Q2 2024 L3Harris Technologies Inc Earnings Call

Greetings and welcome to the L3Harris Technologies second quarter 2024 earnings conference call. At this time all participants are in listen-only mode.

Unknown Executive: and the conference call. This time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.

Operator: This time, all participants are in listen-only mode. The brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Dan Kitsavich, Vice President of Investor Relations. Thank you, Dan. You may now begin.

Unknown Executive: If anyone should require an offer to assistance during the conference, please press star zero on your telephone keypad.

The brief question and answer session will follow the formal presentation.

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

Unknown Executive: As a reminder, this call is being recorded.

Dan Gitziewicz: This is now my pleasure to introduce your host, Dan Gitziewicz, Vice President of VestRelations.

As a reminder, this call is being recorded.

Dan Getzovich: It is now my pleasure to introduce your host, Dan Gitsovich, Vice President of Investor Relations.

Rob: Thank you, Dan. You may now begin.

Dan Kitsavich: Thank you, Rob. Good morning, and welcome to our second quarter 2024 earnings call. Joining me this morning are Chris Kubasik, our CEO, and Ken Beddingfield, our CFO. Yesterday, we published our second quarter earnings release, detailing our financial results and guidance. We have also provided a supplemental earnings presentation on our website. 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.

Rob: Thank you, Rob.

Chris Kvesick: Good morning and welcome to our second quarter of 2024 earnings call. Joining me this morning are Chris Kvesick, our CEO, and Ken Bedingfield, our CFO. Yesterday, we published our second quarter earnings release detailing our financial results and guidance. We have also provided a supplemental earnings presentation on our website.

Speaker Change: Thank you, Dan. You may now begin.

Dan Getzovich: Thank you, Rob. Good morning and welcome to our second quarter 2024 earnings call.

Speaker Change: Joining me this morning are Chris Kubasik, our CEO , and Ken Bedingfield, our CFO . Yesterday we published our second quarter earnings release detailing our financial results and guidance. We have also provided a supplemental earnings presentation on our website.

Chris Kvesick: 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 wrap up our conference, our earnings release, and SEC filings. We will also discuss non-GAAP financial measures which are reconciled to GAAP measures in the earnings release.

Speaker Change: 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 reference our earnings release and SEC filings.

Dan Kitsavich: For more information, please refer to our earnings release and SEC files. We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release. For those of you I haven't met yet, I'm new to this role and look forward to engaging with you in the near future. I'd now like to turn it over to Chris for some remarks.

Speaker Change: We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release.

Chris Kvesick: For those of you I haven't met yet, I'm new in this role and look forward to engaging with you in the near future.

Speaker Change: For those of you I haven't met yet, I'm new in this role, and look forward to engaging with you in the near future.

Chris Kvesick: I'd now like to turn it over to Chris for some remarks.

Christopher E. Kubasik: Thanks, Dan, and welcome to the IR team and your first earnings call with us. Last month marked the five-year anniversary of the transformative merger between L3 and Harris and the creation of the industry's trusted disruptor. Approve an alternative to both traditional primes and new entrants, focused on relentless innovation to deliver capability with the speed, passion, and determination that our customers demand in executing their most challenging, unlike traditional primes and new commercial entries.

Dan Gitziewicz: Thanks, Dan, and welcome to the IR team and your first earnings call with us.

Speaker Change: I'd now like to turn it over to Chris for some remarks.

Chris: Thanks, Dan, and welcome to the IR team and your first earnings call with us.

Chris Kvesick: Last month marked the five-year anniversary of the transformative merger between L3Harris. And the creation of the industry's trusted disruptor, a proven alternative to both traditional primes and new entrants. Focus on relentless innovation to deliver capability with the speed, passion, and determination that our customers demand in executing their most challenging missions. Unlike traditional primes and new commercial entrants, we utilize both commercial and government business models with a significant presence in each. We deliver commercial short cycle products such as software to find radios. We also execute on critical long-term programs that span the entire life cycle from development to production, including international exports, and ultimately, sustainment and support.

Chris: Last month marked the five-year anniversary of the transformative merger between L3Harris and the creation of the industry's trusted disruptor, a proven alternative to both traditional primes and new entrants.

Chris: Focused on relentless innovation to deliver capability with the speed, passion, and determination that our customers demand in executing their most challenging missions.

Christopher E. Kubasik: We utilize both commercial and government business models, with a significant presence in each. We deliver commercial short-cycle products such as software-defined radios. We also execute on critical long-term programs that span the entire lifecycle, from development to production, including international exports, and ultimately, sustainment and support.

Chris: Unlike traditional primes and new commercial entrants, we utilize both commercial and government business models with significant presence in each. We deliver commercial short-cycle products such as software-defined radios.

Chris: We also execute on critical long-term programs that span the entire life cycle.

Chris: From Development to Production, including International Exports.

Christopher E. Kubasik: Our diverse and platform-agnostic portfolio enables us to work across the ecosystem as a prime, a Sub, or a merchant supplier to deliver the best solutions for our customers and the best returns for our shareholders. Further, as a trusted disruptor, we are actively looking for opportunities to partner with small and large companies where it makes business sense. It was one year ago that we announced the successful addition of Aerojet Rocketdyne to the L3Harris portfolio.

Chris Kvesick: Our diverse and platform agnostic portfolio enables us to work across the ecosystem as a prime, a sub, or a merchant supplier to deliver the best solution. We also provide solutions for our customers and the best returns for our shareholders. Further, as the trusted disruptor, we are actively looking for opportunities to partner with small and large companies where it makes business sense.

Chris: and ultimately, sustainment and support.

Chris: Our diverse and platform-agnostic portfolio enables us to work across the ecosystem as a prime, a sub, and a whole.

Chris: or a merchant supplier to deliver the best solutions for our customers and the best returns for our shareholders.

Chris: Further, as a trusted disruptor, we are actively looking for opportunities to partner with small and large companies where it makes business sense.

Chris Kvesick: It was one year ago that we announced the successful addition of Arrogent Rockadine to the L3Harris portfolio. This acquisition increases our content on missile platforms and positions us for growth in new markets. A recent example is our role on the Missile Defense Agency's next-generation interceptor program. This leverages our industry-leading propulsion technology and innovative attitude control systems to defend against long-range ballistic missile threats. We are also integrating legacy L3Harris electronic capabilities. Since closing the acquisition, and as we've discussed on our last two earnings calls, we've made substantial progress in improving the development of our systems. We're improving the operational performance of the business, and we continue to make investments to increase capacity and drive efficiencies to meet our customers' growing demand, including the expansion of key facilities in Arkansas, Alabama, and Virginia.

Chris: It was one year ago that we announced the successful addition of Aerojet Rocketdyne to the L3Harris portfolio.

Christopher E. Kubasik: This acquisition increases our content on missile platforms and positions us for growth in new markets. A recent example is our role on the Missile Defense Agency's Next Generation Interceptor Program. This leverages our industry-leading propulsion technology and innovative attitude control systems to defend against long-range ballistic missiles. We are also integrating legacy L3Harris electronics capability. Since closing the acquisition, and as we've discussed on our last two earnings calls, we've made substantial progress in improving the operational performance of the business, and we continue to make investments to increase capacity and drive efficiencies to meet our customers' growing demand, including the expansion of key facilities As a result of these combined efforts, we have reduced overdue deliveries by nearly 40% in the past 12 months. Several of you had a chance to visit our Inert Center of Excellence in Huntsville, Alabama.

Chris: This acquisition increases our content on missile platforms and positions us for growth in new markets.

Chris: A recent example is our role on the Missile Defense Agency's Next Generation Interceptor Program.

Chris: This leverages our industry-leading propulsion technology and innovative attitude control systems to defend against long-range ballistic missile threats.

Chris: We are also integrating legacy L3Harris electronics capabilities.

Chris: Since closing the acquisition, and as we've discussed on our last two earnings calls, we've made substantial progress in improving the operational performance of the business,

Chris: And we continue to make investments to increase capacity and drive efficiencies to meet our customers' growing demand.

Chris: Including the expansion of key facilities in Arkansas, Alabama, and Virginia. As a result of these combined efforts, we have reduced overdue deliveries by nearly 40% in the past 12 months.

Chris Kvesick: As a result of these combined efforts, we have reduced overdue deliveries by nearly 40% in the past 12 months.

Chris Kvesick: Several of you had a chance to visit our Inert Center of Excellence in Huntsville, Alabama, and we know you left with a better understanding of the business and the progress to date. Since the merger, we focused on integrating and shaping the portfolio to align with national security priorities and the future of warfare. We're in the right businesses, spanning all domains, while earning the highest margins in the industry with further upside potential.

Chris: Several of you had a chance to visit our inert Center of Excellence in Huntsville, Alabama, and we know you left with a better understanding of the business and the progress to date.

Christopher E. Kubasik: And we know you left with a better understanding of the business and the progress to date. Since the merger, we have focused on integrating and shaping the portfolio to align with national security priorities and The Future of Work. We're in the right businesses, spanning all domains, while earning the highest margins in the industry with further upside potential. Looking forward, we remain committed to meeting the expectations of our customers and creating additional value for shareholders, and our second quarter reflects progress towards achieving these commitments. We reported strong financial results for the second quarter, highlighted by a segment operating margin of 15.6%, up 80 basis points versus the prior year, and non-GAAP earnings per share of $3.24, up 9%.

Chris: Since the merger, we focused on integrating and shaping the portfolio to align with national security priorities.

Chris: and The Future of Warfare. We're in the right businesses, spanning all domains, while earning the highest margins in the industry with further upside potential.

Chris Kvesick: Looking forward, we remain committed to meeting the expectations of our customers and creating additional value for shareholders, and our second quarter reflects progress towards achieving these commitments. We reported strong financial results for the second quarter, highlighted by segment operating margin of 15.6%, up 80 basis points versus the prior year, and non-GAAP earnings per share of $3.24, up 9%. These results underscore a focus on execution and driving profitable growth. On the demand side, our pipeline of domestic and international opportunities remains robust, and our total backlog stands at $32 billion. In our communication system segment, we ended the quarter with a record backlog of over $6 billion from increasing demand for our resilient communication products.

Chris: Looking forward, we remain committed to meeting the expectations of our customers and creating additional value for shareholders, and our second quarter reflects progress towards achieving these commitments.

Chris: We reported strong financial results for the second quarter.

Chris: Highlighted by segment operating margin of 15.6%, up 80 basis points versus the prior year, and non-GAAP earnings per share of $3.24, up 9%. These results underscore a focus on execution and driving profitable growth.

Christopher E. Kubasik: These results underscore our focus on execution and driving profitable growth. On the demand side, our pipeline of domestic and international opportunities remains robust, and our total backlog stands at $32 billion. In our communication system segment, we ended the quarter with a record backlog of over $6 billion from increasing demand for our resilient communication products. This is driven by DoD and international customers' needs for seamless, resilient communications across multiple domains as they face increasingly sophisticated near-peer threats. We continue to work with these customers to help them avoid the inherent vulnerability that comes from relying upon commercial communication and satellite network providers for their critical missions.

Chris: On the demand side, our pipeline of domestic and international opportunities remains robust.

Chris: And our total backlog stands at $32 billion.

Chris: In our communication system segment.

Chris: We ended the quarter with record backlog of over $6 billion from increasing demand for our resilient communication products.

Chris Kvesick: This is driven by DOD and international customers' needs for seamless, resilient communications across multiple domains as they face increasingly sophisticated near-peer threats. We continue to work with these customers to help them avoid the inherent vulnerability that comes from relying upon commercial communication and satellite network providers for their critical missions. Our tactical communications business continues to see growing international demand for European and NATO allies, totaling more than $1 billion in the near-term opportunities and a continued robust pipeline of greater than $10 billion. Overall, we are continuing to see plenty of opportunity for resilient communications, propulsion, and ISR to highlight a few of our capabilities.

Chris: This is driven by DoD and international customers' needs for seamless, resilient communications across multiple domains as they face increasingly sophisticated near-peer threats.

Chris: We continue to work with these customers to help them avoid the inherent vulnerability that comes from relying upon commercial communication and satellite network providers for their critical missions.

Christopher E. Kubasik: Our tactical communications business continues to see growing international demand for European and NATO allies totaling more than $1 billion in near-term opportunities and a continued robust pipeline of greater than $10 billion. Overall, we are continuing to see plenty of opportunity for resilient communications, propulsion, and ISR, to highlight just a few of our capabilities. We continue to make strides in our operational performance, which is reflected in our expanding margin. Programmatically, we're beginning to realize the benefits of our maturing risk management processes and disciplined bid rigor, as well as the initial benefits of our LHX Next program, and that is showing up in our program results.

Chris: Our tactical communications business continues to see growing international demand for European and NATO allies, totaling more than $1 billion in the near-term opportunities and a continued robust pipeline of greater than $10 billion.

Chris: Overall, we are continuing to see plenty of opportunity for resilient communications, propulsion, and ISR to highlight a few of our capabilities.

Chris Kvesick: We continue to make strides in our operational performance, which is reflected in our expanding margins. Programatically, we're beginning to realize the benefits of our maturing risk management processes and discipline bid rigor, as well as the initial benefits of our LHX Next program, and that is showing up in our program results.

Chris: We continue to make strides in our operational performance, which is reflected in our expanding margins.

Chris: Programatically, we're beginning to realize the benefits of our maturing risk management processes and disciplined bid rigor, as well as the initial benefits of our LHX Next program, and that is showing up in our program results.

Chris Kvesick: Our first half performance provides confidence for the remainder of the year, leading us to increase our guidance, which Ken will discuss in more detail. I'm pleased with the progress we're making on our LHX Next initiative. In the second quarter, our efforts focused on workforce and infrastructure optimization, including the strategic collaboration for managed services, designed to accelerate the modernization and automation of our IT infrastructure, while reducing cost and transforming how we operate as a business. We've made great progress, and we're on schedule. The next phase of LHX Next is centered around the supply chain management and leveraging the scale of our enterprise.

Christopher E. Kubasik: Our first half performance provides confidence for the remainder of the year, leading us to increase our guidance, which Ken will discuss in more detail. I'm pleased with the progress we're making on our LHX Next initiative. In the second quarter, our efforts focused on workforce and infrastructure optimization, including a strategic collaboration for managed services designed to accelerate the modernization and automation of our IT infrastructure while reducing costs and transforming how we operate as a business.

Chris: Our first half performance provides confidence for the remainder of the year, leading us to increase our guidance, which Ken will discuss in more detail. I'm pleased with the progress we're making on our LHX Next initiative.

Speaker Change: In the second quarter, our efforts focused on workforce and infrastructure optimization, including a strategic collaboration for managed services designed to accelerate the modernization and automation of our IT infrastructure while reducing cost and

Christopher E. Kubasik: We've made great progress, and we're ahead of schedule. The next phase of LHX Next is centered around supply chain management and leveraging the scale of our enterprise. This will improve cost, quality, and delivery for our customers, while simultaneously offering our suppliers demand stability and an opportunity to grow along with them. And for us, it means supply chain management will be a competitive differentiator.

Ken: and transforming how we operate as a business.

Ken: We've made great progress and we're ahead of schedule.

Ken: The next phase of LHX Next is centered around the supply chain management and leveraging the scale of our enterprise. This will improve cost, quality, and delivery for our customers while simultaneously offering our suppliers demand stability and an opportunity to grow along with us.

Chris Kvesick: This will improve cost, quality, and delivery for our customers, while simultaneously offering our suppliers' demand stability and an opportunity to grow along with us. and for us, it means supply chain management will be a competitive discriminator.

Ken: And for us, it means supply chain management will be a competitive discriminator.

Chris Kvesick: Turning to capital deployment, as promised, we are prioritizing debt paydown, continuing to maintain a competitive dividend, and returning excess capital to shareholders. In the quarter, we returned over $300 million to shareholders through dividends and share repurchases and remain on track to meet our stated 2024 target of approximately $500 million in share repurchase. So, we've been able to purchase this holding, outstanding shares flat year over year.

Christopher E. Kubasik: Turning to capital deployment, as promised, we are prioritizing debt paydown, continuing to maintain a competitive dividend, and returning excess capital to shareholders. In the quarter, we returned over $300 million to shareholders through dividends and share repurchases and remain on track to meet our stated 2024 target of approximately $500 million in share repurchases, holding outstanding shares flat year over year. Aligned with our national security focus, we recently completed the sale of our antennas business and expect to finalize the pending divestiture of our commercial aviation business later this year as we satisfy the remaining conditions to close.

Ken: Turning to capital deployment, as promised, we are prioritizing debt pay down, continuing to maintain a competitive dividend, and returning excess capital to shareholders.

Ken: In the quarter, we returned over $300 million to shareholders through dividends and share repurchases and remain on track to meet our stated 2024 target of approximately $500 million in share repurchases, holding outstanding shares flat year over year.

Chris Kvesick: Aligned with our national security focus, we recently completed the sale of our antennas business and expect to finalize the pending divestiture of our commercial aviation business later this year as we satisfy the remaining conditions to close.

Ken: Aligned with our national security focus, we recently completed the sale of our antennas business and expect to finalize the pending divestiture of our commercial aviation business later this year as we satisfy the remaining conditions to close.

Chris Kvesick: And finally, I want to thank the four board members who served on our ad hoc Business Review Committee. The recommendations were presented to the board last week, and we are implementing actions in accordance with those recommendations. The focus was on reviewing our strategy in portfolio, program management, discipline bidding processes, and LHX next plans.

Christopher E. Kubasik: And finally, I want to thank the four board members who served on our Ad Hoc Business Review Committee. The recommendations were presented to the board last week, and we are implementing actions in accordance with those recommendations. The focus was on reviewing our strategy and portfolio, program management, discipline bidding processes, and LHX Next plans. The Business Review Committee executed as per its charter and, as such, is now dissolved. His recommendations are appreciated and, as I noted, are being executed in a rapid manner to continue to drive value for shareholders and customers. I'll now turn it over to Ken to provide insight on our second quarter results and 2024 guidance. Thanks.

Ken: And finally, I want to thank the four board members who served on our Ad Hoc Business Review Committee. Their recommendations were presented to the board last week, and we are implementing actions in accordance with those recommendations.

Ken: The focus was on reviewing our Strategy and Portfolio, Program Management, Discipline Bidding Processes, and LHX Next Plans.

Chris Kvesick: The business review committee executed as per its charter, and as such, is now dissolved. As recommendations are appreciated, and as I noted, are being executed in a rapid manner to continue to drive value for shareholders and customers.

Ken: The Business Review Committee executed as per its charter and as such is now dissolved.

Speaker Change: His recommendations are appreciated and, as I noted, are being executed in a rapid manner to continue to drive value for our shareholders and customers.

Ken Bedingfield: Al now turned it over to Ken to provide insight on our second quarter results and 2024 guidance.

Ken: I'll now turn it over to Ken to provide insight on our second quarter results and 2024 guidance.

Kenneth L. Bedingfield: Thanks, Chris. I'll start with the consolidated results for the quarter. Demand remains high, and in the second quarter, we were awarded over $5 billion in new awards, resulting in a book-to-bill of $1.0 and a total backlog of $32 billion. We were awarded a nearly $900 million contract for the delivery of electronic time fuses, which play a crucial role in replenishing our nation's critical munitions inventory. We were also awarded a $1 billion IDIQ contract, with an initial task order of $123 million, to supply the next lot of multifunctional information distribution systems. Jitters Terminals to the U.S. Navy

Ken Bedingfield: Thanks, Chris.

Ken Bedingfield: I'll start with consolidated results for the quarter. The man remains high, and in the second quarter, we were awarded over $5 billion in new awards, resulting in a book-to-bill of $1.0 in total backlog of $32 billion. We were awarded a nearly $900 million contract for the delivery of electronic time fuses, which play a crucial role in replenishing our nation's critical munitions inventory. We were also awarded a $1 billion IDIQ contract with an initial task order of $123 million to supply the next lot of multi-functional information distribution systems, jitters, terminals to the U.S. Navy, leveraging the unique capabilities of the TDL product line that we acquired last year.

Ken: Thanks, Chris. I'll start with consolidated results for the quarter.

Ken: Demand remains high, and in the second quarter, we were awarded over $5 billion in new awards.

Ken: Resulting in a book-to-bill of $1.0 and total backlog of $32 billion.

Speaker Change: We were awarded a nearly $900 million contract for the delivery of electronic time fuses.

Ken: which play a crucial role in replenishing our nation's critical munitions inventory.

Ken: We were also awarded a $1 billion IDIQ contract.

Ken: with an initial task order of $123 million.

Ken: To supply the next lot of multifunctional information distribution systems.

Kenneth L. Bedingfield: Leveraging the unique capabilities of the TDL product line that we acquired last, consolidated revenue grew 13% or 1% organically. Operating margins continue to be strong, expanding to 15.6%, up 80 basis points. Reflecting Improved Operational and Program Performance Across All Segments, with LHX Next Cost Savings Contributing. Chris highlighted our EPS growth of 9% as a result of strong operational performance. I'd like to add that on a pension-adjusted basis, second quarter EPS was up 13% as profitable growth drops to the bottom line.

Ken: Jitters Terminals to the U.S. Navy, leveraging the unique capabilities of the TDL product line that we acquired last year.

Ken Bedingfield: Consolidated revenue grew 13% or 1% organically. Operating margins continue to be strong, expanding to 15.6%, up 80 basis points, reflecting improved operational and program performance across all segments, with LHX next cost savings contributing. Chris highlighted our EPS growth of 9% as a result of strong operational performance. I'd like to add that, on a pension-adjusted basis, second quarter EPS was up 13%, as profitable growth drops to the bottom line. Free cash flow was 714 million for the second quarter, driven by increased operating income and improved working capital performance. In the quarter, we repaid a $350 million note, which helped reduce our net leverage to 3.2 times, down from 3.5 times in the previous quarter.

Ken: Consolidated revenue grew 13% or 1% organically.

Ken: Operating margins continue to be strong, expanding to 15.6%, up 80 basis points.

Ken: reflecting improved operational and program performance across all segments with LHX Next cost savings contributing. Chris highlighted our EPS growth of 9% as a result of strong operational performance.

Speaker Change: I'd like to add that on a pension adjusted basis...

Speaker Change: Second quarter EPS was up 13% as profitable growth drops to the bottom line. Free cash flow was $714 million for the second quarter, driven by increased operating income and improved working capital performance.

Kenneth L. Bedingfield: Free cash flow was $714 million for the second quarter, driven by increased operating income and improved working capital performance. In the quarter, we repaid a $350 million note, which helped reduce our net leverage to 3.2 times, down from 3.5 times in the previous quarter.

Speaker Change: In the quarter, we repaid a $350 million note, which helped reduce our net leverage to 3.2 times, down from 3.5 times in the previous quarter.

Ken Bedingfield: By segment, organic growth within our communication system segment was over 4% from higher production rates and deliveries of resilient communication products. Fox, Space and Airborne Systems segment revenue was flat, with growth in space systems and classified programs offset by lower volumes in our airborne combat systems business as we focus on negotiating appropriate business terms. Integrated mission systems revenue was also flat, as higher volumes on maritime programs were offset by lower volume in our commercial aviation business. Revenue for the second quarter, turning to margins, CS reported margins of 24.4%, down slightly over year, reflecting the timing of software sales and higher DOD revenue mix, which is first half weighted as we've previously discussed.

Kenneth L. Bedingfield: By segment, organic growth within our communications system segment was over 4% from higher production rates and deliveries of resilient communication products. Space and Airborne Systems segment revenue was flat, with growth in Space Systems and Classified Programs offset by lower volumes in our Airborne Combat Systems business as we focus on negotiating appropriate business terms. Integrated Mission Systems revenue was also flat as higher volumes on maritime programs were offset by lower volumes in our commercial aviation business. Aerojet Rocketdyne contributed almost $600 million of revenue for the second quarter.

Speaker Change: By segment, organic growth within our communications system segment was over 4% from higher production rates and deliveries of resilient communication products.

Speaker Change: Space and Airborne Systems segment revenue was flat, with growth in Space Systems and Classified Programs offset by lower volumes in our Airborne Combat Systems business as we focus on negotiating appropriate business terms.

Speaker Change: Integrated Mission Systems revenue was also flat as higher volumes on maritime programs were offset by lower volume in our commercial aviation business.

Speaker Change: Aerojet Rocketdyne contributed almost $600 million of revenue for the second quarter.

Kenneth L. Bedingfield: Turning to Margin. CS reported margins of 24.4%, down slightly year-over-year, reflecting the timing of software sales and higher DoD revenue mix, which is first half-weighted, as we've previously discussed. This was partially offset by LHXnext cost savings and the favorable net one-time impact of legal settlement.

Speaker Change: Turning to margins.

Speaker Change: CS reported margins of 24.4%, down slightly year over year, reflecting the timing of software sales and higher DoD revenue mix.

Ken Bedingfield: This was partially offset by LHXNX cost savings and the favorable net one-time impact of legal settlements. We continue to expect higher international mix and margin opportunity in the second half. In SAS, margins expanded 280 basis points to 12.6% as we continue to see progress on development programs, maturing to production and realize the benefits of our LHXNX initiatives. IMS continues to make progress on program performance and LHXNX, resulting in a margin of 11.9%, a 260 basis point increase versus the prior year.

Speaker Change: which is first half-weighted as we've previously discussed.

Speaker Change: This was partially offset by LHXNEXT cost savings and the favorable net one-time impact of legal settlements.

Kenneth L. Bedingfield: We continue to expect higher international mix and margin opportunity in the second half. In SAS, margins expanded 280 basis points to 12.6%. As we continue to see progress on development programs maturing to production and realize the benefits of our LHX Next initiative. IMS continues to make progress on program performance and LHX Next.

Speaker Change: We continue to expect higher international mix and margin opportunity in the second half.

Speaker Change: In SAS, margins expanded 280 basis points to 12.6% as we continue to see progress on development programs maturing to production and realize the benefits of our LHX Next initiatives.

Speaker Change: IMS continues to make progress on program performance and LHXNEXT.

Kenneth L. Bedingfield: Resulting in a margin of 11.9%, a 260 basis point increase versus the prior year. Consistent with a plan to rationalize our footprint outlined at Investor Day, we completed the consolidation of three facilities in the segment in the second quarter. Aerojet Rocketdyne reported margins of 12.9%, which included $22 million of amortization of purchase accounting adjustments. With the acquisition now one year behind us,

Speaker Change: Resulting in a margin of 11.9%, a 260 basis point increase versus the prior year. Consistent with a plan to rationalize our footprint outlined at Investor Day, we completed the consolidation of three facilities in the segment in the second quarter.

Ken Bedingfield: Consistent with a plan to rationalize our footprint outlined at Investor Day, we completed the consolidation of three facilities in the segment in the second quarter. Araget RocketDine reported margins of 12.9%, which included $22 million of amortization of purchase accounting adjustments. With the acquisition now one year behind us, we are wrapping up the purchase accounting period. With respect to the purchase accounting fair value adjustments for lost provisions and off-market contracts, all point out these reflect adjustments to baseline contract performance as of the date of acquisition. And are not impacted by our subsequent operational improvements, which we expect to see continuing improvement from in our future margin profile.

Speaker Change: Aerojet Rocketdyne reported margins of 12.9%, which included $22 million of amortization of purchase accounting adjustments.

Kenneth L. Bedingfield: We are wrapping up the purchase accounting period with respect to the purchase accounting fair value adjustments for lost provisions and off-market contracts. I'll point out these reflect adjustments to baseline contract performance as of the date of acquisition and are not impacted by our subsequent operational improvement, which we expect to see continuing improvement from in our future margin profile. Simply, the adjustments reflect a more informed assessment of the state of legacy contracts as of the date of acquisition. Finally, we turn to guidance.

Speaker Change: With the acquisition now one year behind us, we are wrapping up the purchase accounting period. With respect to the purchase accounting fair value adjustments for lost provisions and off-market contracts,

Speaker Change: I'll point out, these reflect adjustments to baseline contract performance as of the date of acquisition.

Speaker Change: and are not impacted by our subsequent operational improvements.

Speaker Change: which we expect to see continuing improvement from in our future margin profile.

Ken Bedingfield: Simply, the adjustments reflect a more informed assessment of the state of legacy contracts as of the date of acquisition close.

Speaker Change: Simply, the adjustments reflect a more informed assessment of the state of legacy contracts as of the date of acquisition close.

Ken Bedingfield: Finally, turning the guidance. Given our strong first half performance, we are increasing guidance for revenue margin rate and EPS, which we've outlined in our earnings release and presentation. We now expect EPS in the range of $12.85 per share to $13.15 per share, and we are reiterating free cash flow guidance of $2.2 billion. The increased guide for revenue margin and EPS incorporates solid growth and operational performance in the first half of the year and a few more months of additional revenue from our commercial aviation business with the pending divest that you're now expected to close in the second half.

Kenneth L. Bedingfield: Given our strong first half performance, we are increasing guidance for revenue, margin rate, and EPS, which we've outlined in our earnings release and presentation. We now expect EPS in the range of $12.85 per share to $13.15 per share, and we are reiterating free cash flow guidance of $2.2 billion. The increased guide for revenue, margin, and EPS incorporates solid growth and operational performance in the first half of the year and a few more months of additional revenue from our commercial aviation business with the pending divestiture now expected to close in the second. We're pleased with our performance through the first half of the year, highlighted by a year-to-date book-to-bill of $1.03, organic revenue growth of 3%, and sequentially increasing Rob, let's open the line for questions.

Speaker Change: Finally, turning to guidance.

Speaker Change: Given our strong first half performance, we are increasing guidance for revenue, margin rate, and EPS, which we've outlined in our earnings release and presentation.

Speaker Change: We now expect EPS in the range of $12.85 per share to $13.15 per share, and we are reiterating free cash flow guidance of $2.2 billion.

Speaker Change: The Increased Guide for Revenue, Margin, and EPS incorporates solid growth and operational performance in the first half of the year and a few more months of additional revenue from our commercial aviation business, with the pending divestiture now expected to close in the second half.

Ken Bedingfield: We're pleased with our performance through the first half of the year, highlighted by a year date booked a bill of 1.03, organic revenue growth of 3%, and sequentially increasing segment operating margin. We remain confident in delivering on our commitments to customers and Cheryl.

Speaker Change: We're pleased with our performance through the first half of the year, highlighted by a year-to-date book-to-bill of $1.03, organic revenue growth of 3%,

Speaker Change: and Sequentially Increasing Segment Operating Margin. And we remain confident in delivering on our commitments to customers and shareholders.

Rob: Rob, let's open the line for questions. Thank you. We'll now be conducting a question and answer session.

Speaker Change: Rob, let's open the line for questions.

Operator: Thank you. We'll now be conducting a question and answer session. In the interest of time, we ask that you please limit yourselves to one single-part question.

Rob: In the answers to the time, we ask you please allow yourself to one single part question. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For just introducing speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Rob: Thank you. We will now be conducting a question and answer session.

Operator: If you'd like to ask a question, please press star 1 on your telephone keypad and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Rob: In the interest of time, we ask that you please limit yourselves to one single part question.

Speaker Change: If you'd like to ask a question, please press star 1 on your telephone keypad and a confirmation tone to indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Rob: One rule, please. Will we poll for questions? Thank you.

Operator: One moment, please, while we poll for questions. Thank you. Our first question today comes from the line of Peter Arment with Baird. Please proceed with your question.

Speaker Change: One moment please while we poll for questions.

Peter Arment: First question, today comes from the line of Peter Armand with Beard. Please receive your question.

Speaker Change: Thank you. Our first question today comes from the line of Peter Arment with Baird. Please receive your question.

Peter Arment: Yeah, good morning, Chris, Ken, and Dan. Nice results. Ken, maybe just ask on Aerojet and the margin performance. The first half continues to be really strong. But then you compare it to where the guide is for a high 11% of implies margin step down.

Peter J. Arment: Yeah, good morning, Chris, Ken, and Dan. Nice results.

Peter J. Arment: Hey Ken, maybe just ask on Aerojet, the margin of performance, the first half continues to be really strong.

Peter J. Arment: But then you compare it to where the guide is for high 11% implies margin step down. Maybe if you could just walk through that or just the thinking there, is it just conservative or are there other things that maybe you just mentioned that we should understand? Thanks.

Ken Bedingfield: Maybe if you could just walk through that or just thinking there, is it just conservative, or if there are other things that maybe you just mentioned that we should understand. Thanks.

Ken Bedingfield: Sure, Peter, appreciate the question. With respect to Aerojet, I would say, look, the business is performing well halfway through the year. You know, we're happy about the margin performance. There's certainly, you know, some aspects of mix in terms of which programs are seeing the volumes of which point through the year. As well as, you know, as we performed in the first half, we were able to see some positive program performance that we've got to go, you know, do again in the second half of the year. So, you know, we feel good about how Aerojet Rocket Line is performing.

Christopher E. Kubasik: Sure, Peter, I appreciate the question. With respect to Aerojet, I would say, look, the business is performing well halfway through the year, you know, we're happy about the margin performance, there's certainly some aspects of mix in terms of which programs are seeing the volumes at which point through the year, as well as, you know, as we performed in the first half, we were able to see some positive program performance that we've got to do again in the second half of the year.

Peter J. Arment: Sure, Peter, appreciate the question. With respect to Aerojet, I would say, look, the business is performing well.

Peter J. Arment: halfway through the year. You know, we're happy about the margin performance. There's certainly, you know, some aspects of mix in terms of which programs are seeing the volumes.

Peter J. Arment: At which point through the year, as well as, you know, as we performed in the first half, we were able to see some

Peter J. Arment: Positive program performance that we've got to go, you know, do again in the second half of the year.

Christopher E. Kubasik: So you know, we feel good about how Aerojet Rocketdyne is performing. And, you know, it's been about a year since we integrated this business. And we're, you know, continuing to learn more. I think, you know, you saw that the purchase accounting period ended as well. So we've got that kind of information behind us, better informed about the improvements that we're making and how we're driving operational improvements in the business. And, you know, we'll work to continue to deliver on that in the second half and see if we can replicate what we did in the first half of the year.

Peter J. Arment: You know, we feel good about how Aerojet Rocketdyne is performing, and you know, it's been about a year since we've integrated this business, and we're, you know, continuing to learn more. I think, you know, you saw that the...

Ken Bedingfield: And, you know, it's been about a year since we've integrated this business, and we're, you know, continuing to learn more. I think, you know, you saw that the purchase and accounting period ended as well. So, we've got, you know, that kind of information behind us, you know, better informed with the improvements that we're making and how we're driving operational improvements in the business. And, you know, we'll work to continue to deliver on that in the second half, and, you know, see if we can replicate what we did in the first half of the year.

Peter J. Arment: Purchase Accounting Period ended as well.

Peter J. Arment: We've got, you know, that kind of information behind us, you know, better informed with the improvements that we're making and how we're driving operational improvements in the business. And, you know, we'll work to continue to deliver on that in the second half.

Peter J. Arment: And, you know, see if we can replicate what we did in the first half of the year.

Seth Seifman: Our next question comes from the line of said advertisement with J.P.

Operator: Our next question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your question.

Seth Seifman: Morgan.

Seth Seifman: Please just use your question. Okay. Thanks very much, and good morning.

Peter J. Arment: Our next question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your question.

Kenneth L. Bedingfield: Thanks very much and good morning. I wanted to ask, I guess, Ken and maybe Chris as well, when you gave the outlook and the targets at Investor Day, it was, I think, about 100 basis points of margin improvement in each business. You know, now that we've seen, you know, starting off pretty well here through the first half of 24, if there are any refinements you might make in terms of, you know, how you see getting to that 16% margin and the contributions from the various businesses, given how they've performed so far and what you've been able to get out of the LHX program.

Seth Seifman: I wanted to ask, I guess, Ken and maybe Chris as well, when you gave the outlook and the targets that we had invested in yesterday was, I think, about a hundred basis points of margin improvement in each business. You know, now that we've seen, you know, starting off pretty well here through the first half of 24. As you look out, if there are any refinements you might make in terms of, you know, how you see getting to that 16% margin and the contributions from the various businesses given how they've performed so far and what you've been able to, you know, get out of the LHXX program.

Seth Michael Seifman: Thanks very much.

Seth Michael Seifman: Good morning. I wanted to ask, I guess, Ken and maybe Chris as well, when you gave the outlook and the targets at Investor Day was I think about a hundred basis points of margin improvement in each business.

Speaker Change: You know, now that we've seen, you know, starting off pretty well here through the first half of...

Speaker Change: 1924

Speaker Change: As you look out, if there are any refinements you might make in terms of, you know, how you see getting to that 16% margin and the contributions from the various businesses given how they've performed so far and what you've been able to, you know, get out of the LHX program.

Ken Bedingfield: Yes, thanks Seth, appreciate it. I would say, as we look back at Investor Day and the midterm financial framework that we set out, growing to 23 billion in revenue in 26, 16% margins, and $2.8 billion of free cash flow in that period. I think where we are today gives us more confidence in delivering to that framework, and if you think about the businesses, they have been performing well. I think we've got the programs performing; the work we're doing around program excellence is paying off. I think that if you look at our guide across the segments where we've picked up SAS, margin a bit, same with IMS and CS as well.

Kenneth L. Bedingfield: Yeah, thanks, I appreciate it. I would say, you know, as we look back at Investor Day and the, you know, midterm financial framework that we set out, growing to 23 billion in revenue in 26. 16% margins and $2.8 billion of free cash flow in that period. I think where we are today gives us more confidence in delivering on that framework. And if you think about the businesses, they have been performing well; I think we've, Uh, you know, got the programs performing, the work we're doing around, you know, program excellence is paying off. Um, you know, I think that, uh, if you look at our guide across the segments where we've picked up SAS margin a bit. Same with IMS and NCS as well.

Speaker Change: Yes, thanks Seth, appreciate it. I would say, you know, as we look back at Investor Day and the, you know, midterm financial framework that we set out, you know, growing to $23 billion in revenue in 2026,

Speaker Change: 16% margins and $2.8 billion of free cash flow in that period. I think where we are today gives us more confidence in delivering to that framework.

Speaker Change: And if you think about the businesses, they have been performing well, I think we've, you know, got the programs performing, the work we're doing around, you know, program excellence is paying off.

Speaker Change: You know, I think that if you look at our guide across the segments where we've picked up SAS,

Speaker Change: margin a bit same with IMS and NCS as well so and then if you look at the business you know first first half of the year we're at 15-3

Ken Bedingfield: And then if you look at the business, you know, first first half of the year, we're at 15.3 growing from I think it was 14.8 last year. We're making solid progress towards that 16%. I would say that we feel better about it. And we are trying to reflect that in the guidance updates that we're making. Again, you know, pick ups across three segments and then picking up margin from where we were kicking off 2024 at about 15% to pick it up to a range of 15 2 to 15 4. So really making good progress towards that framework.

Kenneth L. Bedingfield: So and then if you look at the business, you know, first half of the year, we're at 15.3, you know, growing from I think it was 14.8 last year. We're making solid progress towards that 16%. I would say that we feel better about it.

Speaker Change: You know, growing from, I think it was 14.8 last year, we're making solid progress towards that 16%. I would say that we feel better about it.

Operator: And we are, you know, trying to reflect that in the guidance updates that we're making again, you know, pickups across three segments and then, you know, picking up margin from where we were kicking off 2024 at about 15% to pick it up to a range of 15.2 to 15.4. So really making good progress towards that framework. I think we're building confidence quarter by quarter. And, you know, as we progress through the year and then, you know, get into 25, we'll try to provide, you know, better clarity around our progress on that.

Speaker Change: And we are, you know, trying to reflect that in the guidance updates that we're making again.

Speaker Change: You know pickups across three segments and then

Speaker Change: You know, picking up margin from, you know, where we were kicking off 2024.

Speaker Change: at about 15% to pick it up to a range of 15.2 to 15.4. So really making good progress towards that framework. I think we're building confidence quarter by quarter.

Ken Bedingfield: I think we're building confidence quarter by quarter. And, you know, as we progress through the year and then, you know, get into 25. We'll try to provide, you know, better clarity around our progress on that. And, and, you know, again, building confidence and, you know, maybe it's, maybe it's something that we'll see some acceleration on.

Speaker Change: And, you know, as we progress through the year and then, you know, get into 25, we'll try to provide, you know, better clarity around our progress on that and, you know, again, building confidence and, you know, maybe it's something that we'll see some acceleration on.

Robert Stallard: Our next question is from the line of Robert Salad with Vertical Research Partners, which is the other question. Thanks so much.

Operator: Our next question is from the line of Robert Stallard with Vertical Research Partners. Please proceed with your question. Thanks so much.

Operator: And, you know, again, building confidence, and, you know, maybe it's something that we'll see some acceleration on. Our next question is from the line of Robert Stallard with Vertical Research Partners. Please proceed with your question. Thanks so much. Morning, Rob. Chris..................

Speaker Change: Our next question is from the line of Robert Stallard with Vertical Research Partners. Please proceed with your question.

Robert Stallard: Good morning. Morning, Rob.

Robert Alan Stallard: Thanks so much. Good morning.

Chris Kvesick: Chris, you're highlighted that your margins are some of the best in the defense industry, but at least based on the two quarter, two second quarter numbers, your bookings in your revenue growth are a bit behind some of your peers. I was wondering if that reflects, you know, this discipline you've had with regard to bidding terms and contracts and that, or is it just this is not a fake comparison just for this quarter? Yeah, Rob, it's tough to look at one quarter for a bookings or book-to-bill ratio. You know, for a year to date, we're feeling pretty good as to what.

Rob: Morning, Rob.

Robert Alan Stallard: Chris, you highlighted that your margins are some of the best in the defence industry, but at least based on the second quarter numbers.

Robert Alan Stallard: Your bookings and your revenue growth are a bit behind some of your peers. I was wondering if that reflects, you know, this discipline that you've had with regard to bidding terms and contracts and that, or is it just this is not a fair comparison just for this quarter?

Christopher E. Kubasik: Yeah, Rob, it's tough to look at one quarter for a bookings or book to bill ratio, you know, for a year to date. We're feeling pretty good as to what we've been able to book had a great, great first quarter. So, you know, one quarter doesn't make a year.

Robert Alan Stallard: Yeah, Rob, it's tough to look at one quarter for a bookings or book-to-bill ratio. You know, for year-to-date, we're feeling pretty good as to what...

Chris Kvesick: What we've been able to book had a great, great first quarter. So, you know, one quarter doesn't, doesn't make a year. I think our portfolio is well positioned, and we're continuing to be disciplined in what we bid. And I think you're seeing, seeing that in the results, especially on the margin front, some of the prior strategic decisions we made, you know, to invest and go after prime positions with SDA for satellites. Maybe changing our waveform strategy, what we're doing with counter UAS with Vampire, winning armed Overwatch, all those programs are starting to pay off. And as Ken mentioned, you know, we've really upped our program management and execution with training, new tools, hiring experienced hires externally, where appropriate.

Speaker Change: Well, we've been able to book at a great, great first quarter. So, you know, one quarter doesn't doesn't make a year. I think our portfolio is well positioned and we're continuing to be disciplined in what we bid. And I think you're seeing seeing that in the results.

Christopher E. Kubasik: I think our portfolio is well positioned, and we're continuing to be disciplined in what we bid. And I think you're seeing, especially on the margin front, some of the prior strategic decisions we made, you know, to invest and go after prime positions with SDA for satellites, maybe changing our waveform strategy, what we're doing with counter UAS with Vampire, winning armed overwatch, all those programs are starting to pay off.

Speaker Change: Especially on the margin front, some of the prior strategic decisions we made.

Speaker Change: You know, to invest and go after prime positions with SDA for satellites.

Ken: Maybe changing our waveform strategy, what we're doing with counter UAS, with Vampire, winning armed Overwatch. All those programs are starting to pay off. And as Ken mentioned, we've really upped our program management and execution with training, new tools.

Speaker Change: hiring experienced hires externally where appropriate, and you know we talk about bidding discipline. It's making sure we have the right contract type. I think we were one of the first to come out and say we are not going to bid fixed-price development programs with options.

Chris Kvesick: And, you know, we talk about bidding discipline. It's making sure we have the right contract type. I think we were one of the first to come out and say we are not going to bid fixed-price development programs with options. At the proposal process, and we're doing a lot better, getting the cost basis and asking for a reasonable fee. So, we're taking our time, and we're negotiating, and I would expect the third quarter, we'll see a bump relative to the book-to-bill.

Speaker Change: At the proposal process and we're doing a lot better getting the cost basis and asking for a reasonable fee. So we're taking our time and we're negotiating and I would expect the third quarter we'll see a bump relative to the book to bill.

Ronald Epstein: Our next question is from the line of Ron Epstein with Bank of America.

Operator: Our next question is from the line of Ron Epstein with Bank of America. Please proceed with your question.

Christopher E. Kubasik: And as Ken mentioned, you know, we've really upped our program management and execution with training new tools, and hiring experienced hires externally where appropriate. And, you know, we talked about bidding discipline; it's making sure we have the right contract type. I think we were one of the first to come out and say we are not going to bid fixed price development programs with options. http://www.larryweaver.com Our next question is from the line of Ron Epstein with Bank of America. Please proceed with your question. Hey, yeah, good morning guys. Um, Chris, maybe just a big picture question, you know, we just had the NATO summit and, you know.

Ronald Epstein: Please receive your question. Hey, yeah, good morning, guys.

Speaker Change: Our next question is from the line of Ron Epstein with Bank of America. Please proceed with your question.

Chris Kvesick: Chris, maybe it's a big picture question. We just had the NATO summit and the Royal International Air Tattoo about a week ago, Farmborough. It really does seem like spending in Europe is on the rise. We've seen that reflected some of the defense equities in Europe. What opportunities does that create for L3Harris and maybe new markets are things that the European industrial base just can't do. Can you do themselves? Can you talk about that a bit? Absolutely. I actually was in attendance at the defense summit as part of the NATO Summit in DC with the various ministers of defense and international customer leadership.

Ronald Jay Epstein: Hey, yeah, good morning, guys.

Ronald Jay Epstein: Chris, maybe just a big picture question.

Speaker Change: You know, we just had the NATO summit and, you know, the...

Ronald Jay Epstein: Royal International Air Tattoo about a week ago, Farnborough, it really does seem like spending in Europe is on the rise. We've seen that reflected in some of the defense equities in Europe . What opportunities does that create for L3Harris?

Speaker Change: And maybe new markets are things that, you know, the European industrial base just can't do themselves. Can you talk about that a bit?

Christopher E. Kubasik: Absolutely. I actually was in attendance at the Defense Summit as part of the NATO Summit in D.C. with the various ministers of defense and International Customer Leadership, and it had a different tone than in the past.

Speaker Change: Absolutely. I actually was in attendance at the Defense Summit as part of the NATO Summit in D.C. with the various Ministers of Defense and

Christopher E. Kubasik: And I think you're hitting on an excellent point. I think most U.S. companies don't view Europe as a growth market or even much of a market because of the indigenous capabilities that exist, but the theme at the NATO summit was all about interoperability and the need for these countries to either bundle acquisitions or have their products work, and with the conflict in Ukraine, I think everybody sees the benefit of interoperability not only amongst the 32 member countries, which includes the U.S.

Chris Kvesick: It was a different tone than in the past. I think you're hitting on an excellent point. I think most US companies don't view Europe as a growth market or even much of a market because of the indigenous capabilities that exist. But the theme at the NATO Summit was all about interoperability and the need for these countries to either bundle acquisitions or have their products work. With the conflict in Ukraine, I think everybody sees the benefit of the interoperability not only amongst the 32 member countries, which includes the US, but given the threat profile in Europe.

Speaker Change: and

Speaker Change: International Customer Leadership and it was a different tone than in the past and I think you're hitting on an excellent point. I think most

Speaker Change: U.S. companies don't view Europe as a growth market or even much of a market because of the indigenous capabilities that exist.

Speaker Change: But the theme at the NATO summit was all about interoperability.

Speaker Change: and The Need.

Speaker Change: For these countries to either bundle acquisitions or have their products work.

Speaker Change: And let's see, a conflict in Ukraine.

Speaker Change: I think everybody sees the benefit of the interoperability, not only amongst the 32 member countries.

Speaker Change: which includes the US, but given the threat profile in Europe . So, in our case, we look at our software-defined radios as a perfect example. I think we're uniquely positioned there, and there was a lot of interest in that and, you know,

Christopher E. Kubasik: So in our case, you know, we look at our software-defined radios as a perfect example. I think we're uniquely positioned there, and there was a lot of interest in that, and, you know, back at the envelope, we think this could be, you know, 100,000 radio opportunities in the years ahead. So Europe is one of our larger markets that we're now going after for all the reasons you mentioned, Ron, and I think that's a nice upside for 2024 and should give us some tailwind in the years ahead. Our next question is from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question. Hey, good morning, Chris, Ken, and Dan. So, for me,

Chris Kvesick: In our case, we look at our software-defined radios as a perfect example. I think we're uniquely positioned there. There was a lot of interest in that. Back at the end of the loop, we think this could be 100,000 radios opportunity in the years ahead. Europe is one of our larger markets that we're now going after for all the reasons you mentioned, Ron. And I think that's a nice, nice upside for 2024 and should give us some tailwind in the years ahead.

Speaker Change: Back at the envelope, we think this could be, you know, 100,000 radio opportunity in the years ahead. So, Europe is one of our...

Speaker Change: larger markets that we're now going after for all the reasons you mentioned, Ron. And I think that's a nice, nice upside for 2024 and should give us some tailwind in the years ahead.

Christine Liwag: Our next question is going to line up Christine and the lag with Morgan Stanley. Good to see you with your question.

Operator: Our next question is from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question. Hey, um...

Speaker Change: Our next question is from the line of Kristine Liwag with Morgan Stanley . Please proceed with your question.

Christine Liwag: Good morning, Chris, Ken, and Dan. So for me, the wrapping up on the ad hoc business review committee, you mentioned that it completed its review. So can you provide any color to the extended recommendations that were made in some of the findings?

Unknown Executive: Hey, good morning Chris, Ken, and Dan.

Speaker Change: So for me, wrapping up on the Ad Hoc Business Review Committee, you mentioned that it completed its review.

Unknown Executive: So can you provide any color to the extent of recommendations it made and some of the findings? What is now the implementation plan and how is this different from the multi-year outlook you've given at the Investor Day?

Chris Kvesick: What is now the implementation plan and how is this different from the multi-year outlook you've given at the investor day? Yeah, thanks for that question, Christine. I'll just say, I thought it was a good review. We all learned from the process, and I'd say all parties, both the members of the ad hoc, is this review committee and management benefited from the discussion. And it has no change on our 2026 financial framework, and the idea of suggestions and discussions were beneficial, and we already implemented some recommendations and will continue to do so throughout the year.

Christopher E. Kubasik: Yeah, thanks for that question. Kristine, I'll just say I thought it was a good review. We all learned from the process. And I'd say all parties, both the members of the Ad Hoc Business Review Committee and management, benefited from the discussion. And it has no change on our 2026 financial framework.

Speaker Change: Yeah, thanks for that question, Kristine. I'll just say I thought it was a...

Speaker Change: It was a good review. We all learned from the process, and I'd say all parties, both the members of the ad hoc.

Speaker Change: Business Review Committee and Management benefited from the discussion, and it has no change on our 2026 financial framework, and the ideas, suggestions, and discussions were beneficial, and we're already implementing some

Speaker Change: Recommendations, and we'll continue to do so throughout the year.

Unknown Executive: Thank you.

Operator: Our next question is from the line of Myles Walton with Wolf Research. Please proceed with your question. Thanks.

Christopher E. Kubasik: And the ideas, suggestions, and discussions were beneficial, and we're already implementing Recommendations, and we'll continue to do so throughout the year. Our next question is from the line of Myles Walton with Wolf Research. Please proceed with your question. Thanks. Good morning. I was hoping to, maybe, if you could Chris drill into the communication

Myles Walton: Our next question is from the line of Myles Walton, with full of research.

Myles Walton: Pleased to see you through your question. Thanks. Good morning.

Speaker Change: Our next question is from the line of Myles Walton with Wolf Research. Please proceed with your question.

Myles Walton: I was hoping to maybe, if you could, Chris, drill into the communication systems, order trends, and backlog as you see it sitting here today in the first six months and also from an international perspective. I think it was about flatish growth in the first half and DOD was more driving it. You're expecting, I think, that shift to that shift in the second half. I'm just curious if the order trends are starting to accelerate on that front.

Myles Alexander Walton: Thanks. Good morning. I was hoping to maybe if you could, Chris, drill into the communication systems, order trends, and backlog as you see it sitting here today in the first six months and

Speaker Change: And also from an international perspective, I think it was about flattish growth in the first half and DoD was more driving it. You're expecting, I think, that shift to, that shift in the second half. I'm just curious if the order trends are starting to accelerate on that front.

Chris Kvesick: Thanks, Miles. You know, as I said, we have about 32 billion in backlog, way up from when the company was formed five years ago.

Christopher E. Kubasik: Yeah, thanks, Myles. You know, as I said, we have about $32 billion in backlog, way up from when the company was formed five years ago. I guess in CS, I really see three major areas. The DoD modernization we've been talking about for quite some time. And if you go back, there was a basis of issue, what we call a BOI, to buy 480,000 radios from us and our competitors. To date, we've delivered 185,000.

Speaker Change: Thanks, Myles. As I said, we have about $32 billion in backlog, way up from when the company was formed five years ago. I guess in CS, I really see three major areas. The DoD modernization we've been talking about for quite some time.

Chris Kvesick: So I guess in CS, I really see three major areas: the DOD modernization. We've been talking about for quite some time. And if you go back, there was a basis of issue, what we call B.O.I. to buy 480,000 radios from us in our competitors. To date, we've delivered 180,000. So there's still a 300,000 radio opportunity. And clearly, as these IDIQs have annual task orders, we've been rather successful in winning our fair share or more than our fair share. And I expect that to continue.

Speaker Change: And if you go back, there was a basis of issue, what we call a BOI, to buy 480,000 radios from us and our competitors. To date, we've delivered 180,000, so there's still a 300,000 radio...

Christopher E. Kubasik: So there's still a 300,000 radio opportunity. And clearly, as these IDIQs have annual task orders, we've been rather successful in winning our fair share or more than our fair share. And I expect that to continue.

Speaker Change: You know, opportunity, and clearly, as these IDIQs have annual task orders, we've been rather successful in winning our fair share, or more than our fair share, and I expect that to continue.

Christopher E. Kubasik: You know, during the pandemic, we actually invested in capacity up in Rochester. You know, we've come up with some new techniques, we have what we call our smart cell, which is a different way of integrating radios. We've seen our yields improve, we're using a smaller footprint. And it's really changing the way that we integrate our radios. We continue to invest in software. We have some new waveforms.

Chris Kvesick: You know, during the pandemic, we actually invested in capacity up in Rochester. You know, we've come up with some new techniques. We have what we call our smart cell, which is a different way of integrating radios. We've seen our yields improve using a smaller footprint. And it's really changing the way that we integrate our radios. We continue to invest in software. We have some new waveforms. And I think it's important to remember these are Software Defined Radios. So the hardware probably has a 10 to 15 year life. So there'll be a replenishment of that. But more importantly, you know, there's a continuous demand for the software and the upgrade.

Speaker Change: You know, during the pandemic, we actually invested.

Speaker Change: Capacity up in Rochester. You know, we've come up with some new techniques. We have what we call our smart cell.

Speaker Change: Which is a different way of integrating radios. We've seen our yields improve. We're using a smaller footprint.

Speaker Change: And it's really changing the way that we integrate our radios.

Christopher E. Kubasik: And I think it's important to remember these are software-defined radios, so the hardware probably has a 10 to 15-year life, so there'll be a replenishment of that. But more importantly, you know, there's a continuous demand for the software and the upgrade. The DOD modernization, as far as we can see, continues to look good. The budgets will come out, and they'll adjust the quantities based on that, but there's clear demand here in the U.S.

Speaker Change: We continue to invest in software. We have some new waveforms.

Speaker Change: And I think it's important to remember, these are software-defined radios, so the hardware probably has a 10 to 15 year life, so there'll be a replenishment of that, but more importantly, you know, there's a continuous demand for the software and the upgrades, so.

Chris Kvesick: So the DOD modernization, as far as we can see, continues to look good. The budgets will come out, and they'll adjust the quantities based on that, but there's clear demand here in the U.S.

Speaker Change: The DOD modernization, as far as we can see, continues to look good. The budgets will come out, and they'll adjust the quantities based on that, but there's clear demand.

Christopher E. Kubasik: I mentioned NATO in an earlier question. Again, we see a huge opportunity for NATO with that focus on interoperability, and we continue to have success around the globe with our software-defined radios and the whole focus on resilient communications. I think that's one of the lessons learned.

Chris Kvesick: I mentioned the NATO in an earlier question. Again, we see a huge opportunity for NATO with that focus on interoperability. And we continue to have success around the globe with our software defined radios. Because in the whole focus on resilient comms, I think that's one of the lessons learned. There's a big difference between just being able to communicate and communicate in a resilient, protected fashion, and our networks are coming out as world class in that regard. And I alluded to our software and waveforms. We're continuing to see demand for our resilient waveforms. And this is one of two markets that's either an upsell for a new software defined radio or it's a licensing opportunity for the installed base.

Speaker Change: Here in the U.S. I mentioned the NATO in an earlier question. Again, we see a huge opportunity for NATO with that focus on interoperability, and we continue to have success around the globe.

Speaker Change: with our software-defined radios and the whole focus on resilient comms. I think that's one of the lessons learned. There's a big difference between just being able to communicate and communicate in a resilient, protected fashion in our networks.

Christopher E. Kubasik: There is a big difference between just being able to communicate and communicating in a resilient, protected fashion, and our networks are coming out as world-class in that regard. And I've alluded to our software and waveforms. We're continuing to see demand for our resilient waveforms, and this is one of two markets: either an upsell for a new software-defined radio, or it's a licensing opportunity for the installed base. So just on CS, we have about a $16 billion pipeline looking out three years.

Speaker Change: are coming out as world class in that regard. And I've alluded to our software and waveforms. We're continuing to see demand for our resilient waveforms. And this is.

Speaker Change: One of two markets is either an upsell for a new software-defined radio, or it's a licensing opportunity for the installed base.

Chris Kvesick: So just on CS, we have about a $16 billion pipeline looking out three years. As I mentioned, $10 billion international; the rest domestic. So if you're real good about the business and the growth potential. And just to close off, we don't see any supply chain issues or constraints as we have in the prior years, which gets us. Steven further confident in the outlook.

Christopher E. Kubasik: As I mentioned, $10 billion international, the rest domestic. So, we feel really good about the business and the growth potential. And just to close off, we don't see any supply chain issues or constraints as we have in the past, which gives us... Even further confidence in the outlook.

Speaker Change: So just on CS, we have about a $16 billion pipeline looking out three years.

Speaker Change: As I mentioned, $10 billion international, the rest domestic, so I feel real good about the business and the growth potential.

Speaker Change: And just to close off, we don't see any supply chain issues or constraints as we have in the prior years, which gives us even further confidence in the outlook.

David Strauss: Our next question is from one of David Strauss with Darkly. Please see with your question.

Operator: Our next question is from the line of David Strauss with Darkly. Please proceed with your question.

Speaker Change: Our next question is from the line of David Strauss with Darkly. Please proceed with your question.

David Strauss: Thanks, morning, everyone. Morning. One to see Chris Ken, if you could maybe dig into the IMS margins a little bit. We've seen nice improvement here in the first tap, but it looks like you're forecasting kind of flat and maybe down a little bit sequentially off cute to the second half. From what I remember from the investor day, the commentary was around that you would move through some of these fixed price development programs in the second half of the year. And if anything, we would start to see the margin improvement in the second half of the year.

Operator: Thanks. Good morning, everyone. Good morning. Good morning.

Operator: Wanted to see Chris, Ken, if you could maybe dig into the IMS margins a little bit. You know, we've seen nice improvement here in the first half. But it looks like you're forecasting kind of flat to maybe down a little bit sequentially off Q2 in the second half. From what I remember from the investor day, the commentary was around that you would move through some of these fixed price development programs in the second half of the year. And if anything, you know, we would start to see margin improvement in the second half of the year. So if you could just maybe address IMS margins. Thanks.

David Egon Strauss: Thanks. Good morning, everyone.

David Egon Strauss: Morning. Morning. When does the ... ...

David Egon Strauss: Chris, Ken, if you could maybe dig into to IMS margins a little bit, you know, we've seen nice improvement here in the first half, but it looks like you're forecasting kind of flat to maybe down a little bit sequentially off Q2 in the second half, from what I remember from the investor day, the

Speaker Change: Kenneth Bedingfield, George Shapiro, Christopher Kubasik

Ken Bedingfield: So you could just maybe address IMS margins. Thanks.

Ken Bedingfield: Sure. Thanks, David. Appreciate it.

Kenneth L. Bedingfield: Sure. Thanks, David. I appreciate it.

Ken Bedingfield: From an IMS perspective, I would say a couple of things. One, we're really happy to see the performance that IMS has had in the first half of the year. I think the programs are performing well in that delivering solid margins for us in significant growth over the first half of 23.

Speaker Change: Sure. Thanks, David. Appreciate it. From an IMS perspective, you know, I would say, you know, a couple things. One,

Kenneth L. Bedingfield: From an IMS perspective, you know, I would say, you know, a couple things. One, we're really happy to see the performance that IMS has had in the first half of the year. I think the programs are performing well, and that's delivering solid margins for us and significant growth over the first half of 2023. In terms of the margin profile between first half and second half, a couple things. One, we did have some favorable commercial mix in the first half in terms of electro-optical, more of a commercial type of business within IMS.

Speaker Change: We're really happy to see the performance that IMS has had in the first half of the year. I think the programs are performing well and that's delivering solid margins for us and significant growth over the first half of 2023.

Ken Bedingfield: In terms of the margin profile between first half and second half, a couple of things. One, we did have some favorable commercial mix in the first half in terms of electro-optical, more kind of commercial type of business within IMS. And then we are starting to see the benefits of LHX next cost savings. Those should endure as well.

Speaker Change: In terms of the margin profile between first half and second half, a couple things. One,

Speaker Change: We did have, you know, some favorable commercial mix in the first half in terms of electro-optical, more kind of commercial type of business within IMS.

Kenneth L. Bedingfield: And then we are, you know, starting to see the benefits of LHX Next Cost Savings. Those should endure as well. But from a first half and second half perspective, you know, I think it's, you know, two things. One, just the mix commercial.

Speaker Change: And then we are, you know, starting to see the benefits of LHX Next Cost Savings. Those should...

Ken Bedingfield: But from a first half, second half perspective, I think it's two things. One, just the mix commercial. We are going to see growth in IMS in the second half.

Speaker Change: endure as well. But from a first-half, second-half perspective, you know, I think it's, you know, two things. One, just the mix commercial. We are going to see growth in IMS in the second half.

Operator: We are going to see growth in IMS in the second half, as, you know, as highly profitable as some other commercial businesses in there. But the fact of the matter is, you know, we've got to perform in the second half. I think our guide is solid at IMS. We picked it up to the low to mid 11 percent. We're sitting at eleven seven years to date. So I think building confidence in our IMS team and their ability to perform is important.

Ken Bedingfield: We talked a little bit about the first half within IMS having a little bit of growth headwinds with respect to ISR and some aircraft requirements in the first half of 23. As that abates, we may see some mix that moves a little bit more towards ISR, some of the businesses that aren't as highly profitable as some of the commercial businesses in there.

Speaker Change: You know, we talked a little bit about the first half with NIMS having a little bit of growth headwinds with respect to ISR and some aircraft procurements in the first half of 23.

Speaker Change: As that abates, we may see some mix that moves a little bit more towards ISR, you know, some of the businesses that aren't as

Ken Bedingfield: But the fact of the matter is we've got to perform in the second half. I think our guide is solid. At IMS, we pick it up to low to mid 11%; we're sitting at 11, 7 year to date. So I think building confidence in our IMS team and their ability to perform, and, you know, biggest impacts would be the mix as we look at the second half.

Speaker Change: You know as highly profitable as some of the commercial businesses in there But the fact of the matter is you know, we've got to perform in the second half. I think our guide is solid At IMS we picked it up to low to mid 11% We're sitting at 11.7

Speaker Change: We've had no competition year to date. So I think building confidence in our IMS team and their ability to perform and you know, the biggest impacts would be the mix as we look at the second half.

Operator: And, you know, the biggest, biggest impacts would be the mix as we look. Our next question is from the line of Sheila Kahyaoglu with Jeffries. Please proceed with your question. Um, thank you. Good morning, Chris and Ken.

Sheila Kahyaoglu: Our next question is no line of Sheila Kaiglu with Jeffries. Please see if there are questions.

Operator: Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Speaker Change: Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Sheila Kahyaoglu: Thank you.

Chris Kvesick: Good morning, Chris and Ken. So maybe if we could talk about SAS on the top line and bottom line, what trends are you seeing in terms of ongoing growth and space and Intel with the offset in airborne combat systems? And how do you think about the timing of airborne stabilizing and any context you could give us on return hurdles through deploying to have this disciplined profit fall through?

Sheila Karin Kahyaoglu: Thank you. Good morning, Chris and Ken.

Sheila Karin Kahyaoglu: So maybe if we could talk about SAS on the top line and bottom line, what trends are you seeing in terms of

Sheila Karin Kahyaoglu: Ongoing growth in space and intel with the offset in airborne combat systems, and how do you think about the timing of airborne stabilizing and any context you could give us on the return hurdles you're deploying to have this discipline fall through?

Chris Kvesick: All right, Sheila. Let me start, and then maybe I'll have Ken time in. You know, starting with space, again, I think that is the example we keep holding up of what the benefit of the merger was in our trusted disruptor strategy. As I said before, we're the only company in two who have been awarded Toronto 01 and 2 for the tracking layer, and the RFI for Toronto 3 just came out. So the timing appears to be a little slower than we would have liked, but we're confident in our ability to continue with the SDA. On the transport layer, we've taken the strategy of being a merchant supplier, so we'll have content on the transport layer as well when that is awarded.

Christopher E. Kubasik: All right, Sheila, let me start, and then maybe I'll have Ken chime in. You know, starting with space, again, I think that is the example we keep holding up of what the benefit of the merger was in our trusted disruptor strategy. As I've said before, we're the only company to have been awarded Tronch 0, 1, and 2 for the tracking layer, and the RFI for Tronch 3 just came out. So the timing appears to be a little slower than we would have liked, but we're confident in our ability to continue with the SDA.

Sheila Karin Kahyaoglu: All right, Sheila, let me start, and then maybe I'll have Ken chime in. You know, starting with space, again, I think that is the example we keep holding up of

Sheila Karin Kahyaoglu: What the benefit of the merger was in our trusted disrupter strategy.

Speaker Change: As I've said before, we're the only company to have been awarded Tron Zero One.

Ken: and 2 for the tracking layer and the RFI for Tronch 3 just came out. So the timing appears to be a little slower than we would have liked, but we're confident in our ability to continue.

Christopher E. Kubasik: On the transport layer, we've taken the strategy of being a merchant supplier, so we'll have content on the transport layer as well when that is awarded, and the classified continues to be a strength. So, you know, space, intel, and cyber are the growth markets. Those are core competencies for us, and that's where the customer demand is. We also have our mission network FAA work, you know, which is pretty stable and has low single-digit growth.

Ken: with the SDA.

Ken: On the transport layer, we've taken the strategy of being a merchant supplier.

Ken: So we'll have content on the transport.

Ken Bedingfield: And the classified continues to be a strength. So, you know, space and intel and cyber or the growth markets, those are core competencies for us, and that's where the customer does. We also have a mission network, FAA work, you know, which is pretty stable, low single-digit growth. And then again, as you mentioned, the airborne continues to have had wins. A lot of these missions are moving from air to space, and we continue to have great capabilities on mission systems. So, to the extent, you know, Angad is awarded, we have opportunities there; CCA, we have opportunities there.

Speaker Change: The Classified continues to be a strength. Space, Intel, and Cyber are the growth markets. Those are core competencies for us and that's where the customer demand is.

Speaker Change: We also have in there our mission network, FAA work.

Christopher E. Kubasik: And then, again, as you mentioned, the airborne continues to have headwinds as a lot of these missions are moving from air to space, and we continue to have great capabilities on mission systems. So to the extent, you know, NGAT is awarded, we have opportunities there. CCA, we have opportunities there, and in the interim, we continue to support F-35, F-16, F-18, and the such. So I think it's a story of space and intel growing and airborne continuing to be flat to down based on our customers' strategies in acquisition and approaches. Ken?

Speaker Change: You know, which is pretty stable, low single-digit growth. And then again, as you mentioned, the airborne continues to have headwinds as a lot of these missions are moving.

Speaker Change: From Air to Space, and we continue to have great...

Speaker Change: Capabilities on Mission Systems, so to the extent...

Speaker Change: You know, NGAD is awarded, we have opportunities there, CCA, we have opportunities there, and in the interim, we continue to support F-35, F-16, F-18, and the such. So, I think it's a story of...

Chris Kvesick: And in the ERM, we continue to support F35, F16, F18, and the such. So, I think it's a story of space and intel growing and airborne continuing to be flat to down based on our customer's strategies and acquisition approaches.

Speaker Change: Space and Intel growing and Airborne continuing to be flat to down based on our customers strategies and acquisition.

Ken Bedingfield: Yeah, Sheila, from a margin perspective, I would say, you know, as we look at SAS, I think the biggest contributor to margin performance in the first half really has been the implementation of the LHX Next program. I think the team there has really embraced the program, worked really hard to get their cost structure where it needs to be, and think about kind of how we deliver capability as we look forward. Secondly, I would say, you know, we did take on, and Chris mentioned a great example of it, which is SDA, where we took on some challenging development work.

Kenneth L. Bedingfield: Yeah, Sheila, from a margin perspective, I would say, as we look at SAS, I think the biggest contributor to margin performance in the first half really has been the implementation of the LHX-NEXT program. I think the team there has really embraced the program, worked really hard to get their cost structure where it needs to be, and think about kind of how we deliver capability as we look forward. Secondly, I would say, you know, we did take on, and Chris mentioned a great example of it, which is SDA, where we took on some.

Speaker Change: Approaches.

Speaker Change: Yeah, Sheila, from a margin perspective, I would say, you know, as we look at SAS,

Speaker Change: The biggest contributor to margin performance in the first half really has been the implementation of the LHX Next program.

Speaker Change: I think the team there has really embraced the program, worked really hard to get there.

Speaker Change: Cost structure, where it needs to be, and think about.

Speaker Change: kind of how we deliver capability as we look forward. Secondly, I would say, you know, we did take on, and Chris mentioned a great example of it, which is SDA, where we took on some...

Kenneth L. Bedingfield: Challenging development work, you know; it was a near adjacency moving out of, Uh, you know, high-resolution weather imagery into missile defense, uh, with similar sensors. And as we work through those development programs in 23, and now we are moving into the production phase, so off of tranche zero into tranche one, increasing quantities, and then starting to see some volume as we move into tranche two, I think it's a business model that's really starting to pay off for SAS.

Ken Bedingfield: You know, it was a near adjacency moving out of, you know, high resolution weather imagery into missile defense with similar sensors. And as we worked through those development programs in 23 and now we are moving into the production phase, so off of Trunch 0 into Trunch 1 increasing quantities and then starting to see some volume as we move into Trunch 2, I think it's a business model that's really starting to pay off for SAS. So, you know, feel good about, you know, not just the margin profile, but I think importantly, you know, some of the bets that we made really starting to pay dividends in terms of our ability to perform.

Chris: challenging development work you know it was a near adjacency moving out of

Speaker Change: You know, hi.

Speaker Change: High-resolution weather imagery into missile defense with similar sensors.

Speaker Change: And as we work through those development programs in 23, and now we are

Speaker Change: Moving into the production phase, so off of Tron Zero.

Speaker Change: into tranche one, increasing quantities, and then starting to see some volume as we move into tranche two. I think it's a business model that's really starting to pay off for SAS. So.

Kenneth L. Bedingfield: So, you know, feel good about, you know, not just the margin profile, but I think, importantly, you know, some of the bets that we made are really starting to pay dividends in terms of our ability to perform and, I think, identifying the right bets to make with our limited resources. So, you know, feel good about SAS and, in particular, I think, you know, very strategic areas of growth. In particular, space and the intel and cyber business, much of which is classified, but there is real solid opportunity there, and we see, I think, a solid growth in performing businesses.

Speaker Change: You know, feel good about, you know, not just the margin profile, but I think importantly,

Speaker Change: You know, some of the bets that we made really starting to pay dividends in terms of our ability to perform and I think identifying the right bets to make with our limited resources.

Chris Kvesick: And I think identifying the right bets to make with our limited resource. So, you know, feel good about SIS, and in particular, I think, you know, very strategic areas of growth in particular space and the Intel and Cyber Business, much of which is classified, but real solid opportunity there, and we see, I think, a solid growing and performing business.

Speaker Change: So, you know, feel good about SAS, and in particular, I think, you know, very strategic areas of growth.

Speaker Change: In particular, space and the intel and cyber business, much of which is classified, but real solid opportunity there, and we see, I think, a solid growing and performing business.

Michael Ciarmoli: Any questions from the line of Michael Cimaroli with two securities, please receive a third question. Hey, good morning, guys. Thanks for taking the questions.

Operator: Our next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question.

Speaker Change: Our next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question.

Operator: Hey, good morning, guys. Thanks for taking the questions. Maybe Chris or Ken, just back to Peter's first question on Aerojet. Looks like the second half of the year, the guidance implies, I think maybe a 14 to 18% growth second half over the first half. Can you maybe talk about what the drivers are?

Michael Ciarmoli: Maybe Chris or Ken, just back to Peter's first question on AeroJet. Looks like second half of the year the guidance implies, I think maybe a 14 to 18% growth second half over first half. You know, can you maybe talk about what the drivers are? Is that more of the short cycle volumes? I know you said you were really catching up on the past dues, and then if you could just give us what the AeroJet book to Bill was in the quarter.

Michael Frank Ciarmoli: Hey, good morning, guys. Thanks for taking the questions.

Speaker Change: Maybe Chris or Ken, just...

Speaker Change: Back to Peter's first question on Aerojet. Looks like second half of the year, the guidance implies, I think maybe a 14 to 18% growth second half over first half. Can you maybe talk about what the drivers are? Is that more of the

Operator: Is that more of the short cycle volumes? I know you said you were really catching up on the past dues. And then, if you could just give us what the Aerojet book to bill was for the quarter?

Speaker Change: The short cycle volumes, I know you said you were really catching up on the past dues, and then if you could just give us what the Aerojet book to bill was in the quarter.

Chris Kvesick: Yeah, let me, Michael, give a little bit of an overview on AeroJet because, you know, it's been a year since we closed and, you know, 18 months since we announced the deal. So, I like to look at the acquisition, as I said, 18 months ago, strategically, operationally, and financially. So I'll give some highlights for the first two, and then ask Ken to comment on your specific question.

Christopher E. Kubasik: Yeah, let me, Michael, give a little bit of an overview of Aerojet because, you know, it's been a year since we closed and, you know, 18 months since we announced the deal. So, I'd like to look at this acquisition, as I said 18 months ago, strategically, operationally, and financially. So, I'll give some highlights for the first two and then ask Ken to comment on your specific question.

Speaker Change: Let me, Michael, give a little bit of an overview on Aerojet.

Speaker Change: You know, it's been a year since we closed and, you know, 18 months since we announced the deal, so...

Speaker Change: I'd like to look at this acquisition, as I said 18 months ago, strategically, operationally, and financially. So I'll give some highlights for the first two and then ask Ken to comment on your specific question. I will tell you we're not going to disclose book-to-bill by segment at this time.

Chris Kvesick: I will tell you we're not going to disclose book to Bill by segment at this time, so appreciate the question, but you're not going to get an answer to that one. But strategically, you know, I think, as I've said before, and I say again, I feel much better about this acquisition today than I did 12 months or 18 months ago. And it's clear that the demand is well in excess of the supply, and you see that by lots of companies wanting to spend hundreds of millions or billions of dollars to enter this new market. So, you know, we are well well positioned, and I think when I look at our portfolio, this is one of the faster growing opportunities for L3 Harris.

Christopher E. Kubasik: I will tell you, we're not going to disclose book to bill by segment at this time. So, appreciate the question, but you're not going to get an answer to that one. But strategically, you know, I think, as I've said before and I'd say again, I feel much better about this acquisition today than I did 12 months or 18 months ago. And it's clear that the demand is well in excess of the supply. And you see that with lots of companies wanting to spend hundreds of millions or billions of dollars to enter this new market.

Speaker Change: I appreciate the question, but you're not going to get an answer to that one. But strategically, you know, I think, as I've said before and I say again, I feel much better about this acquisition today than I did 12 months or 18 months ago, and it's clear

Speaker Change: that the demand is well in excess of the supply.

Speaker Change: You see that by lots of companies wanting to spend hundreds of millions or billions of dollars to enter this new market.

Christopher E. Kubasik: So, you know, we are well positioned, and I think when I look at our portfolio, this is one of the faster growing opportunities for L3Harris. You know, operationally, there were some serious challenges that we've talked about. We've upgraded the talent pretty much across the board. We've doubled our on-time deliveries in 12 months, and we literally had thousands of overdue deliveries that we cut by 40% in 12 months. I project we'll be 60% reduced by the end of the year.

Speaker Change: You know, we are well, well positioned and I think when I look at our portfolio, this is one of the faster growing opportunities for L3Harris. You know, operationally, there were some serious challenges that we've talked about. We've upgraded the talent.

Chris Kvesick: You know, operationally, there were some serious challenges that we've talked about. We've upgraded the talent pretty much across the board. We've doubled our on-time deliveries in 12 months, and we literally had thousands of overdue deliveries that we've cut by 40% in 12 months. Our project will be 60% reduced by the end of the year. So, you know, we have read yellow green programs; we're getting more and more green programs each quarter. The customer relation is great. The technology is a discriminator. I can go into that longer if someone wants to know, but we have two-pulse solid rocket motors.

Speaker Change: Pretty much across the board, we've doubled our on-time deliveries in 12 months, and...

Speaker Change: We literally had thousands of overdue deliveries that we've cut by 40% in 12 months.

Christopher E. Kubasik: So, you know, we have red, yellow, and green programs. We're getting more and more green programs each quarter. The customer relationship is great. The technology is a discriminator. I can go on that longer if someone wants to know.

Speaker Change: I project we'll be 60% reduced.

Speaker Change: by the end of the year.

Speaker Change: You know, we have red, yellow, green programs. We're getting more and more green programs each quarter.

Speaker Change: The customer relation is great, the technology is a discriminator.

Christopher E. Kubasik: But we have two pulse solid rocket motors. We have liquid and solid divert and attitude control systems. Hypersonics is a huge opportunity over the long term, and we're continuing to invest. We're breaking ground in Virginia next week on a new building. We've opened a couple in Camden. You know, we have our ovens arriving later this month. We have new mixers coming in by the end of the year.

Speaker Change: I can go into that longer if someone wants to know, but we have two pulse solid rocket motors, we have liquid and solid divert and attitude control systems, hypersonics is a huge opportunity over the long term.

Chris Kvesick: We have liquid and solid divert and attitude control systems. Hypersonics is a huge opportunity over the long term, and we're continuing to invest.

Ken Bedingfield: We're breaking ground in Virginia next week on a new building. We've opened a couple in Camden. You know, we have our ovens arriving later this month. We have new mixers coming in by the end of the year. So, everything is paying off. We're investing our own money. We're using DOD-DPA money. We're using prime, co-investment money. And, you know, it's a great market, and we love working for our primes and supporting them and their ultimate missile deliveries. So, just thought I wanted to give that context as to how much progress we've made in 12 months.

Speaker Change: And we're continuing to invest. We're breaking ground in Virginia next week on a new building. We've opened a couple in Camden.

Speaker Change: You know, we have our ovens arriving later this month, we have new mixers coming in by the end of the year.

Christopher E. Kubasik: So everything is paying off. We're investing our own money. We're using DOD and DPA money. We're using prime co-investment money. And, you know, it's a great market and we love working for our primes and supporting them in their ultimate missile deliveries. So I just thought I wanted to give that context as to how much progress we've made in 12 months. Can you want to answer the financial questions? Sure. Yeah, in terms of

Speaker Change: So everything is paying off. We're investing our own money. We're using DOD, DPA money. We're using prime co-investment money.

Speaker Change: And, you know, it's a great market and we love working for our primes and supporting them and their ultimate missile deliveries. So, just thought I wanted to give that context as to how much progress we've made in 12 months.

Ken Bedingfield: Can you want to answer the financial questions?

Kenneth L. Bedingfield: Michael, I would say, you know, we've very clearly been focused, and we talked about this on previous calls, I believe, really focused on integrating Aerojet into L3Harris. We've over-delivered, I think, on the integration savings, and now the team is off, really focused on, you know, the long-term health of the business, the operational improvements that Chris talked about, and, you know, we're really not trying to drive the business for any particular quarterly results.

Ken Bedingfield: Sure. Yeah.

Ken Bedingfield: In terms of a profile, Michael, I would say, you know, we've very clearly been focused, and we talked about this on previous calls, I believe. Really focused on integrating Air Jet into L3 Harris. We've over-delivered, I think, on the integration savings. And now the team is off, really focused on, you know, the long-term help of the business, the operational improvements that Chris talked about. And, you know, we're really not trying to drive the business for any particular quarter results. I will mention air jet is primarily on the cost to cost percentage of completion basis. And as we look at the second half, we've seen, as we're working with supply chain, that we should start to see some, you know, deliveries from our suppliers accelerate, which will drive some of the growth in the second half.

Ken: Can you want to answer the financial questions? Sure. Yeah, in terms of the profile, Michael, I would say, you know, we've very clearly been focused, and we talked about this on previous calls, I believe, really focused on integrating Aerojet into L3Harris.

Ken: We've over-delivered, I think, on the integration savings.

Ken: And now the team is off really focused on, you know, the long-term health of the business, the operational improvements that Chris talked about.

Ken: And, you know, we're really not trying to drive the business for any particular quarter results. I will mention Aerojet is primarily on the cost-to-cost percentage of completion.

Kenneth L. Bedingfield: I will mention Aerojet is primarily on the cost-to-cost percentage of completion basis. And as we look at the second half, we've seen as we're working with the supply chain that we should start to see some, you know, deliveries from our suppliers accelerate, which will drive some of the growth in the second half. And, you know, as we continue to see that business grow, I think that profile will continue to build for us, not just in the second half of 24, but into 25.

Chris: on a weekly basis. And as we look at the second half, we've seen as we're working with the supply chain that we should start to see some, you know, deliveries from our suppliers accelerate, which will drive some of the growth in the second half.

Ken Bedingfield: and you know as we you know continue to see that business grow, I think that that profile will continue to build for us not just in the second half of 24 but into 25.

Chris: And, you know, as we, you know, continue to see that business grow, I think that that profile will continue to build for us, not just in the second half of 24, but into 25.

Ken Bedingfield: So I think the business is being positioned very well, and as that work has been done and a great job by the ARJ team in doing that, I think it really enables us to start to focus on, to Chris's point, delivering product, working with supply base, working on the facilitation, the equipment, the improvements that we're making, and using that kind of as a baseline to start to drive the growth and the opportunities that we see in ARJET. So feel really good about that, but I would say the biggest thing is just, you know, really working with the suppliers in getting the product in the doors so that we can get the critical capability of our customers.

Kenneth L. Bedingfield: So I think the business is being positioned very well. And as that work has been done, and a great job by the Airjet team in doing that, I think it really enables us to start to focus on, to Chris's point, delivering the product. Working with the supply base, working on the facilitation, the equipment, the improvements that we're making, and using that kind of as a baseline to start to drive the growth and the opportunities that we see in Aerojet.

Chris: So, I think the business is being positioned very well, and as that work has been done, and a great job by the AirJet team in doing that, I think it really enables us to start to focus on, to Chris's point, delivering product,

Chris: Working with the supply base, working on the

Chris: Facilitation, the equipment, the improvements that we're making and using that.

Chris: So, I think that's the kind of as a baseline to start to drive the growth and the opportunities that we see in Aerojet. So, I feel really good about that. But I would say the biggest thing is just

Kenneth L. Bedingfield: So I feel really good about that. But I would say the biggest thing is just... You know, really working with the suppliers and getting the product in the door so that we can get the critical capabilities out to our customers. Our next question is from the line of Scott Deuschle with Deutsche Bank. Pleased to see you with your question.

Chris: You know really working with the suppliers and getting the the product in the door so that we can Get the critical capabilities out to our customers

Scott Deuschle: Are these questions from the line of Scott to say with Deutsche Bank? Please just use your question.

Operator: Are these questions from the line of Scott Deuschle with Deutsche Bank? Please proceed with your question.

Chris: Our next question is from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.

Ken Bedingfield: Hey, good morning, Chris. I appreciate the earlier comment on not disclosing book to build by segment, but I always found that disclosure to be pretty helpful when trying to do analysis around, you know, what future growth will look like. So I guess, is that the disclosure of something you contemplate bringing back at some point, or do you just see it as not being relevant anymore? Thank you.

Scott Deuschle: Hey, good morning. Chris, appreciate the earlier comment on not disclosing book to bill by segment, but I always found that disclosure to be pretty helpful when I'm trying to do analysis around

Speaker Change: You know what future growth would look like. So I guess is that is that disclosure something you contemplate bringing back at some point or do you just view it as not being relevant anymore? Thank you.

Ken Bedingfield: Yes, Scott, it's Ken here. I would say, you know, from a growth perspective, you know, we are providing guidance for the year by segment. I think we've, in Investor Day, you know, given a solid midterm financial framework with our growth: 23 billion in sales. And you know, in terms of you know, kind of how we guide what we guide and when we provide information, you know, we're comfortable with the process that we're working through. And you know feel like we've given, you know, a good set of transparency with the guidance across each of the segments.

Kenneth L. Bedingfield: Yes, Scott, it's Ken here. I would say, from a growth perspective, we are providing guidance for the year by segment. I think we've given a solid midterm financial framework with our growth, 23 billion in sales. And, you know, in terms of, you know, kind of how we guide what we guide, and when we provide information, you know, we're comfortable with the process that we're working through.

Speaker Change: Yes, Scott, it's Ken here. I would say, you know, from a, from a growth perspective,

Speaker Change: You know, we are, we're providing guidance for the year by segment. I think we've, in Investor Day, you know, given a solid midterm financial framework with our growth of $23 billion in sales.

Kenneth L. Bedingfield: And, you know, feel like we've given a good level of transparency with the guidance across each of the segments. And, you know, book-to-bill itself can be a little bit, you know, lumpy quarter-to-quarter. I think it's more relevant to think about on a long-term basis, and that's why we'll really focus on providing that in annual disclosure so we don't kind of get lost in the weeds on, you know, any particular quarterly scenario.

Speaker Change: And, you know, in terms of, you know, kind of how we guide, what we guide, and when we provide information, you know, we're comfortable with the process that we're working through.

Speaker Change: And, you know, feel like we've given, you know, a good set of transparency with the guidance across each of the segments.

Ken Bedingfield: And you know book to build itself can be a little bit, you know, lumpy quarter to quarter. I think it's more relevant to think about on a long-term basis, and that's why we'll really focus on providing that in annual disclosure, so we don't kind of get lost in the weeds on you know any particular. There are quarters scenario, but in terms of the question around book to build air jet, you know, I think we've seen, you know, an order or two sliding from the first half into the second half, but we're still planning to see a real solid book to bill for air jet for full year 24.

Speaker Change: And, you know, book to bill itself can be a little bit, you know, lumpy quarter to quarter. I think it's more relevant.

Speaker Change: To think about on a long-term basis, and that's why we're really focused on providing that in annual.

Speaker Change: Disclosure, so we don't kind of get lost in the weeds on, you know, any particular quarters scenario. But in terms of the question around book-to-bill at Aerojet, you know, I think we we've seen, you know, an order or two sliding from the first half into the second half.

Kenneth L. Bedingfield: But in terms of the question around book-to-bill at Aerojet, you know, I think we've seen an order or two sliding from the first half into the second half, but we're still planning to see a really solid book-to-bill for Aerojet for full year 24.

Speaker Change: But we're still planning to see a real solid book-to-bill for Aerojet for full year 24.

Jason Gursky: Our next question is from the line of Jason Gersky with City Group. This is your question.

Operator: Our next question is from the line of Jason Gursky with Citigroup. Please proceed with your question.

Speaker Change: Our next question is from the line of Jason Gursky with Citigroup. Please proceed with your question.

Christopher E. Kubasik: Great, thanks. One quick clarification question for you, Chris, and then I've got one for Ken. On the clarification, Chris, you mentioned that an RFI, or maybe you said RFP, I'm not sure, on Tronch 3 just hit. I'm just kind of curious what the volume is going to look like on that compared to Tronch 2, whether it's flat, growing, or shrinking. And then, Ken, for you...

Jason Gursky: Great thanks.

Chris Kvesick: A one quick clarification question for you, Chris, and then I got one for Ken on the clarification. Chris, you mentioned that an RFI, or maybe you said RFP, I'm not sure, on trunch three just hit. Just going to curious what the volume is going to look like on that compared to trunch two whether it's flat, growing, or shrinking and then Ken for you. Um. I'm just curious to know whether the success that you're having with the cost takeouts, end up being a little bit temporal on the margin side of things, meaning that over time you give some of that back.

Jason Michael Gursky: Great, thanks. One quick clarification question for you, Chris, and then I've got one for Ken. On the clarification, Chris, you mentioned that an RFI, or maybe you said RFP, I'm not sure, on TRANCH3

Ken: just hit. Just kind of curious what the volume is going to look like on that compared to Trunch 2, whether it's flat, growing, or shrinking. And then Ken, for you,

Kenneth L. Bedingfield: I'm just curious to know whether, you know, the success that you're having with the cost takeouts ends up being a little bit temporal on the margin side of things, meaning that, you know, over time, you give some of that back. And I was wondering if you can just kind of help us kind of think through whether these margin expansions that you've seen here are just structurally higher, or if, you know, we're sticking to the longer-term guidance, because you're going to end up getting some of this back, the cost savings, that is, and I suspect this has an impact on revenue as well, particularly on your cost plus contracts. So if there's any way you can kind of quantify the impacts of NEXT on margins temporarily and then what it does to your revenue growth, if anything, thanks.

Ken: I'm just curious to know whether, you know, the success that you're having with the cost takeouts.

Speaker Change: You know end up being a little bit temporal on the margin side of things meaning that you know over time you give some of that back and I was wondering if you can just kind of

Ken Bedingfield: And I was wondering if you could just kind of help us kind of think through whether these margins, expansion that you've seen here is just structurally higher. Or if we're sticking to the longer term guidance because you're going to end up giving some of this back, the cost savings that is. And I suspect this has an impact on revenue as well, particularly on your cost-plus contracts. If there's any way you can kind of quantify the impacts of Next on margins temporarily and then what it does to your revenue growth, if anything. Thanks.

Speaker Change: Help us kind of think through, you know, whether these margins expansion that you've seen here, you know, is just structurally higher or if, you know, we're sticking to the longer term guidance because you're going to end up getting some of this back.

Speaker Change: The cost savings, that is. And I suspect this has an impact on revenue as well, particularly on your cost plus contracts. If there's any way you can kind of quantify the impacts of NAGST on margins temporarily and then what it does to your revenue growth, if anything. Thanks.

Christopher E. Kubasik: Sure. So, this is a two-part question. Let me address the... What I think was the SDA Trunch 3 question first, and there I think is an RFI that's hit the street, and we certainly don't want to get ahead of our customer in terms of what that looks like. But, you know, we are excited to be the only company that's been successful on Trunch 0, 1, and 2. We will be analyzing that RFI and, you know, providing responses and certainly bidding as that RFP comes out.

Ken Bedingfield: Sure. So two part questions, let me address the, what I think was SDA, Trunch 3 question first and there I think is an RFI that's hit the street and we'd certainly don't want to get ahead of our customer in terms of what that looks like. But, you know, we are excited to be the only company that's been successful on Trunch 0, 1, and 2. We will be analyzing that RFI and, you know, providing responses and certainly bidding as that RFP comes out and looks like maybe what was potentially a late 24 might not be it might not be a 25 acquisition from the government for that particular one.

Speaker Change: Sure, so two-part question, let me address the...

Speaker Change: What I think was SDA trunks three question first and there I think is an RFI that's hit the street and we certainly don't want to get ahead of our customer in terms of

Speaker Change: We are excited to be the only company that has been successful on tranches 0, 1, and 2. We will be analyzing that RFI.

Speaker Change: You know, providing responses and certainly bidding as that RFP comes out and looks like maybe what was potentially a late 24 might now be a 25.

Christopher E. Kubasik: And it looks like maybe what was potentially a late 24 might now be a 25 acquisition from the government for that particular one. And from a quantity perspective, I don't have that precise number in front of me, but I think it's either, you know, similar to Trunch 2 or I believe the overall quantity is similar to Trunch 2.

Chris Kvesick: And from a quantity perspective, I don't have that precise number in front of me, but I think it's either. Similar to Trunch 2, or I believe the overall quantity is similar to Trunch 2. I guess the ultimate question is, do they continue with three providers or move to two to two type of things.

Speaker Change: acquisition from the government for that particular one. And from a quantity perspective, I don't have that precise number in front of me, but I think it's either.

Speaker Change: you know, similar to TRANCH2 or I believe the overall quantity is similar to TRANCH2. I guess the ultimate question is, do they.

Christopher E. Kubasik: I guess the ultimate question is, do they continue with three providers or, you know, move to two, you know, type of things. So we'll continue to work through that, but I feel really good about it, and I think we're making good progress on that program. In terms of the second part of the question on the LHX margin profile, you know, absolutely.

Speaker Change: We'll continue to work through that, but feeling really good about it, and I think we're making good progress on that program.

Ken Bedingfield: So we'll continue to work through that, but feeling really good about it, and I think we're making good progress on that program. In terms of the second part of the question on L H X margin profile. You know, yes, absolutely, we are driving the L H X next program for, you know, a couple reasons, one of which is to enable us to deliver margin opportunity. But also, you know, to drive value for our customers as well, and that's not just from a cost perspective, but also includes schedule. You know, as the trusted disruptor, the ability to listen to our customers and respond quickly and provide capability at pace.

Speaker Change: In terms of the second part of the question on LHX margin profile, you know, yes, absolutely, we are driving the LHX NEXT program for, you know, a couple of reasons, one of which is to

Kenneth L. Bedingfield: We are driving the LHX Next program for, you know, a couple of reasons, one of which is to enable us to deliver margin opportunity, but also, you know, to drive value for our customers as well, and that's not just from a cost perspective, but also includes schedule, you know, as the trusted disruptor, the ability to listen to our customers and respond quickly, But in terms of, you know, the specifics with respect to the cost We have estimated, you know, roughly that about 40% of the savings will accrue to the company in terms of additional margin opportunities.

Speaker Change: enable us to deliver margin opportunity, but also, you know, to drive value for our customers as well, and that's not just from a cost perspective, but also includes schedule.

Speaker Change: You know, as the trusted disruptor, the ability to listen to our customers and respond quickly and provide capability at pace.

Ken Bedingfield: But in terms of, you know, the specifics with respect to the cost savings, we have estimated, you know, roughly that about 40% of the savings will accrue to the company in terms of additional margin opportunity. So against the billion dollars of savings, we talked about essentially 400 million of opportunity from a margin perspective. And we'll certainly work hard to continue to drive up both the amount of the savings, as I think we're executing well on L H X next. in moving towards and gaining confidence towards our billion dollar target, so we'll work to make sure we get at least that amount.

Speaker Change: But in terms of, you know, the specifics with respect to the cost, savings,

Speaker Change: We have estimated, you know, roughly that about 40% of the savings will accrue to the company in terms of additional margin opportunities, so against the billion dollars of savings we talked about.

Kenneth L. Bedingfield: So against the billion dollars of savings, we've talked about essentially 400 million dollars of opportunity from a margin perspective, and we'll certainly work hard to continue to drive up both. The amount of the savings, as I think we're executing well on LHXNEXT and moving towards and gaining confidence towards our billion dollar target. So we'll work to make sure we get at least that amount. And then obviously, working to see if we can maintain as much of that as an opportunity for margin improvement benefit at the company as well.

Speaker Change: Essentially, $400 million of opportunity from a margin perspective, and we'll certainly work hard to continue to drive up both the amount of the savings, as I think we're executing well on LHXNext.

Speaker Change: and moving towards and gaining confidence towards our billion-dollar target so we'll work to

Ken Bedingfield: And then obviously working to, you know, see if we can maintain as much of that as opportunity for margin improvement benefit at the company as well. You may remember that at the time of the merger, we did realize, I think, something between 50 and 60% of the integration savings. LAJX Next is a little bit more of a enduring, you know, kind of three year program versus the, you know, quicker integration. And because of that, you know, we're projecting that a little bit more of it will accrue back to the government, which is a good thing. It enables us to be more competitive, you know, win more new business as we look forward.

Speaker Change: Make sure we get at least that amount. And then obviously working to, you know, see if we can maintain as much of that as opportunity for margin improvement benefit at the company as well. You may remember at the time of the merger.

Kenneth L. Bedingfield: You may remember at the time of the merger, we did realize, I think, something between 50 and 60% of the integration savings. LHX Next is a little bit more of a enduring, you know, kind of three-year program versus the, you know, quicker integration.

Speaker Change: We did realize, I think, something between 50% and 60% of the integration savings.

Speaker Change: LHXnext is a little bit more of a enduring, you know, kind of three-year program versus the

Operator: And because of that, you know, we're projecting that a little bit more of it will accrue back to the government, which, which is a good thing, enables us to be more competitive, you know, win more new business as we look forward. But we'll certainly be working to see if we can find ways to realize margin improvement. And it may not be direct, you know, improvements out of the program, but as we return cost savings to the programs, and they can think about how they perform better and are able to turn that into future profitability that we can, you know, bank on down the road for future program performance, we'll certainly think about that as well.

Speaker Change: quicker integration and because of that you know we're projecting that a little bit more of it will accrue back to the government which is a good thing enables us to be more competitive you know when more new business as we look forward but we'll certainly be you know working to see if we can

Ken Bedingfield: But we'll certainly be, you know, working to see if we can find ways to realize margin improvements. And it may not be direct, you know, improvements out of the program, but as we return cost savings to the programs and they can think about how they perform better and are able to turn that into future profitability that we can, you know, bank down the road for future program performance, you know, we'll certainly think about that as well. So I think the, at the end of the day, the story is LAJX next. We are performing very well.

Speaker Change: Find ways to realize margin improvements.

Speaker Change: And it may not be direct, you know, improvements out of the program, but as we return cost savings to the programs, and they can think about...

Speaker Change: How they perform better and are able to turn that into future profitability that we can

Speaker Change: You know, bank down the road for future program performance. You know, we'll certainly think about that as well. So I think at the end of the day, the story is LHX next. We are.

Operator: So I think at the end of the day, the story is LHX Next, we are performing very well, I think we're ahead of schedule, I think we're building confidence, have more confidence today than we did just a quarter ago, and we will certainly work to drive as much of that into margin opportunity as we can. So, thanks. Our next question is from the line of Richard Safran, Seaport Research Partners. Chris, Ken, Dan, good morning. I dropped off for some reason. So if you've answered this, I'll have something else to ask you.

Ken Bedingfield: I think we're ahead of schedule. I think we're building confidence; got more confidence today than we did just a quarter ago. And we will certainly work to drive as much of that into margin opportunity as we can. So thanks, Jason.

Speaker Change: performing very well. I think we're ahead of schedule. I think we're building confidence, got more confidence today than we did just a quarter ago. And we will certainly work to drive as much of that into margin opportunity as we can. So thanks, Jason.

Richard Safran: Next questions from the line of Richard Safran. See for it research partners.

Kenneth L. Bedingfield: Sure, Rich, and I appreciate the question, and it hasn't been asked previously, so we're good on that front. In terms of free cash flow guidance, you know, we're at $2.2 billion for the year. And as I think about, you know, halfway through the year, we're roughly 25% to our full year guidance. It's certainly not a profile that we are uncomfortable with.

Operator: Our next question is from the line of Richard Safran, Seaport Research Partners. Please proceed with your question.

Speaker Change: Our next question is from the line of Richard Safran, Seaport Research Partners. Please proceed with your question.

Richard Safran: Please just use your question. Chris can Dan Good morning. I dropped off for some reason.

Ken Bedingfield: So if you've answered this, I'll ask something else to ask you. I thought you had some pretty solid for cash flow into two feeding expectations. You took up your operational guide, but you maintained your 2.2 billion dollar for cash flow guide for the year. Just wondering if you're expecting some working capital headwinds in the second half, or maybe baking in some conservatism due to some risk with collections in the second half. So I thought maybe you'd elaborate on that a little more.

Richard Tobie Safran: Chris, Ken, Dan, good morning. I dropped off for some reason, so if you've answered this, I'll have something else to ask you. I thought you had some pretty solid free cash flow in 2Q, beating expectations. You took up your operational guide, but you maintained your $2.2 billion free cash flow guide for the year. Just wondering if you're expecting some working capital headwinds in the second half.

Richard Tobie Safran: or maybe baking in some conservatism due to some risk with collections in the second half, so I thought maybe you'd elaborate on that a little more.

Ken Bedingfield: Sure, Rich. I appreciate the question and hasn't been asked previously. So we're good on that front. In terms of free cash flow guide, you know, we're at 2.2 billion for the year. And as I think about halfway through the year, we're roughly 25% to our full-year guidance. It's certainly not a profile that we are uncomfortable with. It's kind of about where we are normally this far through the year. We've got a fair amount of cash to generate in the second half, but we're comfortable. Absolutely. Reitering the guidance, reiterating the guidance at 2.2 billion. And I don't think I don't think we're expecting any working capital build necessarily in the second half, but you know, we've got to, you know, got to work with our customers get payments coming in the door.

Speaker Change: Sure, Rich, and I appreciate the question, and it hasn't been asked previously, so we're good on that front.

Speaker Change: In terms of free cash flow guide, you know, we're at $2.2 billion for the year, and as I think about, you know, halfway through the year, we're roughly 25% to our full year guidance.

Kenneth L. Bedingfield: It's kind of, you know, about where we are normally this far through the year. We've got, you know, a fair amount of cash to generate in the second half, but we're comfortable absolutely reiterating the guidance at $2.2 billion. And I don't think we're necessarily expecting any working capital buildup in the second half. But, you know, we've got to, you know, work with our customers, get the payments coming in the door, work with our suppliers, making sure we're paying the terms on those fronts.

Speaker Change: It's certainly not a profile that we are uncomfortable with. It's kind of, you know...

Speaker Change: About where we are normally this far through the year, we've got a fair amount of cash to generate in the second half, but we're comfortable absolutely reiterating the guidance at $2.2 billion.

Speaker Change: And I don't think I don't think we're expecting any any working capital build necessarily in the second half, but, you know, we've got to.

Ken Bedingfield: You know, work with our suppliers, making sure, you know, we're paying the term on those fronts. And you know, the way I would characterize it, you know, similar to Jason's question on LHX next, is, you know, we're building confidence to our guide. And, you know, maybe as importantly, we're sticking with our guidance in the 26 financial framework of 2.2 billion in 24, 2.4 billion in 25, and 2.8 billion in 26. And that's kind of the bigger picture that we're thinking about is how we, you know, continue to build confidence into that increasing free cash flow as we grow the business.

Speaker Change: You know got to work with our customers get the payments coming in the door

Speaker Change: You know, work with our suppliers, making sure, you know, we're paying the term on those fronts. And, you know, the way I would characterize it, you know, similar to Jason's question on LHX Next is, you know, we're building confidence to our guide.

Kenneth L. Bedingfield: And, you know, the way I would characterize it, you know, similar to Jason's question on LHX Next, is that we're building confidence in our guide. And, you know, maybe as importantly, we're sticking with our guidance in the 26 financial framework of $2.2 billion in 24, $2.4 billion in 25, and $2.8 billion in 26. And that's kind of the bigger picture that we're thinking about, how we, you know, continue to build confidence in that increasing free cash flow as we grow the business, with a little more of a tilt towards share repurchase, really driving our ability to see some free cash flow per share growth as we look out into 25 and 26.

Speaker Change: And, you know, maybe as importantly, we're sticking with our guidance in the 26th financial framework of 2.2 billion in 24.

Speaker Change: 2.4 billion and 25 and 2.8 billion and 26. And that's kind of the bigger picture that we're thinking about.

Speaker Change: is how we you know continue to build confidence into that increasing free cash flow as we grow the business and quite frankly as we get

Ken Bedingfield: And quite frankly, as we get, you know, the net leverage targets where we need to be, hopefully by the end of '24, and we start to deploy capital. with a little more of a tilt towards shared repurchase, really driving our ability to see some free cash flow per share growth as we look out into 25 and 26. So, feeling really good about it, I think it's a great profile and I think it's a really solid part of our story with that midterm financial framework. And again, I think we're just building confidence towards that, and I feel really good about it.

Speaker Change: you know, the net leverage targets where we need to be, hopefully by the end of 24, and we start to deploy capital, you know,

Speaker Change: with a little more of a tilt towards share repurchase.

Speaker Change: You know, really driving our ability to see some free cash flow per share.

Kenneth L. Bedingfield: So, you know, feeling really good about it. I think it's a great profile, and I think it's a really solid part of our story with that midterm financial framework. And again, I think we're just building confidence towards that, and I feel really good about it. So thanks for the question, Rich.

Speaker Change: Growth as we look out in the 25 and 26 so

Speaker Change: You know, feeling really good about it. I think it's a great profile and I think it's a really solid part of our story with that midterm financial framework. And again, you know, I think we're just building confidence towards that and I feel really good about it. So thanks for the question, Rich.

Ken Bedingfield: So thanks for the question, Rich.

Peter Skibitski: Our next question is from one of Pete Skiviski with Alan Bigglobal. Let's just hear with your question.

Operator: Our next question is from the line of Pete Skibitski with Olympic Global. Let's just see what their question is.

Speaker Change: Our next question is from the line of Pete Skibitski with Olympic Global. Please proceed with your question.

Operator: Yeah, thanks. Good morning, guys.

Peter Skibitski: Yeah, thanks.

Chris Kvesick: Good morning, guys.

Chris Kvesick: Chris, go back years to L3. You guys had done a number of niche acquisitions in the unmanned space, especially unmanned maritime. I believe all those units came over to L3Harris, but we haven't really heard about, you know, the focus on unmanned at L3. I'm just wondering, is that still an interesting area for you? I know that you know, DOD is kind of still experimenting, trying to figure things out, but is there anything chunky out there, contract wise that you're looking towards or still early days? It just wanted to get your updated thoughts in that old area.

Peter John Skibitski: Yeah, thanks. Good morning, guys. Hey, Chris...

Christopher E. Kubasik: Hey, Chris, going back years to L3, you guys had done a number of niche acquisitions in the unmanned space, especially unmanned maritime. And I believe all those units came over to L3Harris. But we haven't really heard about, you know, the focus on unmanned vehicles at L3. I'm just wondering, is that still an interesting area for you? I know that, you know, DoD is kind of still experimenting, trying to figure things out. But is there anything chunky out there contract wise that you're looking towards, or is it still early days? Just wanted to get your updated thoughts on that whole area.

Peter John Skibitski: Hey Chris, going back years to L3, you guys had done a number of niche acquisitions in the unmanned space, especially unmanned maritime, and I believe all those units came over to L3Harris, but we haven't really heard about, you know,

Speaker Change: The Focus on Unmanned at L3. I'm just wondering, is that still an interesting area for you? I know that, you know, DoD's kind of still experimenting, trying to figure things out, but is there anything chunky out there contract-wise that you're looking towards? Or still early days? Just wanted to get your updated thoughts in that whole area.

Chris Kvesick: Yeah, Peter, great question. You know, the whole undersea and autonomy markets are growth markets for us. I would say on the undersea, what we're seeing more is on the sea beds, the sensors, a lot of classified work, which are not the autonomous ones. We refer to those as grotto. And there's a big opportunity coming up, you know, almost a billion dollars where we're competing. This would be the third opportunity; we won two already, so that could be a real growth engine for maritime relative to the autonomy. We still are doing well on the autonomous surface vehicles.

Christopher E. Kubasik: Yeah, Peter, great question. You know, the whole undersea and autonomous markets are growth markets for us. I would say under the sea, what we're seeing more is on the seabeds, the sensors, a lot of classified work, which are not the autonomous ones; we refer to those as grottos. And there's a big opportunity coming up, you know, almost a billion dollars where we're competing. This would be the third opportunity; we won two already.

Speaker Change: Yeah, Peter, great, great question.

Speaker Change: You know, the whole undersea and autonomy markets are growth markets for us. I would say on the undersea, what we're seeing more is on the seabeds, the sensors.

Speaker Change: A lot of classified work, which are not the autonomous ones. We refer to those as Grotto. And there's a big opportunity coming up, you know, almost a billion dollars.

Speaker Change: This is a real growth engine for Maritime. Relative to the autonomy, we are still doing well on the autonomous surface vehicles. I think the Navy is still developing its autonomous vehicles.

Christopher E. Kubasik: So that could be a real growth engine for maritime transport. Relative to autonomy, we are still doing well on autonomous surface vehicles. I think the Navy is still developing its autonomous strategy. And relative to the unmanned undersea, these are relatively inexpensive products. So we continue to invest; we've had great success with our torpedo launch and recovery using an unmanned undersea vehicle, which is kind of a game changer. But we can highlight it more.

Chris Kvesick: I think the Navy is still developing its autonomous strategy and relative to the unmanned undersea. These are relatively inexpensive products. So we continue to invest. We've had great success with our torpedo launch and recovery using an unmanned undersea vehicle, which is kind of a game changer. But we can highlight it more; but these are literally, you know, you sell 20, 30, 40 of these. It just doesn't add up to a lot of money, but it's critical to the mission, and we should be able to start seeing some export opportunities here in the years ahead. So, still part of the portfolio is still doing well; just the price of the products is relatively inexpensive and probably don't roll up to the materiality to talk about them, but we'll try to do more in the future.

Speaker Change: strategy and relative to the unmanned undersea. These are relatively...

Speaker Change: Inexpensive products. So we continue to invest. We've had great success with our torpedo launch and recovery using a unmanned

Speaker Change: Undersea Vehicle, which is kind of a game changer, but we can highlight it more, but these are literally, you know, you sell 20, 30, 40 of these, it's...

Christopher E. Kubasik: But these are literally, you know, you sell 20, 30, 40 of these, and it just doesn't add up to a lot of money, but it's critical to the mission. And we should be able to start seeing some export opportunities here in the years ahead. So, still part of the portfolio, and still doing well. The price of the products is relatively inexpensive and probably doesn't roll up to the materiality to talk about them, but we'll try to do more in the future.

Speaker Change: It just doesn't add up to a lot of money, but it's critical to the mission, and we should be able to start seeing some export opportunities here in the years ahead. So, still part of the portfolio, still doing well.

Speaker Change: The price of the products are relatively inexpensive and probably don't roll up to the materiality to talk about them, but we'll try to do more in the future.

Ken Herbert: Next question from the line of Ken Herbert with RBC Captain Markins. This is you with your question.

Operator: The next question is from the line of Ken Herbert with RBC Capital Markets. Please proceed with your question.

Kenneth George Herbert: The next question is from the line of Kenneth Herbert with RBC Capital Markets. Please proceed with your question.

Ken Herbert: Yeah, good morning, Chris and Ken. Maybe I wanted to ask Chris on the CS segment. It sounds like there's going to be a nice mixed shift for international in the second half, and you called out some pretty substantial opportunities as we think about tactical radios and other aspects of that market. But maybe can you just talk about the competitive landscape and to what extent you were seeing incremental price pressure there on the tactical communications item particular and how you might be thinking about the opportunity to maybe take share, especially in international markets.

Christopher E. Kubasik: Yeah, hey, good morning, Chris and Ken. Maybe I wanted to ask Chris, on the CS segment, it sounds like there's going to be a nice mixed shift for international in the second half, and you called out some pretty substantial opportunities as we think about tactical radios and other aspects of that market. But maybe can you just talk about the competitive landscape and to what extent you were seeing incremental price pressure there, on the tactical communications side, in particular, and how you might be thinking about the opportunity to maybe take share, especially in international markets?

Speaker Change: Yeah, hey, good morning, Chris and Ken.

Kenneth George Herbert: Maybe I wanted to ask Chris, on the CS segment, it sounds like there's going to be a nice mix shift for international.

Speaker Change: In the second half, and you called out some pretty substantial opportunities as we think about tactical radios and other aspects of that market, but maybe can you just talk about the competitive landscape and to what extent you were seeing

Speaker Change: Incremental price pressure there on the tactical communications side in particular, and how you might be thinking about the opportunity to maybe take share, especially in international markets.

Chris Kvesick: Lucas. Yeah, Ken, good to hear from you. You know, domestically, they tend to split the buys, as we've talked about before, 60, 40, 70, 30, and such. And we're usually the winner of the majority share. But internationally, it is a winner-take-all environment. And generally, we've had great, great success. And again, these are relatively inexpensive compared to other, you know, weapon systems or products out there. So, you know, the price is not really that much of a differentiator. And, you know, pricing strategy; we have a price target. We have; we know what the costs are. And, you know, we get reasonably good margins in this business.

Christopher E. Kubasik: Yeah, Ken, good to hear from you. You know, domestically. They tend to split the buys, as we've talked about before, 60-40, 70-30, and such, and we're usually the winner of the majority share. But internationally, it is a winner-take-all environment, and generally, we've had great, great success. And again, these are relatively inexpensive compared to other weapon systems or products out there. So, you know, the price is not really that much of a differentiator, and, you know, our pricing strategy. We have a price target.

Speaker Change: Yeah, Ken, good to hear from you, you know, domestically.

Speaker Change: They tend to split the buys, as we've talked about before, 60-40, 70-30, and such.

Speaker Change: Usually the winner of the majority share, but internationally, it is a winner-take-all environment.

Speaker Change: And generally, we've had great, great success.

Speaker Change: And again, these are relatively...

Speaker Change: Inexpensive compared to other, you know, weapon systems or

Speaker Change: Products out there.

Speaker Change: So, you know, the price is not really that much of a differentiator.

Speaker Change: And, you know, pricing strategy, we have a price target, we have, we know what the costs are.

Christopher E. Kubasik: We know what the costs are, and as you know, we get reasonably good margins in this business. So we don't plan on lowering the prices, and customers see the benefit of our technology and, again, interoperability. So we try to cut a fair business deal, but I feel really good about what we're doing, and we've been able to take costs out through our LHX Next initiatives. We get dual-source suppliers, so we don't have single points of failures across the company, but especially in CF, and I feel really good about this portfolio and the market opportunities.

Chris Kvesick: So, we don't plan on lowering the prices. And the customers see the benefit of our technology. And again, the interoperability. So, we try to cut a fair business deal. But I feel real good about what we're doing. And we've been able to take costs out through our LHX Next initiatives. We're getting dual source suppliers who don't have single points of failure across the company, but especially in CF. And feel real good about this portfolio and the market opportunities. So, I think we're going to be in good shape.

Speaker Change: As you know, we get reasonably good margins in this business, so we don't plan on lowering the prices.

Speaker Change: And the customers see the benefit of our technology, and again, the interoperability.

Speaker Change: We try to cut a fair business deal, but I feel real good about what we're doing, and we've been able to take costs out through our LHX Next initiatives. We're getting dual source suppliers, so we don't have single points of failures across the company, but especially in CF.

Christopher E. Kubasik: So I think we're going to be in good shape. I'm not going to mention any specific countries, but there are a lot of big opportunities here in Europe that go into the FMS process, and we should have a good second half of the year.

Speaker Change: and feel real good about this portfolio and the market opportunities. So I think we're going to be in good shape. I'm not going to mention any specific countries, but there's a lot of big opportunities here in Europe . They're going through the FMS process, and we should have a good second half of the year.

Chris Kvesick: I might got to mention a specific country, but there's a lot of big opportunities here in Europe that go into the FMS process. And we should have a good second half of the year.

Operator: Rob, let's take our last question. Hi, so the last question will be from Gavin Parsons with UBS.

Rob: Rob, let's take our last question. Hi.

Operator: Hi, so the last question will be from Gavin Parsons with UBS.

Gavin Parsons: So, last question will be from Gavin Parsons with UBS. Thanks.

Speaker Change: Rob, let's take our last question.

Rob: Hi, the last question will be from Gavin Parsons with UBS.

Operator: Thanks. Morning. Morning. Guys, I just wanted to go back.

Gavin Parsons: Morning. Does this want to go back to the supplemental? Did you give a little additional color? I think you said maybe there was going to be some additional radio revenue in there. You know, is that upside potential through the end of the year or into next year? Is that more of a de-risking factor for the guide? Yeah, it's built into the guide. And again, it's always hard to predict the actual quantity and timing, and the congressional approval process. But, you know, a lot of that money for a variety of countries flows our way either directly in the radios, a little bit on night vision goggles, and then indirectly through the solid rocket motor supporting the primes for the munitions.

Gavin Eric Parsons: Thanks. Morning. Morning.

Gavin Eric Parsons: Guys, I just wanted to go back to the supplemental. If you could give a little additional color. I think you'd said maybe there was going to be some additional radio revenue in there. Is that upside potential through the end of the year or into next year? Is that more of a de-risking factor for the guide?

Christopher E. Kubasik: Yeah, it's built in. It's built into the guide. And again, it's always hard to predict the actual quantity and timing and the congressional approval process. But no, a lot of that money for a variety of countries flows our way either directly in the radios, a little bit on night vision goggles, and then indirectly through the solid rocket motors supporting the primes for the munitions. So I think that gives us confidence and stability in our guide.

Speaker Change: Yes, it's built into the guide, and again, it's always hard to predict the actual quantity and timing and the congressional approval process, but...

Speaker Change: No, a lot of that money for a variety of countries flows our way, either directly in the radios, a little bit on night vision goggles, and then indirectly through the solid rocket motors supporting the primes.

Chris Kvesick: So, I think that gives us confidence and stability in our guide. And, as you suggest, some of this should roll into 2025 as we make the deliveries in the next 12 to 18 months.

Speaker Change: For the munitions, so I think that gives us confidence and stability in our in our guide and as you suggest some of this should roll into 2025 as we make the deliveries in the next 12 to 18 months.

Christopher E. Kubasik: And as you suggest, some of this should roll into 2025 as we make the deliveries in the next 12 to 18 months. So with that, before we sign off, I always like to thank our employees for their hard work and dedication. We believe we're truly changing the industry, and I'm proud of what they've accomplished and we've accomplished in the last five years. We're very optimistic about the future, and we look forward to talking to everybody in the months ahead. So thanks for joining us on the call today.

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

Chris Kvesick: So, with that, before we sign off, I always like to thank our employees for their hard work and dedication. We believe we're truly changing the industry, and I'm proud of what Dave accomplished and we've accomplished in the last five years. We're very optimistic about the future, and we look forward to talking to everybody in the months ahead. So, thanks for joining the call today. Have a good weekend.

Speaker Change: So,

Speaker Change: With that, before we sign off, I always like to thank our employees for their hard work and dedication.

Speaker Change: We believe we're truly changing the industry and I'm proud of what they've accomplished and we've accomplished in the last five years.

Speaker Change: We're very optimistic about the future and we look forward to talking to everybody in the months ahead. So thanks for joining the call today. Have a good weekend.

Unknown Executive: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.