Q1 2025 L3Harris Technologies Inc Earnings Call
, Daniel Gittsovich, Kenneth Bedingfield, Unknown Executive, Mark Kratz
Greetings. Welcome to the L3Harris Technologies' first quarter calendar year 2025 earnings call. At this time, all participants are in the lesson only mood.
During our January call I discussed how this administration is planning to drive transformative change like never before and we are seeing it unfold daily.
<unk> Harris isn't only embracing these changes we are helping shape, the future and advocating for more commercial like business practices within the Dod.
Our trusted disruptor culture, and mindset continues to deliver results.
<unk> us to stay agile and rapidly adapt to the changing environment, whether from the administration, our allied partners for world events.
The external environment remains dynamic and since we live it every day I thought I'd give you the latest update and how we assess its impact on L. Three hours.
We're pleased that President Trump signed a full year continuing resolution. Unlike a traditional CR and as Bill allows for new program starts greater budget flexibility and affirms the budget in line with the expected 1% increase over 2024 level.
Congress is now focused on our reconciliation package, which could include over $150 billion and additional defense funding.
We view the continued emphasis by key congressional leaders to bolster our national defense is a positive sign for us.
There are many initiatives within the Dod and Congress focusing on existing program capabilities cost and schedule performance and investments in emerging technologies to.
To highlight a few.
Each service has been asked to reduce 8% of their budget to allow for reallocation of funding to administration priorities.
We don't have any insight into these deliberations at this time.
Secondly, as part of this process. The 74, <unk> App, which is the major defense acquisition programs are being evaluated to identify those that are either 15% over budget or 15% late to schedule.
For the programs, where we are a prime our performance is solid and for those where we are a subcontractor we are highly dependent on the price performance.
D O D.
Issued their 17 priorities, which we are well aligned with.
Our two most recent acquisitions are clearly in the sweet spot for capabilities needed for the future filings.
And the classified interim National Defense strategy was released focusing on deterring, China and defending the homeland.
All of these initiatives may be hard to follow from the outside but clearly show a fresh look at aligning dollars to programs that are performing well, while reallocating budget to the administration's identified priorities.
You saw that President Trump and Secretary headsets suggested that the upcoming 2026 presidential budget request could be as high as one trillion.
This represents strong topline growth and highlights a sense of urgency and is another positive development.
Over 130 executive orders have been issued in the first hundred days and I wanted to highlight a few starting with Golden dome.
We're well positioned to support this initiative and ready to respond directly to customer requests and contribute to emerging industry teams given our world class capabilities in missile warning tracking and discrimination.
We've made substantial investments in new space factories in Fort Wayne, Indiana in Palm Bay, Florida, where.
We are the only company to secure awards across all three tranches of the space forces tracking layer and are prepared to respond to the recently released RFP for the next tranche expected to be awarded later this year.
Our hypersonic and ballistic tracking space sensor satellite known as HB TSS.
In February 2024, and is the only proven on orbit system capable of tracking the new range hypersonic missiles.
This is expected to be a core component of the Golden Dome architecture.
If we were to get an award in the next few months, we could launch enough satellites into orbit, while president Trump is still in office, thereby having complete coverage of the U S.
We broadly participate across offensive and defensive missile programs, providing propulsion and attitude control for all interceptors, both in production and development to.
To support our long term growth and underscores our leadership in this area.
Speaker Change: One of my favorite executive orders is entitled restore common sense to federal procurement.
This focus is on simplifying the acquisition process across the federal government.
Speaker Change: We've been the only major A&D company publicly advocating for reform and supportive of those efforts.
Speaker Change: Continue to think significant changes in the best interest of the defense ecosystem and the long term benefits will be significant for the country and our company.
Speaker Change: Those efforts and prioritizing budget for high priority capabilities, advancing innovation promoting efficiency and acquisition and implementing risk reduction policies, all aligned with our strategy and keep us at the forefront of innovation and customer alignment.
Speaker Change: As the Dod considers procuring more through a commercial model. We are very comfortable with this approach with over 20 years of experience and about 20% of our products already being sold in this way.
Speaker Change: At its core our la checks next initiative embodies doses principles.
Miller: Miller to accelerate internal transformation through greater speed efficiency and agility.
Miller: Turning to international we're seeing a significant increase in defense spending is our NATO allies modernize their technologies, we continue to see strong demand for our mission critical solutions across key regions. So far we've seen the need for the most advanced battlefield proven equipment, taking priority over politics, and we're staying closely connected.
Miller: With our customers through our NATO offices in countries, including Poland, Germany, and the Netherlands and the UK.
Miller: As the global defense landscape shifts, we're exploring new models for collaborations including partnerships with European domiciled companies.
Miller: We secured a key International award just after the quarter closed with the Dutch Ministry of Defense for network modernization in software defined radios valued at over $1 $1 billion.
Miller: The Netherlands selected our radios for their battlefield based on our proven hardware and software, which deliver industry, leading resiliency low probability of detection and intercept while ensuring secure an interoperable communications with the U S and Allied forces.
Miller: Looking ahead to 2026, we remain confident in achieving our financial framework $23 billion in revenue low, 16% margins and $2 8 billion in free cash flow.
Miller: With the priorities of the New administration, we are well positioned to continue to drive profitable growth, while meeting our customers' evolving mission critical needs and delivering on our commitments.
Ken: For example, as a result of our ability to rapidly respond to customer requirements early in the second quarter. We secured a classified award in our ISR business valued at over $350 million, along with a $200 million International award and with that I'll turn it over to Ken.
Ken: Thanks, Chris our focus on profitable growth is delivering results.
Ken: Had a strong first quarter with performance, reflecting continued momentum and improvement across our diverse portfolio of products and programs.
Ken: While we're not without challenges our ability to proactively manage the portfolio addressing headwinds in some areas, while driving performance and others continues to give us confidence in our approach and execution.
Ken: This is also the first quarter, we're reporting under our new non-GAAP EPS methodology.
Ken: This change marks another step in our efforts to improve the quality of earnings and narrow the spread between GAAP and non-GAAP results enhancing transparency and alignment with how we manage the business now.
Ken: Now, let's talk about consolidated results for the quarter.
Ken: Revenue was $5 1 billion and reflected flat organic growth as we operated through a dynamic external environment and were impacted by a short 12 week quarter.
Ken: Segment operating margin was 15, 6%.
Ken: <unk>, the sixth consecutive quarter of year over year margin expansion.
Ken: non-GAAP EPS was $2 41.
Ken: Up 7% year over year.
Ken: Free cash was an outflow of about $70 million as first quarter cash flows are typically the lowest of the year.
Ken: This shows that this represents less than half the outflow. We saw in Q1, 'twenty four and gives us confidence in our ability to deliver free cash of two four to $2 5 billion for the year.
Ken: This quarter, we returned nearly 800 million to shareholders with about $570 million in share repurchases and $230 million in dividends, marking our 24th consecutive annual dividend increase.
Ken: Turning excess cash to shareholders remains a top priority and.
Ken: And we expect to repurchase more than $1 billion in shares this year as previously updated.
Ken: Additionally, taking advantage of favorable market conditions, we transferred $1 $2 billion of pension obligations to an insurance provider without any cash contributions or book losses, reducing future risk and volatility.
Ken: Turning to our segments first quarter results.
Ken: <unk> delivered revenue of $1 3 billion up 4% driven by continued strong international demand and quick turn book to Bill deliveries.
Ken: Operating margin increased 150 bps to 25, 5%, reflecting favorable higher margin international mix for a resilient communications as well as la checks next cost savings across the segment.
Ken: IMS revenue was down was $1 $6 billion down 2%.
Ken: And operating margin was 12, 8% up 140 bps Rev.
Ken: <unk> revenue declined due to lower aircraft emissions Asian volume and the anticipated ramp down of an ISR mission operations program.
Ken: Operating margin increased due to strong program performance increased.
Ken: Volume of higher margin airborne electro optical sensors and <unk> cost savings.
Ken: SaaS revenue was $1 6 billion down 6% organically, primarily due to lower volumes associated with program timing.
Ken: And reduced F 35 volume as our tier three mission computing hardware transitions from development to a more gradual production ramp opt.
Ken: Operating margin was 10, 9% down 140 bps due to the continuing challenges on some legacy fixed price development programs in space that are in later stages of completion.
Ken: All of this partially offset by law checks next cost savings.
Ken: <unk> delivered strong results with 9% organic growth.
Ken: Growth was driven by improved production volume across key missile programs and new program ramps.
Chris: Operating margin declined 110 bps to 12, 1% due to lower net favorable EAC adjustments, partially offset by higher volume and <unk> mixed driven cost savings now, let me turn it back to Chris.
Chris: Advancing strategic collaborations remains a cornerstone of our trusted disruptor strategy.
Chris: Most recently, we announced a new partnership with Piper government solutions, Amazon government folks of the subsidiary.
Chris: This effort combines our trusted tactical communication systems with their global lower orbit satellite network to deliver resilient hybrid satcom solutions.
Chris: Capability will offer high speed low latency connectivity with out of the box interoperability, providing greater flexibility and mission assurance across the military public safety and commercial domains.
Chris: Collaboration Formalizes, our joint work and reflects our commitment to delivering secure resilient communications in contested environments and creating partnerships with non traditional participants.
It's a differentiated solution that plays to our strengths and aligns with growing demand for hybrid multilayered networks. This.
Chris: This arrangement also expand the use of our subscription based and commercial business model revenue.
Chris: Another new partnership is with shield AI on the groundbreaking demonstration of AI enabled unmanned systems for electronic warfare operations.
Chris: Leveraging our software defined electromagnetic battle management ecosystem with shield AI is hive mind autonomy, we're enhancing decision making complex battlefield environments. This.
Chris: This collaboration will provide scalable multi domain solutions for AI enabled control of swarming systems for the U S and its allies.
Chris: We are a minority shareholder and shield ASC.
Chris: We're also making solid progress on our partnership with talent here together, we're supporting the U S. Army's tightened program, where we are leading the communications systems integration for balance here.
Chris: Further we're integrating <unk> foundry software platform with our software defined tactical radio networks. This collaboration is driving new insights and advancements, bringing artificial intelligence to the battlefield.
Chris: By enhancing the data processing power of tactical networks, we're enabling faster more effective mission execution for war fighters F D edge.
Chris: Together, we are pursuing a new opportunity that emerged directly from this partnership to modernize and integrate AI and resiliency to comps into a next generation <unk> ISR architecture for international customers.
Chris: Partnerships like these and many others allow us to accelerate innovation and rapidly field advanced capabilities.
Chris: By taking a more thoughtful and open systems approach leveraging the strengths of our partnerships and existing capabilities and bandwidth, we're able to rapidly adapt scale and deliver differentiated solutions that meet evolving mission critical needs back to you again.
Chris: First a few comments on <unk> snacks, and our portfolio then I'll move into guidance updates.
Chris: We remain focused on executing our <unk> initiatives and delivering $1 2 billion and gross run rate savings this year.
Chris: We are nearing completion of the cost optimization phase of this initiative, including driving supply chain savings process improvements and facility consolidation.
Chris: As a result, you may have noticed a reduction in corporate unallocated costs as early chex snacks implementation costs ramped down we.
Chris: We will of course maintain our continuous improvement framework and drive for year over year cost savings.
Chris: The next phase of <unk> next is centered on enterprise transformation.
Chris: Leveraging AI enabled solutions driving enterprise wide digital transformation and optimizing our supply chain to become leaner and more agile.
Chris: We are developing our <unk> operating system for all functions. So that we have a common way of executing and managing our business.
Chris: We continue to proactively reshape our business in this quarter, we further sharpened our national security focused portfolio by completing the divestiture of our commercial aviation solutions business.
Chris: The last remaining commercial aerospace business in our portfolio.
Chris: Additionally, we transitioned our fusing an ordinance systems or faas business from IMS to AAR as part of our portfolio optimization efforts.
Chris: We expect this shift to drive additional synergies as we align across common customers and leverage internal expertise for key rocket motor content.
Chris: Turning to guidance updates for 2025.
Chris: As Chris noted there are several moving parts in the current environment.
Chris: But the key takeaway is that we see as much if not more opportunity than risk ahead.
Chris: That said our updated guidance reflects a balanced and disciplined approach that incorporates our solid Q1 performance.
Chris: Taking a risk aware posture as we await greater clarity on several fronts spin.
Chris: Specifically, we are monitoring the FY 'twenty six defense budget.
Chris: Details around the implementation of the Golden Dome Executive order and other recent directives.
Chris: And further clarity around the budget tied to the 17 priority areas outlined by the Dod.
Chris: Until we have greater visibility. We believe this is the most prudent path forward and expect to provide further updates on the Q2 call.
Chris: With that we now expect revenue of 21, 4% to $21 7 billion, representing organic growth of 4% at the midpoint and reflecting a slight increase relative to growth implied by our prior guidance.
Chris: This update reflects the elimination of about $525 million of revenue related to the <unk> divestiture.
Chris: We are maintaining our segment operating margin guidance of mid to high 15%. Despite the elimination of higher margin <unk> revenue.
Chris: Supported by a continued <unk> cost savings.
Chris: And confidence and strong program execution.
Chris: non-GAAP EPS is expected to be $10 30 to $10 50.
Chris: At the midpoint. This includes a 55% reduction related to <unk> and a 25% increase from improved operational performance and capital deployment actions, including the pension buyout.
Chris: Despite the elimination of three quarters of <unk> revenue, we are reaffirming our free cash flow guidance of two four to $2 $5 billion driven by growth higher profitability and disciplined working capital management.
Chris: At the segment level, we are reaffirming our communication systems revenue outlook of two point I'm, sorry, five six to $5 7 billion.
Chris: With an increase in profitability to 25%.
Chris: From high 24%.
Chris: IMS revenue guidance is now approximately $6 3 billion.
Chris: Flexing, a $525 million impact from the cast divestiture and $300 million from the Fas business transfer to AAR about an $800 million reduction from midpoint of prior guidance opt.
Chris: Operating margin is now expected in the mid and the high 11% range down from low 12% due to the due to the divestiture with plans to offset dilution over time through improved program performance and La Chex snacks savings.
Chris: We are maintaining our guidance for space and airborne systems with revenue expected in the range of six 9% to $7 1 billion, reflecting.
Chris: Reflecting government fiscal year 2025 budget constraints in the space sector.
Chris: That we expect to abate by 2026 opt.
Chris: Operating margin is expected to remain in the low 12% range.
Chris: Aerojet Rocketdyne revenue guidance is now approximately $2 8 billion.
Chris: Reflecting the addition of Faas and continued strong growth in missile solutions.
Chris: We continue to expect margins in the mid 12% range.
Chris: Although we are closely monitoring the changing trade landscape and have put various mitigation strategies in place, we do not anticipate tariffs to have a meaningful impact on our financial results.
Chris: We're actively managing any impact within our current guidance assumptions.
Chris: Importantly, we are ensuring timely access to international components to mitigate potential disruptions, though these risks are limited.
Chris: We remain confident in our ability to navigate this dynamic environment, while maintaining our focus on execution.
Chris: With that I'll turn it back to Chris.
Chris: Okay before we open it up to questions I want to briefly summarize our value proposition and how we're differentiating ourselves in the industry.
Chris: With strong support from the New administration for defense and the potential for a $1 trillion dollar budget in 2026, the backdrop is favorable.
Chris: We're driving relentlessly for profitable growth and are committed to our 2026 financial framework, which we continue to gain confidence in.
Chris: From a topline perspective, the new opportunities we have one in Q2 as mentioned previously will contribute to our ability to get there we have grown our topline organically in each quarter since Q3 of 2022 and except for this 12 week quarter. This will continue for the rest of 2025.
Chris: Turning to profitability, we effectively manage risk and performance across the diverse portfolio of products and programs increasing margins even in the face of occasional programmatic challenges.
Chris: Our <unk> next transformation is unique and driving our success.
Chris: We've now expanded margins year over year for six consecutive quarters.
Chris: And we're delivering double digit free cash flow growth since 2023.
Chris: With deleveraging largely behind us and share repurchases and accelerating we see a clear path to mid double digit growth in free cash flow per share.
Chris: And last quarter, we increased our dividend for the 24th consecutive year.
Chris: With that inner let's open the line for questions.
Chris: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your telephone keypad.
Chris: E Comm that Johanna has been leased and should you wish to cancel your request. Please press star followed by the Q I would like to advice everyone to have a limit of one question and if anyone have any additional questions. You can put yourself back in the queue by pressing star. One if you are using a speaker phone. Please lift the handset before pressing any keys.
Speaker Change: Your first question comes from the line of Seth Sigman from Jpmorgan. Please go ahead.
Speaker Change: Thanks, very much and good morning, everyone.
Speaker Change: <unk>.
Speaker Change: Chris I wanted to drill in a little bit on something you said a little bit earlier, when you talked about international sales and particularly in Europe.
Speaker Change: I think there's some concern over there given the.
Speaker Change: The state of relations between between U S and some of the European Allies and.
Speaker Change: In the comms business in radios in particular, there are some suppliers.
Speaker Change: In Europe, and so it sounds like.
Speaker Change: You still have a fair amount of confidence in <unk> prospects, there and so I wonder if you could talk a little bit about that what sort of gives you that confidence.
Speaker Change: Going forward.
Speaker Change: Yes, that's a great great question and I expect.
Speaker Change: That there would be some concern.
Speaker Change: The confidence we're having is.
Speaker Change: The orders that we've been able to book in the discussions we're having with our customers.
Speaker Change: I mentioned, the Netherlands, one 1 billion dollar.
Speaker Change: Opportunity here in April that we booked Poland, Germany, and there is other eastern European countries, we cant disclose at the end of the day it comes down to the crypto the interoperability and the modernization programs that these countries have undertaken they need new technology, there tend to be seven to 10 year programs.
Speaker Change: Given the sense of urgency and the threats in the area.
Speaker Change: I believe they don't really have the time to go back and start over so as I mentioned in my prepared remarks, there's a lot going on in politics, but at the end of the day you want the best technology available and has proven over and over that our tactical networks. Our software defined radios are superior and that's why they're being procured.
Speaker Change: Sure.
And your next question comes from the line of.
Speaker Change: <unk> from Bank of America. Please go ahead.
Speaker Change: Yeah, Hey, good.
Chris: Good morning, Chris.
Speaker Change: Morning, Ken.
Speaker Change: Yeah could you speak a little bit more about from you.
Speaker Change: You mentioned that you are making some investment there already is that.
Speaker Change: Award have you already gotten award.
Speaker Change: How are you thinking about that.
Speaker Change: And then I have a follow up if I may.
Speaker Change: Yeah, Yeah, no embolden them, we've been seeing a lot of.
Speaker Change: A lot of growth in our satellite business, we use that as an example of our trusted disruptor strategy going back several years. So when you look at the whole portfolio of satellites that we're manufacturing we needed to develop these factories.
Speaker Change: Given the quantity that we have in backlog and those that we anticipate in the future. So no Golden Dumb awards have been made.
Speaker Change: T R. Yeah.
Speaker Change: T three.
Speaker Change: The tranche three for space force. The RFP came out that will be part of the architecture, but it's still it's still early in the process.
Speaker Change: I did mention <unk>.
TSS and if you look at that executive order.
Speaker Change: It has about eight different.
Speaker Change: Focal points the only one in there that says accelerate the deployment of HB TSS layer.
Speaker Change: Is critical because we have the only proven satellite in orbit that works so that as an acceleration. That's why I said, if we can get an order here quickly we can add the U S covered well the president is still in office every other part of that executive order. He uses the phrase develop.
Speaker Change: So we feel really good about the HB TSS and.
Speaker Change: I believe this administration is putting money where contractors are performing and we're hopeful that we can move quickly gets us under contract and start launching these capabilities but.
Speaker Change: The other part of it is with the <unk> acquisition.
Speaker Change: A huge part with solid rocket motors and.
Speaker Change: And the different interceptors, Curt do you want to take that sure, yes, and just high level Ron to the investment part of your question I would say.
Speaker Change: The Golden Dome opportunity aligns very well to investments that we have been making in particular in the area of missile warning missile tracking.
Speaker Change: And that's both in our Fort Wayne Operation as well as here in Palm Bay, Florida. So we just believe that.
Speaker Change: Smart investments and.
Speaker Change: Our alignment to the needs of the customer are.
Speaker Change: Being revealed in terms of the focus on Goldman.
Chris: To Chris' point on <unk>.
Chris: Solid rocket Motors, I think aric <unk> is extremely well positioned not just from a propulsion perspective, but.
Chris: But we're just.
Chris: Just about every interceptor program.
Chris: To include technologies around deferred and attitude control and how you precisely get an interceptor, where it needs to be so.
Chris: We're looking at.
Chris: Focus on advancing.
Chris: Our capabilities and our production and development.
Chris: On both production and developing.
Chris: Interceptor opportunities like next Gen interceptor glide phase interceptor.
Chris: And also we do have a business that does targets for the missile Defense agency and we think that will be an important part of Goldman.
Chris: Being able to test the new system and capabilities. So we're looking at.
Opportunities to work with the missile defense agency to try to accelerate that.
Chris: As an enabler for the system as well so we're excited and I think we're very well positioned.
Speaker Change: Thank you and your next question comes from the line of Doug Harned from Bernstein. Please go ahead.
Doug Harned: Hello, Good morning, Thank you.
Chris: Sure.
Chris: On on SaaS.
Speaker Change: You've had a lot of success, winning SDA contracts and those are easy for us to see but when you look at the challenges that you've got in that you recognized this quarter.
Speaker Change: With respect to classified programs can you help us understand sort of the scale of the split here between classified and other I know it's hard but.
Speaker Change: To give us a sense of where the challenge programs are headed.
Speaker Change: Are we going to see.
Speaker Change: These negative impacts I guess on margins and see that.
Speaker Change: Dissipate.
Speaker Change: As we head into 2006 and 2007.
Speaker Change: Sure Doug I can take that question.
Speaker Change: Yes.
Speaker Change: I would I would say that maybe addressing the last part of the question first on the challenges.
Speaker Change: We're certainly managing the challenges on these programs we've seen it in tens of millions of dollars of.
Speaker Change: Negative adjustments across a couple of programs and as we've said those programs are nearing completion. So we do expect that these challenges will not necessarily behind us or.
Speaker Change: Bread basket and.
Speaker Change: Should be.
Speaker Change: Behind us in 25 or early 'twenty six.
Speaker Change: Importantly.
Speaker Change: These are important programs for our country and the war fighter and we see it as a strong growth area in the future and we expect as we've got the technological challenges behind us it'll be a solid growth area for us with with good profitability as we move forward.
Speaker Change: And then on the SBA business that is I would say, it's been a great business model for US you may remember that we moved from <unk>.
Speaker Change: Call it a highly capable.
Speaker Change: Whether sensing system to a capable missile warning missile tracking system through advancements in our sensor as well as algorithms and ground processing.
Speaker Change: We were able to get a position on prime in that.
Speaker Change: With some challenges on that back in 'twenty, two and 'twenty three and as we have one success of awards from tranche here at a tranche one to tranche two.
Speaker Change: Been able to drive down cost to give the customer confidence and at the same time increase our profitability tranche by tranche. So we're really pleased with the investments we've been making in the space business.
Speaker Change: It is not without its challenges, we do hard stuff I'll be clear on that but it is important.
Speaker Change: <unk> work for our country and for the War fighter. We're proud of the work we do we're proud of the challenges we take on.
Speaker Change: And I think we've got a solid path to.
Speaker Change: Managing through it while meeting the guidance that we've put out for you.
Speaker Change: And I'll just chime in there Doug that we call these legacy programs cause them.
Speaker Change: There are several years old in some cases predate the merger, which is why I've been pretty outspoken about the.
Speaker Change: Fixed price development programs, which which these are and how they can come back and.
Speaker Change: Have challenges as you're developing doing hard stuff as Ken said I do want to emphasize this does paved the way for future work none of those programs have been bid we don't have fixed priced options. So we will know the actual cost will know the technical technological specs and as additional work comes forward for <unk>.
Speaker Change: Similar or identical constellations are satellites I'm highly confident we will win and we will make money on those.
Speaker Change: Thank you and your next question comes from the line of Sheila <unk> from Jefferies. Please go ahead.
Speaker Change: Good morning, Chris and Ken maybe just to stick.
Speaker Change: SaaS can we talk about the airborne side of the business.
Speaker Change: What you see as prospects bar seems like Anthony Barbizon near term had a brand that was a turning.
Speaker Change: Turning point, there on mobile and pursued thank you on that point.
Speaker Change: And how do you see <unk> jackup market going forward.
Speaker Change: Yes, good morning Sheila.
Speaker Change: The airborne market is solid in these cases, we are we are subs to the primes or the Oems Youre right on F. 35, 2025 is the low point for revenue as the tier three development comes down in the tier three production increases so we will see growth.
Speaker Change: For our F 35 portfolio in 2026 and that involves all.
Speaker Change: All aspects from a core processors to weapon release and some of the other.
Speaker Change: Capabilities that we have on that plane.
Thinking.
Speaker Change: Not sure Theres, a theres a airplane out there that L. Three Harris doesn't have some some content on.
Speaker Change: So we have some great capabilities, even even things like the.
Speaker Change: The T seven and.
Speaker Change: Other new development programs.
Speaker Change: We're positioned well and we can support whatever is needed for nextgen aircraft in future plane. So feel good about the portfolio feel great about the capabilities. This will be a growth area for us in years ahead.
Matt: Thank you and your next question comes from the line of Matt <unk> from Wells Fargo. Please go ahead.
Matt: Thanks, Thanks, very much good morning, I wanted to.
Speaker Change: To ask Ken I guess now that you've been in the Rocky time, Pete here for a couple of months just curious.
Speaker Change: Initial impressions and kind of thoughts on any opportunities for that business here going forward.
Ken: Sure. Thanks, Matt appreciate the question.
Speaker Change: Yes, all of my initial impressions are.
Speaker Change: It's a great business, it's a fantastic team.
Speaker Change: And we're very well positioned as we look forward to address.
Speaker Change: The critical needs of our country and our Warfighter from a <unk>.
Speaker Change: Tactical and large solid rocket motor perspective.
Speaker Change: We're very focused on capacity expansion and.
Speaker Change: In particular in the missiles solutions business.
Speaker Change: And I think youre seeing that start to reveal itself in terms of 9%.
Speaker Change: Revenue growth at Aerojet and.
Speaker Change: Solid double digit growth in the missiles business in particular.
Speaker Change: And again Thats both climbed.
Speaker Change: Climbing the ramp on the tactical side as well as starting to see some new programs kick in terms of primarily large solid rocket motors.
Speaker Change: As I mentioned in response to an earlier question, we're excited about the opportunities that golden them.
Speaker Change: At Aerojet.
Speaker Change: Again acceleration of interceptor, both production and development programs as well as targets for missile Defense Agency.
Speaker Change: And then we're certainly focused on.
Speaker Change: The space propulsion side of the business as well.
Speaker Change: Protecting NASA SLS Artemis and RF 25 engine, there we believe that <unk>.
Speaker Change: Particular program aligns very well with national security purposes, and returning to the Moon and making sure that we don't seed the moon to one of our country's adversaries.
Speaker Change: And then we're also focused on accelerating and driving production efficiencies on the <unk> 10.
Speaker Change: Largely in support of <unk>, which we believe is the world's most capable second stage engine.
Speaker Change: We've made some changes there driving additive manufacturing, which should enable us to see some efficiencies and acceleration as we move forward. So great business, great team I'm really excited to be leading it and I've been spending a fair amount of time in.
Speaker Change: Some of the Aerojet facilities, Camden, Arkansas, West Palm Canoga Park, California, and as I've been engaging with the team. It's just it's fantastic.
Speaker Change: We're really very well positioned.
Speaker Change: And in my discussions with the customers, they're very pleased that <unk> made this acquisition and more importantly, they're impressed with the turnaround. So I believe were absolutely in the right market at the right time and the future is quite bright.
Speaker Change: Thank you and your next question comes from the line of Noah <unk> from Goldman Sachs. Please go ahead.
Noah: Hey, good morning, everyone.
Speaker Change: And.
Speaker Change: Just a few questions on the outlook a few of the outlook items.
Speaker Change: Given the divestiture coming out.
Speaker Change: Reiterating the 23 billion for 2026, I think would require.
Speaker Change: Closer to 7% organic growth in 2006 versus before this year in the four in the CAGR you've talked about.
Speaker Change: Can you maybe just talk about I know, you've described an opportunity rich environment here, but how much risk is there too.
Speaker Change: Just getting things on contract quickly enough to achieve that.
Speaker Change: And then for 'twenty five can.
Speaker Change: The pension income and interest expense change I think looks like about 20.
Speaker Change: And you call it the 25 cents operational.
Speaker Change: I'm just wondering how much you're you are ahead of plan operationally versus that being below the line.
Speaker Change: Sure Let me let me address the first question.
Speaker Change: And then I can get to the second part there. So look in terms of the growth drivers for 2026, Chris mentioned in his prepared remarks that we are building confidence to the 26 framework and a $23 billion in sales and there is a number of moving parts and let me just kind of walk through them.
Speaker Change: First of all Chris mentioned classified award that we booked early in the second quarter at IMS and.
Speaker Change: And we see that contributing to revenues.
Speaker Change: In 'twenty five and into 'twenty six.
Speaker Change: There was also an IMS international booking that Chris mentioned, and we see that contributing in 2006.
Speaker Change: We believe that space will return to growth as we mentioned there is some budgetary challenges in government fiscal year 'twenty fives, but we know that there is.
Speaker Change: Our focus on that and we see more budget.
Speaker Change: Why.
Speaker Change: Government fiscal year 'twenty six on space.
Speaker Change: Whether thats SDA three potentially accelerating into the fourth quarter of 'twenty five is an award as well as the potential for upside on Golden dome opportunities.
Speaker Change: And then Aerojet Rocketdyne will continue to contribute growth in terms of missiles.
<unk>.
Speaker Change: Again, both at the tactical missile level as we climb the ramp as well as some of the development wins that we've seen.
Speaker Change: And the interceptors and large solid rocket motors.
Speaker Change: Thats across a number of interceptor programs, a classified program Sentinel and others.
Speaker Change: And then.
Speaker Change: As Chris mentioned the F 30 fives.
Speaker Change: Headwind that we see in 2025 will will abate. So we are we are building confidence we understand it's a 7% growth rate in the 26.
Speaker Change: But we feel like we've got a really solid path to get there and feel better about that today than we did one quarter ago.
Speaker Change: In terms of the second question.
Speaker Change: No.
Speaker Change: We look at our performance in Q1, we think it was it was solid performance.
Speaker Change: Parse out five cents here or there at the at the EPS level, but we think the.
Speaker Change: Operation certainly contributed there clearly is some benefit of interest and capital deployment actions, whether it's pension.
Speaker Change: Or as we've updated.
Speaker Change: Think share count with the.
Speaker Change: Repurchase that we've done in the first quarter will be somewhere between 188 to 189 million shares versus previous 190. So we're feeling good about about what we're doing to drive.
Speaker Change: Upside to EPS, whether that's performance of the segment line.
Speaker Change: Our capital deployment actions and.
Speaker Change: We'll just we'll continue to crank through that.
Speaker Change: Try to drive upside at the segments through the remaining three quarters of the year.
Speaker Change: Yes, no we havent really seen.
Speaker Change: <unk> normal slowdown in getting orders I think it's just the usual change of administration nothing nothing beyond that I think just about everybody's book to bills were were below one O. We kind of manage it and look at it a LTM basis. So we're at 114.
Speaker Change: On a book to Bill, which gives me confidence in the growth and.
Speaker Change: Again, we had this 12 week quarter.
Speaker Change: I think we booked almost $1 billion of orders in the first week of Q2. So there is growth in cyber which is all classified.
Speaker Change: Great opportunities in the mid east and these partnerships and focus on AI I think.
Speaker Change: Going to be able to contribute more in 2006, and then maybe people appreciate so.
Speaker Change: Thanks for the question.
Speaker Change: Thank you and your next question comes from the line of Robert <unk> from vertical Avi switched Barclays. Please go ahead.
Robert: Thanks, so much good morning.
Speaker Change: Morning.
Speaker Change: Chris just wanted to follow up on Sheila's question from earlier on with regards to the F 35, Lockheed Martin said, a couple of days ago looking to substantially enhance the capability on the aircraft.
Speaker Change: Jim take it said, but I was wondering if there were any opportunities there for L. Three Harris to be involved with this process.
Speaker Change: Yes, I would think so.
Speaker Change: We are leading the hardware piece of tier three and I think a lot of those T. R. Three capabilities when their combat ready and operational will give significantly improved capabilities for for that aircraft. So.
Speaker Change: I think we're well positioned I think in fact, we're in the midst of doing a lot of that that work now.
Speaker Change: We never really talked about the retrofit market. So to the extent there is continued upgrades in the.
Speaker Change: Core processor or the digital cockpit or the memory system, we always talk about the current deliveries, but there is also a retrofit perspective. So I think we're well positioned I think we're one of the few that have the capabilities. They need. So we will work closely with Lockheed and see how we can help and support them.
Myles Walton: Thank you and your next question comes from the line of Myles Walton from Wolfe Research. Please go ahead.
Speaker Change: Thanks, so much.
Speaker Change: Chris I was wondering some defense executives have had meetings with the president and sort of made direct appeals and as it relates to their solutions, but curious to the extent that you have been able to do that and then maybe more from a budget outlook perspective, what is the timeline you're currently thinking about in terms of gaining visibility into the fiscal 'twenty six budgeted gold.
Speaker Change: The AUM in 2017 priorities areas.
Speaker Change: See that as being sort of a may June or later than that thanks.
Myles Walton: Yeah. Thanks, Myles I'll take the second one first.
Speaker Change: Yes, we're actually expecting the.
Speaker Change: 2026, PBR in the month of May.
Speaker Change: I think it's going to be referred to as a skinny PBR with dollars allocated more at the mission level than at the program specific level, a little different than that in the past and I think a lot of those are going to probably be aligned.
Speaker Change: With those priorities, whether its homeland missile defense munitions autonomy counter UAS and then at that level, we're working hard to make sure that our programs are supported in the dollars will be allocated to them. So it's a little different process, but we'll we'll have that number every one.
Speaker Change: We will have it I think within the next couple of weeks is what I've been told.
Speaker Change: <unk>.
Speaker Change: Relative to customers I can assure you I spend a lot of time.
Speaker Change: N D C or wherever I need to go to meet with the right people and.
Speaker Change: Not only myself, but the segment President XI I feel way of access pretty much anyone we need and want access to and I think our message is clear and concise.
Speaker Change: It's unique and people appreciate the capabilities and the speed in which we're willing to take.
Speaker Change: Do the work so feel real good on that front.
Speaker Change: Thank you and your next question comes from the line of Jason Gursky from Citigroup. Please go ahead.
Speaker Change: Hey, Chris.
Speaker Change: <unk> been pretty forward leaning on procurement.
Speaker Change: <unk> and the need for it and have you given prescriptions to the building.
Speaker Change: Kind of curious.
Speaker Change: To get a few thoughts a few more thoughts from you.
Speaker Change: These efforts, obviously are geared towards speeding things up and.
Speaker Change: Saving money and I'm kind of curious on the saving money part whether this is to put downward pressure on on spending overall or if it's to increase the purchasing power of Vod. So they kind of get more for the money that they're spending would love to get your thoughts on what the intent here is and then maybe.
Speaker Change: Just talk a little bit about what you think would be some low hanging fruit. Some some easy wins for them to go get and then lastly, what do you think the overall impact of an exercise kind of like a rewrite of our is going to have on the industrial base is this going to favor one type of company versus another one.
Speaker Change: Technology versus another just kind of your overall thoughts on the longer term implications for the industrial base as we go into what looks like is going to be a maybe a full rewrite afar.
Speaker Change: Yeah. Thanks, Thanks, Jason.
Speaker Change: I'm passionate about.
Speaker Change: Trying to drive a reform and Theres a lot of initiatives out there driven by.
Speaker Change: The Warfighter members of Congress and I, just want to make sure that the defense industrial base has.
Speaker Change: Has the seats at the table because we do have to have a perspective.
Speaker Change: Speed speed and agility saves savings money and the quicker we can make these acquisition decisions and the sooner or anyone could get under contract the better off we are as a country because we can get those capabilities.
To the Warfighter, so by saving money not only in reducing the time to get an acquisition, but allowing companies to have multiyear contracts commercial terms, we have so many competitive bids.
Speaker Change: Let's put out the RFP, let's get the proposals and let's make a make a decision and go quick and the goal would ultimately be to get more purchasing power I mean, the defense industrial base and my opinion is pretty much absorbed all the inflation and the impacts of Covid given all of our hundreds of billions of dollars of backlogs.
Speaker Change: So we have not been able until recently.
Speaker Change: To flow those costs through so the quantities that are customers getting are less than they.
Speaker Change: They probably want so this will be a way maybe to to increase back.
Quantity.
Speaker Change: I did write a letter reforming far getting rid of the cost accounting standards I think it's odd that.
Speaker Change: We need to reset the books are GAAP set a tax book tax set and cost accounting drives incredible amount of efficiency audits out the wazoo.
Speaker Change: Disclosure statements makes it hard to run the business and do what you would think would be a logical thing relocating businesses consolidations all that take on a life of their own.
Speaker Change: The truth in negotiation.
Speaker Change: To have those requirements for every contract over $2 million.
Speaker Change: And that was pretty much darn near everything they buy if we want to keep Tina which I'm in favor of.
Speaker Change: We ought to raise that to half a billion or a $1 billion and.
Speaker Change: And then it just comes down to commerciality and like I said, if we can get more commercial like practices business practices I think thats, great I think it's going to favor that accompanies that.
Speaker Change: Can adjust and go quickly and adopt to new change I think our culture, mainly as a result of what we've done with OE Chex snacks I think our employees are used to change on a on a daily or weekly basis. So I think we can adapt rather quickly there'll be it cost and systems cost and all that kind of stuff but.
Speaker Change: Hard to imagine there's anything negative.
Speaker Change: Coming out of this type of reform and even secretary of headset put out some guidance on buying software. So the future software resilience communications change in the way they buy these types of.
Speaker Change: Services, whether it's subscription commercial or otherwise.
Speaker Change: I think it is a game changer for the industry and a game changer for L. Three Harris and can't wait to get to that point.
Speaker Change: Thank you and your next question comes from the line of Michael Scherer Marty.
Michael Scherer: The Securities. Please go ahead.
Michael Scherer: Hey, good morning, guys. Thanks for taking the question.
Speaker Change: Ken just going back to I think <unk> question on that bridge to 2026 growth I think I heard some of the wins, which I think were international.
Speaker Change: International revenue looks to be up about 10%. This quarter do you have any assumptions for four shorted the international growth trajectory.
Speaker Change: For the remainder of this year into 2006, and then just the other one is there is there any more portfolio shaping that you think materializes between now and call. It the end of the year or you think you're kind of set in the organization right now.
Speaker Change: Sure from an international perspective, as I was answering <unk> question I'm talking about the particular drivers to 'twenty six.
Speaker Change: There was a particular international award at IMS within the ISR sector.
Speaker Change: That I was referencing there to your question on international Yes, It is growing faster than the overall business and we expect that to continue much of that is within.
Speaker Change: Communications segment, a bit at IMS as well.
Speaker Change: And we've got that factored into the guide.
Speaker Change: And certainly as I said it is a part of how we're confident in getting to the 2026.
Speaker Change: Numbers, so feel good about that and again overall.
Speaker Change: I think that the cards are laying down real nicely for us in terms of.
Speaker Change: In terms of the benefit it's not one or two things that are going to get us. There I think we got a solid path of.
Speaker Change: Five or six individual items that are.
Speaker Change: Are all either booked and.
Speaker Change: We will be in Q2 backlog.
Speaker Change: Or we've got a solid path to solid path to getting there. So again, we feel really good about that international absolutely will contribute but solid domestic growth as well.
Speaker Change: And we see that enabling us to get to that 7% growth for 26 was there a second part of the question Michael.
Michael Scherer: Asking about portfolio shaping whether theres any more anything left to be done.
Michael Scherer: Yes. Thank you, yes, I will just take that one yeah, we're always looking.
Michael Scherer: At refining the.
Michael Scherer: Portfolio.
Michael Scherer: I would say nothing nothing significant we're not.
Michael Scherer: Obviously, you're trying to be the largest company, we're trying to be the most valuable and there is a benefit of focusing on those core competencies that you're good at whether it's ISR space resilient comms weapons and munitions.
Michael Scherer: We'll have a lot of small one off entities that in all honesty don't really move the needle and we get calls on a regular basis. So we can get a good price maybe we do a little more pruning, but theres a lot of concern on the growth of 26, but it comes down to the portfolio and if you look at our portfolio I couldnt be happier.
Michael Scherer: With what we have in just five years or so since the merger, we did divest and have divested over $3 billion of revenue and we've.
Michael Scherer: Wired $3 billion of revenue and if you look at these priorities whether its nuclear modernization defense munitions.
Michael Scherer: When you look at these <unk> programs and our performance.
Michael Scherer: Probably not having a huge platform is not a bad place to be at this particular point.
Michael Scherer: So I think it's all about the portfolio because without the portfolio aligned with this current administration's priorities. We can go faster products aren't that expensive, which is why they're appealing internationally and his partnership strategy is making a difference and I gave a couple of highlights whether it's kuiper palen tier shield.
Michael Scherer: We have a couple of others and work there.
Michael Scherer: The go to people that are willing to work with anyone as a prime as a saab as a merchant supplier and that's going to fuel the growth for the future.
Michael Scherer: Yeah.
Michael Scherer: I'll take the last question.
Speaker Change: Thank you and your last question comes from the line of P. J <unk> from Baird. Please go ahead.
Speaker Change: Hey, Thanks, Good morning, Chris Ken Dan.
Speaker Change: Hey, Chris you mentioned SBA programs in your opening remarks I was wondering if you could just give us an update on how.
Speaker Change: The contracts are performing there I know there was some leadership reviews going on and it doesn't seem like it's resulted in any delays in the programs and then just in the context of Golden dome, or theyre going to be overlaps or just how youre thinking about.
Speaker Change: That overall effort here with your satellite thanks.
Speaker Change: Yeah. Thanks, Thanks, Peter Yeah, Trump zero is in orbit performing well, one and two are moving along Ken and I actually had a couple of our reviews earlier. This week to go through these it is going to be part of.
Speaker Change: The Golden Dome architecture, as we understand it they put out the RFP. This was going to be a 2026 award. They are now looking at accelerating that into 2025.
Speaker Change: So I think we're well positioned we're making money.
Speaker Change: We are delivering on time and these are pretty reasonably priced in the big scheme of things. So we're.
Speaker Change: We're excited about it and all of these constellations, we keep talking about tend to have 356 year lives. So once you get them up whether it's 50 to 100 or 200, theres going to be a recycle a replenishment as well. So I think we're real well positioned in the futures price.
Speaker Change: Especially in missile tracking and warning and with the hypersonic threats out there.
Speaker Change: So let me let me wrap up here as we close today's call want to express my gratitude to our dedicated team of employees and leaders for their hard work and resilience.
Speaker Change: Yes, we've made over the past couple of years as a direct result of their efforts and I'm proud of what we've accomplished before signing off I'd like to take a moment to remember Rob Spingarn, a longtime A&D research analysts and friends, who recently passed away Rob as a valued member of the investment community and we always appreciated his insights and.
Speaker Change: And with him that he brought to every interaction.
Speaker Change: Thoughts and prayers are with his family during this difficult time and he will be greatly missed thank you for joining us.
Speaker Change: Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Speaker Change: [noise].