During the L3Harris Technologies Third Quarter 2024 Earnings Call, Dan Gittsovich, Vice President of Investor Relations, introduced the session and mentioned that the third quarter earnings release and supplemental presentation are available on the company’s website. He noted that the discussion would include forward-looking statements and non-GAAP financial measures, with references available in the earnings release and SEC filings. Christopher Kubasik then provided an overview of the company's strong performance for the quarter, highlighting record order volume, impressive book-to-bill ratio, robust operating margins, and solid free cash flow. He expressed confidence in meeting stakeholder commitments and emphasized the company's agility and alignment with customer priorities, which enables L3Harris to deliver necessary capabilities effectively.

The article discusses a company's flexible business model, highlighting its ability to operate as a prime, sub, or merchant supplier with both commercial and government-focused approaches. This adaptability allows the company to swiftly respond to changing needs and partner with new and non-traditional contractors. Recent acquisitions, such as Aerojet Rocketdyne and Tactical Data Links, and the divestment of non-core assets have strengthened its national security focus. The company boasts innovative capabilities in communications, munitions, space, ISR, and passive sensing, enabling comprehensive solutions across the electromagnetic spectrum. Its diversified portfolio reduces dependency on single programs, supporting steady growth, risk management, and financial stability. Emphasizing strategic partnerships, like the recent collaboration with Palantir, the company aligns with increased AI utilization by the Pentagon and Intel agencies. The company's strategy centers on profitable growth, emphasizing sustainable margin improvement and cash generation rather than mere expansion.

The LHX NeXt program at L3Harris is making significant progress, with anticipated cost savings surpassing initial targets. Kenneth Bedingfield announced that they now expect to achieve $600 million in savings by the end of the year, exceeding the $400 million 2024 target, and aim to reach their $1 billion goal a year early. The program is set to surpass a 16% operating margin target by 2026 through enhanced operational efficiency. The focus has shifted to strengthening supply chain management and updating digital infrastructure with AI tools from partners like Palantir. These improvements aim to enhance cost, quality, and delivery while supporting supplier growth. Additionally, L3Harris won a $600 million contract for the Next Generation Jammer in their Communications segment.

The paragraph discusses L3Harris's significant milestones, including establishing a lucrative jamming franchise and securing key contracts with the U.S. Navy and NATO for ISR support and tactical radios, respectively. The company highlights its swift delivery and advanced technology, particularly in low-detectability communications, which is gaining preference among international allies. Additionally, L3Harris's investments in space-based missile warning and tracking have led to satellite orders and demonstrate their advanced capabilities in missile and missile defense technology, including hypersonics, as evidenced by their role in the Glide Phase Interceptor contract.

The paragraph discusses the company's recent developments and future financial expectations. It highlights the Glide Phase Interceptor Award as a significant addition to their portfolio, alongside a previous win earlier in the year. Looking forward, the company anticipates growth in revenue, operating margin, earnings per share, and free cash flow, aiming for $23 billion in revenue by 2026. They plan to provide more detailed 2025 guidance in January and project mid-single-digit organic revenue growth and low-double-digit free cash flow growth. The company also notes strong demand and bookings, with new awards totaling over $7 billion, achieving a book-to-bill ratio of 1.4 and reaching a record backlog of $34 billion. Aerojet Rocketdyne and Communication Systems segments performed particularly well, both achieving book-to-bill ratios well above 1.5.

In the third quarter, the company experienced an 8% increase in consolidated revenue and improved operating margins to 15.7%. Non-GAAP EPS grew by 5%, with an adjusted increase of 8% on a pension-adjusted basis. The company is on track to meet the high end of its full-year guidance for EPS growth and reported over $700 million in free cash flow, largely due to increased operating income and efficient working capital management. Debt was reduced by $325 million, bringing net leverage down to 3.1. Segment performance highlights include a 10% revenue increase in CS, driven by demand for communications equipment and night vision devices, while IMS saw a 7% revenue growth due to higher avionics and electronics volume. SAS revenue remained flat largely due to a business divestiture and lower F-35 related volumes.

The paragraph discusses financial performance and growth across various segments of a company. Despite some challenges, overall revenue growth was seen in the classified programs, Intel, and cyber sectors, with a 2% increase for SAS on an organic basis and $600 million in revenue from Aerojet Rocketdyne. Margins for CS improved by 350 basis points to 26% due to factors like higher volumes and cost savings from LHX NeXt. IMS margins rose slightly to 12.2% due to better program execution and favorable mix in commercial aviation. SAS margins declined to 11.6% because of a prior one-time license sale and issues in classified programs. Aerojet Rocketdyne achieved margins of 12.6%, aided by $11 million from amortization adjustments. The company is increasing its guidance based on the strong performance.

The paragraph discusses L3Harris's strong financial performance and positive outlook for the future, highlighting expected revenues, margins, and earnings per share. The company emphasizes its commitment to innovation, operational excellence, and meeting customers' mission-critical needs. The CEO, Christopher Kubasik, underscores L3Harris's role in developing advanced defense capabilities by integrating hardware, software, and AI to support national and ally security in a complex threat environment. The company aims to drive sustained value and is positioned as a leading innovator and trusted partner in the industry.

In the paragraph, Christopher Kubasik discusses the company's commitment to achieving $23 billion in revenue, highlighting drivers of anticipated growth from 2024 to 2026. He mentions the company's strong book-to-bill ratio and record backlog, which align with U.S. budget priorities. Key opportunities include NATO software-defined radios and a $10 billion international pipeline in Communication Systems. Although space budgets face short-term pressures, Kubasik expects growth as missions shift from air to space by 2026. Additionally, improvements in Aerojet Rocketdyne operations, supply-chain testing, and capacity investment are expected to support growth, particularly with significant opportunities in rocket motors like the Glide Phase Interceptor and next-gen interceptor.

The paragraph discusses L3Harris's cost reduction efforts, which are ahead of schedule, aiming to achieve a $1 billion reduction earlier than expected. This initiative is a top priority for the leadership team, led by Christopher Kubasik, and is part of the company's Phase 2 integration and transformation strategy post-merger. They are aggressively eliminating inefficiencies and waste across all functions and business lines. Kenneth Bedingfield confirms they are on track to meet their margin improvement targets, with a projected $400 million benefit upon reaching the cost reduction goal. The response is to Myles Walton's inquiry about whether these efforts will enable them to achieve 16% margins by 2025.

The team is actively working to maximize margin opportunities by improving savings and achieving targets, with more detailed guidance on 2025 expected in January. The aim is to increase the 2026 margin target to at least 16%, recognizing that this improvement won't be linear but presents opportunities for 2025. The savings are intended to be recurring with long-term benefits. The program is performing well, and the team is confident in its results. Richard Safran then questions about the partnership with Palantir, inquiring about investment and profit-sharing arrangements, and the strategic rationale, which Christopher Kubasik clarifies by stating there is no upfront investment as the relationship has developed over about five years.

The paragraph discusses the strategic partnership between two companies, emphasizing the alignment of their cultures and missions. It mentions collaborative efforts in various programs, wherein Palantir is involved as a prime contractor, with support in communications and R&D projects. The strategic aim is to leverage each other's strengths, especially in the realm of AI, following a timely White House announcement urging the DoD and Intel agencies to use more AI. The paragraph highlights the value of platform-agnostic partnerships to harness complementary AI capabilities without investing billions independently. It concludes by mentioning customer interest and internal adoption of the partner's products, with an invitation for Ken to provide specific examples.

In the paragraph, Kenneth Bedingfield discusses the use of a Palantir product called the unified data layer, which integrates data across various systems to make real-time, data-driven decisions, thus driving down costs and improving efficiencies in areas such as labor, manufacturing, and the supply chain. Christopher Kubasik adds that by providing program managers and financial analysts with real-time data, they can identify opportunities and risks more effectively, enhancing program management. This timely data access is expected to positively impact operations, as noted by Richard Safran expressing thanks for the insights. The exchange concludes with a call transition to Doug Harned from Bernstein.

In the paragraph, Christopher Kubasik discusses the progress and outlook for equipping the U.S. Army, Marines, and NATO countries with next-generation radios, particularly software-defined radios. He estimates that the U.S. is between the third and fourth innings in this process, indicating significant progress but still a way to go. There is strong demand, and they are successfully selling their latest waveforms. For NATO countries, he suggests they are earlier in the process, around the second inning. Interoperability, resilience, and cryptographic modules are key factors driving NATO countries to choose their radios over local alternatives. He highlights a recent contract win with the Netherlands worth $1.4 billion and notes the lessons learned from Ukraine about the importance of interoperability and resilient communications. NATO countries are increasingly meeting their defense spending commitments, offering more opportunities. He concludes by expressing excitement about the healthy pipeline and ongoing international interest in their software-defined tactical radio business.

Kenneth Bedingfield discusses the U.S. Department of Defense's radio modernization cycle, highlighting that nearly 500,000 radios are involved, with L3Harris receiving a substantial share of awarded contracts. Douglas Harned inquires about the night vision goggles (ENVG) program, to which Christopher Kubasik responds optimistically, noting recent budget allocations and expressing confidence due to the product's superiority and performance over competitors. Kubasik also mentions the challenges faced by IVAS technology and indicates an improved outlook for the night vision goggle business as L3Harris continues to meet commitments and outperform competitors in DoD procurements.

In the paragraph, Matthew Akers from Wells Fargo discusses progress on cost savings with Christopher Kubasik, who explains their strategies and improvements, particularly focusing on how cost savings and digital transformation benefit both the company and its customers. Christopher highlights the advantages in competitiveness and efficiency, mentioning the use of digital engineering and data-driven decisions. These advancements provide flexibility in pricing and bidding, ultimately benefiting the company’s book-to-bill and win rates. David Strauss from Barclays asks about margin progress across segments, and Christopher confirms that they see similar margin opportunities at the segment level.

The paragraph discusses the company's focus on improving margins across its 13 sectors through a strategic initiative called LHX NeXt. This involves enhancing supply chain management, both for direct and indirect costs, and leveraging data to negotiate better deals with suppliers. While the target margin is 16, some sectors are above or below this mark, prompting incremental improvements across the board. Kenneth Bedingfield emphasizes the importance of disciplined bidding, effective cost structures, and investments in tools and teams to enhance performance and avoid past negative margin issues, with a goal of achieving mutual benefits for the company and its customers.

The paragraph discusses the company's strategies to manage inflationary pressures and enhance competitiveness, leading to expectations of a margin increase, targeting at least 16% by 2026. David Strauss asks Ken Bedingfield about projected double-digit free cash flow per share growth through 2026 and the potential for significant share repurchases as the company approaches its target leverage. Ken confirms a $500 million share repurchase goal for 2024, which has already been met year-to-date. The company, with a current leverage of 3.1, expects to resume more value-creating share repurchases in 2025 and 2026. In 2024, they aim to at least counterbalance dilution from equity incentive plans. Michael Ciarmoli asks for clarification on margin performance and whether there were any Estimate at Completion (EAC) adjustments in the quarter.

The paragraph discusses the competitive environment in the solid rocket motor industry, highlighting collaboration with companies like GD and Lockheed, specifically related to the GMLRS program. Kenneth Bedingfield addresses concerns about maintaining and growing market share amidst new entrants and existing competitors. He mentions delivering on programs despite some pressure, particularly in the space area with classified programs that were bid on years ago. These programs are seen as critical to customers, and despite challenges with costs and schedules, the company has managed to offset pressures by leveraging its portfolio. This has resulted in a 70 basis point growth in margin rate year-over-year. Bedingfield notes positive performance in three of four segments, with IMS showing stability, while SAS faced challenges but is working to improve.

The paragraph discusses the company's strategic approach to partnerships and growth opportunities, particularly in the Aerojet sector and the production of Guided Multiple Launch Rocket Systems (GMLRS). It highlights the focus on collaborating with new entrants as part of a "trusted disruptor strategy" and identifies significant growth potential in response to increasing customer demand for GMLRS, which requires expanding production capacity. Christopher Kubasik emphasizes the need to increase production from 8,000 solid rocket motors annually to a potential 12,000, while noting the Army's demand for 32,000 units. The company is making substantial investments in infrastructure and equipment to meet this demand and leverage its technological and infrastructural advantages in a competitive market. Additionally, the Camden, Arkansas facility's capability to produce 100,000 solid rocket motors annually is noted as a benchmark.

The paragraph discusses the progress and achievements in rocket development and the Tech Refresh 3 (TR-3) program for the F-35 aircraft. The speaker, Christopher Kubasik, expresses satisfaction with their acquisition of Aerojet and the strong team performance despite competition. He clarifies that they are under contract with Lockheed Martin through Lot 19 and are not facing financial challenges related to ongoing negotiations, highlighting the collaborative effort in meeting TR-3 commitments, including the core processor, memory system, and cockpit display. Additionally, improvement in the Integrated Mission Systems (IMS) division is noted, with better margins, new leadership, and improved customer relationships contributing to their recovery and performance.

In the paragraph, Kenneth Bedingfield discusses the performance and strategy of CS (presumably a segment or a company), highlighting the division between domestic and international business. In 2024, there was a planned heavier domestic focus in the first half of the year and a heavier international focus in the second half. This was partly a recovery from late 2023 international deliveries. The company successfully responded to international demand, achieving significant awards and shipping products quickly, which was aided by their waveform strategy. This strategy contributed to a 26% margin and a year-over-year margin increase of over 300 basis points. Regarding 2025, Bedingfield states that more detailed guidance will be provided in January.

The paragraph discusses the company's optimistic outlook for 2025, particularly in the software-defined radio business, due to improvements in supply-chain resilience. Compared to the previous years marked by supply-chain challenges, the current supply situation is better than even before the pandemic, thanks to strategic agreements and alternate sourcing of parts. This enhanced capacity and testing capabilities, benefiting both domestic and international demand, foster confidence in stable growth moving forward. More detailed information will be provided in January.

The paragraph involves a discussion about the financial performance and future outlook for a company, with a focus on Aerojet. Seth Seifman from JPMorgan asks about the confidence in a significant revenue growth needed in the fourth quarter, considering the investments and demand in Aerojet. Kenneth Bedingfield responds, noting the good progress in operationalizing capacity and overcoming headwinds, such as integration and legacy contracts. He mentions that investments made are beginning to pay off, contributing to expected revenue growth.

In this paragraph, Christopher Kubasik discusses the company's ongoing process of refining its portfolio by potentially divesting some smaller businesses. While he doesn't anticipate any major transactions in the fourth quarter, he notes that these divestments are aimed at aligning the company's strategic focus and management efforts. The businesses considered for divestment, valued in the range of $50 million to $100 million, might be better suited for other owners. Overall, the company is looking to optimize its portfolio by focusing on its long-term trajectory and investments in order to achieve its revenue and margin goals for 2024.

In the paragraph, Kenneth Bedingfield discusses L3's approach to managing working capital and investing in the business for long-term, profitable growth. He emphasizes the importance of effective working capital management as a component of free cash flow growth, alongside increasing margins and operating income. Bedingfield highlights that while they are committed to making necessary investments in the business, they are not focused solely on short-term gains. This strategy is supported by LHX NeXt, which helps manage costs and optimize resources, ultimately enabling investments that drive profitable growth. The conversation wraps up as Peter Arment thanks the team, and Christopher Kubasik prepares to take the final question.

In the paragraph, Jeremy Jason, speaking on behalf of Jason Gursky at Citi, inquires about updates on trends related to TDL, Link 16, and the company’s initiatives with proliferated warfighter space architecture programs. Christopher Kubasik responds by highlighting the company's progress, noting that they are ahead of their business plan. They have successfully streamlined operations at their Salt Lake City facility, improved supply-chain leverage, and received substantial orders, particularly for a handheld Link 16 device called BATS-D. Kubasik emphasizes their alignment with national defense priorities and resilient communications technology, which he believes is critical for the future, and credits the team's dedication and innovation for the company's success.

The paragraph describes how L3Harris Technologies successfully overcame challenges from natural disasters such as tornadoes and hurricanes during the third quarter. It highlights the resilience and adaptability of the workforce, expressing pride in their accomplishments and confidence in future progress. The message concludes the company's third quarter earnings call, with gratitude expressed to participants and a note about the next call in January.

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