The paragraph introduces the L3Harris Technologies' First Quarter 2025 Earnings Call and outlines the format of the call, which is focused on a Q&A session after opening remarks. Daniel Gittsovich, Vice President of Investor Relations, welcomes participants and mentions the availability of the earnings release, 10-Q filing, and a supplemental earnings presentation. Christopher E. Kubasik, another speaker, notes that the discussion will include forward-looking statements and non-GAAP measures. He highlights the administration's transformative changes and L3Harris's proactive role in adapting to these changes and shaping the future, particularly in advocating for commercial-like practices within the Department of Defense. L3Harris continues to be agile and responsive to a dynamic external environment.

The paragraph discusses the recent signing of a full-year continuing resolution by President Trump, which differs from a traditional CR by allowing new program starts and greater budget flexibility, aligning with a small budget increase for 2024. Congress is considering a reconciliation package with potential additional defense funding of over $150 billion. Key congressional leaders emphasize bolstering national defense, prompting initiatives within the DOD and Congress to assess program capabilities, costs, and emerging technologies. Each military service is instructed to reduce its budget by 8% to reallocate funds to administrative priorities, and the major defense acquisition programs (MDAP) are being evaluated for budget and schedule performance. The organization's performance is solid where they're the prime contractor and dependent on others' performance as subcontractors. The DOD's priorities align with the organization's recent acquisitions, focusing on strategies against China and homeland defense. The potential 2026 presidential budget could reach $1 trillion, indicating significant top-line growth and urgency, seen as a positive development.

The paragraph highlights the company's involvement and leadership in missile tracking and defense initiatives, particularly focusing on the Golden Dome project. It mentions the company's readiness to support new initiatives due to its significant investments in space factories and its unique position of winning awards across all Space Force tracking layers. The hypersonic and ballistic tracking space sensor satellite, HPTSS, launched in February 2024, plays a critical role in tracking NewRain hypersonic missiles. Additionally, the company is involved in both offensive and defensive missile programs, emphasizing its long-term growth strategy. The paragraph also touches on the importance of simplifying the federal procurement process, aligning with one of the executive orders aimed at reforming federal acquisitions, which the company supports for the benefit of the defense ecosystem and national interests.

The paragraph outlines efforts to prioritize budget, innovate, and enhance efficiency in alignment with strategy and customer needs, particularly as the Department of Defense moves towards commercial procurement models. The company's LHX NEXT initiative mirrors such principles to accelerate internal transformation. Internationally, there is growing defense spending among NATO allies, with increased demand for advanced equipment. The company maintains strong customer ties through NATO offices and is exploring collaborations with European companies. It recently won a $1.1 billion contract with the Dutch Ministry of Defense for network modernization and radios, emphasizing secure, resilient communications. Looking towards 2026, the company remains confident in reaching financial goals of $23 billion revenue, 16% margins, and $2.8 billion in free cash flow.

The paragraph discusses a company's financial performance and strategic initiatives during a reporting period. The new administration's priorities have positioned the company to continue profitable growth and meet customer needs. Highlights include securing significant contracts in the ISR business and international markets totaling over $550 million. Kenneth L. Bedingfield emphasizes the company's strong first quarter, with improved performance across its product portfolio despite some challenges. The firm has adopted a new non-GAAP EPS methodology to enhance transparency. The quarter's revenue was $5.1 billion, with a segment operating margin of 15.6%, marking six consecutive quarters of margin expansion. Non-GAAP EPS increased by 7% to $2.41, while free cash outflow was about $70 million, less than half of the previous year's first quarter, projecting annual free cash goals of $2.4 to $2.5 billion.

This quarter, the company returned nearly $800 million to shareholders, including $570 million in share repurchases and $230 million in dividends, marking the 24th consecutive annual dividend increase. They plan to repurchase over $1 billion in shares this year and transferred $1.2 billion in pension obligations to an insurance provider to reduce future risk. In their first-quarter segment results, CES revenue grew 4% to $1.3 billion due to international demand, while IMS revenue fell 2% to $1.6 billion due to lower aircraft missionization volume. However, operating margins improved due to high-margin products and cost savings. SAS revenue decreased 6% to $1.6 billion due to program timing and reduced F-35 volume, with operating margins impacted by challenges in legacy programs, partially offset by cost savings. AR experienced 9% organic growth driven by increased missile program production and new program ramps.

The paragraph discusses strategic partnerships and collaborations as part of a trusted disruptor strategy. It highlights a new partnership with Kuiper Government Solutions to develop resilient satcom solutions by combining tactical communication systems with Kuiper's global satellite network. This collaboration aims to enhance mission assurance across multiple domains through secure communications. Another partnership with Shield AI focuses on AI-enabled unmanned systems for electronic warfare, improving decision-making in complex environments. Additionally, progress is being made with Palantir on the US Army's Titan program, where they lead communications systems integration. Overall, these collaborations align with growing demand for innovative, hybrid networks and AI-driven solutions.

The paragraph discusses the integration of Palantir's Foundry software with tactical radio networks to enhance battlefield AI and data processing, aiming to improve mission execution. This partnership is key to developing AI-driven and resilient communication systems for a next-gen C5ISR architecture for international clients. The collaborative approach accelerates innovation and adapts to mission-critical needs. Kenneth L. Bedingfield then shifts focus to the LHX NEXT initiative, highlighting $1.2 billion in savings through cost optimization and supply chain improvements. The next phase will involve enterprise transformation using AI, digital transformation, and a new LHX operating system to streamline operations.

The company is restructuring its business by finalizing the sale of its commercial aviation solutions segment and shifting its fusing and ordnance systems to a different division, aiming for better synergy and efficiency. For 2025, the guidance suggests cautious optimism, with the company's revenue projected to be between $21.4 billion and $21.7 billion, despite a $525 million revenue reduction due to the divestiture. The company maintains its operating margin forecast and expects a non-GAAP EPS of $10.30 to $10.50, factoring in both a reduction from the divestiture and gains from improved operations and strategic capital actions. The outlook is cautious due to uncertainties like the FY 2026 defense budget and Department of Defense priorities, with further updates anticipated in the next quarter's call.

The company has reaffirmed its free cash flow guidance of $2.4 to $2.5 billion, despite significant revenue reductions from the CAS divestiture. Communication systems revenue is expected to be $5.6 to $5.7 billion with a slight profitability increase to 25%. IMS revenue guidance dropped to approximately $6.3 billion due to the CAS divestiture and FOS business transfer, with an operating margin expected in the high 11% range. Space and airborne systems revenue is projected at $6.9 to $7.1 billion, considering 2025 budget constraints, and Aerojet Rocketdyne's revenue is expected to reach $2.8 billion. The company anticipates margins to stay around mid 12% and 12%, respectively. Mitigation strategies are in place for potential tariff impacts, ensuring minimal disruption. Overall, the company remains confident in navigating the dynamic environment while maintaining execution focus.

The speaker summarizes the company's strong position and growth strategy in the defense industry, highlighting support from a new administration and a potential $1 trillion budget in 2026. The company has been consistently growing its top line since Q3 2022, with new opportunities contributing to future growth, except for one quarter in 2025. Despite challenges, they have expanded profitability margins for six consecutive quarters and increased free cash flow growth since 2023. Deleveraging is mostly behind them, and they're focusing on share repurchases and dividend increases, with a clear path to mid double-digit growth in free cash flow per share. The speaker then opens the floor for questions.

Seth Seifman expresses concerns about international sales for L3Harris Technologies, particularly in Europe, due to potential tensions between the US and European allies. He inquires about the company's confidence in its future prospects there. Christopher E. Kubasik responds by highlighting recent orders and discussions with European countries like The Netherlands, Poland, and Germany, noting that modernization programs and the urgent need for new technology drive these deals. He emphasizes that despite political issues, these countries seek the best available technology, which L3Harris provides through its superior tactical networks and software-defined radios. Following this discussion, Ronald Epstein from Bank of America asks about investments in "Golden Dome" and whether they anticipate an award.

The paragraph features a discussion between Christopher E. Kubasik and Kenneth L. Bedingfield about the growth and strategic developments in their satellite business. They highlight the importance of their HPTSS satellites, which are the only proven satellites in orbit that meet critical needs, and express optimism about securing contracts under the current administration. They also discuss the significance of their investments related to satellite manufacturing, particularly in missile warning and tracking, and mention the strategic alignment with their recent acquisition of Aerojet, emphasizing the importance of Solid Rocket Motors and interceptors. No awards have been made under the Golden Dome initiative yet, but it remains a key area for future opportunities.

The paragraph discusses the focus and strategies of the company Aerojet concerning its propulsion technologies and partnerships. Aerojet is well-positioned with its involvement in multiple interceptor programs, aiming to enhance its capabilities and production in next-generation technology such as the next-gen interceptor and glide phase interceptor. They also have a role in providing targets for the missile defense agency, which is considered an important part of their focus on the Golden Dome initiative. The paragraph ends with a transition to a question from Douglas Harned from Bernstein regarding SAS, which has had success with SDA contracts, and queries about the challenges with classified programs and their impact on margins, with Kenneth L. Bedingfield poised to respond.

The paragraph discusses the progress and challenges faced in certain programs, noting that while financial adjustments have been necessary, these challenges should be resolved by 2025 or early 2026. The programs are crucial for national defense and are expected to lead to future growth and profitability once current technological issues are overcome. The success of the SDA business, transitioning from weather sensing to missile tracking systems, is highlighted. Significant investment in the space business is acknowledged, despite challenges, with a focus on supporting national defense and maintaining guidance. Christopher E. Kubasik notes these programs as "legacy" since they predate a merger.

In the paragraph, Chris Kubasik from L3Harris Technologies discusses the challenges and opportunities in fixed-price development programs and the potential for future growth once costs and specifications are known. Furthermore, Sheila Kahyaoglu from Jefferies inquires about the airborne sector of the business. Chris explains that while there are currently headwinds related to the F-35, growth is expected in 2026 with the TR3 development. He emphasizes L3Harris's robust presence in the airborne market, including their involvement in new programs like the T-7, and expresses optimism about the company's growth prospects in this sector moving forward.

Kenneth L. Bedingfield shares his positive initial impressions of Rocketdyne after a few months in his role, highlighting the business's strong team and position to meet national defense needs. He emphasizes their focus on capacity expansion, especially in the missile solutions sector, noting significant revenue growth and new program developments in large solid rocket motors. Bedingfield discusses opportunities with Aerojet's Golden Dome and the importance of supporting the space propulsion side, including NASA's SLS, Artemis, and RS-25 engine, which align with national security objectives. Additionally, he mentions efforts to enhance production efficiencies for the RL10 engine supporting ULA.

The paragraph discusses L3Harris Technologies, Inc.'s positive outlook following its acquisition of Aerojet. Christopher E. Kubasik highlights the company's strategic positioning and recent improvements, emphasizing customer satisfaction and a promising future. The conversation then shifts to a Q&A session with Noah Poponak from Goldman Sachs, who inquires about the company's ambitious $23 billion sales target for 2026. He questions the company's ability to achieve the necessary organic growth, given current rates, and raises concerns about pension income and interest expenses affecting 2025 forecasts. Kenneth L. Bedingfield responds, indicating confidence in meeting the 2026 goals.

The paragraph discusses several financial and operational updates from a company's recent performance and future outlook. The company has booked classified and international awards that will boost revenues in 2025 and 2026. They anticipate growth in the space sector despite budgetary challenges in FY 2025, with increased budget projections for FY 2026. Aerojet Rocketdyne is expected to contribute to growth through missile capacity and development wins. The F-35 program's current issues are expected to subside by 2025. The company aims for a 7% growth rate in 2026 and feels more confident about achieving it compared to the previous quarter. Additionally, solid Q1 performance is noted, with benefits from interest, capital deployment, and share repurchases influencing EPS and reducing share count.

The paragraph discusses the positive outlook for increasing earnings per share (EPS) through segment performance and capital deployment. Christopher E. Kubasik, likely a company executive, reports no unusual slowdown in orders despite an administrative change, maintaining a confident book-to-bill ratio of 1.14, boosted by substantial early Q2 orders. He notes growth in cyber sectors and Middle Eastern opportunities, with AI partnerships promising future contributions. When questioned by Robert Stallard from Vertical Research Partners about potential involvement in enhancing the F-35 aircraft capabilities, Kubasik confirms L3Harris Technologies' role in leading the TR3 hardware, suggesting significant future contributions to the aircraft's capabilities.

The paragraph discusses the defense retrofit market and positions the speaker's company as well-capable in this area, especially in collaboration with Lockheed. The speaker, Christopher E. Kubasik, responds to Myles Walton's inquiry about meeting with the president and insights into the fiscal 2026 budget. Kubasik anticipates the 2026 budget will be released in May, highlighting a shift in allocation from program-specific to mission-level funding, aligning with priorities like homeland missile defense and counter UAS. There's a focus on ensuring program support within this new budgeting structure.

In the paragraph, Christopher E. Kubasik discusses his commitment to procurement reform, emphasizing efforts to speed up processes and save money within the Department of Defense (DoD). He responds to Jason Gursky from Citigroup by explaining that the intent of these reforms is both to reduce overall spending and to increase the purchasing power of the DoD, enabling them to get more value for their money. Kubasik emphasizes the importance of the defense industrial base having a role in these reforms, which involve multiple stakeholders, including Congress and the warfighter. He also highlights that a potential full rewrite of the Federal Acquisition Regulation (FAR) could impact different companies and technologies differently, ultimately affecting the industrial base.

The paragraph discusses the importance of speed and agility in defense acquisition decisions to save money and provide capabilities to the warfighter faster. It highlights the benefits of multiyear contracts and competitive bidding to increase purchasing power and address the backlog caused by inflation and COVID-19. The author argues for reforming regulations like the Federal Acquisition Regulation (FAR) and cost accounting standards, which create inefficiencies. They suggest raising the threshold for the Truth in Negotiations Act (TINA) to contracts over half a billion dollars. Ultimately, the adoption of more commercial-like practices within the Department of Defense (DOD) is encouraged to favor companies that can quickly adapt to changes.

The paragraph discusses the adaptability of L3Harris Technologies, Inc.'s culture, especially in response to changes brought by LHX NEXT, indicating that the company is well-prepared for reforms that include IT and software costs. It anticipates positive outcomes from these changes and notes that even Secretary Hagset has issued guidance on software procurement, highlighting a shift towards subscription and commercial models as a pivotal change for the industry. In response to questions from analysts, Kenneth L. Bedingfield mentions significant international revenue growth, especially in the communication and ISR sectors, contributing to the company's confidence in achieving its 2026 growth targets. They see international expansion as a key growth driver and have incorporated it into their future projections.

The paragraph discusses the company's strategic focus on achieving 7% growth by 2026 through a solid path of multiple initiatives in both domestic and international markets. It highlights an ongoing effort to refine the portfolio by concentrating on core competencies such as ISR, space, resilient communications, weapons, and munitions, rather than being the largest company. The company has divested and acquired $3 billion in revenue since a merger and remains optimistic about its current portfolio. There's an openness to divesting smaller, non-core entities if favorable offers arise, as the company prioritizes being the most valuable rather than the largest.

The paragraph discusses the strategic alignment of a company's portfolio with the current administration's priorities, emphasizing the affordability and international appeal of its products. The company's partnership strategy is noted as a growth driver, with specific mentions of partnerships with Kuiper, Palantir, and Shield AI, among others. Kenneth L. Bedingfield opens the floor to questions, and Peter Arment inquires about the progress of SDA programs. Christopher E. Kubasik responds, highlighting the successful performance of Tranche zero in orbit, progress on subsequent tranches, and the possible acceleration of a contract award to 2025. The programs are part of the Golden Dome architecture, with expectations for ongoing business due to the cyclical nature of satellite constellations requiring replenishment.

In the final remarks of the conference call, the speaker expressed optimism about the company's future, particularly in missile tracking and warning amid hypersonic threats, and thanked the employees and leaders for their hard work over the years. The speaker also paid tribute to the late Rob Spingarn, a respected A&D research analyst and valued friend, acknowledging his contributions and expressing condolences to his family. The call concluded with thanks from Kenneth L. Bedingfield and the operator.

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