Q2 2022 L3harris Technologies Inc Earnings Call
Greetings and welcome to the Altria Harris technologies second quarter calendar year 2022 earnings call.
At this time all participants are in a listen only mode.
Today's call will be focused on our questions and answers following brief opening remarks.
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It's now my pleasure to introduce your host Rajeev Motwani, Vice President of Investor Relations you may begin.
Thank you Rob good morning, and welcome to our second quarter 2022 earnings call, we published for industrial water after the market closed yesterday.
Mine format that we're pleased to continue given the positive feedback so todays call will be focused primarily on answering your questions.
Joining me for the call are kristie basic or C. O P E O M. Michel Turner, our CFO a few words on forward looking statements and non-GAAP measures.
Forward looking statements involve risks assumptions and uncertainties that could cause actual results to differ materially from.
More information, please see our industrial water and SEC filings a reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the industrial relations section of our website, which is also the arris dot com, where a replay of this call will also be available with that Chris I'll turn it over to you for some brief comments.
Okay. Thank you Rajiv and good morning, everyone I'm.
I'm encouraged by our progress as we continue to execute our trusted disruptor strategy, we're investing in targeted capabilities in and outside of the company and we've had over $1 billion. Notable Prime award this month alone.
And we're pursuing international expansion as our customers need mission critical solutions.
In a rapidly changing threat environment.
We're also encouraged by how budgets are shaping up globally.
The threats are evident and they're scrubbing urgency that support defense spending in the U S NATO and elsewhere.
This is a stark contrast to a couple of years ago, where budgets were expected to be flat at best.
Book to Bill of 114 in the quarter supports this shift in the budget environment.
At the same time, there are factors outside of our control such as supply chain inflation and labor market tightening tightening that are offsetting and masking our progress as well as the opportunities ahead.
Our results however, highlights that we're working to mitigate these challenges.
Our second quarter results are consistent with prior commentary of a back half weighted year for revenues margins and cash.
Nonetheless, we kept EPS relatively stable year over year, and our free cash flow snapback from breakeven last quarter to more than $700 million.
In addition, while we're while we're reiterating our guidance.
We're now pointing to the low end of the range across the board.
Based on the timing of some key awards, including protest activity and a prolonged supply chain recovery, we decided to take a more measured approach, especially given the macroeconomic and geopolitical uncertainties that are somewhat unpredictable.
So despite the noise, we continue to execute on our strategy with that Rob Let's open the line for questions.
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Okay.
Thank you. Our first question comes from line of David Strauss with Barclays. Please proceed with your question.
Thanks, Good morning, Thanks for taking my question.
Yeah good morning.
Chris can you give us a lay of the land on F 35, and in Tech refresh three and weather.
Whether you still see about $150 million headwind there this year before beginning to recover in a in 'twenty three and then bigger picture are you on the <unk>.
Mr Letter did a great job.
Highlighting the budget upside that came through in 'twenty, two and you know the plus ups that look like in 'twenty. Three when do you think that really begins to materialize for the industry in terms of seeing it come through in terms of the numbers.
And you know how do you think their strategy positions us to capture that upside relative to your peers.
Alright, Thanks, David I think there were about three questions in there let me see if I can get him let me start with F 35.
The way I gave a long answer and it lists all the components that we're involved with but it really comes down to the ICP.
Graded core processor. So today I think I'm going to give you a shorter answer because we actually completed the safety of flight certification and the first flight systems were delivered.
To Lockheed Martin last month, so great news relative to tier three and meeting that that delivery a little late but nonetheless, it's progressing so are lot 15 hardware starts getting delivered later this year.
And Nicole the whole focus here is to support Lockheed to enable their 2023 aircraft deliveries so feeling much better about the progress. The team has made I know they are worked a lot of long nights and weekends to get here. So I appreciate that effort.
Financial numbers.
Accurate based on what we've told you before.
Relative to the strategy I think it's working we've talked about this trusted disruptor strategy with more innovation more prime and more international so when I look at the innovation. This quarter, we made a small investment in the free space optics company called in mind, Eric We've had a handful of investments with shield through our venture capital and we continue to.
<unk> spend a fair amount in high R&D to position us for new wins.
Ah the Golden Prime more has been great you know last year with and earlier this year significant wins in ISR and hem B U S V. H B T. S. S and of course, we then went in a majority of the share on the radio modernization programs I mentioned, so far this year S T a tracking tranche.
One was a big win and here in the month of July . We were also awarded a C. D C, which is a cooperative engagement capability really a pillar of the Janssen to initiative for the Navy, which I'm quite excited about and another program, where prime and called Eagle, which is the expeditionary advanced ground link.
Again tied to a free space optics, so pretty excited there and then internationally you know at a high level. We've had mid single digit growth. The past couple of years. Our book to Bill has always been over one O and I think the ability to have these are focused countries.
Put the resources, where we think the opportunities are it makes a lot of Samsung just last month.
We added Poland, and Italy to our focus country.
Program given the.
Opportunities over in the in Europe as far as when we're going to see it I think it's.
Just a matter of getting the twenty-three budget you know we've been tracking the markups were very excited to see that our programs are supported the opportunities. We're chasing are supported so whether the base budget or the markup were very well positioned including some of the news coming out of the Senate, where they go this week so.
You know, we basically need a budget I think everybody thinks there'll be a CR. So I'm guess I'm twenty-three you know when the awards are made we'll start to see industry and Oh, three arris benefit. Thanks.
The next question is from the line of Sheila <unk> with Jefferies. Please proceed with your question.
Good morning, guys and thank you for the time that I tried to follow there Paul just a follow up on David's question for I'll say off the top line up accelerating to mid single digit crowd.
Single digit decline in the first Pat can you talk about the drivers of that improvement how much is coming from our base business accelerating personal better avionics and eat up all your volumes and how do you think about the growth going forward given some of the progress on F 35.
Yeah, I'll I'll take the first shot and then maybe ask Michel to give a little more color on the AR on the sectors, but you know space is clearly our fastest growing sector in the company. This win that we had earlier this bonds for our S. T. A tracking tranche. One is just this is just a huge opportunity if you recall.
We won a trunk zero for four satellite. This is 14th satellites are pretty excited about this this particular win and again, it's an example, where we're prime and we have the payload capabilities and that's ultimately where the value resides so as a reminder, $700 million award 14th satellites.
It really ties into our responsive satellite strategy couple of years ago. It was nonexistent now we have satellites and low worth orbit medium Earth orbit and geosynchronous orbit, so it's really going well.
I think at the date of the merger we had no business with the missile Defense Agency now where we're smack in the middle of that a growing business line. So I'm really pleased with where we are I think are the other day, Michelle and I were looking we have about a $20 billion pipeline and space alone and when you look at our capabilities and missile defense.
Weather like I mentioned, all orbits and even ground capabilities, it's quite exciting, but Michelle you want to talk about the rest of the sector. Yeah. No. He did a nice a summary space in terms of high to a high to mid single digits in terms of growth.
Mission Avs and Onyx perspective. This is the ramp that we talked about on F. 35, So as we head into production, you'll see that kind of in the second half and then also Chris had mentioned that but Intel and cyber afraid our classified business is continuing to grow as well and we'll expect to see that ramp in the second half as well.
Thank you. The next question is from the line of Ron Epstein with Bank of America. Please proceed with your question.
Hi, Good morning. This is Elizabeth I'm, sorry, Ryan how are you.
Hi, Elizabeth Hi.
Hi, can you give us some color and what you're seeing on the chip side of the supply chain and whether you're seeing some easing there or any sort of color you might be able to provide would be great.
Yeah, Let me, let me start just at a high level I think at.
At least Oh, three Harris I think the whole industry is now realize there's there's a new norm.
Supply chain and you know, we're adapting to that as quickly as we can you know in the past the whole focus was just in time inventory inventory reduction single sources and you'd always go with a low cost better without serious consideration on the certainty of supply and delivery. So we have multiple.
We'll work streams going on in parallel and I think we're doing a pretty good job in the short term trying to mitigate and avoid the disruptions, but we're also looking how we revamp our supply chain resiliency for the long term so I mentioned in the past.
Invested in tools to get end to end visibility beyond tier one.
We're investing in critical materials, smart inventory safety stock, which I understand builds our inventory balance you'll see that on our balance sheet, but I think it's the right business decision.
And we're trying to move to more localized and distributed production to shorten the whole supply chain network to get our parts even quicker and then where are you now looking at multiple sources for every part so a complete turnaround almost a 180 from where we were three years ago, but this is the new norm in our opinion. This is what we're doing.
Michel you want to talk a little bit about the headwinds and the recovery yeah. So just to frame it a little bit in terms of the numbers to Chris's point, what's the thing right. So coming into the year, we anticipated that we would see a first half impact, particularly within electronic components. We are seeing that play out in terms of our first half results.
Additionally, we also talked about seeing sequential quarter over quarter improvement, we are seeing not from Q4 into Q1. Additionally from Q1 into Q2, albeit it is more modest than what we originally anticipated in our original guide back in January So when you look at our guidance update pointing to low.
Under the range part of that is to Chris's point. This elongation of the supply chain impacts that we're seeing out of 'twenty two and into 'twenty. Two 'twenty three I'd also highlight the risk mitigation is that Chris talked about in particular in terms of how those are working we've been talking for six months about.
Moving away from sole source suppliers, along with redesigning parts, we're continuing to work those activities. Many of those start to come online in the second half and so that is part of where we're getting some of our confidence in terms of the recovery in second half with the results of those actions starting to take effect.
Our next question comes from Atlanta, If Richard Safran with Seaport Global. Please proceed with your question.
Chris Michel Rajeev good morning, how are you.
Good morning Rich.
So I I thought you might comment on the so-called armed Overwatch program, where you're competing with Textron and also could you talk a bit more about the improvement you mentioned the commercial aviation.
Interested in what the back half gross outlook might be for that business and if you think that momentum continues into 2023. Thanks.
Alright, Rich, let me, let me take harmed Overwatch and Michele will talk to you about the aviation. So yeah. This is a program that goes back.
The late 19 early early 'twenty 'twenty and we.
We decided to take a clean sheet approach to this program to align with the.
The requirements team has spent a fair amount of money in R&D and capital we'd have lots of demos that have gone well.
We think our position us in.
And in a good place to potentially a windows program.
75 aircraft, it's clearly a couple of billion dollar opportunity here domestically and even more internationally. There's a lot of need for this type of a capability in countries that are fighting fighting terrorism, we've had discussions with countries in Africa, the middle East I think is where.
The initial potential as you know whether its border protection or maritime high operations light strike ISR, it's pretty flexible pretty affordable program. So we kind of have to wait and see Oh boy something comes out in the next week or two and I think it's a key wanted to watch in my opinion I know.
I know, what's important to our company and it really would validate our strategy and the pizza and the thesis for the merger because we invested in the the innovation we started with a clean sheet. It's another opportunity to be a prime integrator that has international potential and it also has a pull through of our products.
<unk> West Cam tourists radios weapon carriages in EW capabilities. So, we'll see what happens I'm pretty excited about it and maybe.
Maybe what that will will go to Michele yeah, and I would just add to their armed Overwatch in terms of second half ramp when you look at our overall ISR business. This is part of our expectations in terms of growth.
Particularly around these aircraft initialization, we didn't have those in the first half. So it we're chasing three to five programs. Here. This is one of them instead of Christians point, we're excited about seeing this come online and I'm hearing about a potential win.
Back to the question on the commercial aviation. So we are continuing to see recovery. This will be our fifth consecutive quarter of double digit growth. The first half of the year. Our overall commercial businesses, which also includes our public safety was up double digits and we anticipate that that's going to continue through the end of 2020 two.
The next question is from the line of Peter Arment with Baird. Please proceed with your question.
Yes, good morning, Chris challenges.
Hey, Chris just circling back a little bit to David's question on the budget, so 40% of L. Three's International revenues are in Europe , and I guess your total international book to Bill has been averaging around one or above one in the past 12 months I guess, specifically what do you see kind of playing out for for L. Three and Europe , I mean should we expect bookings to accelerate twenty-three any kind of color there.
Just given all the budget actions.
Claim activity.
Yeah No I appreciate the question Peter clearly clearly we have opportunities in Europe , you know we've talked about some ISR capabilities that we've been a we've already won and in the past, where we continue that aircraft and we have a path to get to eight eight aircraft for this particular country clearly with you Craig.
You know I think we are we have a core competency and a lot of experience.
Working with the Ukraine security assistance initiatives the U S. The AI money, that's always been in the budget. So clearly the radios the night vision goggles.
Even some ISR capabilities position us well well there and as I mentioned, we're going to open offices in Europe are the NATO countries Poland.
Big opportunity, where we're who submitted a few a few beds again with comms resilient Com Satcom, you know at a high level, that's that's where I see us making.
Making the most progress in the near term and you know even are impacting our 2022 financials favorably and expect it to continue into 'twenty three.
The next question comes from the line of Doug Harned with Bernstein. Please proceed with your question.
Good morning, Thank you.
Hey, good morning, Doug.
I wanted to I'm trying to understand what's going on in tactical communications, a little bit better they've had a rising backlog, but at the same time, you've been constrained with supply chain issues.
And what I wanted to get it is to understand once so first once the supply chain.
Is constraints ease up you know what kind of trajectory do you expect to see as radios are delivered a big surge or more of a long term a better growth outlook and then along with that.
We've seen you keep your margins margins have held pretty well, even though it's got a lot of inflation exposure and you've got these supply chain issues I mean, how do you see the risks around margin there as you go forward, if we see persistent inflation.
Okay. Thanks, Let me, let me take a few make a few points and then Michelle will give you the numbers I mean, you're absolutely right.
High demand for.
For our radios and I think that's one thing that the conflict in Ukraine has highlighted the importance of a resilient com. So you know we have opportunities in Australia are 300 million for what's called the <unk> phase two with the Australian Defense Force you know that.
Over 6000 radios, we should hear on that maybe in the next month or two we've talked about the kingdom of Saudi Arabia, and the radios there.
The first 4000, or so cleared congressional notification and in August we're going to have our first article acceptance up in our Rochester, and they've ordered a couple of thousand more so that's going through the congressional notification process.
In the U K, the Morpheus program again 100 million dollar.
Award approximately so all of those things are you.
You know building the backlog as you say I will highlight that I think it was last year. You know we knew there was a supply chain shortage and would have the third so we invested in the capacity. So we now have more capacity Michel will give you the numbers, but we can clearly.
Due to better.
And grow.
Without any constraints.
Last year, we had about 20 suppliers on a red list and are now we're down to five that we're watching carefully and obviously, we need all the parts, but but that's been a been pretty pretty helpful. The last thing I mentioned before given the Michelle I've talked in the past, how we reengineer and redesign our our products or our components based on availability.
<unk> and <unk>.
Just this week I was looking at our data, we actually read the redesigned over a thousand component parts, you know products, whether its radios night vision goggles west Cam balls to to to be able to make these commitments and continue to.
We deliver our products so I'm pretty proud of are our engineering team and how they've been able to adapt so that's kind of at a high level Michel you want to talk about the capacity and the ramp capability. Yeah. Yeah. Good morning, Doug So just to your point in the first half and we did consistent with our expectations. We did see our tactical communications.
Download double digits really driven by the electronic component constraints as we go into second half, we expect that that's going to grow in the high double digits. So to your point, John we expect that that starts to ease from a capacity perspective, we've made the investments that Chris talked about and continuing to see the electronic components.
In Peru, it's going to be critical for the second half and as we go into 2023, and we do have an elevated backlog to your point. It's about 1.5 billion. So we have a healthy backlog that will be looking at as we go into 2023, and Additionally, I'd now to the international question the International book to Bill within Tech.
Communications is 1.15 within the quarter and so this really speaks to the overall conflict environment, Ukraine opportunities that we're seeing and we expect that that well be a benefit for us as we go into 'twenty 'twenty three but a lot of these orders are also being considered over a couple of years and so you should think.
About it in terms of 'twenty 'twenty, three 'twenty 'twenty four and into 2025.
Yeah.
Our next question is coming from the line of Robert Stallard with vertical research. Please proceed with your question.
Good morning.
20th Robyn.
I'm, Chris I was wondering if you could comment on this a N S situation and what happened there and in conjunction with that whether you have any additional M&A deals pitching the pipeline. Thank you.
Yeah, I would say are clearly are relative to our M&A pipeline. We we were looking at opportunities all the time looking for game changing solutions.
That are going to help us with our you know with our customers. So yeah. We're looking at a handful we continue to look at our M&A on a regular basis. You know, we're also watching the regulatory environment and seeing what what could potentially be approved in.
Any any potential overlap or antitrust issues. So I'd say, we have a healthy process, we look at things all the time and.
Don't see us in a position to announce anything.
And the next quarter or two but you know we'll continue to continue to look you know relative to enter so you know we were fully aligned with the U S National Security leadership on this matter and.
I think all the reporting out there made it clear that no deal is going to happen at least with us. So maybe someone else is talking to them, but not me so hope that helps.
Thank you.
The next question is from the line of Pizza give us he was the Olympic Global. Please proceed with your question.
Hey, good morning, everyone.
Good morning, Hey, Chris something you'll probably super frustrated about but this next gen jammer low band.
Ongoing protest can you give us any sense of you know for key dates or milestones in terms of kind of getting that resolved. It's I don't I know, it's dragged on probably way longer than anyone expected.
Yeah, Yeah, well you know Pete I don't really get frustrated about much but this has taken a long longer time than anybody wanted so theres going to be a a re procurement you know between us and and Northrop We all signed a an agreement as to a path forward. So.
If I could get into RFP.
You know when the next month or two we'll update our proposal and our I would think in mid 2023, hopefully earlier 'twenty 'twenty three the Navy will make a selection and we'll move on it.
About the capabilities.
Was that the navy needs and the threats that we keep talking about and.
We respect the you know the process too.
We allow people to protest and you know I think there's been four or five different judges and reviews and such but it's progressing. So it was over 100 million of revenue we had in our plan for this year. So that's kind of giving us a little headwind will will move it into 'twenty three the teams ready to go we like our technologies like our solution.
You know, we'll wait for the Navy to select us again hopefully.
Yeah.
Our next question is coming from the line of Noah popping up with Goldman Sachs. Please proceed with your question.
Hi, good morning, everyone.
Good morning, good morning Noah.
Wondering if you could just talk a little bit more about the back half as you see it now relative to the prior guide.
You know that the acceleration in organic revenue growth to mid single.
You know how much of that is <unk> universe for Q.
You know how much visibility you have versus things that could slide and then if there's anything on the cash flow side in terms of you know payment timing that you're that you're looking at as well. Thanks.
Yeah, So I'll jump in and then Christian can feel free to complement so in the second half to your point in terms of the drivers. It's really three components. One is around supply chain recovery and so as I noted earlier, we had an assumption that we'd have a pretty healthy a hockey stick going into the back half of the year as we're seeing the supply chain environment.
Elongate into 2023, we've mitigated that a bit in terms of the change in the guide to the lower end of that range. Although we still do have a hockey stick going into the second half I will note, though that as we're sitting here in Q3, we have similar challenges to what we had in Q1 and Q2 and so the risk profile is very consistent.
In short we delivered on in the first half.
The second is roundly around our new program wins that Chris mentioned S. T. A along with spear. These are two new awards that we've already won and so the back half we will be accelerating as those programs come online and then the third piece is around our ISR mission innovation programs, we talked about armed for watch there are a number of.
Other ISR mission as Asian programs that we are pursuing we expect those awards to happen within Q3 with a ramp happening in Q4 and know what to your point between Q3 and Q4 I would say, it's fairly consistent youre not going to see another hockey stick from Q3 to Q4, so hitting expectations in Q3 is what we're for.
So now with that expected to continue into the fourth quarter.
Yeah, I'll just chime in though at a higher level you know the approach we've taken and we talk to the leadership team as you know, let's let's just control the controllable you know theres a lot of.
Frustration I think out there in the in the system and you know we've kind of taken the approach that you know in the last two years have clearly been.
Unprecedented weather pandemic crane inflation supply chain all of the stuff. We know so when we give the guidance for the second half and Michelle laid out you know we want to let you know it's kind of hard it's harder than it has been in the last several decades to predict the future on the visibility given the uncertainty and the volatility.
To changes literally on a on a daily basis. You know there are some days, where we get a call from a supplier that they're gonna be a week late in the next day someone shows up a week early I mean, it's really it's really very very dynamic we're trying to stay calm and relaxed and control what we can control and mitigate those things that we can then commuter.
Kate to the best of our ability with the upside and the downside is the interesting thing is you know, we're just talking about a bow wave and in all cases, we're not losing things sometimes they take longer to get awarded sometimes they slip but you know we're looking forward to the to the new norm in some of these uncertainties are.
Dissipating.
Just to go back to your question in terms of cash the expectation for the second half is really split between Q3 Q4 and more like a 30 70 split.
Our next question is from the line of Morgan Stanley .
Christian Landi with Morgan Stanley . Please go ahead with your question.
Hey, good morning, Chris Michelle.
Good morning Duane.
You were down selected for phase one of the sad and attack weapon. So a strike weapon like this sounds like relatively new territory for L. A checks and you're up against competitor strong missile Heritage can you talk about your strategy here is the missile market something you're focusing on more generally or is there something about this.
Program that plays to your traditional style.
Yeah, No. That's a great great question, we we started investing.
And weapons, I think going back four or five years.
When I when I mentioned, we set up the agile development group. This is this is right right in their sweet spot. We have multiple classified opportunities are this is a fair to ground tactical missile.
I think it's when you look at the budget. If you look at the threats, we looked at our capability I think we're in really good shape here, we've taken a clean sheet approach them and I think that's what's going to be the differentiator I mentioned that on.
You know harmed Overwatch I mentioned it here right, we're not taking an existing capability that's been successful for decades and tweaking. It we're taking a clean sheet approach, we're investing in our in our seekers, which I think is is unique and has great capabilities and you know I'm proud of the team to see us get down collected on this one.
Classified things, but we're also getting down selected like anything it starts out a little slow.
I think there's three of US I know, there's three of US and sometime you know in August we will get the gate to award and I think in 2023 early twenty-three they'll probably down selected to you know and then the fly offs in the fund again. So this is clearly a core competency for us it's a market that I like.
And you know I think it's a similar to what I talked about is kind of disrupt the market and I think a lot of people were surprised when they retire.
Wanted to understand and attack weapon and there'll be more of this in the years ahead.
Our next question comes from the line of George Shapiro with Shapiro Research. Please proceed with your question.
Yes, good morning.
Good morning.
I was wondering on the cash flow your inventories are up like $260 million in the first half I assume some of that's due to the supply chain issues, where do you expect that to go or where does it need to go for you to meet your cash flow guidance, because obviously like usual, it's much more second half weighted than first half.
Yeah. Thanks for the question George So when you look at our first half versus second half you're absolutely right. Most of our cash generation is in the second half with a healthy amount of that coming from working capital reduction assumptions and so to your point about the inventories I'm clearly we are building in anticipation of that second half ramp and so when you look at our product.
Based revenues, which is about 25% of our overall portfolio that is a key driver in terms of ourselves uptick within the second half. The other piece I would note is as within our ISR mission as Asian business to the extent that we are buying aircraft in anticipation of those programs coming online in the second half.
That also sits within the inventory and so Chris noted several of our programs that we're pursuing we anticipate a couple of those happening of stuff, that's four or five we're pursuing in the second half and so that will alleviate the inventory pressures as well to allow us to meet the cash expectations.
Our next question is from the line of Robert Spingarn with Melius Research. Please proceed with your question.
Hey, good morning, Chris I wanted to extrapolate on some of these prior questions about hockey sticks and recovery with all these non controllable headwinds that you've talked about in 'twenty. Two so the elongated supply chain impact and slow outlays in tight labor et cetera, and then the strong bookings rising budgets could 'twenty.
Three of 24 be a spring loaded year in other words, you don't necessarily captured in the back half of this year, but then we have sort of a monster year in 'twenty three 'twenty, four and could that in and of itself present capacity issues and then for Michelle just.
Just how much risk is there to this year's guide if we have a CR in Q4, especially now that you're pointing to the low end of the guidance.
Okay, no great questions and.
You know to answer the first one I mean, you you kind of got to the C. R is there's going to be something that could obviously impact 'twenty. Three I think you called it a monster year is that what you said, so I'd love a monster year whenever that is but no the capacity I don't see us being a being an issue you know we.
As in the prior years, we have a world class a factory if you will out in our Salt Lake City for the broadband communication systems business, they've had a great a couple of months here with with the win of a C. C. The cooperative engagement capability I mentioned earlier, which is chassis to the Eagle program of course, though.
Hopefully gets next Gen jammer. So we've made those investments up in Canada, we invested in a new facility for West Cam, where we're seeing the surge and the tourists.
Mentioned, the extra capital that we spent in Rochester, so for the product quicker.
Quick turn businesses.
I think we have the capability you know labor is probably more of a potential.
Constraint than the actual facilities themselves, we get the supply chain turnaround I think we'll be OK and you know we've been doing pretty good on the on the labor front. We've we've hired over 4000 people. So far this year you know we have the same challenges with with attrition that that the rest of the industry does but.
You know we're hiring in terms of hiring New College grads I think it's a company that people find interesting and exciting and you know we're getting literally hundreds of thousands of of resumes to come work for us. So I feel pretty good about that you know relative to 'twenty three we're actually going through our strategic planning process. Now you know we talk about low too.
Mid single digit growth, but you know some of the stuff is pretty pretty lumpy and you know we should be in a position. If we can get these wins to to continue our topline and bottom line growth Michelle Yes, and in regards to the question on C are our guide assumes that there is some level of the C. R.
Second in Q4 this year.
Thank you.
Our final question will be from the line of Michael Similarly, with Truest. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the questions maybe.
Maybe can you guys just.
Quantify you know what what the margin headwinds are that are coming from inflation and labor I don't know if you could parse out what's what's sort of the bigger impact and I think the investor letter mentioned that you've got a relatively quick turn of short duration backlog, maybe you can walk us through you know how long it takes to flow through price increases on raw.
Cereals or higher billing rates.
How we should maybe think about the margin evolution as you can pass through some of those prices.
Yeah. Thanks for the question, Michael So consistent with what we shared back in our last call. We anticipate about 100 million of gross inflationary impacts within the year, we had about $20 million of that play out we think Q2 and to your point about our overall program mix about 50% of our portfolio.
It's fixed price, it's about a year in terms of duration and so we're starting to see some of the inflationary pressures prior to Harbin EPA clauses in our contracts starting to play out here in the second half of the year, we'll see that into 2023, where we're focusing on what we can control right now is unsure.
Bring in new contracts that we are placing clauses that allow for this inflationary environment, but we anticipate that through the middle of next year. So probably Q3 Q4, we'll see some remnants of the impacts of the current economy and the inflationary environment.
Oh.
Okay.
Okay. So before ending the call I wanted to take a moment to recognize our 47000 strong L. Three Harris teammates around the globe and thank you for remaining focused on creating value for all of our stakeholders, particularly in support of meeting our customers' critical missions. What you do matters in terms of making the world a safer place.
Thanks, everyone for your time today and have a great weekend and we look forward to connecting again in the next few months.
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