The paragraph is a transcript from the Fourth Quarter 2024 L3Harris Technologies Earnings Call. Dan Gittsovich introduces the call, highlighting the release of their fourth quarter earnings and 2025 guidance, while cautioning that forward-looking statements come with risks. Chris Kubasik then notes that 2024 was significant for L3Harris, marking the five-year anniversary of the merger between L3 and Harris. He emphasizes their "Trusted Disruptor" strategy, the achievement of record backlog, and their operational agility. The company aims to bridge the gap between traditional defense companies and new entrants by focusing on critical technologies like AI and autonomy to meet the evolving needs of national security.

The new administration is prioritizing national defense, emphasizing programs in space, missiles, and cyber systems. Internationally, there's strong demand for their products, such as software-defined radios, reflecting support for global allies. Their Trusted Disruptor strategy is bolstered by partnerships with entities like Palantir and AI-focused startups, fostering innovation. Key achievements include winning the Next-Gen Jammer competition and advancing their solid rocket motor business through successful programs, including the Glide Phase Interceptor. A $1 billion contract with the U.S. Navy will enhance communications technology, integrating Link 16 for secure connectivity across various domains.

The paragraph highlights L3Harris's efforts to advance its Trusted Disruptor strategy, including a project with the Defense Innovation Unit to develop a command-and-control system for autonomous assets. The company's open system architecture allows for rapid third-party integration, enhancing scalability and flexibility for military applications. Leadership changes are also discussed: Ken is named President of Aerojet Rocketdyne while retaining CFO duties, Sam Mehta's role is expanded to focus on enterprise collaboration, and Heidi Wood will lead the LHX NeXt organization. Ross Niebergall steps down to focus on his family after playing a vital role in Aerojet Rocketdyne's success.

The paragraph discusses recent developments for the Aerospace Industries Association, including the election of a new Chairman of the Board of Governors, who emphasizes the importance of maintaining technological edge amid global challenges and working with the industry, government, and Congress to foster innovation. Financial results for 2024 are then provided by Kenneth Bedingfield, noting key figures such as a 10% increase in revenue to $21.3 billion, a segment operating margin of 15.4%, and a non-GAAP EPS of $13.10. The fourth quarter revenue grew to $5.5 billion, with notable organic growth in certain segments, despite declines in others due to divestitures and changes in production phases.

In the article, IMS reported strong financial performance with $1.8 billion in revenue, a 9% increase, and improved margins due to effective program execution. CS also saw revenue growth to $1.4 billion, driven by demand for resilient communications equipment, with a strong operating margin of 24.4%. Additionally, Aerojet Rocketdyne experienced a 5% growth supported by solid rocket motor production. The company completed several acquisitions and divestitures and made significant advancements in its space division, including delivering satellites and achieving a record backlog. They successfully completed an engineering design review for the SDA's Tranche 2 tracking layer program.

The paragraph discusses a milestone achievement in the development of advanced space vehicles equipped with infrared payloads for missile defense, highlighting their role in the Space Force's LEO Constellation. The company's rapid progress and expertise are noted, with a focus on future opportunities in missile defense systems and alignment with U.S. defense directives. It also details significant advances in the company's LHX NeXt initiative, which aims to enhance operational efficiency and cost savings, projecting $1.2 billion in savings by 2025. This initiative focuses on improving decision-making, supply chain management, and asset monetization to better meet customer needs and increase shareholder value.

Kenneth Bedingfield provided guidance for 2025, projecting revenues between $21.8 billion and $22.2 billion, with a 4% organic growth. The company anticipates a segment operating margin in the mid to high 15% range, supported by cost savings and strong program execution. Free cash flow is expected to be $2.4 billion to $2.5 billion. The guidance assumes no major funding delays and minimal impact from recent executive orders. The company will change its reporting of non-GAAP EPS to exclude amortization adjustments, aligning with peers. If applied in 2024, this change would have increased non-GAAP EPS by $3.40 per share. For 2025, non-GAAP EPS is projected between $10.55 and $10.85, representing 10% growth. SAS revenue is expected to be $6.9 billion to $7.1 billion, with anticipated recovery from space sector budget constraints in 2026.

The company projects its operating margin to be in the low 12% range, with IMS revenue estimated at $7 to $7.2 billion, driven by increased demand in electronics for defense and maritime solutions. CS revenue is expected to be $5.6 to $5.7 billion with high 24% margins due to rising demand for communications equipment. Aerojet Rocketdyne revenue is anticipated at around $2.5 billion, with mid-12% margins due to growth in missile solutions. The 2025 guidance accounts for variability in quarterly results, particularly in Q1's short 12-week duration. The company ends 2024 with a net leverage of 2.9x, ahead of target, and plans to repurchase $1 billion in shares and maintain a competitive dividend. It aims to transfer $1.2 billion in pension assets and liabilities to reduce non-cash pension income, with completion expected by Q1 2025.

The paragraph highlights the strong performance of the company in 2024, prompting an update to its financial expectations for 2026, including increased operating margins and projected sales. Despite facing challenges, the company has shown resilience and discipline, achieving significant progress and setting a vision focused on innovation and national defense. It aims to continue growth through operational excellence and integrating advanced technologies, maintaining a commitment to national security priorities and delivering value to customers and shareholders.

The paragraph emphasizes the company's commitment to providing adaptable, scalable, and interoperable solutions to give war fighters an advantage, with a focus on resilient communications, advanced munitions, and space-based capabilities. The company is working with the Department of Defense and allies to stay ahead of threats and has proposed recommendations to modernize the national defense ecosystem in a letter to the DOGE. Encouraging others to submit ideas to the DOGE Committee, the company is eager to collaborate with the new administration, anticipating disruptive changes in 2025. The company highlights its agility, innovation, and commitment to empowering war fighters and maintaining global stability. The paragraph concludes with the opening of a Q&A session.

In this paragraph, Christopher Kubasik discusses his proactive approach to influencing policy by writing a letter with recommendations to DOGE leaders before their inauguration. He expresses optimism about DOGE's future and highlights the cumulative effect of risk-reduction policies possibly creating more risk over time. Kubasik mentions receiving positive feedback from Congress and Pentagon meetings, and emphasizes the importance of different stakeholders, including Congress, DoD, and industry, collaborating to improve efficiency and capabilities for the warfighter. He suggests that his initiative aims to spark dialogue and adaptation, noting the potential for significant change in 2025.

In the paragraph, Kenneth Bedingfield discusses the company's projected growth in free cash flow and margin improvements for the years 2025 and 2026. He explains that the growth is aligned with the company's topline growth expectations, which are expected to accelerate in 2026 due to factors like the F-35 program ramp-up and international opportunities. Additionally, Bedingfield mentions effective working capital management as a contributor to this growth. Regarding the LHX NeXt initiative, he states that at least 40% of the savings are expected to translate into margin opportunities for the company, though the timing may vary.

The paragraph discusses the factors affecting margin expansion, particularly in the Communications Systems (CS) business. It highlights the importance of considering contract completion percentages for margin growth expected in 2024, 2025, and 2026. The company sees potential to exceed a 40% cost savings margin opportunity, with the team working toward that goal daily. Douglas Harned raises a question about the potential margin upside in the CS business due to factors like software sales, international exports, and commercial contracts. Kenneth Bedingfield responds by emphasizing the need to continue performing in the business, considering the mix between U.S. and international deliveries, and the inconsistent nature of software-related income, which contributes to margin fluctuations.

The paragraph discusses the company's strategy to drive high-margin product opportunities through integrated waveforms and upgrades. They aim to manage margin compression from a mix of U.S. DoD and international deliveries. Christopher Kubasik mentions new opportunities in C2 and C3 systems beyond just selling software-defined radios, indicating a shift toward a broader network and systems approach. He notes inflation impacts from supply chain issues, particularly with electronic components, and mentions strategies like LHX NeXt and E3 savings to mitigate these. Sheila Kahyaoglu from Jefferies inquires about the $1.2 billion LHX NeXt initiative and its impact on margins, asking what drives these opportunities and which KPIs are tracked.

In the paragraph, Christopher Kubasik discusses the company's efforts to improve its supply chain resilience and achieve significant cost savings. The focus has been on indirect and direct materials, facility rationalization, and organization structure optimization. The company is also investing in digital transformation to enhance efficiency. They have achieved $1.2 billion in cost savings in two years, adding to a prior $650 million, nearly reaching $2 billion in cost reductions over six years. Kenneth Bedingfield mentions that a portion of the 2024 savings came from labor cost reductions, indicating hard decisions were made in this area, and highlights ongoing efforts to identify further savings opportunities.

The paragraph discusses Chris's perspective on the current environment for mergers and acquisitions (M&A), especially with the potential for increased activity under the new administration, which may be more amenable to acquisitions. He highlights that Boeing has assets for sale and there might be opportunities for strategic acquisitions, including those that are venture-oriented or involve new technologies. Chris notes the importance of partnerships, particularly in the AI sector, and mentions their collaboration with Palantir as an example of tapping into emerging opportunities.

The paragraph discusses future business opportunities, specifically in next-gen command and control and army network modernization, which the team plans to bid on and potentially secure by 2025. The speaker expresses confidence in partnering with AI and autonomy-focused companies, mentioning their partial ownership of around 40 venture-backed firms. They are considering bolt-on acquisitions to enhance capabilities but have not found suitable opportunities yet. The company is focused on organic growth, increasing margins, and free cash flow, aiming for straight operational growth from 2023 to 2026. The last part transitions to a Q&A segment with David Strauss from Barclays inquiring about specifics related to a CAS divestiture and expected figures for EACs, with Kenneth Bedingfield mentioning regulatory processes in 2024 affecting the timeline.

The paragraph discusses the anticipated closing of a joint venture transaction in 2025, after initial hopes for a 2024 closing did not materialize. The transaction's revenue is expected to exceed $500 million to $600 million. Despite some challenges with integration and testing in classified space programs, the company reported positive Estimated Actual Costs (EACs) for the fourth quarter and the full year of 2024, totaling approximately $40 million. However, for 2025, the company does not expect positive EAC performance and instead forecasts flat EACs.

The paragraph discusses the challenges and commitments of managing numerous complex programs, with a focus on achieving strong performance and net positive Estimated At Completion (EAC) figures by 2025. Christopher Kubasik emphasizes the team's ability to meet commitments despite challenges, using innovative ideas and savings strategies. The conversation then shifts to a question from Seth Seifman regarding space program charges, specifically whether these charges affect the difference between guided and actual margins. Kenneth Bedingfield responds by mentioning the management of a couple of classified space programs, which are significantly complete and will continue to be monitored for risks through 2025.

The paragraph discusses the challenges faced by a company in 2024 due to approximately $100 million in negative adjustments across certain space programs, largely related to high-risk, fixed-price development programs initiated before a merger. While these issues are being tackled, the company anticipates overcoming most of the risk by 2025, with key customer milestones expected in early 2026. Christopher Kubasik emphasized the complexity and risks of these programs, particularly when they are not the prime contractor. Despite these challenges, the company is optimistic about its missile tracking business's profitability and is focused on securing the SDA TR-3 win. Kenneth Bedingfield expresses excitement about his new role at Aerojet Rocketdyne (AJRD) and mentions the clear priorities ahead.

The paragraph discusses the high demand for solid rocket motors to support critical missions and address geopolitical threats, both domestically and for allies. It highlights investments in increasing capacity for missile production and improving efficiency in space propulsion. The business has a substantial backlog and is focused on maximizing performance, making investments, and seizing opportunities, including involvement in the Artemis program to return to the moon. The emphasis is on maintaining leadership, fulfilling commitments, and enhancing growth, profitability, and cash flow at Aerojet. Additionally, the speaker expresses pride in the strong team at Aerojet and in a leadership role at L3Harris. Gavin Parsons of UBS Financial then addresses Ken Bedingfield, acknowledging his busy schedule.

The paragraph involves a discussion between Gavin Parsons, Kenneth Bedingfield, and Christopher Kubasik about the impact of LHX NeXt's cost savings on revenue growth and the inclusion of Commercial Aviation Solutions (CAS) in financial projections. Bedingfield explains that while cost savings affect revenue, specifically on cost-plus and fixed price programs, about half can be seen as a headwind to revenue growth. He clarifies that CAS is factored into 2025 projections but not in the 2026 revenue framework of $23 billion to avoid complications experienced in previous years. Michael Ciarmoli then asks about the factors driving the expected increase in growth rate from 2025 to 2026 without CAS, prompting Kubasik to attribute it to the current portfolio and expectations in defense sectors like space, maritime, cyber, communications, ISR, and munitions.

The paragraph discusses the company's strong multibillion-dollar business areas and anticipates growth fueled by its core portfolio. Challenges faced due to Space Force's budget issues are expected to resolve by 2026. Emphasis is placed on the importance of streamlined processes, particularly around bids and reducing auditing time, to enhance competitiveness and win more business with reduced costs. The company is optimistic about international business, constituting 21-22% of revenue, and expects tailwinds from foreign military sales and direct commercial sales, encouraged by executive orders and increased defense spending by other countries. Partnerships with AI companies like Palantir and a focus on disruptive ventures are anticipated to contribute additional growth by 2026.

The paragraph discusses collaboration between customs and border control and military agencies at the southern border, which is seen as an opportunity for enhanced capabilities. Kenneth Bedingfield and others mention the company's potential path to $23 billion through various sectors, including the F-35 hardware, international ISR, and the Next-Gen Jammer. Richard Safran asks about potential changes in the contracting environment, particularly regarding fixed-price contracts and inflation escalators. Christopher Kubasik suggests that there is a strong desire for quicker implementation of these changes, referring to the efforts of the DOGE organization.

The paragraph discusses anticipated changes in policy and regulation, particularly within government and defense sectors, and the impact on companies. The author suggests that successful companies will be those that are adaptable, innovative, and able to work flexibly with both established and new industry players. There is an acknowledgment of the challenges posed by bureaucracy and the constant changes in executive orders and guidance, particularly regarding contract modifications and compliance. Despite these challenges, the author is optimistic about the future, emphasizing the importance of following the law, adapting, and moving forward, supported by a strong contract backlog and commitments through 2025.

The paragraph involves a discussion on the company's exposure to Ukraine and its international growth prospects. Christopher Kubasik addresses the Ukraine situation, noting their involvement through U.S. government assistance, with tens of millions of dollars already in backlog. He considers this exposure manageable and suggests that such assistance will continue. Kenneth Bedingfield then discusses international growth, indicating the company's potential to grow its international business faster than its domestic operations. Currently, just over 20% of their revenue is international, and Bedingfield believes this can increase by a percentage or two.

The paragraph discusses L3Harris's efforts to grow revenue in both domestic and international markets, noting significant demand in international markets, including opportunities in Ukraine and other regions. The speaker expresses confidence in the company's leadership and employees, highlighting adaptability amidst change and a focus on profitable growth and long-term value creation. The paragraph concludes with appreciation for the participants and a note about meeting again in April.

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