The operator introduces the L3Harris Technologies Second Quarter 2024 Earnings Conference Call and reminds participants that the call is being recorded. The host, Vice President of Investor Relations, introduces the CEO and CFO and mentions the publication of the second quarter earnings release and supplemental presentation. The discussion will include forward-looking statements and non-GAAP financial measures. The CEO welcomes the new IR team and reflects on the five-year anniversary of the merger between L3 and Harris, highlighting the company's focus on innovation and meeting customer demands.

L3Harris is a unique company that combines both commercial and government business models. They offer a diverse portfolio of products and services, allowing them to work as a prime, sub, or merchant supplier. Their recent acquisition of Aerojet Rocketdyne has increased their presence in the missile defense market and they have made significant progress in improving operational performance. They are also investing in expanding key facilities to meet customer demand.

The company has focused on integrating and shaping their portfolio to align with national security priorities and the future of warfare since the merger. They have seen strong financial results in the second quarter, with a segment operating margin increase and record backlog. The demand for their resilient communication products is increasing, particularly from DOD and international customers facing sophisticated threats. The company is also seeing growing international demand for their tactical communications business and has a robust pipeline of opportunities. They are continuing to make progress in their operational performance, resulting in expanded margins.

The company is seeing positive results from their risk management processes and LHX NeXt Program, leading to an increase in guidance. They have made progress on their workforce and infrastructure optimization and are now focusing on supply chain management. The company is prioritizing debt pay down, maintaining a competitive dividend, and returning excess capital to shareholders. They have recently completed the sale of their antennas business and expect to finalize the divestiture of their commercial aviation business. The CEO also thanks the Board Members who served on the Ad Hoc business review committee.

The Business Review Committee presented their recommendations to the Board, which are being implemented quickly to benefit shareholders and customers. In the second quarter, the company saw high demand and was awarded significant contracts, resulting in a book-to-bill ratio of $1.0 and a backlog of $32 billion. Revenue and operating margins increased, and EPS grew by 9% (or 13% on a pension-adjusted basis). Free cash flow also improved due to increased operating income and better working capital performance.

The company reported a decrease in net leverage and a 4% organic growth in their communication system segment. Revenue in their space and airborne systems segment remained flat, with growth in some areas offset by lower volumes in others. Margins for the company as a whole were slightly down, but improved in certain segments due to cost-saving initiatives. The company also completed the consolidation of three facilities and reported margins for Aerojet Rocketdyne, including adjustments for the acquisition.

The purchase accounting fair value adjustments for loss provisions and off-market contracts reflect a more informed assessment of legacy contracts as of the date of acquisition close and are not impacted by subsequent operational improvements. Guidance for revenue, margin rate, and EPS has been increased due to strong first half performance, with EPS now expected to be in the range of $12.85 to $13.15 per share. The company remains confident in delivering on commitments to customers and shareholders. During the Q&A, an analyst asks about the strong margin performance of the Aerojet segment in the first half and the expected step down in margin for the full year.

Christopher Kubasik, COO of Lockheed Martin, discusses the company's performance in the first half of the year and their acquisition of Aerojet Rocketdyne. He mentions that Aerojet is performing well and they are happy with the margin performance. He also notes that there are some aspects of mix and positive program performance that they will need to replicate in the second half of the year. Ken Bedingfield, CFO, adds that the company is on track to meet their targets for margin improvement, with about 100 basis points of improvement in each business. They may make some refinements to their outlook based on the performance of the businesses so far and the contributions from the Aerojet acquisition.

Chris Kubasik, during the Investor Day and midterm financial framework, stated that they are confident in delivering to their set goals of $23 billion in revenue, 16% margins, and $2.8 billion in free cash flow by 2026. They have seen progress in their businesses, with improved performance and margins in their segments. They are aiming to reach a range of 15.2% to 15.4% margin by 2024 and are building confidence quarter-by-quarter. While their margins are some of the best in the defense industry, their bookings and revenue growth are slightly behind their peers based on second quarter numbers.

During a recent earnings call, Christopher E. Kubasik, the CEO of a defense company, was asked about the company's bidding terms and contracts for the quarter. He responded by saying that it is difficult to judge based on one quarter, but overall they are feeling good about their portfolio and are maintaining discipline in their bidding. He also mentioned that their prior strategic decisions and investments are starting to pay off and they are seeing a positive impact on margins. Additionally, he noted that they are being cautious in their bidding, avoiding fixed-price development programs with options and negotiating for reasonable fees. He also mentioned that there has been an increase in defense spending in Europe, as seen at recent events such as the NATO Summit and Farnborough.

The CEO of L3Harris, Christopher E. Kubasik, discusses the opportunity that the European market presents for the company, especially in light of the recent NATO Summit. He mentions the need for interoperability among member countries and how L3Harris is uniquely positioned to provide software-defined radios for this purpose. The company is now targeting Europe as a growth market and expects it to be a significant source of revenue in the future. The Ad Hoc business review committee has completed its review and made recommendations, but the CEO did not provide specific details about them. He did mention that the company is implementing a plan based on these recommendations, which may differ from the multiyear outlook given at the Investor Day.

The speaker is discussing the success of the Ad Hoc business review committee and how it has not affected the company's financial framework. They also mention that they are implementing recommendations from the review and will continue to do so throughout the year. The next question is about Communication Systems order trends and backlog, with the speaker stating that they have $32 billion in backlog and three major areas of growth, including DoD modernization and investing in capacity and software during the pandemic. They expect to continue winning their fair share of task orders.

The IMS margins have shown improvement in the first half, but are expected to remain flat or slightly decrease in the second half. There is confidence in the business and growth potential, with no supply chain issues or constraints. There is a $16 billion pipeline for the next three years, with $10 billion international and the rest domestic. The focus on resilient communications and software-defined radios is driving demand, with potential for upselling and licensing opportunities. There is also a continuous demand for software and upgrades, indicating a strong market for DoD modernization and NATO interoperability.

The speaker is responding to a question about the margin improvement in the second half of the year for IMS. They mention that IMS has had a strong performance in the first half and is expected to see growth in the second half. However, there may be some mix changes that could impact profitability. Overall, the speaker expresses confidence in the IMS team's ability to perform and mentions the impact of favorable commercial mix and cost savings from LHX NeXt.

Chris and Ken are discussing the performance of SAS (Space and Airborne Systems) in terms of top line and bottom line growth. They mention that space and intel are strong growth markets for the company, while airborne combat systems are facing headwinds due to missions moving from air to space. They also mention their confidence in their ability to continue with the SDA (Space Development Agency) and their strategy of being a merchant supplier in the transport layer. They also mention their stable low single-digit growth in Mission Network FAA work and their opportunities in mission systems such as CCA (Common Computing Architecture). Overall, the company is seeing growth in space and intel, but challenges in airborne combat systems.

Bedingfield explains that the implementation of the LHX NeXt program has been a major contributor to margin performance in the first half. He also mentions taking on challenging development work in the SDA and seeing it pay off in the form of increased production and volume. Bedingfield expresses confidence in SAS, particularly in the areas of space, intelligence, and cyber, and notes the business's solid growth and performance. The next question is from Michael Ciarmoli about the guidance for Aerojet, which suggests a 14-18% growth in the second half compared to the first half.

Christopher E. Kubasik, CEO of L3Harris, discusses the company's acquisition of Aerojet and its strategic, operational, and financial impact. While they will not disclose book-to-bill by segment, Kubasik emphasizes that the demand for Aerojet's products is high and the company is well-positioned for growth. Despite initial challenges, they have made significant improvements in talent, on-time deliveries, and project management. The technology is also a key differentiator, with opportunities in pulse solid rocket motors, liquid and solid divert attitude control systems, and Hypersonics. The company continues to invest in these areas for long-term growth.

The company is making progress in various aspects, including opening new buildings, acquiring new equipment, and investing their own money. They have been successful in integrating Aerojet into L3Harris and are now focused on the long-term health of the business. The Aerojet business primarily operates on a cost-to-cost basis and they expect to see growth in the second half of 2024 and into 2025. The company is also working on improving their supply chain and facilities to drive future growth opportunities.

Chris discusses the company's progress and the importance of working with suppliers to deliver products to customers. The operator asks about the disclosure of book-to-bill by segment, and Ken explains the company's focus on providing guidance for the year and a solid long-term financial framework. He also mentions a solid book-to-bill for Aerojet in 2024. The next question is about the disclosure of book-to-bill at Aerojet, and Ken clarifies that there has been some shifting of orders from the first half to the second half, but they still expect a strong book-to-bill for Aerojet in 2024.

The speaker asks two questions, one about the volume of the RFI/RFP for SDA Tranche 3 and the other about the potential impact of cost savings on margins and revenue growth. The first question is about the volume of the RFI/RFP and the speaker asks for clarification on whether it will be flat, growing, or shrinking compared to Tranche 2. The second question is directed towards Ken and asks if the success with cost takeouts will have a temporary impact on margins and revenue growth, and if this will affect the longer-term guidance. The speaker also asks for a quantification of the impact of NeXt on margins and revenue.

The company is making good progress on the LHX NeXt program, which will not only provide cost savings but also increase value for customers. Approximately 40% of the estimated $1 billion in savings will result in margin opportunities for the company. The company is confident in reaching their target and will work to maintain as much of the savings as possible. The LHX NeXt program is expected to have more enduring benefits and a larger portion of the savings will go back to the government, making the company more competitive.

The company is confident in its performance and is ahead of schedule. They are focused on driving margin opportunities and maintaining their free cash flow guidance of $2.2 billion for the year. They are currently 25% of the way towards their goal and are comfortable with their progress.

The speaker discusses the company's performance in the second half and their confidence in meeting their financial goals. They also mention their focus on unmanned technology, which was previously acquired by L3 and is now part of L3Harris.

Chris Kubasik, CEO of the DoD, discusses the growth markets of undersea and autonomy for the company. He mentions a potential $1 billion opportunity in the undersea market and success with unmanned undersea vehicles. However, these products are relatively inexpensive and don't contribute significantly to revenue. Ken Herbert asks about the CS segment and Chris mentions a mix shift towards international in the second half.

The speaker discusses the competitive landscape and pricing pressures in the tactical communications market, particularly in international markets. They express confidence in their ability to maintain margins and secure contracts, citing their technology and interoperability as key factors. They also mention cost-cutting initiatives and dual sourcing suppliers as ways to mitigate risks. The speaker alludes to potential opportunities in Europe and expects a strong second half of the year. The call ends with the speaker greeting the last questioner.

The speaker responds to a question about the company's supplemental revenue and explains that it is built into their guide and will provide stability and confidence. He also expresses optimism for the future and thanks the employees for their hard work. The call concludes.

This summary was generated with AI and may contain some inaccuracies.