS international ISR.

Q: Touch on the cost reduction effort ahead of time?

A: Cost reduction is a top priority, with aggressive efforts to eliminate waste, ahead of schedule, and tracking to the target.

Q: Partnership with Palantir?

A: There is no upfront investment, and it is a collaborative effort on programs, with Palantir products also used internally.

Q: Outlook for CS radios?

A: There is strong demand in the U.S. and NATO, with a $10 billion international pipeline.

Q: Margin progress and EACs?

A: Margin growth is driven by program execution, with some program pressures offset by other programs, and EACs are positive in some segments.

Q: Free cash flow per share growth?

A: Share repurchase plans are confirmed, and near the target leverage to enable more value-creating repurchases.

Q: Update on Aerojet and new entrants?

A: New entrants are recognized, with partnerships being worked on, and seeing growth opportunity in GMLRS.

Q: Tech Refresh 3 and IMS margin?

A: Commitments on TR-3 are being met, and IMS margins are improving due to program execution and leadership.

Q: CS mix and waveforms?

A: The mix is expected to be more stable in 2025, and waveforms have higher margins.

Q: Aerojet revenue cadence?

A: Confidence is due to investments, capacity increase, and supply-chain progress.

Q: Portfolio shaping and working capital?

A: The portfolio is being refined, and working capital is managed for profitable growth.