Q4 2023 L3Harris Technologies Inc Earnings Call

Greetings and welcome to the L. Three Harris technologies fourth quarter 2023 earnings call at.

At this time, all participants are in listen only mode.

A question and answer session will follow the opening remarks.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference call is being recorded.

Speaker Change: It's now my pleasure to introduce your host Mark Kratz, Vice President of Investor Relations you may begin.

Mark Kratz: Thank you Rob.

Mark Kratz: Everyone and welcome to our fourth quarter 2023 earnings call. Joining me. This morning are Chris good basic our CEO and Ken Bedingfield, our CFO.

We've updated our quarterly earnings approach based on feedback and yesterday evening, we published our fourth quarter earnings release detailing our financial results and guidance.

Kenneth L. Bedingfield: We've also provided a supplemental earnings presentation on our website.

Kenneth L. Bedingfield: As a reminder, today's discussion will include certain matters that constitute forward looking statements. These statements involve risks assumptions and uncertainties that could cause actual results to differ materially.

Kenneth L. Bedingfield: For more information please reference our earnings release and SEC filings.

Kenneth L. Bedingfield: We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release, specifically I will note segment operating income, which excludes items such as impairments to goodwill and other assets reported at the business segment level.

Kenneth L. Bedingfield: I would now like to turn it over to Chris and Ken for some opening remarks.

Kenneth L. Bedingfield: Okay. Thanks, Mark and welcome Ken to your first sell three Harris earnings call. We're excited to have you on the team. Thanks, Chris I'm excited to be a part of the team.

Alright, I want to start by thanking our investors and analysts for attending our Investor Day last month, we had a great turnout and appreciate the strong positive feedback from the event.

Any twenty-three marked the fourth full year since the merger and served as an inflection point in many respects.

Ken: We met our financial commitments, we closed our integrating and seeing the benefits of two acquisitions that are focused on national security and aligned with defense spending priorities.

Chris: We announced the sale of a noncore business further aligning our portfolio and we've returned to growth following a few years of macroeconomic disruptions.

Mark Kratz: This past year, we also strengthened our leadership team and board of directors, adding key talent that will help drive future value for our investors customers and employees.

Mark Kratz: This year's progress gives us confidence that we have set the foundation to achieve the financial outlook that we laid out at our Investor day and are reaffirming today with segment level detail.

Mark Kratz: Globally, the threat environment remains elevated emphasizing the importance of our mission.

Mark Kratz: But the national security focused portfolio, we continue to support the U S and its allies, providing vital solutions for our customers' most critical missions.

Mark Kratz: Domestically, we await Congress to pass all 12 appropriation bills by the end of April, including a pending vote for an $842 billion top line defense budget, which has solid support for our programs most notably in the areas of space missiles intelligence and resilient communicate.

Mark Kratz: <unk>.

Mark Kratz: In 2023 demand remains strong we reported a record 23 billion in orders, including key awards for the U S. Army's manpack and lead our radios compass call Missionize business Jets and rocket motors for the Army's guided multiple launch rocket system.

The orders we received in 2023 contributed to our record backlog of $33 billion more than double the $16 billion of backlog at the time of the merger.

Mark Kratz: This positive momentum continued into early 'twenty 'twenty four underscored by the recent award for 18 satellites from the space development agency for more than $900 million.

Mark Kratz: Internationally orders were up 24%, including tactical radios vampire systems for Ukraine, and an international Space Award that Leverages, our 55 year trusted heritage to build and deliver advanced payloads for Japan's next generation weather satellite.

Mark Kratz: We are maintaining our international growth strategy and aimed to improve that mix over the medium term.

Mark Kratz: Operationally our performance first culture has been a driving factor in meeting our financial commitments and we are gaining momentum as we focus on profitable growth.

Mark Kratz: We're about six months into the Aerojet Rocketdyne integration and we have captured the $50 million in cost synergies that we were targeting.

Mark Kratz: The team is using the savings to deploy resources from a cross sell three Harris to help improve operational performance and ultimately increased capacity.

Mark Kratz: And our shirt short time owning this business, we are seeing improvements and we are progressing towards returning to contracted production levels.

Mark Kratz: As highlighted at our Investor day, we are executing on our L. A checks next initiative aimed at delivering $1 billion in gross cost savings over the next three years. These.

Mark Kratz: These efficiencies will optimize our infrastructure and leverage our scale, which enables us to achieve margin expansion moving forward we.

Mark Kratz: We executed a number of projects, including exiting facility leases to reduce cost and overall square footage.

Mark Kratz: We continue with our ERP consolidation with 10 reporting units being consolidated into one reporting units earlier this month.

Mark Kratz: And at the program level. Our continued focus on program Excellence has helped drive better EAC performance. However, we have more work to do in this area.

Mark Kratz: In 2024, we are prioritizing our focus on execution margin expansion and growing free cash flow. Additionally.

Mark Kratz: Additionally, we will continue to evaluate parts of our portfolio against strategic alternatives for non core assets.

Mark Kratz: It should be clear that we have made significant progress on the journey to transform the company.

Mark Kratz: Our core businesses are aligned with our customers' priorities and provide many levers to enable us to create shareholder value.

Mark Kratz: Ken will discuss our capital deployment strategy in more detail, but it is unchanged from what we discussed at Investor day.

We will invest to grow organically to delever, the balance sheet, and then to return excess cash to shareholders.

Ken: Our strategy is backed by our diverse and talented team and we continue to invest in our workforce both financially and professionally.

Ken: This gives me confidence that we have the right leaders in place to execute our imperatives and drive long term shareholder value.

Ken: With that let me turn it over to Ken for some financial details, including our 2020 for guidance.

Ken: Yeah.

Thanks, and good morning, everyone. It's great to be part of the L. Three Harris team and working alongside Chris.

Ken: Over the last six weeks I've been actively engaged with the team reviewing the business and our financial plan.

Ken: I'm all in on our approach and grow more confident with each day.

Mark Kratz: We'll be on the road meeting with investors next week and attending a few conferences during the quarter. So I look forward to re engaging with you all over the coming months.

Mark Kratz: Let's start with consolidated results, which were all in line with our latest guidance.

Mark Kratz: We reported full year revenue of $19 4 billion at the high end of our guidance up 14% year over year and 6% organically.

Mark Kratz: Which was primarily from growth in our space and airborne systems and communication systems segments, we delivered.

Operator: Greetings. Welcome to the L3Harris Technologies fourth quarter 2023 earnings call. At this time, all participants are in listen-only mode.

Segment operating margin of 14, 8%.

Operator: The brief question and answer session will follow the opening remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mark Kratz, Vice President of Investor Relations. You may begin. Thank you, Rob.

Mark Kratz: Earnings of $12 36, a share in free cash flow was just over $2 billion.

Mark Kratz: For the fourth quarter revenue was $5 3 billion up 17% largely driven by the Aerojet Rocketdyne in tactical data links acquisitions and continued strong growth in space systems and resilient communications.

Mark Kratz: Fourth quarter segment margin was 15, 1% up 50 basis points from higher volume and favorable product mix and better program performance, which all resulted in net positive EAC adjustments. The first net positive quarter since mid 2022.

Mark Kratz: Good morning, everyone, and welcome to our fourth quarter 2023 earnings call. Joining me this morning are Chris Kubasik, our CEO, and Ken Bedingfield, our CFO. We've updated our quarterly earnings approach based on feedback, and yesterday evening, we published our fourth-quarter earnings release detailing our financial results and guidance. We've also provided a supplemental earnings presentation on our website. As a reminder, today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please refer to our earnings release and SEC filing. We also discussed non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release. Specifically, I will note segment operating income, which excludes items such as impairments to goodwill and other assets reported at the business segment level.

Fourth quarter earnings per share grew 2% to $3 35.

Mark Kratz: <unk>.

Mark Kratz: Let me hit on segment results before turning to 2020 for guidance.

As reported revenue of $6 8 billion for the year up 7% as we continued to see strong growth in space mission networks, and Intel and cyber programs I've been impressed with what we're doing in space to me. This demonstrates how we are thinking differently responding quickly.

Targeted investments and seeing them pay off and growing and enduring markets. It's exciting to see how much progress we have made and responsive space, where we are taking share.

Mark Kratz: Segment operating margin was 11, 4% for the year down 30 basis points driven by growth in those early phase space programs. We are now beginning to move into the more mature production phase of these programs as we look to improve margin in 2024.

Mark Kratz: I would now like to turn it over to Chris and Ken for some opening remarks. Okay, thanks, Mark. And welcome, Ken, to your first L3Harris earnings call. We're excited to have you on the team.

Christopher Eugene Kubasik: I'm excited to be a part of this team. All right, I want to start by thanking our investors and analysts for attending our Investor Day last month. We had a great turnout and appreciate the strong positive feedback from the event. 2023 marked the fourth full year since the merger and served as an inflection point in many respects. We met our financial commitments. We closed our integration and are seeing the benefits of two acquisitions that are focused on national security and aligned with defense spending priorities.

Mark Kratz: And IMS revenue was $6 6 billion for the year, which was roughly flat segment operating margin was 11, 2% down 180 basis points from program challenges and lower international mix.

Mark Kratz: Looked at the changes the team has implemented throughout the year to address these operational challenges and believe that the multi pronged approach, including leadership changes training and maturing programmatic risk management processes will improve the business going forward.

Christopher Eugene Kubasik: We announced the sale of a non-core business, further aligning our portfolio, and we returned to growth following a few years of macroeconomic disruption. This past year, we also strengthened our leadership team and board of directors. Adding key talent that will help drive future value for our investors, customers, and employees. This year's progress gives us confidence that we have set the foundation to achieve the financial outlook that we laid out at our Investor Day and are reaffirming today with segment-level detail. Globally, the threat environment remains elevated, emphasizing the importance of our mission.

Mark Kratz: We've already seen sequential improvements within the business and expect greater financial stability in 2024.

<unk> revenue was $5 1 billion up 20% year over year with 12%, 12% organic growth.

Mark Kratz: Beyond the acquisition of T. D. L revenue growth was driven by higher volume of tactical communication equipment.

Mark Kratz: Segment operating margin was 24, 2% flat year over year as higher volumes were offset by lower international mix I will note that she has had a great Q4 with record operating margins since the merger at 26, 1%.

Mark Kratz: Lastly, Aerojet Rocketdyne revenue was over $1 billion and operating margin was 11, 6% for the post acquisition period.

Christopher Eugene Kubasik: With a national security-focused portfolio, we continue to support the U.S. and its allies, providing vital solutions for our customers' most critical missions. Domestically, we await Congress to pass all 12 appropriation bills by the end of April, including a pending vote for an $842 billion top-line defense budget, which includes solid support for our programs, most notably in the areas of space, missiles, intelligence, and resilient communication. In 2023, demand remained strong, and we reported a record $23 billion in orders, including key awards for the U.S. Army's MANPAC and LIDAR radios, Compass Call missionized business jets, and rocket motors for the Army's Guided Multiple Launch Rocket System. The orders we received in 2023 contributed to a record backlog of $33 billion, more than double the $16 billion in backlog at the time of the merger.

Mark Kratz: The new leadership team at Aerojet Rocketdyne is working to drive operational improvements to increase throughput of its critical products.

Mark Kratz: Expanding on Chris's comments early actions. The team has taken include investing in critical suppliers.

Chris: Pulling resources to their sites improving processes and co investing in supplier infrastructure.

We look forward to sharing more data with you as we progress on these efforts in 2024.

Chris: Turning now to 2020 for a guidance, which is consistent with the framework that we presented at Investor day.

Chris: We expect 27% to $21 3 billion in revenue with organic growth in all segments.

Chris: As you fill out your models I would note that with strong fourth quarter results at C. S.

Mark Kratz: And some favorable timing, we expect a slower topline growth rate to start the year.

Mark Kratz: IMS and total company guidance also contemplates the sale of cash in 2024 with any potential timing timing impact within the revenue and margin guidance ranges.

Christopher Eugene Kubasik: This positive momentum continued into early 2024, underscored by the recent award for 18 satellites from the Space Development Agency for more than $900 million. Internationally, orders were up 24%, including Tactical Radios, Vampire Systems for Ukraine, and an International Space Award that leverages our 55-year trusted heritage to build and deliver advanced payloads for Japan's next-generation weather satellite. We are maintaining our international growth strategy and aim to improve that mix over the medium term. Operationally, our performance-first culture has been a driving factor in meeting our financial commitments, and we are gaining momentum as we focus on profitable growth. We're about six months into the Aerojet-Rocketdyne integration, and we have captured the 50 million in cost synergies that we were targeting. The team is using the savings to deploy resources from across L3Harris to help improve operational performance and ultimately increase capacity.

Mark Kratz: Consolidated segment operating margin is anticipated to be approximately 15% from efficiencies gained with increased volume operational improvements and the L. H X next cost savings.

Mark Kratz: This was partially offset by a full year of Aerojet rocketdyne.

Mark Kratz: Throughout the year margin should gain momentum driven by program ramps international product mix and accelerating L. E checks next cost savings.

Mark Kratz: We do have two nonoperational headwinds totaling more than 200 million.

Mark Kratz: First is lower pension income, which we anticipate netting do about $300 million. This year and second is an anticipated 650 million and interest expense.

Mark Kratz: With taxes and share count, we anticipate non-GAAP EPS to grow to a range of $12 40 to $12 80.

Mark Kratz: We should see it grow ratably across the quarters, ultimately, reflecting a sequential build much like we saw in 2023.

Christopher Eugene Kubasik: In our short time owning this business, we are seeing improvements, and we are progressing towards returning to contracted production levels. As highlighted in our Investor Day, we are executing on our LHX Next initiative aimed at delivering $1 billion in gross cost savings over the next three years. These efficiencies will optimize our infrastructure and leverage our scale, which enables us to achieve margin expansion moving forward. We executed a number of projects, including exiting facility leases to reduce cost and overall square footage.

Mark Kratz: We closed out 2023 with solid working capital improvement.

Mark Kratz: Coming down from elevated levels during the pandemic.

The team and I are keenly focused on this as we aim to grow free cash flow over the next several years for.

Mark Kratz: For 2024, we expect free cash flow of approximately $2 2 billion up 10% driven by earnings growth and continued balance sheet efficiency.

Mark Kratz: At a segment level, we expect SaaS revenue of $6 nine to $7 1 billion with operating margin in the mid to high 11% range.

Christopher Eugene Kubasik: We continue with our ERP consolidation, with 10 reporting units being consolidated into one reporting unit earlier this month. And at the program level, our continued focus on program excellence has helped drive better EAC performance. However, we have more work to do in this area. In 2024, we are prioritizing our focus on execution, margin expansion, and growing free cash flow. Additionally, we will continue to evaluate parts of our portfolio against strategic alternatives for non-core assets.

Mark Kratz: EMS revenue is anticipated to be 6.4 to $6 6 billion with operating margin in the low to mid 11% range driven by lower than historical international mix.

Mark Kratz: We expect <unk> revenue of $5 three to $5 4 billion with operating margin in a low to mid 24% range.

Mark Kratz: And for Aerojet Rocketdyne, we anticipate revenue of $2 four to $2 5 billion and operating margin in the high 11% range.

Christopher Eugene Kubasik: It should be clear that we have made significant progress on the journey to transform the company. Our core businesses are aligned with our customers' priorities and provide many levers to enable us to create shareholder value. Ken will discuss our capital deployment strategy in more detail, but it is unchanged from what we discussed at Investor Day.

Mark Kratz: As Chris mentioned, our capital allocation priority remains focused on first paying down debt to achieve a leverage ratio of less than 3.0, and then a shift to returning all excess cash to shareholders through dividends and share repurchases.

Mark Kratz: On the dividends, we continue to target a payout ratio of 35% to 40% of free cash flow.

Christopher Eugene Kubasik: We will invest to grow organically, to de-lever the balance sheet, and then to return excess cash to shareholders. Our strategy is backed by our diverse and talented team, and we continue to invest in our workforce, both financially and professionally. This gives me confidence that we have the right leaders in place to execute our imperatives and drive long-term shareholder value. With that, I will turn it over to Ken for some financial details, including our 2024 guidance. Thanks and good morning, everyone.

Mark Kratz: For share repurchases I will note that we returned over half a billion dollars in 2023.

Mark Kratz: We are targeting a similar amount in 2024, and we look to accelerate buybacks and 25 and 2026.

Mark Kratz: To close out one of the reasons I joined out through Harris was my belief that there is tremendous value potential.

Mark Kratz: In my time here I have gained more confidence that we can deliver on our 2024 and future commitments.

Kenneth L. Bedingfield: It's great to be part of the L3Harris team and working alongside Chris. Over the last six weeks, I have been actively engaged with the team, reviewing the business and our financial plan. I'm all in on our approach and growing more confident by the day. We'll be on the road meeting with investors next week and attending a few conferences during the quarter, so I look forward to re-engaging with you all over the coming months. Let's start with consolidated results, which were all in line with our latest guidance. We reported full-year revenue of $19.4 billion, at the high end of our guidance, up 14% year-over-year and 6% organically, which was primarily from growth in our space and airborne systems and communication systems segments.

Mark Kratz: With that let's open the line for questions Rob.

Mark Kratz: Okay.

Thank you we will now be conducting a question and answer session.

In the interest of time, we ask you please limit yourself to one single part question.

Mark Kratz: If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Mark Kratz: You May press star two if he like to move your question from the queue.

Mark Kratz: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Mark Kratz: One moment, please when we poll for questions.

Mark Kratz: Thank you and our first question is from the line of Scott did you say with Deutsche Bank. Please proceed with your question.

Mark Kratz: Hey, good morning.

Kenneth L. Bedingfield: We delivered segment operating margin of 14.8%, earnings of $12.36 a share, and free cash flow was just over $2 billion. For the fourth quarter, revenue was $5.3 billion, up 17%, largely driven by the Aerojet Rocketdyne and Tactical Data Links acquisitions and continued strong growth in space systems and resilient communication. Fourth quarter segment margin was 15.1%, up 50 basis points from higher volume and favorable product mix and better program performance, which all resulted in a net positive EAC adjustment and the first net positive order since mid-2022. Fourth quarter earnings per share grew 2% to $3.35.

Mark Kratz: Scott.

Mark Kratz: Chris can you give us an update on attrition and program performance at IMS and then for Ken.

Mark Kratz: IMS margin guide implies 24 segment margins.

Chris: We'll be down relative to the second half of 'twenty three.

Chris: So like to hear a bit more on the thinking there and then also for Ken just maybe you can comment on your philosophy on guidance.

Chris: And you know where you sit on the spectrum in terms of viewing guidance, there's an aspiration and operational plan or closer to promise. Thank you.

Ken: Alright, Thanks, Scott Yeah talking about IMS, if we can.

If we look at our 2023, you'll see that we did improve margins in the second half compared to the first half and as we've talked about it as a little bit of a lumpy business based on the timing of our aircraft purchases.

Ken: We laid out at Investor day that our strategy in the near term here was really to continue to have stability, especially with the program performance and focus on margin improvement.

Kenneth L. Bedingfield: Let me hit on segment results before turning to 2024 guidance. SAS reported revenue of $6.8 billion for the year, up 7% as we continue to see strong growth in space, Mission Networks, and Intel and Cyber Program.

Scott Yeah: So to answer your question specifically here in the short term we are seeing a better program performance and I think that's what gives us.

Kenneth L. Bedingfield: I've been impressed with what we're doing in space. To me, this demonstrates how we are thinking differently, responding quickly, making targeted investments, and seeing them pay off in growing and enduring markets. It's exciting to see how much progress we've made in responsive space, where we are taking share. Segment operating margin was 11.4% for the year, down 30 basis points, driven by growth in those early phase space programs. We are now beginning to move into the more mature production phase of these programs as we look to improve margins in 2024. In IMS, revenue was $6.6 billion for the year, which was roughly flat.

Mark Kratz: Confidence in opportunities not only for 2024, but the next several years the attrition is definitely slowing down.

Scott Yeah: We've been successful in hiring new people training, new employees and I think that's starting to be reflected in our performance.

And equally as important the suppliers and maybe more specifically in this case our subcontractors.

Scott Yeah: Performance is starting to improve as we got through those macro economic disruptions.

Scott Yeah: Bidding rigor is improving we've lowered the delegation of authority. So more bids are being reviewed.

Scott Yeah: Not only at the segment level, but the corporate level.

Kenneth L. Bedingfield: Segment operating margin was 11.2%, down 180 basis points from program challenges and a lower international mix. I've looked at the changes the team has implemented throughout the year to address these operational challenges and believe that the multi-pronged approach, including leadership changes, training, and maturing programmatic risk management processes, will improve the business going forward. We've already seen sequential improvements within the business and expect greater financial stability in 2024. CS revenue was $5.1 billion, up 20% year over year with 12% organic growth. Beyond the acquisition of TDL, revenue growth was driven by a higher volume of tactical communication equipment. However, segment operating margin was 24.2% flat year over year as higher volumes were offset by a lower international mix.

Scott Yeah: And we have at least one instance in the fourth quarter, where we know bid at fixed price development program and I've.

Mark Kratz: I've been talking about this for at least a year and we will continue to no bid programs where the contract.

Mark Kratz: Right there is not appropriate for the risk, we're assuming and I said it in December and I'll say it again I will sacrifice revenue for earnings and cash every day of the year and.

Mark Kratz: We will continue to do so until until that changes and of course, we're making structural changes to the business in the midterm I see upside to the margins as we're gonna grow internationally at I M. S. A we're looking at about 25% International this year I see that getting into the 30% range.

Mark Kratz: And a couple of years, driven by our west Cam and international business Jets.

Kenneth L. Bedingfield: I will note that CS had a great Q4 with record operating margins since the merger at 26.1%. Lastly, Aerojet Rocketdyne revenue was over a billion dollars, and operating margin was 11.6% for the post-acquisition period. The new leadership team at Aerojet Rocketdyne is working to drive operational improvements to increase throughput of its critical products, based on Chris's comments. Early actions the team has taken include investing in critical suppliers anddeploying resources to their sites.

Mark Kratz: In fact, this quarter already euro.

Mark Kratz: European customer has awarded a 300 billion dollar award.

To us for aircraft, our mission as Asian, and that will be accretive to our margins.

Mark Kratz: And then when we I'm sure we'll talk more about our checks next and the time that remains but I think this segment is clearly ripe for opportunities we laid out the fact that despite all the good work we've done in the last four years, we still have 100 facilities, we still have eight different ERP vendors and we have 24 reporting units.

Kenneth L. Bedingfield: Improving processes and co-investing in supplier infrastructure. We look forward to sharing more data with you as we progress on these efforts in 2024. Turning now to 2024 guidance, which is consistent with the framework that we presented at Investor Day, we expect $20.7 to $21.3 billion in revenue with organic growth in all segments.

Mark Kratz: I'd mentioned that 10 of those.

Mark Kratz: In my comments were migrated into one so we're making progress.

Mark Kratz: And the team has taken action takes some some investment on our part but I like the momentum on the path that we're on so maybe with that Ken you want to sure.

Mark Kratz: Sure.

Mark Kratz: <unk>.

Scott Yeah: Thanks for the question, Scott and I think Chris said, it well I'll just add a couple of points are one the guidance for IMS does assume the cast divestiture during 2024.

Kenneth L. Bedingfield: As you fill out your models, I would note that with strong fourth-quarter results at CS and some favorable SAS timing, we expect a slower top-line growth rate to start the year. IMS and total company guidance also contemplates the sale of CAS in 2024, with any potential timing impact within the revenue and margin guidance ranges. Consolidated segment operating margin is anticipated to be approximately 15% from efficiencies gained with increased volume, operational improvements, and LHX Next cost savings.

Chris: <unk> does have a higher average margins than IMS as a segment.

Chris: So that's a little bit of a headwind at a margin level for IMS.

Mark Kratz: In terms of timing, we did have some large aircraft procurements in the first half of 'twenty three.

Chris: Nothing in the second half of 2023.

Chris: That helped.

Chris: Help to the margin pick up a little bit in the second half of 'twenty four as well as solid program performance.

Mark Kratz: We do see again, it's stabilizing as we look forward and we look forward to the team delivering on that and then thirdly, I guess, what I would say is the E O product line tends to build throughout the year.

Kenneth L. Bedingfield: This is partially offset by a full year of Aerojet Rocketdyne. Throughout the year, margins should gain momentum driven by program ramps, International Product Mix, and Accelerating LHX Next Cost Savings. We do have two non-operating headwinds totaling more than $200 million. First is lower pension income, which we anticipate netting to about $300 million this year. And second is an anticipated $650 million in interest expense.

Mark Kratz: That's got a solid commercial like margins.

Mark Kratz: And so we will see that more likely contributing in the second half as well.

Scott Yeah: With respect to the second part of your question on guidance philosophy.

Scott Yeah: You know I'll, just say look again I'm excited to be a part of the team.

Scott Yeah: We've spent a lot of time thinking about.

Scott Yeah: Kind of where we are and what this business can do I think we've laid out.

Scott Yeah: A guidance that is something that we can meet and work to build to deliver a confidence on during the year.

Kenneth L. Bedingfield: With taxes and share count, we anticipate non-GAAP EPS to grow to a range of $12.40 to $12.80. We should see it grow ratably across the quarters, ultimately reflecting a sequential build much like we saw in 2023. We closed out 2023 with solid working capital improvement coming down from elevated levels during the pandemic. The team and I are keenly focused on this as we aim to grow free cash flow over the next several years. For 2024, we expect free cash flow of approximately $2.2 billion, up 10% driven by earnings growth and continued balance sheet efficiency. At a segment level, we expect SAS revenue of $6.9 to $7.1 billion with operating margin in the mid to high 11% range. IMS revenue is anticipated to be $6.4 to $6.6 billion, with operating margin in the low to mid 11% range, driven by a lower than historical international mix.

Mark Kratz: This is something we're putting out there and that's something that we intend to deliver on.

Mark Kratz: Our next question comes from the line of Doug Harned with Bernstein. Please proceed with your question.

Mark Kratz: Good morning, Thank you.

Doug Harned: Hey, good morning, Doug.

Doug Harned: You know at the Investor Conference you talked about looking to 2026 and basically there was 100 basis point.

Doug Harned: Upside guide to each of the segments, but you know when you look across them the.

Doug Harned: Opportunity there can't be uniform. So perhaps you can help us think through when you look at each of the segments, where there's opportunity for more.

Doug Harned: And maybe in some cases, it might be more difficult to get to that number.

Doug Harned: Yeah, Doug Let me, let me take that one yeah, let me start with where we are on on margins I mean, we have.

Doug: Well documented that our margins have declined the last couple of years, we acknowledge we've had some performance issues across the portfolio, but I also want to mention that we have consciously made investments in some high growth programs and businesses, which impacted the margins in the short term but.

Kenneth L. Bedingfield: We expect CS revenue of $5.3 to $5.4 billion with operating margin in a low to mid 24% range. And for Aerojet Rocketdyne, we anticipate revenue of $2.4 to $2.5 billion and operating margin in the high 11% range. As Chris mentioned, our capital allocation priority remains focused on first, paying down debt to achieve a leverage ratio of less than 3.0, and then a shift to returning all excess cash to shareholders through dividends and share repurchases. For the dividend, we continue to target a payout ratio of 35 to 40 percent of pre-cash flow.

Doug: We believe create value in the long term and I think space is probably the best example that we keep highlighting.

Scott Yeah: Highlighting in that regard.

Scott Yeah: At Investor Day, we did step up our.

Cost savings goal to $1 billion gross run rate savings by the end of 'twenty six that goes across the entire enterprise.

Doug Harned: Calling that program early chex snacks as you well know and look I agree with you that there's there's differences by by segment for a variety of reasons and we're setting out a framework three years out so we put the 100.

Doug Harned: The 100 basis points as kind of the floor if I go through them maybe in Oh.

Kenneth L. Bedingfield: For share repurchases, I will note that we returned over half a billion in 2023. We are targeting a similar amount in 2024, and we look to accelerate buybacks in 2025 and 2026. To close out, one of the reasons I joined L3Harris was my belief that there is tremendous value potential. In my time here, I have gained more confidence that we can deliver on our 2024 and future commitments. With that, let's open the line for questions. Rob?

Doug Harned: In some form of order relative to the ability to to realize the 100 basis points either earlier or exceed it.

To start with communication systems, I think we all know that that has a commercial business model and the potential for a more international growth I think those will be key drivers.

Doug Harned: We run that like a commercial factory, where we make the radios, we look at the quality the cost of poor quality, the raw throughput yield we're making investments.

Doug Harned: Mint and training that give us a potential upside and in that regard pretty much every dollar falls to the bottom line. We're also looking at the models and seeing if we can be more aggressive on increasing our software sales as an example in addition to the hardware so.

Operator: Thank you. We'll now be conducting a question and answer session. In the interest of time, we ask you please limit yourselves to one single-part question. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Doug Harned: See us would probably be at the top of my list.

Doug Harned: Aerojet Rocketdyne you know, we've only had it for five months, we're starting to see some improvements.

Doug Harned: Big Big volume increase big investment and capacity in negotiating new contracts.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. And our first question is from the line of Scott D'Souza with Deutsche Bank. Please proceed with your question. Hey, good morning.

Doug Harned: Maybe I'll just mention now since owning them. We've already turned in 200 proposals for over $13 billion of course, we have to win them and negotiate them but.

Doug Harned: Clearly the demand is out payout outweighing the supply so feel good about the potential there and the ability to return to their historical margins or even even better.

Christopher Eugene Kubasik: Hey morning, Scott. Chris, can you give us an update on attrition and program performance at IMS, and then for Ken, the IMS margin guide implies 24 segment margins, which I think will be down relative to the second half of 2030. So I'd like to hear a bit more on the thinking there. And then, also, for Ken, just maybe you can comment on your philosophy on guidance and where you sit on the spectrum in terms of viewing guidance as an aspiration, an operational plan, or closer to a promise. Thank you. All right, thanks, Scott. Yeah, talking about IMS.

Mark Kratz: You know Scott asked about IMS, I think I laid that out I think theres upside there with the shift to international again, we have the west Cam business that provides our designs and builds and delivers tourists or cameras or kimball's wherever you want to call them.

Again, that's a commercial business model, which has accretive margins to the business.

Mark Kratz: And you know end of day it comes down to stabilizing the the volatility in the program performance and I think with some leadership changes.

Mark Kratz: And better negotiations on new contracts, we should be should be in a better shape. There and then of course, our space or SaaS. It does have the highest mix of cost plus contracts, Doug as you know so most of those savings go back to the customer, but again how they.

Christopher Eugene Kubasik: If we look at 2023, you'll see that we did improve margins in the second half compared to the first half. And as we've talked about, it is a little bit of a lumpy business based on the timing of aircraft purchases. You know, we laid out on investor day that our strategy in the near term here was really to continue to have stability, especially with the program performance and focus on margin improvement. So to answer your question specifically here in the short term, we are seeing better program performance, and I think that gives us confidence and opportunities not only for 2024 but the next several years. The attrition rate is definitely slowing down.

Doug Harned: The investments that we've made to get into some of these new markets such as space will be will be decreasing or have decreased so.

Doug Harned: You know I don't know if that gives you a little more granularity I think as we get closer to 2026, we'll be able to be more specific but 100 basis points as the floor.

That's kind of my order of how I'd put them I don't know, Ken if you agree or have different thoughts there I think you hit it well alright.

Yeah.

Doug Harned: Our next question comes from the line of Ron Epstein with Bank of America. Please proceed with your question.

Yeah.

Doug Harned: Thanks, guys.

Ronald J. Epstein: One of them one of the big focuses at the Investor Day was the space business and maybe if you can give us a maybe a deeper dive into how that's going and work on the U S.

Christopher Eugene Kubasik: We've been successful in hiring new people, training new employees, and I think that's starting to be reflected in our performance. And equally as important, the suppliers, and maybe more specifically in this case, our subcontractors' performance is starting to improve as we get through those macroeconomic disruptions. The bidding rigor is improving. We've lowered the delegations of authority, so more bids are being reviewed, not only at the segment level but at the corporate level. And we had at least one instance in the fourth quarter where we no-bid a fixed-price development program. And I've been talking about this for at least a year, and we will continue to no-bid programs where the contract type is not appropriate for the risk we're assuming. And I said it in December, and I'll say it again.

Ronald J. Epstein: Transport and tracking layers, and maybe continued opportunities for growth in that business.

Ronald J. Epstein: Yeah space, a space, we keep talking about space and you know highlighting that as kind of.

Scott Yeah: The model for our trusted disruptor strategy. So we have one we're really just on the the tracking for for SDA. So.

Mark Kratz: We won Trump zero, we one tranche, one and as I mentioned, just a couple of weeks ago. We were awarded tranche. Two so I think we've gone from four satellites to eight satellites to 18.

And there will be a tranche three and beyond I would expect I can tell you that in each of the successive.

Contracts that the margins that we bid and expect have increased.

Mark Kratz: It was part of our strategy so.

Christopher Eugene Kubasik: I will sacrifice revenue for earnings and cash every day of the year, and we will continue to do so until that changes. And, of course, we're making structural changes to the business. In the midterm, you know, I see upside to the margins, as we grow internationally at IMS. We're looking at about 25% international this year.

Mark Kratz: The team is performing are performing well, we have satellites are waiting to be launched.

Mark Kratz: So you know we're looking at these annuity long cycle constellations.

Mark Kratz: And we've talked about the.

Mark Kratz: Missions.

Mark Kratz: Migrating from the air domain to the space domain and I think we're seeing it here and you know these satellites will have a single digit useful lives and they'll need to be repopulate. It overtime. So I kind of look at this as a.

Christopher Eugene Kubasik: I see that getting into the 30% range in a couple years driven by WESCAM and international business jets. In fact, this quarter already, a European customer has awarded a $300 million award to us for aircraft missionization, and that will be accretive to our margin. And then when we do, I'm sure we'll talk more about LHX next in the time that remains.

Mark Kratz: Has an annuity where.

Mark Kratz: Several years, the <unk> satellites will will be orbit and.

Doug Harned: They'll need the additional satellites to be launched so three for three quite proud of the team and I think our customers. Obviously pleased with our performance I did mentioned, we do have a pretty good business and weather satellites. So it was exciting to see us get some international opportunities you don't necessarily see.

Christopher Eugene Kubasik: But I think this segment is clearly ripe for opportunities. We lay out the fact, despite all the good work we've done in the last four years, we still have 100 facilities. We still have eight different ERP vendors, and we have 24 reporting units.

Doug Harned: That all the time in the space business. So that's an additional growth and we still provide payloads for exquisite satellites, where we're a sub to primes. Most of those are classified so pretty good backlog. We also mentioned at Investor day, we're investing in and building a satellite.

Christopher Eugene Kubasik: I did mention that 10 of those, in my comments, we're migrated into one, so we're making progress. The team's taking action, takes some investment on our part, but I like the momentum and the path that we're on. Maybe with that, Ken, you want to... Sure.

Factory here in Florida.

Kenneth L. Bedingfield: Thanks for the question, Scott, and I think Chris hit it well. I'll just add a couple points. One, the guidance for IMS does assume the divestiture of CAS during 2024. CAS does have higher average margins than IMS as a segment.

Doug Harned: Florida and that ground has been broken and we're excited about that so we'll be able to turn satellites at a.

Doug Harned: Pretty quick pace here in the near term.

Doug Harned: Thank you the.

Kenneth L. Bedingfield: So that's a little bit of a headwind at a margin level for IMS. In terms of timing, we did have some large aircraft procurements in the first half of 2023, but nothing in the second half of 2023, so that helped the margin pick up a little bit in the second half of 2024 as well as solid program performance. We do see, again, it stabilizing as we look forward, and we look forward to the team delivering on that. And then, thirdly, I guess what I would say is the EO product line tends to build throughout the year. That's got solid, you know, commercial-like margins. And so we'll probably see that more contributing in the second half as well.

Doug Harned: The next question is from the line of David Strauss with Barclays. Please proceed with your question.

Doug Harned: Thanks, Good morning.

Doug Harned: Good morning, David.

Chris: So Chris I guess.

Chris: Following up on Ron's question.

Chris: Yes, I think.

Chris: On 23, you did something like 8% organic growth it looks like your guidance for this year is only 2% organic growth. So if you could.

Chris: Touch on the the slowdown there that you're anticipating I guess broken out between space and maybe.

Chris: The avionics piece of the business and then could you also touch on the.

Chris: The forecast for that this year. It looks like you know if you just kind of annualize.

Kenneth L. Bedingfield: With respect to the second part of your question on guidance philosophy, you know, I'll just say, look, again, I'm excited to be a part of the team. We've spent a lot of time thinking about, you know, kind of where we are and what this business can do. I think we've laid out guidance that is something that we can meet and work to build confidence on during the year. And you know, this is something we're putting out there and something that we intend to deliver on. Our next question comes from the line of Doug Harned with Bernstein. Please proceed with your question. Good morning.

Chris: On the run rate of sales youre, not youre, not really anticipating any growth at all.

Chris: Jeff this year thanks.

Chris: Alright, David No a good good question. So if I look at our I look at it and say, yes, you know we have several sectors there.

David: Two of them relatively larger or flat you know the air.

David: Air domain that we've talked about.

David: As a flat business is a good business with good margins. This is where we perform on mission systems. You know for F. 35 F 16 F 18, some classified platform, but a relatively flat.

Doug Harned: Market and as I just mentioned.

Doug Harned: Those missions are migrating into.

Doug Harned: Into space in some cases so that's.

That's that's how we see that playing out mission networks, which does a lot of work for the FAA has a very solid business good margins, but that's traditionally a pretty flat business for the foreseeable future, especially given some of the budget pressures at the FAA. So that's two of our two of our segments are two of our.

Christopher Eugene Kubasik: Thank you. Hey, good morning, Doug. You know, at the investor conference, you talked about looking to 2026. And basically, there was a 100 basis point Upside Guide to each of the segments. But when you look across them, the opportunity there can't be uniform. So perhaps you can help us think through where there's opportunity for more, and maybe in some cases it might be more difficult to get to that number. Yeah, Doug, let me let me take that one.

<unk> space is growing and the Intel and cyber.

Doug Harned: Growing as well.

Doug Harned:

Just as an aside I mentioned a lot of this are more of this business is cost plus than most.

Doug Harned: So as we continue to reduce cost I think.

David: David sometimes not sometimes it always does ultimately reduce your revenue a little bit as well. So you know the.

Christopher Eugene Kubasik: Yeah, you know, let me start with where we are on the margins. I mean, we have well documented that our margins have declined the last couple of years. You know, we acknowledge that we've had some performance issues across the portfolio. But I also want to mention that we have consciously made investments in some high-growth programs and businesses, which have impacted the margins in the short term. But we believe they create value in the long term. And I think space is probably the best example that we keep highlighting in that regard. Investor Day, we did step up our cost savings goal to a billion dollars gross run rate savings by the end of 26 that goes across the entire enterprise. We're calling that program LHX Next, as you well know, and look. I agree with you that there are differences by by segment for a variety of reasons, and you know we're setting out a framework three years out, so we put the hundred A hundred basis points is kind of the floor, you You know, I'd like to start with communication systems.

Doug Harned: The good news of taking out cost you get the higher margins.

And continue to say revenue is interesting, but I'll take margins in cash and EBIT every day and that's a little bit of the headwinds. So that's that's how I see our SaaS coming out where where it doesn't.

Second question on Aerojet Rocketdyne interesting that you say that because.

Doug Harned: Nobody really knows what their 2023 revenue is we will disclose that in the 10-K. They only reported a first quarter. They were four months that Werent reported in every four to five months.

Doug Harned: Anyway, when you see those numbers you will see that we're right around 5% topline growth 2024 compared to the pro forma 2023, Aerojet disclosed three months, we disclosed five four fell through the cracks just based on how the accounting works. So we'll put that all in there and you'll see the five.

Doug Harned: <unk> growth.

Doug Harned: Our next question is from the line of Michael <unk> with <unk> Securities. Please proceed with your question.

Doug Harned: Hey, good morning, guys. Thanks for taking my question.

Michael Ciarmoli: Maybe Chris just to stay on.

Michael Ciarmoli: Yet.

Michael Ciarmoli: It looks like I think you said you got all 50 million.

Christopher Eugene Kubasik: I think we all know that this has a commercial business model and the potential for more international growth. I think those will be key drivers. You know, we run that like a commercial factory where we make the radios. We look at the quality, the cost of poor quality, and the roll throughput yield.

Michael Ciarmoli: Cost synergies achieved I mean, it sounds like that was a lot of low hanging fruit public company cost.

Michael Ciarmoli: They're more there I mean does that layered into the.

The next initiative and then I guess just on next what what flowed through in the quarter. I mean, we sold a $47 million in cost what did you net out and savings I think the goal was $175 million.

Christopher Eugene Kubasik: We're making investments in equipment and training that give us potential upside. And in that regard, pretty much every dollar falls to the bottom line. We're also looking at the models and seeing if we can be more aggressive in increasing our software sales, as an example, in addition to the hardware. So, you know, CS would probably be at the top of my list.

For the year and does one segment, maybe benefit disproportionately as you progress through next.

Doug Harned: Yeah, I'll take the first part as Canada to chime in on the second part, yes, the $50 million. We did go quickly to realize at the top you see it was a little more lower hanging fruit or not but it still takes a lot of time and effort and we executed and we absolutely.

Christopher Eugene Kubasik: Aerojet Rocketdyne, you know, we've only had it for five months, but we're starting to see some improvements. Big, big volume increase, big investment in capacity, and negotiating new contracts. Maybe I'll just mention now that since owning them, we've already turned in 200 proposals for over $13 billion. Of course, we have to win them and negotiate them, but clearly, the demand is outweighing the supply. So feel good about the potential there and the ability to return to their historical margins or even better. Thank you.

Doug Harned: We expect to get a little more out.

Relative to what I'd call. The D. The integration I mean, theres more work to do.

Doug Harned: On the CIS.

Systems and tools, we have already aligned them on policies and procedures. All the personnel you know we're.

Doug Harned: We're already on our payroll systems, our benefit plans and that type of stuff. So yes, we think there's probably an additional 20.

Doug Harned: <unk> 20 or $30 million that we can get.

Doug Harned: That I would call integration that will just roll into la checks next but Ken.

Doug Harned: Yeah, No I agree on that front I would say the team did a great job of working aggressively to get on top of the initial integration cost savings.

Christopher Eugene Kubasik: You know, Scott asked about IMS. I think I laid that out. I think there's upside there with with the shift to international. Again, we have the WESCAM business, provides designs and builds and delivers turrets or cameras or gimbals or whatever you want to call them. Again, that's a commercial business model which has accretive margins to the business and you know, at the end of the day it comes down to stabilizing the volatility and the program performance. And I think with some leadership changes in the program, we can do that, andhuw uh... better negotiations on other contracts we should be uh... should be a better shape there and then of course uh... space uh... perpendicular aka that the highest uh... mexico's pouts contracts though because you know so soon savings go back to the customer but again uh... that the investment that we've made again into some of these new markets such as space decrease in their happy koothu, You know, I don't know if that gives you a little more granularity, I think, as we get closer to 2026, be able to be more specific, but the 100 basis points is the floor, kind of my order of how I'd put them. I don't know, Ken, if you agree or have different thoughts there. I think you hit it well. All right.

Mark Kratz: We did hit that target, we're continuing to drive for more but at this point. The primary focus is really around some of the operational efficiencies working to drive the throughput.

Doug Harned: Through the business.

Doug Harned: And getting what were some.

Doug Harned: Bottlenecks to increase production.

Doug Harned: Out of the way so that we can deliver these critical capabilities to our customers that are at aerojet. So great work by the team certainly.

Doug Harned: Continues and as Chris mentioned, we will continue to drive.

Doug Harned: And it should drive opportunity for further not only integration, but I would say at this point more importantly, operational efficiencies again to drive volume in terms of La Chex snacks to what I would say is.

Chris: We are.

Chris: Very consistent at this point with what we discussed at Investor Day.

Doug Harned: Gross run rate of $1 billion savings, we talked about to your question $175 million of margin improvement exiting 2024, and I think we see that across the business I don't necessarily see any individual sector that will benefit first from that.

Chris: Chris talked about the margin opportunity at the sectors through our <unk>.

Chris: <unk> 2026, and getting to our 16%.

Christopher Eugene Kubasik: Our next question comes from the line of Ron Epstein with Bank of America. Please proceed with your question. Yeah, good morning, guys.

Chris: Margin framework.

Chris: But in terms of <unk> next a lot of confidence in the program.

Chris: And the team we have set an initial target out there as we started to work through it we saw the ability to drive further savings out of that.

Christopher Eugene Kubasik: One of the big focuses at Investor Day was the space business. And maybe if you could give us a deeper dive into how that's going, work on the SBA transport and tracking layers, and maybe continued opportunities for growth in that business. Yeah, space, space. We keep talking about space.

I've got confidence that we're.

Chris: Working too.

Chris: We're working to two.

Chris: You know drive at least to that level of savings and I think again all of the segments should see the benefit of that.

Christopher Eugene Kubasik: And, you know, highlighting that is kind of the model for our trusted disruptor strategy. So we have won, we're really just on the tracking for SDA. So, you know, we won tranche zero, we won tranche one.

Chris: Here in 2024.

Chris: Our next question is from the line of Peter Arment with Baird. Please proceed with your question.

Yes, Thanks, good morning, Chris and Ken and welcome Ken.

Christopher Eugene Kubasik: And as I mentioned, just a couple of weeks ago, we were awarded tranche two. So I think we've gone from four satellites to eight satellites to 18. And there will be tranche three and beyond, I would expect. I can tell you that in each of those successive contracts, the margins that we didn't expect have increased, which was part of our strategy, so. The team is performing well.

Chris: Hey, Ken maybe just on guidance could you maybe level set us just on cadence first half versus second half anything to really call out and then also it was.

Ken: As highlighted at the Investor day that working capital would certainly be positive contributor.

Ken: In cash over the kind of the guidance period, how are we how are you.

Ken: Are you thinking and seeing any opportunities from a working capital perspective, and maybe just slipped capital profile going forward. Thanks.

Ken: Sure.

Thanks, Peter I appreciate the question.

Ken: Yes in terms of cadence I would say as we look at the as we look at 2024.

Christopher Eugene Kubasik: We have satellites waiting to be launched. So we're looking at these annuity long cycle constellations. And we've talked about the missions. You know, really migrating from the air domain to the space domain, and I think we're seeing it here. And, you know, these satellites will have single-digit useful lives, and they'll need to be repopulated over time.

Ken: We think the revenue growth itself should be relatively steady throughout the year.

Ken: Probably a relatively even split 50 50 between the first half in the second half in terms of growth from 2023 quarter by quarter, probably a little more of an accelerated ramp.

Christopher Eugene Kubasik: So I kind of look at this as an annuity where, you know, in several years, the Tron Zero satellites will de-orbit, and they'll need additional satellites to be launched. So three for three, quite proud of the team, and I think our customers are obviously pleased with our performance. I did mention we do have a pretty good business in weather satellites, so it was exciting to see us get some international opportunities. You don't necessarily see that all the time in the space business, so that's some additional growth. And we still provide payloads for exquisite satellites where we're a subordinate to the primes.

Ken: On the revenue side.

Ken: Starting in the second quarter.

Ken: In terms of EPS I would say you know what kind of follow the margin trend.

Ken: Talked about the margins would be a little bit.

Ken: Slower in the first half of the year as we saw a strong performance in the fourth quarter.

Ken: Kind of across the board at the segments.

Christopher Eugene Kubasik: Most of those are classified, so pretty good backlog. We also mentioned yesterday that we're investing in building a satellite factory here in Florida, and the ground has been broken, and we're excited about that. So we'll be able to turn out satellites at a pretty quick pace here in the near term. Thank you.

So we expect that.

Kind of build momentum as we work through the year that margin momentum should fall through to EPS and again, we will probably see that kind of build sequentially.

Ken: Quarter over quarter through.

Ken: Through the year over 2023.

Ken: And then.

Ken: From a free cash flow perspective.

Kenneth L. Bedingfield: The next question is from the line of David Strauss with Barclays. Please proceed with your question. Thanks. Good morning.

Ken: And on the working capital question.

Ken: I'd say the free cash flow profile will continue to be weighted towards the second half of the year.

Kenneth L. Bedingfield: Morning, David. So, Chris, I guess following up on Ron's question, SAS, you know, I think. You know, in 23, you did something like 8% organic growth. It looks like your guidance for this year is only 2% organic growth. So, if you could,

Ken: And on working capital I think the team did a great job in driving down our working capital at the end of 'twenty three.

Doug Harned: But the work is never done we'll continue to try to improve that in 2024.

Kenneth L. Bedingfield: Touch on the slowdown there that you're anticipating, I guess, broken out between space and maybe the avionics piece of business. And then, could you also touch on the forecast for Aerojet this year? It looks like if you just kind of annualize the run rate of sales, you're not really anticipating any growth at all out of Aerojet this year. Thanks. All right, David.

Doug Harned: But we've got a lot of confidence in our growing free cash flow, we talked about 10% of free cash flow growth that will be driven by certainly the margin gross margin improvement on growing revenues as well as continued and disciplined balance.

<unk> management.

Doug Harned: I'll, just chime and Peter.

Doug Harned: And resolution.

Christopher Eugene Kubasik: No, good, good question. Yeah, so if I look at SAF, you know, we have several sectors there, two of them relatively large or flat. The air domain that we've talked about is a flat business, but it is a good business with good margins. This is where we perform on mission systems, you know, for F-35, F-16, F-18, some classified platforms, but a relatively flat market. And as I just mentioned, those missions are migrating into space in some cases, so that's, that's how we see that playing out. Mission Networks, which does a lot of work for the FAA, is a very solid business, with good margins, but that's traditionally a pretty flat business for the foreseeable future, especially given some of the budget pressures at the FAA.

Doug Harned: We've had one every year since 2010, and I think we and industry know how to deal with it. It does tend to slow things down really from a customer perspective, so as I mentioned.

We are under a CR through March hopefully will get them.

FEMSA budget in 11 other appropriation bills passed so we can get back to normal but.

Doug Harned: That causes a little bit of both.

Doug Harned: The slow start unfortunately like it does pretty much every year for the last 13.

Doug Harned: Thank you.

Speaker Change: Our next question comes from the line of Seth <unk> with Jpmorgan.

Speaker Change: With your question.

Speaker Change: Hey, thanks, very much and good morning, everyone.

Speaker Change: So I wonder.

Speaker Change: I Wonder if you could talk in communications.

Speaker Change: Business.

Speaker Change: Where 2023 ended up on tactical radio sales and what you expect in 2024.

Speaker Change: For domestic and international and kind of the trajectory for each of those.

Christopher Eugene Kubasik: So those are two of our segments, or two of our sectors. Space is growing, and Intel and cyber are growing as well. You know, just as an aside, I mentioned a lot of this. More of this business is cost plus than most. So as we continue to reduce costs, I think, you know, David, sometimes, not sometimes, it always does ultimately reduce your revenue a little bit as well.

Scott Yeah: Yeah, Let me let me let me take that we we actually had a pretty.

A great year end.

Scott Yeah: And CES.

And especially tactile tactical radios.

Scott Yeah: Specifically.

Scott Yeah: The interesting thing here is we talk about the margins is really the mix between the Dod and.

Doug Harned: The international so when I looked at the first two quarters. We were we were heavily weighted towards international versus domestic and then it flipped again in Q3 for <unk>.

Christopher Eugene Kubasik: So, you know, the good news is taking out costs; you get higher margins. And as I continue to say, revenue is interesting, but I'll take margins and cash and eat it every day. And that's a little bit of a headwind.

Doug Harned: We will start 2024 with a little more.

Doug Harned: Domestic deliveries in commercial and then it flips in the back half. So we had a we.

Christopher Eugene Kubasik: So that's how I see FAS coming out where it does. And second question, on Aerojet Rocketdyne, interesting that you say that because nobody really knows what their 2023 revenue is. We will disclose that in the 10K. They only reported the first quarter.

Doug Harned: You know we had a record year.

When it came to revenue and T. Com I think the business is really coming together quite nicely. We've overcome most of the supply chain challenges I know when we talked in the past, we literally add hundreds of key suppliers that we were tracking.

Christopher Eugene Kubasik: There were four months that weren't reported, and then we forward the five months. Anyway, when you see those numbers, you will see that we're right around 5% top-line growth. In 2024, compared to the pro forma 2023, Aerojet disclosed three months, we disclosed five; the four fell through the cracks, just based on how the accounting works. So we'll, we'll put that all in there, and you'll see the 5% growth. Our next question is from the line of Michael Ciaramoli with Truist Securities. Hey, good morning guys.

Doug Harned: Now we're down to just a handful. So the results are getting better we're getting dual sources.

<unk>.

Doug Harned: In fact, we've recently had some.

Doug Harned: Some some wins.

Doug Harned: In some new markets that we've been.

Doug Harned: We've been informed of where not not authorized to disclose them quite yet, but theres a lot of good news.

Coming out of out of telecom.

Christopher Eugene Kubasik: Thanks for taking the question. Um, maybe, Chris, just to stay on Aerojet, looks like I think you got all 50 million of cost synergies achieved. I mean, it sounds like that was a lot of low-hanging fruit public company costs. Is there more there?

Doug Harned: Our next question is from the line of Robert Spingarn with Melius Research. Please proceed with your question.

Doug Harned: Good morning, Chris welcome.

Chris: Thanks, Rob.

Christopher Eugene Kubasik: I mean, is that layered into, uh, the next initiative? And then, I guess just on next, what flowed through in the quarter? I mean, we saw the $47 million in cost. What did you net out in savings?

Chris: So Chris Ken touched on this but maybe a quick operational update on arrow jet, but more in the context of some of these supply chain bottlenecks that are still there now obviously this started well before your acquisition and part of the value proposition there is getting it back on pace, but.

Christopher Eugene Kubasik: I think the goal was $175 million, uh, for the year. And does one segment maybe benefit disproportionately as you progress through the next? Yeah, I'll take the first part, and ask Ken to chime in on the second part.

Chris: Couple of things does it make any sense to bring in bring any of the problems suppliers in house, and then lockheed's talking about standing up a third supplier and rural is building a business. So I wanted to see how you think about the longer term market share implications if others come in.

Christopher Eugene Kubasik: Yeah, the $50 million, we did go quickly to realize that it obviously was a little more low-hanging fruit than not. But you know, it still takes a lot of time and effort, and we executed, and we absolutely expect to get a little more out. Relative to what I'd call the integration, I mean there's more work to do on the IT systems and tools, although we have already aligned them with policies and procedures.

Doug Harned: Yeah. Thanks, Thanks, Rob.

Well, let me start cover cover a couple of things in work and specifically your question the.

The demand I mentioned earlier, there's more demand than there is supply, which which is a great.

Doug Harned: Great thing.

When we look back on the acquisition and to repeat myself 200 proposals for $13 billion is something we would have never expected in just six bumped a six month period.

Christopher Eugene Kubasik: All the personnel, you know, are already on our payroll systems, our benefit plans, and that type of stuff. So yeah, we think there's probably an additional $20 or $30 million that we can get from what I would call integration that will just roll into LHX next.

Doug Harned: The infrastructure you know great great progress, we got the $50 million, we've got the policies. We got the personnel of the it systems are in work and in fact.

Doug Harned: On the talent from the attrition.

Kenneth L. Bedingfield: Yeah, no, I agree on that front. But I would say the team did a great job of working aggressively to get on top of the initial integration cost savings. We did hit that target, and we're continuing to drive for more. But at this point, the primary focus is really around some of the operational efficiencies, working to drive the throughput through the business, and you know getting what were some bottlenecks to increased production out of the way so that we can deliver these critical capabilities to our customers at Aerojet. So great work by the team certainly continues, and as Chris mentioned, we'll continue to drive.

That said Aerojet Rocketdyne is dropped by a third.

Doug Harned: Overall and 50% for the engineers, we do these regular surveys there's just a lot of enthusiasm and excitement about the acquisition strategy.

Doug Harned: And I think it's a tribute to the team that shows how we success.

<unk> successfully integrated them and we will often welcome them into the L. III harriss.

Doug Harned: Going back to the demand. It's all about capacity you know we've talked about the DPA.

Doug Harned: Investment for $216 million focused on gamblers and javelin Stinger in fact, we've already acquired a building in Huntsville, Alabama, our capacity and footprint. There is forex and that will ultimately it is but it will ultimately be are an art center of.

Kenneth L. Bedingfield: It's a driving opportunity for, you know, further not only integration but, I would say at this point, more importantly, operational efficiencies, again, to drive volume. In terms of LHX Next, what I would say is, you know, we are, you know, very consistent at this point with what we discussed at Investor Day, the gross run rate of a billion dollar savings we talked about, to your question, 175 million of margin improvement exiting 2020. 24.

Doug Harned: Excellent.

Doug Harned:

Doug Harned: Which is great.

Doug Harned: <unk> is a really at the sub tier suppliers as you said I don't think it makes a lot of sense to bring them in house.

We've actually invested.

Doug Harned: And some of these not as an ownership, but bye bye.

Doug Harned: Helping them with tooling and capital our customers are also our end customer and our immediate prime customers have also invested so as we've said.

Kenneth L. Bedingfield: And I think we see that across. I don't necessarily see any individual sector that will benefit first from that. I think Chris talked about the margin opportunity at the sectors through 2026 and getting to our 16%, uh... you know margin framework but in terms of of LAJX NEXT a lot of confidence in the program confidence in the team you know we have set and initial target out there as a start to work through it we saw the ability to drive further savings out of that I've got confidence that we're, you know, working to, you know, working to, to, to, you know drive at least to that level of savings and uh... i think again all the segments uh... should see the benefit of that uh... here in twenty twenty four, Our next question is from the line of Peter Arment with Baird. Please proceed with your question. Yeah, thanks.

There is a little bit of a chokepoint here at the sub tier personally I think over time, a third solid rocket.

Doug Harned: <unk> provider is fine, we don't shy away from competition, but that doesn't really solve the problem because at the end of the day everybody is going to be going to the same sub tiers for the cases for the ignite or for.

Doug Harned: The nozzles and such so we have to fix the sub tier.

Doug Harned: Doing our part by helping them out financially getting the equipment improving their capacity.

Speaker Change: And we started to see if there was a big well documented.

I think we call it backlog or undelivered motors, and we're chipping away at that as I mentioned in.

Speaker Change: Once we get these facilities and equipment up and running I think it's going to look.

Speaker Change: Good.

Speaker Change: Yeah, Theres a lot of people trying to get into this market now which is fine it's a high growth market and in my mind reaffirms the the rationale and the value potential from this acquisition.

Kenneth L. Bedingfield: Good morning, Chris and Ken. And welcome, Ken. Hey, Ken, maybe just on guidance, if there's, could you maybe level set us just on cadence, if you know, first half versus second half, anything to really call out? And then also, it was highlighted at the investor day that working capital would certainly be a positive contributor to cash over the kind of the guidance period. How are we, how are you thinking and seeing any opportunities from a working capital perspective, and maybe just one capital Thanks.

Speaker Change: The next question comes from the line of Myles Walton with Wolfe Research. Please proceed with your question.

Myles Walton: Thanks, Ken I'm, hoping you can provide on a few of the cash details into the surface. The section 174 impact for 'twenty, three and 'twenty four maybe with the benefit would be if they retroactively reversed did what you paid and what you could get back and then maybe just also as it relates to stripping out.

Kenneth L. Bedingfield: Sure. Thanks, Peter. I appreciate the question. Yeah, in terms of cadence, I would say, you know, as we look at the, as we look at 2024, we think the revenue growth itself should be relatively steady throughout the year. You know, probably a relatively even split, you know, 50-50 between the first half and the second half in terms of growth, from 2023 quarter by quarter. Probably a little more of an accelerated ramp on the revenue side, you know, starting in the second quarter. In terms of EPS, you know, I would say, you know, we'll kind of follow the margin trend. I talked about, you know, the margins would be, you know, a little bit slower in the first half of the year, as we saw, you know, a strong performance in the fourth quarter, kind of across the board at the segment, and uh, so we expect that to kind of build momentum as we work through the year And then, you know, from a free cash flow perspective, and on the working capital question, I would say, you know, the free cash flow profile will continue to be weighted towards the second half of the year.

From the cash numbers is it just the $220 million for E. Checks next lets you laid out at Investor day or are there other adjustments we should consider.

Myles Walton: Thanks, Myles, let me I'll talk about $1 74, a little bit first and then get into the second part of the question. So let me let me just start by saying.

Ken: We've got a great tax team.

Myles Walton: That works really hard every day to drive value for the business and one of the things that I think they do well and we do well and supporting them is getting them really integrated with the businesses. So that we get all the data we get all the information needed to support our R&D deductions and credit.

Myles Walton: We work very closely with the.

IRS team: IRS team.

IRS team: Validate what we've got and what we're doing and how all that works and I think we've done a great job. This is a business that invest heavily.

In R&D to drive future capability and future growth.

IRS team: And we will continue to do that and we will continue to see that that benefit in terms of the cash profile.

Scott Yeah: I will say is that.

Scott Yeah: And 'twenty three we were able to catch up a little bit on some tax payments.

Scott Yeah: From a timing perspective in terms of.

Kenneth L. Bedingfield: And on working capital, I think the team did a great job driving down our working capital at the end of 23. But you know, the work is never done; we'll continue to try to improve that in 2024. But we've got a lot of confidence in our growing free cash flow. We talked about 10% free cash flow growth. That will be driven, certainly, by margin growth and margin improvement on growing revenues, as well as continued and disciplined balance sheet management. And I'll just chime in, Peter.

Scott Yeah: The new amortization of section 174, we're able to kind of catch back up to.

Scott Yeah: Being current through the end of 'twenty three on the impact the cash impact of that and then in terms of the new legislation. That's working through I'll say, we're tracking that carefully keeping an eye on it the impact of that if it is.

Scott Yeah: Passing the law would be.

Doug Harned: Positive for us for us from a cash perspective and.

Doug Harned: And I don't want to put a number on it but as currently drafted.

Doug Harned: Drafted would have some retroactive impact for.

I believe its 22 and 23, so positive on cash and then I think there would also might be a little bit of a rate headwind as we look forward.

Kenneth L. Bedingfield: You know, the continuing resolution. We've had one every year since 2010, and I think we in the industry know how to deal with it. It does tend to slow things down from a customer perspective. So, as I mentioned, we are under a CR through March; hopefully, we'll get the defense budget and 11 other appropriation bills passed so we can get back to normal. But that causes a little bit of a slow start, unfortunately, like it has done pretty much every year for the last 13 years. Thank you.

Doug Harned: But I would say we'd be.

Doug Harned: Very willing to trade.

Doug Harned: Bit of rate benefit for the cash.

Doug Harned: The cash benefit that we see.

Doug Harned: And and then in terms of kind.

Doug Harned: Free cash flow guide for 2024, and the adjustments at this point in time.

Doug Harned: What we're looking at in terms of what that would be adjusted for wood wood.

Doug Harned: Would largely be the LH ex snacks, one time implementation cost to your question I think that should be.

Christopher Eugene Kubasik: Our next question comes from the line of Seth Seifman with JPMorgan. Please proceed with your question. Hey, thanks very much. And good morning, everyone.

Doug Harned: The largest item there.

Christopher Eugene Kubasik: I wonder, hey, I wonder if you can talk about the communications business, where 2023 ended up on tactical radio sales, and you know what you expect in 2024 uh, for domestic and international, and kind of the trajectory for each of those Yeah, let me, let me, let me take that. We actually had a pretty great year in, in, in CS and especially tactical, tactical radios, specifically. You know, the interesting thing here, as we talk about the margins, is really the mix between the DoD and the international. So when I looked at the first two quarters, we were heavily weighted towards international versus domestic, and then it flipped again in Q3-4, and we'll start 2024 with a little more domestic deliveries than commercial, and then it flips in, in, in the back half. So we had a, you know, we had a record year when it came to revenue in TCOM.

Doug Harned: Our next question is from the line of Sheila <unk> with Jefferies. Please proceed with your question.

Sheila <unk>: Good morning, Chris and Ken.

Sheila <unk>: One for you.

Sheila <unk>: One for you Paul you mentioned international macro in IMF.

Sheila <unk>: More broadly, but he is bringing in.

Paul: International pipeline and how are you thinking about the timing of that conversion I was just thinking about the overall, 3% organic growth guidance by 24%.

Paul: And I'll talk about that.

That brought our margin close to them.

Paul: Yeah.

Myles Walton: Thanks for the question I mean, obviously the broader margin implication as we tend to have higher margins.

On international than domestic just like we do with with with commercial so I see.

Myles Walton: I see an increase.

Myles Walton: Slight increase year over year, we're kind of hanging around the 'twenty two 'twenty, 3% of our revenue comes from international.

Myles Walton: Maybe a little uptick in 'twenty four 'twenty five 'twenty six but every every point.

Doug Harned: <unk> helps I think it comes down to this are the one that's going to move the needle a little bit it's going to be the supplemental and.

Christopher Eugene Kubasik: I think the business is really coming together quite nicely. We've overcome most of the supply chain challenges. I know when we talked in the past, we literally had hundreds of key suppliers that we were tracking. Now we're down to just a handful, so the results are getting better.

Doug Harned: Haven't talked a whole lot about D C and the budget, but there is a supplemental out there for Ukraine, Taiwan in Israel.

Doug Harned: <unk> put out last year for $110 billion I think about 58 billion is targeted for the D O D.

Christopher Eugene Kubasik: We're getting dual sources. You know, in fact, we've recently had some wins in some new markets that we've been informed of. We're not authorized to disclose them quite yet, but there's a lot of good news coming out of TECO. Our next question is from the line of Robert Spingarn with Mellius Research. Please proceed with your question. Good morning, Chris.

Myles Walton: It's all tied up in politics as it relates to border security because I think at the end of the day, we need to get these things past because it's really just back filling the stockpile that we've already given.

Myles Walton: Into several of the countries I mentioned so.

Myles Walton: Hopefully, we get that behind us and that will solidify our growth opportunities.

Christopher Eugene Kubasik: Welcome, Kenneth. Thanks, Rob. So Chris, Ken touched on this, but maybe a quick operational update on Aerojet, but more in the context of some of these supply chain bottlenecks that are still there. Now, obviously, this started well before your acquisition, and part of the value proposition there is getting it back on track. But a couple of things, does it make any sense to bring in, bring any of the problem suppliers in-house? And then Lockheed's talking about standing up a third supplier, Anduril, is building a business. So I wanted to see how you think about the longer-term market share implications if others come in. Yeah, thanks.

Myles Walton: Those regions specifically.

Myles Walton: So as I look at each of the.

Myles Walton: The segment's aerojet. So as you know most of that goes through a couple of prime So we actually don't have any.

Myles Walton: International.

Myles Walton: Revenue the way, we disclose it for for Aerojet notwithstanding that several of these products get deployed from but from our perspective, we just sell them to a two or three primes and then they they put them wherever they need to go so we just called that domestic.

Myles Walton: For what Thats worth IMS, I talked about west Cam and Biz Jets I see upside there.

Myles Walton: As you know, it's really given the classified nature of so many things. They do we have an occasional space satellite like I've mentioned in Japan.

Christopher Eugene Kubasik: Thanks, Rob. Let me start to cover a couple things and work on specifically your question. You know, the demand I mentioned earlier; there's more demand than there is supply, which is a great, great thing. You know, when we look back on the acquisition, and to repeat myself, 200 proposals for $13 billion is, something we would have never expected in just a six-month period. The infrastructure, you know, great, great progress; we've got the 50 million, we've got the policies, we've got the personnel, the IT systems are in place. And, in fact, on the talent front, attrition at Aerojet Rocketdyne has dropped by a third, overall, and 50% for the engineers.

Myles Walton: Some of the avionics stuff.

Myles Walton: Goes goes international as well and then see us.

Myles Walton: Has the highest percentage of international mainly coming out of the tactical radio business and when I look at what we've done in Ukraine.

And what what's needed in Europe, and the mid east in the far east.

Myles Walton: Looking rather.

Myles Walton: Rather positive so.

Myles Walton: Hope that helps Sheila.

Rob we're coming up on the hours. So maybe we will take our last question. This morning.

Sure. Our last question comes from Robert Stallard with vertical research partners.

Robert Stallard: Thanks, so much good morning.

Robert Stallard: Morning.

And welcome back Ken.

Thank you.

Christopher Eugene Kubasik: You know, we do these regular surveys. There's just a lot of enthusiasm and excitement about the acquisition and the strategy. And, you know, I think it's a tribute to the team that shows how we successfully have integrated them and welcomed them into L3 Harris. You know, going back to demand, it's all about capacity. You know, we've talked about the DPA investment of $216 million, focused on Gimlers, Javelin, and Stinger. In fact, you know, we've already acquired a building in Huntsville, Alabama. Our capacity and footprint there is 4X, and that will ultimately be, it is, but it will ultimately be our inert center of excellence. ,,,,,,,, you know which which which is great.

Robert Stallard: I'm, Chris a question for you.

Jim: Upon at Lockheed Martin Jim taken it was kind of talking about structural problems in the defense industry with regard to pricing and contracting.

Chris: And whether that could change in the future I was wondering if you have any issues lingering in the L. III Harris portfolio that maybe fits that criteria, but on the flip side do you see the opportunity to grow move sort of commercial terms contracts in the future.

Robert: Yeah. Good good question Robert.

We've all been in this industry for four decades, and it's kind of goes in cycles, where.

Everybody thought fixed price development programs.

Robert: Good idea in the Seventy's and Eighty's and then it migrates back to cost plus and it goes the other way.

Christopher Eugene Kubasik: The challenges are really at the sub-tier suppliers, as you said. I don't think it makes a lot of sense to bring them in-house. We've actually invested in some of these, not as ownership, but by helping them with tooling and capital. Our customers have also, our end customers and our immediate prime customers have also invested. So, as we've said, there's a little bit of a choke point here at the sub-tier. Personally, I think, over time, a third solid rocket motor provider is fine. We don't shy away from competition, but that doesn't really solve the problem, because at the end of the day, everybody's going to be going to the same sub-tiers for the cases, for the igniters, you know, for the nozzles and such. So we have to fix the sub-tier. We're doing our part by helping them out financially, getting the equipment, and improving their capacity. And you know, we started to see it.

Robert: You know I was just kind of have to understand where the customer is in.

Robert: And figure out where they're going theres lots of opportunities to interface with them, where we've been successful with our commercial business models that I've mentioned I think there is more.

Robert: That we can look at in that regard I think more and more things are moving towards software and I think it's it's.

Robert: It's a new area I think the Dod as to figure out how to buy software and we have to figure out how to sell software.

Doug Harned: There have been some cases, where it's tough, but again, that's probably a different business model than your traditional cost plus.

Doug Harned: The negotiation.

Doug Harned: Type.

Regulations may may not make makes sense and I think that's.

Doug Harned: With a lot of the new entrants are also struggling with to figure out how to how to get into those into those markets.

Doug Harned: So look we all get a draft rfps.

Doug Harned: We review them, we pushed back.

Christopher Eugene Kubasik: There is a big, well-documented backlog, I think we call it backlog or undelivered motors, and we're chipping away at that, as I mentioned, once we get these facilities and equipment up and running, I think it's going to look pretty good, and yeah, there are a lot of people trying to get into this market now, which is fine, it's a high-growth market and, in my mind Please proceed with your question. Thanks, Kenneth. I'm hoping you can provide a few of the cash details under the surface, the Section 174 impact for 23 and 24, maybe what the benefit would be if they retroactively reversed it, what you've paid, and what you could get back.

Doug Harned: And sometimes.

Doug Harned: You just have to to no bid in one of these days the entire industry is not going to bid on a fixed price development contract in.

Doug Harned: No.

Doug Harned: The Dod will change but.

Doug Harned: When you get one or two bids they're going to make the award and we're doing our best to <unk>.

Doug Harned: Balanced the risk but.

Doug Harned: With the financial upside that we have so.

Myles Walton: Probably a little more disciplined about this has been an ongoing debate probably for for decades.

Myles Walton: We continue to engage with the customer and I think they appreciate and understand.

Myles Walton: Where industry is coming from so.

Myles Walton: We'll see what happens in the months and years ahead.

Myles Walton: So before I sign off I really would like to take a moment and thank our our 50000 employees for their focus on performance and execution throughout the throughout the year.

Kenneth L. Bedingfield: And then maybe just also, as relates to stripping out the cash numbers, is it just the $220 million for LHX Next that you laid out on investor day, or are there other adjustments we should consider? Thanks Myles. Let me talk about 174 a little bit first and then get into the second part of the question.

Myles Walton: Clearly this is impossible without them and they are critical to our success in meeting not only our shareholder but our customer commitments. So really appreciate everybody joining the call Ken again welcome to the team and we'll be talking to you all soon thanks.

Myles Walton: This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Kenneth L. Bedingfield: So let me, let me just start by saying we've got a great tax team that works really hard every day to drive value for the business. And one of the things that I think they do well and we do well in supporting them is getting them really integrated with the businesses so that we get all the data, we get all the information needed to support our R&D deductions and credits. We work very closely with the IRS team to, you know, validate what we've got and what we're doing and how all that works.

Kenneth L. Bedingfield: And I think we've done a great job. This is a business that invests heavily, in the audience. Um, you know, in 23, we were able to catch up a little bit on some, uh, tax payments, uh... from a timing perspective uh... in terms of you know the new amortization of section 174 uh... we're able to kinda catch back up to uh... being current through the end of twenty three on the impact of the cash impact of that And then in terms of the new legislation that's working through, I'll say we're tracking that carefully, keeping an eye on it, the impact of that, if it is, uh... passing the law would be uh... positive for us from a cash perspective, And I don't want to put a number on it, but as currently drafted, would have some retroactive impact for, I believe it's 22 and 23. So positive on cash.

Kenneth L. Bedingfield: And then I think there would ultimately be a little bit of a rate headwind as we look forward. But I would say, you know, we'd be very willing to trade that little bit of rate benefit for the cash benefit that we see. And then in terms of, you know, kind of free cash flow guide for 2024 and the adjustments at this point in time, what we're looking at in terms of what that would be adjusted for would largely be the LHX next one-time implementation costs. I think that should be the largest item there.

Kenneth L. Bedingfield: Our next question is from the line of Sheila Kahyaoglu with Jeffreys. Please proceed with your question. Good morning, Chris and Ken. One for you, one for you, please.

Christopher Eugene Kubasik: You mentioned the international mix within IMS. More broadly, what are you seeing in the international pipeline? And how are you thinking about the timing of that conversion? And just thinking about the overall 3% organic growth guidance for 24? How does international track relative to domestic?

Christopher Eugene Kubasik: And what are the broader margin implications? Yeah, thanks for the question. I mean, obviously, the broader margin implication is that we tend to have higher margins, you know, on international than domestic, just like we do with commercial, so I see, You know, I see an increase, slight increase year over year. We're kind of hanging around the 22, 23% of our revenue comes from international, maybe a little uptick in 24, 25 and 26. But every point helps.

Christopher Eugene Kubasik: You know, I think it comes down to this, the one that's going to move the needle a little bit is going to be the supplementals. And, you know, we haven't talked a whole lot about DC in the budget, but there is a supplemental out there for Ukraine, Taiwan, and Israel. Put out last year for $110 billion, I think about $58 billion is targeted for the DoD.

Christopher Eugene Kubasik: You know, it's all tied up in politics as it relates to border security, but I think, at the end of the day, you know, we need to get these things passed because it's really just backfilling the stockpile that we've already given to several of the countries I mentioned. So, hopefully, we get that behind us, and that will solidify our growth opportunities in those regions specifically. So, you know, as I look at each of the segments, Aerojet, as you know, most of that goes through a couple of primes, so we actually don't have any international revenue, the way we disclose it, for Aerojet, notwithstanding that several of these products get deployed. But from our perspective, we just sell them to two or three primes, and then they put them wherever they need to go. So we just call that domestic, for Some of the avionics stuff goes international as well. And then, you know, CS.

Christopher Eugene Kubasik: You know, has the highest percentage of international customers, mainly coming out of the tactical radio business, and when I look at what we've done in Ukraine, and what's needed in Europe and the Mideast and the Far East, you know, it's looking rather, rather positive. So. I hope that helps you a lot. Rob, we're coming up on the hour, so maybe we'll take our last question this morning. Sure, our last question comes from Robert Stallard with Vertical Research Partners. Thanks very much, good morning. Morning, and welcome back, Ken. Thank you. Chris, I probably have a question for you.

Christopher Eugene Kubasik: Your counterpart at Lockheed Martin, Jim Taycliffe, was kind of talking about structural problems in the defense industry with regard to... fits that criteria. But on the flip side, do you see the opportunity to grow? Commercially, yeah, good question, Robert.

Christopher Eugene Kubasik: Look, we've all been in this industry for decades, and it kind of goes in cycles where, you know, everybody thought fixed price development programs were a good idea in the 70s and 80s, and then it migrates back to Cost Plus and goes the other way. You know, you just kind of have to understand where the customer is and figure out where they're going. There are lots of opportunities to interface with them. We've been successful with our commercial business models, as I've mentioned. I think there's more that we can look at in that regard. I think more and more things are moving towards software, and, you know, I think it's a new area. I think the DOD has to figure out how to buy software, and we have to figure out how to sell software. There have been some cases where it's done, but, again, that's probably a different business model than your traditional Cost Plus truth in negotiation type regulations may not make sense.

Christopher Eugene Kubasik: And I think that's what a lot of the new entrants are also struggling with, to figure out how to get into those markets. So, look, we all get draft RFPs. You know, we review them, we push back, and sometimes... you know, you just have to know bid, and you know one of these days, the entire industry is not going to bid on a fixed price development contract. You know, the DOD will change, but, you know, when you get one or two bids, they're going to make the award, and we're doing our best to balance the risk with the financial upside that we have, so We'll see what happens in the months and years ahead. But, before I sign off, I really would like to take a moment and thank our 50,000 employees for their focus on performance and execution throughout the year. Clearly, this is impossible without them, and they're critical to our success in meeting not only our shareholder but our customer commitment.

Christopher Eugene Kubasik: So, I really appreciate everybody joining the call. Ken, again, welcome to the team, and we'll be talking to you all soon. Thanks. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.