Q2 2026 L3Harris Technologies Inc Earnings Call
Speaker #1: Greetings. Welcome to the L3 Harris Technologies Q2 2026 earnings conference call. At this time, participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.
Speaker #1: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Toni Calderon, Vice President, Investor Relations, and Corporate Development.
Speaker #1: Greetings. Welcome to the L3HARRIS TECHNOLOGIES second quarter 2026 earnings conference call. At this time, participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.
Speaker #1: Thank you, Toni. You may now begin.
Speaker #2: Thank you, Jade. And good evening, everyone. Joining me today are Chairman and CEO, Chris Kabasic, and Chief Financial Officer, Ken Sharp. After the market closed today, we published our Q2 earnings release detailing our financial results and updated 2026 guidance and provided a supplemental earnings presentation on our website.
Speaker #1: operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Tony Calderon, Vice President, Investor Relations, and Corporate Development.
Speaker #2: Before we begin, please note that our discussion will include forward-looking statements subject to risks, assumptions, and uncertainties that could cause actual results to differ materially.
Speaker #1: Thank you, Tony. You may now begin.
Speaker #2: Thank you, Jade. And good evening, everyone. Joining me today are Chairman and CEO, Christopher Kubasik, and Chief Financial Officer, Ken Sharp. After the market closed today, we published our second quarter earnings release detailing our financial results and updated 2026 guidance, and provided a supplemental earnings presentation on our website.
Speaker #2: We will discuss gap results alongside non-gap financial measures of organic revenue, segment operating income, and free cash flow, which are reconciled to gap measures in the earnings release.
Speaker #2: For more information, please refer to our earnings release and S&P file. With that, let me turn it over to Chris.
Speaker #2: Before we begin, please note that our discussion will include forward-looking statements subject to risks assumptions and uncertainties that could cause actual results to differ materially.
Speaker #3: Thanks, Toni, and welcome to our call. Before Ken discusses the numbers, I'd like to step back and share some context to frame this quarter's performance within our multi-year strategy.
Speaker #2: We will discuss gap results alongside non-gap financial measures of organic revenue, segment operating income, and free cash flow, which are reconciled to gap measures in the earnings release.
Speaker #3: Several years ago, we embarked on a strategy to become the trusted disruptor. We saw an opportunity to focus on national security here and abroad, in a way that had not been done before.
Speaker #2: For more information, please refer to our earnings release and S&P file. With that, let me turn it over to Chris.
Speaker #3: Today, security threats are growing in volume, intensity, and sophistication, Congress, the Pentagon, our war fighters, and our citizens need an industrial base on a wartime footing.
Speaker #3: Thanks, Tony, and welcome to our call. Before Ken discusses the numbers, I'd like to step back and share some context to frame this quarter's performance within our multi-year strategy.
Speaker #3: Ready to invest, and respond quickly, reliably, and at scale. Our customers and partners they can trust and depend on, and I believe L3 Harris is that partner.
Speaker #3: Several years ago, we embarked on a strategy to become the trusted disruptor. We saw an opportunity to focus on national security here and abroad, in a way that had not been done before.
Speaker #3: Today's results are not just a one-off strong quarter. It's the result of leadership, teamwork, and a dedicated workforce delivering on our customers' mission. These results build on the momentum that began in late 2023.
Speaker #3: Today, security threats are growing in volume, intensity, and sophistication. Congress, the Pentagon, are war fighters and our citizens need an industrial base on a wartime footing.
Speaker #3: Ready to invest, and respond quickly, reliably, and at scale. Our customers need partners they can trust and depend on, and I believe L3Harris is that partner.
Speaker #3: We are running L3 Harris for long-term value creation. We are taking deliberate, disciplined risks to enter markets we haven't participated in before, and to gain share in attractive growth domains.
Speaker #3: Today's results are not just a one-off strong quarter; they're the result of leadership, teamwork, and a dedicated workforce delivering on our customers' mission. These results build on the momentum that began in late 2023.
Speaker #3: In missile warning and missile tracking, we have been selected by the U.S. Space Force for the AMDT3 satellite constellation. We are the only company to be awarded all 5 contracts related to missile tracking.
Speaker #3: We are running L3HARRIS for long-term value creation. We are taking deliberate, disciplined risks to enter markets we haven't participated in before, and to gain share in attractive growth domains.
Speaker #3: This award reinforces that the customer trusts us to deliver high-quality, resilient, integrated spacecraft that are critical for national security. Also, in space, we see a $9 billion pipeline over the next several years, across missile warning, missile defense, and several classified missions.
Speaker #3: In missile warning and missile tracking, we have been selected by the U.S. Space Force for the AMDT-3 satellite constellation. We are the only company to be awarded all five contracts related to missile tracking.
Speaker #3: Since the fourth quarter, we've secured $2.4 billion in new contracts, validating our trusted disruptor strategy is working. Our early investments in capacity, along with bidding as a prime, are paying off.
Speaker #3: This award reinforces that the customer trusts us to deliver high-quality, resilient, integrated spacecraft that are critical for national security. Also in space, we see a $9 billion pipeline over the next several years, across missile warning, missile defense, and several classified missions.
Speaker #3: The programs we win today establish enduring franchises that will serve our customers and L3 Harris over the long term. As a reminder, the satellites will be replenished to keep the constellations operational.
Speaker #3: Since the fourth quarter, we've secured $2.4 billion in new contracts, validating our trusted disruptor strategy is working. Our early investments in capacity, along with bidding as a prime, are paying off.
Speaker #3: Within ISR, we are progressing on a multi-year missionization business jet pipeline. During the quarter, we were awarded the first phase of the next two U.S.
Speaker #3: Air Force electronic attack missionized business jets. Internationally, we've been awarded $3 billion of airborne early warning and control programs since the fourth quarter. Our pipeline includes $10 billion of opportunities across the Middle East, Asia Pacific, and Europe.
Speaker #3: The programs we win today establish enduring franchises that will serve our customers and L3HARRIS over the long term. As a reminder, the satellites will be replenished to keep the constellations operational.
Speaker #3: Within ISR, we are progressing on a multi-year missionization business jet pipeline. During the quarter, we were awarded the first phase of the next two U.S.
Speaker #3: We offer the customers the ability to have more affordable, interoperable, and superior sensing solutions while being able to field capabilities faster. Three years ago, we acquired Aerojet at full price.
Speaker #3: Air Force electronic attack missionized business jets. Internationally, we've been awarded $3 billion of Airborne Early Warning and Control programs since the fourth quarter. Our pipeline includes $10 billion of opportunities across the Middle East, Asia Pacific, and Europe.
Speaker #3: Recognizing that while the business needed work, we were not simply buying a P&L. We were securing a strategic position and in a critical entry point into a business we believed had significant value and was poised for significant growth.
Speaker #3: We offer the customers the ability to have more affordable, interoperable, and superior sensing solutions while being able to field capabilities faster. Three years ago, we acquired Aerojet at full price.
Speaker #3: We saw that opportunity and acted decisively. That was not a popular view at the time, and the questions you raised were fair. About the multiple, the integration risk, and our ability to execute.
Speaker #3: Recognizing that, while the business needed work, we were not simply buying a P&L. We were securing a strategic position and a critical entry point into a business we believed had significant value and was poised for significant growth.
Speaker #3: And whether we could credibly become a major player in this business. We do not ask our investors to take our vision on faith, and I'm not asking for that today.
Speaker #3: Three years later, let me walk you through what has changed and how we executed, to validate our investment thesis. We transformed and turned the operation around.
Speaker #3: We saw that opportunity and acted decisively. That was not a popular view at the time, and the questions you raised were fair—about the multiple, the integration risk, and our ability to execute.
Speaker #3: We integrated ahead of plan and then combined it with complementary L3 Harris missile technologies creating a purpose-built missile solutions business spanning propulsion, seekers, antennas, fuses, advanced effects, and deep space launch systems.
Speaker #3: And whether we could credibly become a major player in this business. We do not ask our investors to take our vision on faith, and I'm not asking for that today.
Speaker #3: Three years later, let me walk you through what has changed and how we executed to validate our investment thesis. We transformed and turned the operation around.
Speaker #3: We didn't simply acquire a propulsion company. We built a far broader and more differentiated, one-of-a-kind missile technology business. These changes positioned us to expand into adjacencies and support our customers across the full spectrum of missile systems.
Speaker #3: We integrated ahead of plan and then combined it with complementary L3HARRIS missile technologies creating a purpose-built missile solutions business spanning propulsion, seekers, antennas, fuses, advanced effects, and deep space launch systems.
Speaker #3: More important than the portfolio transformation is the operational transformation. The business we operate today bears little resemblance to the one we acquired three years ago.
Speaker #3: We didn't simply acquire a propulsion company. We built a far broader and more differentiated, one-of-a-kind missile technology business. These changes positioned us to expand into adjacencies and support our customers across the full spectrum of missile systems.
Speaker #3: We have all new leadership. We introduced operating discipline, accountability, manufacturing rigor, execution standards, automation, and new technologies that have fundamentally changed how the business operates and performs.
Speaker #3: From the day we closed the acquisition, we decided to invest in the business, pivoting to focus to missiles and not reacting, but anticipating the market.
Speaker #3: More important than the portfolio transformation is the operational transformation. The business we operate today bears little resemblance to the one we acquired three years ago.
Speaker #3: We increased our investments in R&D and CapEx by a factor of 10. The leadership team and the workforce have done a great job bringing a sense of urgency to the missiles operations including working multiple shifts.
Speaker #3: We have all-new leadership. We introduced operating discipline, accountability, manufacturing rigor, execution standards, automation, and new technologies that have fundamentally changed how the business operates and performs.
Speaker #3: And as a result, deliveries are up over 60%, eliminating substantially all delinquent deliveries since the acquisition. Streamlining production has been a priority and we have improved operational efficiency by 22% while we continue to prioritize our workforce's safety and health.
Speaker #3: From the day we closed the acquisition, we decided to invest in the business, pivoting the focus to missiles and not reacting, but anticipating the market.
Speaker #3: We increased our investments in R&D and CapEx by a factor of 10. The leadership team and the workforce have done a great job bringing a sense of urgency to the missiles operations, including working multiple shifts.
Speaker #3: Our customers have increased confidence in our ability to deliver, which is why the Department of War made a $1 billion investment. That financial investment was not only a vote of confidence by the Department of War, but it was also important to us.
Speaker #3: And as a result, deliveries are up over 60%, eliminating substantially all delinquent deliveries since the acquisition. Streamlining production has been a priority and we have improved operational efficiency by 22% while we continue to prioritize our workforce's safety and health.
Speaker #3: As it was a strong signal to accelerate our investment plans by 12 to 18 months. We are investing in facilities to meet accelerating demand for missiles and interceptors.
Speaker #3: Our customers have increased confidence in our ability to deliver, which is why the Department of War made a $1 billion investment. That financial investment was not only a vote of confidence by the Department of War, but it was also important to us.
Speaker #3: We're also investing in new technologies: advanced automation, production techniques, and AI across both existing and new facilities. As we expand production capacity by almost 1 million square feet, the new missile factories will be among the most modern in the world.
Speaker #3: As it was a strong signal to accelerate our investment plans by 12 to 18 months. We are investing in facilities to meet accelerating demand for missiles and interceptors.
Speaker #3: The new GMLRS factory, which we have named the Arsenal of Freedom Building, is coming online next month. This factory is highly automated, with robotics moving motors from station to station, along with automated mixing, casting, curing, X-ray inspection cells, all with AI overlaid improving yields and reducing cost.
Speaker #3: We're also investing in new technologies: advanced automation production techniques, and AI across both existing and new facilities. As we expand production capacity by almost 1 million square feet, the new missile factories will be among the most modern in the world.
Speaker #3: The workforce has been trained in these new tools and is excited about our ramp-up. Our new highly automated GMLRS operation will allow us to more than double capacity while reducing manufacturing times by 50%.
Speaker #3: The new GMLRS factory, which we have named the Arsenal of Freedom Building, is coming online next month. This factory is highly automated, with robotics moving motors from station to station.
Speaker #3: The conversations we're having at the Pentagon are no longer about whether we can deliver, but how many can we produce and how fast we can go.
Speaker #3: Along with automated mixing, casting, curing, X-ray inspection cells, all with AI overlaid improving yields and reducing cost. The workforce has been trained in these new tools and is excited about our ramp-up.
Speaker #3: A complete turnaround from a year ago. Our strategic decision three years ago alongside our operational turnaround has put us on a clear path to success.
Speaker #3: Our new highly automated GMLRS operation will allow us to more than double capacity while reducing manufacturing times by 50%. The conversations we're having at the Pentagon are no longer about whether we can deliver, but how many can we produce and how fast we can go.
Speaker #3: Let me share an update on our missile business IPO. We have built an exceptionally strong well-positioned franchise, and we are more confident than ever in the extraordinary value we are creating through continued execution and the acceleration of the business.
Speaker #3: A complete turnaround from a year ago. Our strategic decision three years ago alongside our operational turnaround has put us on a clear path to success.
Speaker #3: Market conditions have evolved and do not reflect the tremendous value we are building. With capacity expansion underway and the momentum accelerating, we are poised to deliver even greater value as we ramp production to support our nation's urgent and critical needs for our missile solutions.
Speaker #3: Let me share an update on our missile business IPO. We have built an exceptionally strong well-positioned franchise, and we are more confident than ever in the extraordinary value we are creating through continued execution and the acceleration of the business.
Speaker #3: The demand signals are outstanding. We are actively negotiating more than $20 billion in new contracts potentially tripling our backlog and positioning us for meaningful and sustained revenue and profit growth.
Speaker #3: Market conditions have evolved and do not reflect the tremendous value we are building. With capacity expansion underway and momentum accelerating, we are poised to deliver even greater value as we ramp production to support our nation’s urgent and critical needs for our missile solutions.
Speaker #3: Both in the near term as well in the future. We expect to revisit the IPO mid-2027. Until then, our team is intensely focused on what we do best: contracting the demand, building the capacity, and delivering for our customers.
Speaker #3: The demand signals are outstanding. We are actively negotiating more than $20 billion in new contracts, potentially tripling our backlog and positioning us for meaningful and sustained revenue and profit growth.
Speaker #3: In summary, we have built an attractive and increasingly differentiated portfolio with capabilities in air, maritime, cyber, EW, and resilient communications, just to name a few.
Speaker #3: Both in the near term as well in the future. We expect to revisit the IPO mid-2027. Until then, our team is intensely focused on what we do best: contracting the demand, building the capacity, and delivering for our customers.
Speaker #3: By anticipating the future of warfare, winning new and emerging markets, strengthening our leadership positions and core franchises, expanding our international sales, and securing important long-term franchise wins, the future is bright for L3 Harris.
Speaker #3: In summary, we have built an attractive and increasingly differentiated portfolio with capabilities in air, maritime, cyber, EW, and resilient communications, just to name a few.
Speaker #3: We intend to keep earning both halves of the trusted disruptor title. Trust is earned by meeting commitments, and we have done that consistently. Disruption is earned through innovation, speed, and a willingness to challenge the status quo while taking calculated risks.
Speaker #3: By anticipating the future of warfare, winning new and emerging markets, strengthening our leadership positions and core franchises, expanding our international sales, and securing important long-term franchise wins, the future is bright for L3HARRIS.
Speaker #3: And we have done that as well. We know there is no and we intend to do it. With that, let me turn the call over to Ken to walk you through the financials.
Speaker #3: We intend to keep earning both halves of the trusted disruptor title. Trust is earned by meeting commitments, and we have done that consistently. Disruption is earned through innovation, speed, and a willingness to challenge the status quo while taking calculated risks.
Speaker #2: Thank you, Chris. I'm a big fan of the trusted disruptor model, as it's about putting the warfighter first, taking calculated risks, delivering innovation at pace, and meeting our commitments to our customers as well as meeting our financial commitments to our shareholders.
Speaker #3: And we have done that as well. We know there is no we know there is more we can do, and we intend to do it.
Speaker #2: It all starts with winning in the market, and we continue to do that. Orders were $7.3 billion. Of $1.2 times. Our trailing 12-month book-to-bill was $1.3 times.
Speaker #3: With that, let me turn the call over to Ken to walk you through the financials.
Speaker #2: Thank you, Chris. I'm a big fan of the trusted disruptor model, as it's about putting the warfighter first, taking calculated risks, delivering innovation at pace, and meeting our commitments to our customers as well as meeting our financial commitments to our shareholders.
Speaker #2: Backlog increased by more than. To $40. Positioning us well for sustained growth. Revenue for the quarter was $5.9 billion, up $455 million, or 8% year over year.
Speaker #2: It all starts with winning in the market, and we continue to do that. Orders were $7.3 billion, yielding a book-to-bill of 1.2 times. Our trailing 12-month book-to-bill was 1.3 times.
Speaker #2: Growth was broad-based with all three segments contributing. Based on our strong positioning, international sales increased $254 million up over 20%. International sales mix in the last year or so increased by about $250 basis points to $23% of our total revenue.
Speaker #2: Backlog increased by more than $1 billion to $42 billion, positioning us well for sustained growth. Revenue for the quarter was $5.9 billion, up $455 million, or 8% year over year.
Speaker #2: Segment operating income increased $79 million or 9%, and segment operating margin was 16%, up 10 basis points. The increase was driven by strong revenue growth, improved program performance, and a net gain on segment investments partially offset by higher research and development cost.
Speaker #2: Growth was broad-based, with all three segments contributing. Based on our strong positioning, international sales increased $254 million, up over 20%. International sales mix in the last year or so increased by about 250 basis points to 23% of our total revenue.
Speaker #2: As you think about the comparison, the prior year quarter included $92 million gain related to a product line asset sale. GAAP and earnings per share for the quarter are $3.13, up 28%.
Speaker #2: Segment operating income increased $79 million or 9%, and segment operating margin was 16%, up 10 basis points. The increase was driven by strong revenue growth, improved program performance, and a net gain on segment investments partially offset by higher research and development cost.
Speaker #2: The $69 improvement was due to higher revenue volume, 36 cents, improved program performance, 20 cents, lower corporate and other expense, including the non-cash preferred deemed dividend, 24 cents, offset by 11 cents of net product line sales and investment gains.
Speaker #2: As you think about the comparison, the prior year quarter included $92 million gain related to a product line asset sale. GAAP and earnings per share for the quarter are $3.13, up 28%.
Speaker #2: Operating cash flow was $879 million, free cash flow was $771 million, up both 37%. Year-to-date free cash flow is $584 million, $124 million ahead of the prior year.
Speaker #2: The $69 improvement was due to higher revenue volume 36 cents, improved program performance 20 cents, lower corporate and other expense including the non-cash preferred deemed dividend 24 cents, offset by 11 cents of net product line sales and investment gains.
Speaker #2: Investments in capital expenditures and research and development increased over 20% in the quarter, as we invested in both capability and capacity in our space, ISR, missiles, and communications businesses.
Speaker #2: Operating cash flow was $879 million; free cash flow was $771 million, both up 37%. Year-to-date free cash flow is $584 million, $124 million ahead of the prior year.
Speaker #2: In our missiles business, we are investing in capacity through both capital expenditures and finance leases. Finance leases are not reflected in our balance sheet until related assets are placed in service.
Speaker #2: Investments in capital expenditures and research and development increased over 20% in the quarter, as we invested in both capability and capacity in our space, ISR, missiles, and communications businesses.
Speaker #2: In the quarter, our total missile capacity investments including finance lease activities were $136 million. Our commitments made for missile capacity including facilities equipment and supply chain total $2 billion and are being deployed rapidly to support missile and interceptor delivery.
Speaker #2: In our Missiles business, we are investing in capacity through both capital expenditures and finance leases. Finance leases are not reflected in our balance sheet until the related assets are placed in service.
Speaker #2: Turning to our segments, all segments grew revenue and. Their operating income. Space and mission systems grew 7% to about $3 billion, revenue increased across the portfolio including higher volume on ISR, missionized aircraft, classified space, F-35 control systems, and air traffic control modernization.
Speaker #2: In the quarter, our total missile capacity investments, including finance lease activities, were $136 million. Our commitments made for missile capacity, including facilities, equipment, and supply chain, total $2 billion and are being deployed rapidly to support missile and interceptor delivery.
Speaker #2: Space and mission system segment operating margin was $9.8%, down 60 basis points from the prior year. The decrease primarily reflects a 75 million product line sale gain in the prior year that did not repeat, partially offset by improved program performance and a 23 million net gain on segment investments.
Speaker #2: Turning to our segments, all segments grew revenue and increased their operating income. Space and mission systems grew 7% to about $3 billion, revenue increased across the portfolio including higher volume on ISR, missionized aircraft, classified space F-35 control systems, and air traffic control modernization.
Speaker #2: Communication and spectrum dominance delivered revenue of $1.9 billion, up 4% year over year, driven by increased international volume and higher electronic warfare and data links revenue.
Speaker #2: Space and Mission Systems segment operating margin was 9.8%, down 60 basis points from the prior year. The decrease primarily reflects a $75 million product line sale gain in the prior year that did not repeat, partially offset by improved program performance and a $23 million net gain on segment investments.
Speaker #2: Communication and spectrum dominance operating margin was 26.9%, up 230 basis points, driven by stronger international revenue partially offset by increased investments in research and development.
Speaker #2: Communication and Spectrum Dominance delivered revenue of $1.9 billion, up 4% year over year, driven by increased international volume and higher electronic warfare and data links revenue.
Speaker #2: Missile solutions delivered 14% year over year, revenue growth. Revenue increased 16% in the business we are retaining, partially offset by lower growth in the commercial space propulsion business we are divesting.
Speaker #2: Communication and spectrum dominance operating margin was 26.9%, up 230 basis points, driven by stronger international revenue partially offset by increased investments in research and development.
Speaker #2: Missile solutions segment operating margin was substantially similar to the prior year. With that, let me turn the call back to Chris.
Speaker #3: Thanks, Ken. We're at a critical time in history. In terms of the geopolitical environment. The threats are rising in seriousness and sophistication. Placing tremendous demand on the military and our allies overseas.
Speaker #2: Missile Solutions delivered 14% year-over-year revenue growth. Revenue increased 16% in the business we are retaining, partially offset by lower growth in the commercial space propulsion business we are divesting.
Speaker #3: This is why the budgets are increasing both in the US and internationally. Now, let me focus on the future and how we see things playing out the rest of the year.
Speaker #2: Missile solutions segment operating margin was substantially similar to the prior year. With that, let me turn the call back to Chris.
Speaker #3: You'll see us ramp up operations on AMD T3 and classified satellite awards. We will continue to drive more international orders for greater international revenue continuing our positive momentum.
Speaker #3: Thanks, Ken. We're at a critical time in history in terms of the geopolitical environment. The threats are rising in seriousness and sophistication. Placing tremendous demand on the military and our allies overseas.
Speaker #3: We will continue to book orders internationally with our smart software-defined radios, as we upgrade capability and interoperability. We will build on our NGC2 orders that we received in Q1 and Q2 of this year, and continue to bid and win in the second half.
Speaker #3: This is why the budgets are increasing both in the US and internationally. Now, let me focus on the future and how we see things playing out the rest of the year.
Speaker #3: You'll see us ramp up operations on AMD T3 and classified satellite awards. We will continue to drive more international orders for greater international revenue, continuing our positive momentum.
Speaker #3: While it's early on NGC2, our products resonate and we are winning more than our fair share. We will execute on our newly awarded $4 billion FAA contract, which could run through 2046 if options are exercised.
Speaker #3: We will continue to book orders internationally with our smart software-defined radios as we upgrade capability and interoperability. We will build on our NGC 2 orders that we received in Q1 and Q2 of this year and continue to bid and win in the second half.
Speaker #3: We will lead a nationwide effort to rebuild and modernize the FAA's telecommunications infrastructure backbone. Connecting every tower, radar facility, and air traffic control center across the United States, including modernizing more than 700 ground stations.
Speaker #3: While it's early on NGC 2, our products resonate and we are winning more than our fair share. We will execute on our newly awarded $4 billion FAA contract, which could run through 2046 if options are exercised.
Speaker #3: We will work with our international partners to close vampire counter UAS system opportunities, and have targeted 500 million of new orders. Building on the momentum from our Q2 US Army $100 million contract award.
Speaker #3: We will lead a nationwide effort to rebuild and modernize the FAA's telecommunications infrastructure backbone, connecting every tower, radar facility, and air traffic control center across the United States, including modernizing more than 700 ground stations.
Speaker #3: We will continue advancing the software capabilities of our smart software-defined radios, including our rate shield counter US jamming solution. Rate shield is an emerging trusted disruptor success story.
Speaker #3: We will work with our international partners to close vampire counter UAS system opportunities and have targeted 500 million of new orders. Building on the momentum from our Q2 US Army $100 million contract award.
Speaker #3: Our engineers understood what the warfighter needed and invested in software applications that can be loaded onto our smart radios enabling them to sense, detect, and jam incoming drones in the last mile.
Speaker #3: Without adding new equipment or weight to the soldier. I recently saw a live demo and I have to admit it was quite satisfying to see the drone fall out of the sky.
Speaker #3: We will continue advancing the software capabilities of our smart software-defined radios including our rate shield counter US jamming solution. Rate shield is an emerging trusted disruptor success story.
Speaker #3: This is proof that the capabilities of software-defined products are endless. This will contribute to our licensing revenue in the years ahead. We will continue to accelerate missile production while investing in affordable mass, including Red Wolf, a low-cost modular cruise missile that we are developing with United States Marine Corps for precision strike missions.
Speaker #3: Our engineers understood what the warfighter needed and invested in software applications that can be loaded onto our smart radios, enabling them to sense, detect, and jam incoming drones in the last mile.
Speaker #3: Without adding new equipment or weight to the soldier. I recently saw a live demo, and I have to admit, it was quite satisfying to see the drone fall out of the sky.
Speaker #3: At the same time, we are well positioned in the emerging low-cost interceptor market with a proven propulsion and in-house seeker capabilities that can reduce the cost per kill equation.
Speaker #3: This is proof that the capabilities of software-defined products are endless. This will contribute to our licensing revenue in the years ahead. We will continue to accelerate missile production while investing in affordable mass including Red Wolf, a low-cost modular cruise missile that we are developing with United States Marine Corps for precision strike missions.
Speaker #3: Shortly after quarter end, we signed a framework agreement for seven years of FAD and PAC-3 production representing approximately $12 billion of future production revenue and $2 billion of future profit.
Speaker #3: This clearly demonstrates the scale and durability of demand for our capabilities. We are working with Lockheed to. Quadruple FAD production delivering all solid rocket motors and divert and attitude control systems for this program.
Speaker #3: At the same time, we are well positioned in the emerging low-cost interceptor market, with proven propulsion and in-house seeker capabilities that can reduce the cost-per-kilo equation.
Speaker #3: We're also making progress to nearly triple production on PAC-3 for solid rocket motors attitude control motors and lethality enhancers. As the only company producing these solid rocket motors at scale on PAC-3 today, and with the continued soul source positions on attitude control motors and lethality enhancers, we see the opportunity to deliver solid rocket motor quantities above the 80% framework agreement to cover any potential shortfall from competitors and to address international demand sooner.
Speaker #3: Shortly after quarter end, we signed a framework agreement for seven years of FAD and PAC-3 production representing approximately $12 billion of future production revenue and $2 billion of future profit.
Speaker #3: This clearly demonstrates the scale and durability of demand for our capabilities. We are working with Lockheed to quadruple THAAD production, delivering all solid rocket motors and divert and attitude control systems for this program.
Speaker #3: We're also making progress to nearly triple production on PAC-3 for solid rocket motors attitude control motors and lethality enhancers. As the only company producing these solid rocket motors at scale on PAC-3 today, and with the continued soul source positions on attitude control motors and lethality enhancers, we see the opportunity to deliver solid rocket motor quantities above the 80% framework agreement to cover any potential shortfall from competitors and to address international demand sooner.
Speaker #3: Our new modern automated PAC-3 facility is expected to come online in late 2027, ensuring we have the capacity to meet the demand at the scale that no one else can.
Speaker #3: Let me touch on the budget as I know it's a leading indicator of growth. It's probably reasonable to expect debate on the Department of War budgets.
Speaker #3: We are on a wartime footing. Therefore, I would expect that we'll have the highest defense budget in our country's history, and a supplemental budget to fund multi-year munition contracts.
Speaker #3: Our new, modern, automated PAC-3 facility is expected to come online in late 2027, ensuring we have the capacity to meet demand at a scale that no one else can.
Speaker #3: But let's be clear, whether it's uncertainty or nation's defense has always been bipartisan. Irrespective of where the budget ultimately ends up, our outlook is positive.
Speaker #3: Let me touch on the budget, as I know it's a leading indicator of growth. It's probably reasonable to expect debate on the Department of War budgets.
Speaker #3: We have strong and accelerating market leading positions. We have been successfully penetrating new markets developing franchise positions and delivering on our commitments. Let me turn it back to Ken to discuss our outlook and guidance.
Speaker #3: We are on a wartime footing. Therefore, I would expect that we'll have the highest defense budget in our country's history, and a supplemental budget to fund multi-year munition contracts.
Speaker #2: Based on our strong first half performance and continue momentum, we are raising our full year 2026 revenue and earnings per share guidance. Our 2026 guidance update also reflects the Department of War preferred stock investment, non-cash deemed dividend cost of $55 million, and the sale of a majority interest in our commercial space propulsion business that we expect to close in August.
Speaker #3: But let's be clear, whether it's uncertainty or nation's defense has always been bipartisan. Irrespective of where the budget ultimately ends up or outlook is positive.
Speaker #3: We have strong and accelerating market leading positions. We have been successfully penetrating new markets developing franchise positions and delivering on our commitments. Let me turn it back to Ken to discuss our outlook and guidance.
Speaker #2: Based on our strong first half performance and continued momentum, we are raising our full year 2026 revenue and earnings per share guidance. Our 2026 guidance update also reflects the Department of War preferred stock investment, non-cash deemed dividend cost of $55 million, and the sale of a majority interest in our commercial space propulsion business that we expect to close in August.
Speaker #2: We now expect the full year revenue of $23.2 to $23.7 billion, yielding organic revenue growth of 8% to 10%. This increases both the bottom end and the top end of our range by $200 million.
Speaker #2: The revenue guidance increase reflects stronger performance in our space emissions systems business and the excellent work our team did by winning AMDT3 constellation, which is part of the Golden Dome for America.
Speaker #2: We now expect the full year revenue of $23.2 to $23.7 billion, yielding organic revenue growth of 8% to 10%. This increases both the bottom end and the top end of our range by $200 million.
Speaker #2: We are maintaining our segment operating margin guidance of low 16%. We are reducing net interest expense by $30 million, to approximately $560 million reflecting our higher cash balance.
Speaker #2: The revenue guidance increase reflects stronger performance and our space emissions systems business and the excellent work our team did by winning AMD T3 Constellation, which is part of the Golden Dome for America.
Speaker #2: We are increasing both the low and high ends of our diluted earnings per share guidance by 40 cents to a range of $11.80 to $12, notably this increase comes even after absorbing an approximate 20 cent headwind associated with the divestiture of the commercial space propulsion business.
Speaker #2: We are maintaining our segment operating margin guidance of low 16%. We are reducing net interest expense by $30 million, to approximately $560 million, reflecting our higher cash balance.
Speaker #2: The composition of the 40 cent earnings per share increase includes higher revenue volume 15 cents, lower interest expense 15 cents, net investment gains inclusive of non-cash preferred stock deemed dividend cost of 10 cents.
Speaker #2: We are increasing both the low and high ends of our diluted earnings per share guidance by 40 cents to a range of $11.80 to $12.
Speaker #2: Notably, this increase comes even after absorbing an approximate 20 cent headwind associated with the divestiture of the commercial space propulsion business. The composition of the 40 cent earnings per share increase includes higher revenue volume 15 cents, lower interest expense 15 cents, net investment gains inclusive of non-cash preferred stock deemed dividend cost of 10 cents.
Speaker #2: We are reaffirming our free cash flow guidance of $3 3 billion. At the segment level, space emissions systems full year revenue increased $200 million to $11.7 billion.
Speaker #2: Communications and spectrum dominance, we expect revenue to ramp up in the second half due to strong demand for our smart software-defined radios and vampire counter UAS system segment margin increased to mid-25% from approximately 25%.
Speaker #2: We are reaffirming our free cash flow guidance of $3.3 billion. At the segment level, Space and Mission Systems full-year revenue increased $200 million to $11.7 billion.
Speaker #2: Missile solutions, we adjusted full year revenue and segment margin guidance to reflect the commercial space propulsion transaction closing in August. As the business will no longer be consolidated as part of L3 Harris.
Speaker #2: Communications and spectrum dominance, we expect revenue to ramp up in the second half due to strong demand for our smart software-defined radios and vampire counter UAS system.
Speaker #2: Our commercial space propulsion business generated revenue of $571 million, and segment profit of $82 million in 2025, and revenue of $312 million and segment profit of $57 million Q2 year to date 2026.
Speaker #2: Segment margin increased to the mid-25% range from approximately 25%. For Missile Solutions, we adjusted full-year revenue and segment margin guidance to reflect the commercial space propulsion transaction closing in August.
Speaker #2: With the divestiture proceeds, together with our current cash balance and forecasted free cash flow, for the remainder of the year, we expect to have approximately $4 billion of cash on hand before any potential debt pay down or additional share repurchases.
Speaker #2: As the business will no longer be consolidated as part of L3Harris, our commercial space propulsion business generated revenue of $571 million and segment profit of $82 million in 2025, and revenue of $312 million and segment profit of $57 million year-to-date for Q2 2026.
Speaker #2: That financial flexibility positions us well to invest in the business, return capital shareholders, and/or further reduce leverage. Over the next five months, I have had over the last five months, I've had a great opportunity to visit several of our operations deep in my understanding of the business and work closely with Chris and his team which has only furthered my confidence in the business and our ability to deliver our 2026 guidance.
Speaker #2: With the divestiture proceeds, together with our current cash balance and forecasted free cash flow for the remainder of the year, we expect to have approximately $4 billion of cash on hand before any potential debt pay-down or additional share repurchases.
Speaker #2: That financial flexibility positions us well to invest in the business, return capital to shareholders, and/or further reduce leverage. Over the next five months, I have had over the last five months, I've had a great opportunity to visit several of our operations deep in my understanding of the business and work closely with Chris and his team which has only furthered my confidence in the business and our ability to deliver our 2026 guidance.
Speaker #2: With that, Jade, please open the line for Q&A.
Speaker #1: Thank you. We will now be conducting a question and answer session. At this time, please limit to one question per person. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation message will indicate your line is in the question queue.
Speaker #1: You may press star one if you'd like to remove your question from the queue. If you have an additional question, please press star one again to get back into the queue.
Speaker #1: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker #2: With that, Jade, please open the line for Q&A.
Speaker #1: Thank you. Your first question comes from the line of Robert Stallard from Vertical Research. Please go ahead.
Speaker #1: Thank you. We will now be conducting a question-and-answer session. At this time, please limit yourself to one question per person. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation message will indicate your line is in the question queue.
Speaker #3: Thanks so much. Good evening.
Speaker #4: Good evening, Rob.
Speaker #1: You may press star one if you'd like to remove your question from the queue. If you have an additional question, please press star one again to get back into the queue.
Speaker #3: Chris, my quick maths on the numbers you gave on the missile framework agreement suggest you're going to make around a 17% margin on this work, assuming everything goes to plan.
Speaker #1: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker #3: Is that the feeling you expect on this contract, or is there an opportunity to go higher than that?
Speaker #1: Thank you. Your first question comes from the line of Robert Stallard from Vertical Research. Please go ahead.
Speaker #4: Thanks for the question, Rob. That would be a pretty good return. It's a seven-year number and probably a little bit of rounding, but we're thinking something in the 15, 17, 18 percent range is something to strive for.
Speaker #3: Thanks so much. Good evening.
Speaker #4: Good evening, Rob. Chris, my quick maths on the numbers you gave on the missile framework agreement suggest you're going to make around a 17% margin on this work, assuming everything goes to plan.
Speaker #4: Especially as we ramp up with volume and get the supply chain lined up with longer-term agreements. So can always do more, but that's a pretty good start in my opinion.
Speaker #4: Is that the feeling you expect on this contract, or is there an opportunity to go higher than that?
Speaker #1: Your next question comes from the line of Miles Walton from Wolf Research. Please go ahead.
Speaker #3: Thanks for the question, Rob. That would be a pretty good return. It's a seven-year number, and probably a little bit of rounding, but we're thinking something in the 15%, 17%, 18% range is something to strive for.
Speaker #4: Thanks. Good evening.
Speaker #3: Hey, Miles, I think you talked about pushing the IPO to mid-2027. Can you just give us some of the puts and takes behind that decision?
Speaker #3: I noticed the retention agreements you have expressed for a couple of senior management teams. And then why mid-2027 is the right time if fourth quarter or second half '26 is not?
Speaker #3: Especially as we ramp up with volume and get the supply chain lined up with longer-term agreements. So can always do more, but that's a pretty good start in my opinion.
Speaker #4: Yeah, well, I mean, Miles, the market conditions do not reflect the value we're building. I think we have a great business. We have land, we have operating factories, backlog, great financials, a great workforce, and we're actually making money.
Speaker #1: Your next question comes from the line of Miles Walton from Wolf Research. Please go ahead.
Speaker #4: Thanks. Good evening.
Speaker #3: Chris, I wonder I think you talked about pushing the IPO to mid-2027. Can you just give us some of the puts and takes behind that decision?
Speaker #4: And I think, unfortunately, a lot of the recent IPOs are obviously missing some or all of those key elements to a business and the market is adjusting to valuation.
Speaker #3: I noticed the retention agreements you have expressed for a couple of senior management teams. And then why mid-2027 is the right time if fourth quarter or second half '26 is not?
Speaker #4: I think we're kind of caught in that process a little bit. So I want to let everything settle down. We'll reevaluate it. Team will keep building buildings, delivering SRMs.
Speaker #4: You know, I mean, Miles, the market conditions do not reflect the value we're building. I think we have a great business. We have land, we have operating factories, backlog, great financials, a great workforce, and we're actually making money.
Speaker #4: And I think the value gets greater each and every day. A majority of the cash that we were going to need from the IPO starts to hit in late '27, '28, and '29.
Speaker #4: So it just seemed like a prudent business decision. And it's always exciting to go public, but the team unanimously agrees. We got to do what's right for our shareholders and all shareholders and stakeholders.
Speaker #4: And I think, unfortunately, a lot of the recent IPOs are obviously missing some or all of those key elements to a business and the market is adjusting to valuation.
Speaker #4: I think we're kind of caught in that process a little bit. So I want to let everything settle down. We'll reevaluate it. Team will keep building, building, delivering SRMs.
Speaker #4: And that's the stand down, focus on the business, and wait for the market to recover, which I have no doubt it will at the right time.
Speaker #4: And I think the value gets greater each and every day. The majority of the cash that we were going to need from the IPO starts to hit.
Speaker #4: A lot of headwinds out there. Budget, CR, reconciliation, election, executive orders. These things will get resolved, and I think the market will appreciate our valuation.
Speaker #4: In late '27, '28, and '29. So just seemed like a prudent business decision. And it's always exciting to go public, but the team unanimously agrees.
Speaker #1: Your next question comes from the line of Sheila Cahiaglu from Jefferies. Please go ahead.
Speaker #4: We got to do what's right for our shareholders and all shareholders and stakeholders. And that's the stand down, focus on the business, and wait for the market to recover, which I have no doubt it will at the right time.
Speaker #5: Good afternoon, guys, and thanks, Chris. Maybe just to follow up on Miles's question and your comments, just right there on missiles. How do we think about growth for the missile segment from here as the frameworks are being pulled together and maybe some folks are a bit behind or a little ahead of you?
Speaker #4: A lot of headwinds out there. Budget, CR, reconciliation, election, executive orders. These things will get resolved, and I think the market will appreciate our valuation.
Speaker #5: How do you think about the frameworks materializing into revenues? Just the ability to have incremental margins on that and the capex build out.
Speaker #4: Yeah, let me ask Ken to run through the numbers you obviously see the missile segment, but the actual missile piece is obviously greater than the segment results.
Speaker #1: Your next question comes from the line of Sheila Cahiaglu from Jefferies. Please go ahead.
Speaker #5: Good afternoon, guys, and thanks, Chris. Maybe just to follow up on Miles's question and your comments just now on missiles. How should we think about growth for the missile segment from here, as the frameworks are being pulled together and maybe some folks are a bit behind or a little ahead of you?
Speaker #6: Yeah, wonderful, Sheila. So just kind of as we think about the business, we kind of expect growth. And high teens, over the next call, a couple of years, at a minimum, I would say kind of for the foreseeable future.
Speaker #6: So we're very excited about the business. I think the business will perform well. We have really significant demand stacking up. I think Chris talked about 20 billion dollars of backlog we're negotiating.
Speaker #5: How do you think about the frameworks materializing into revenues? Just the ability to have incremental margins on that, and the CapEx buildout.
Speaker #4: Yeah, let me ask Ken to run through the numbers you obviously see the missile segment, but the actual missile piece is obviously greater than the segment results.
Speaker #6: That triples our backlog. It'll give us incredibly great visibility into the revenue generation. We're standing up a number of factories. I think it's about 60 in total.
Speaker #2: Yeah, wonderful, Sheila. So just kind of as we think about the business, we kind of expect growth and high teams over the next call a couple of years.
Speaker #6: So as they come online and think about 28 well, 27, 28, 29 timeline, it'll accelerate revenue even faster. So I think we're in a really good position.
Speaker #2: At a minimum, I would say kind of for the foreseeable future. So we're very excited about the business. I think the business will perform well.
Speaker #6: Chris mentioned the propulsion business specifically, and that business will grow, let's call it 20% plus, and it's actually been growing around there. That's just one of the pieces of the missile business.
Speaker #2: We have really significant demand stacking up. I think Chris talked about 20 billion dollars of backlog. We're negotiating that triples our backlog. It'll give us incredibly great visibility into the revenue generation.
Speaker #4: And Sheila, I'll just chime in. Been a lot of questions. About the billion dollar investment, but I want to reemphasize that gave us the confidence to invest.
Speaker #2: We're standing up a number of factories. I think it's about 60 in total. So as they come online and think about 28, well, 27, 28, 29 timeline, it'll accelerate revenue even faster.
Speaker #4: Probably 12 to 18 months earlier than we would have. And we waited for the framework agreements, or something to go put a shovel in the ground, we'd be doing it today.
Speaker #2: So I think we're in a really good position. Chris mentioned the propulsion business specifically, and that business will grow, let's call it 20% plus, and it's actually been growing around there.
Speaker #4: We did this starting well over a year ago. We're opening the Gimmeler's building next month. The brand new PAC-3 building we just literally started building earlier this year when we got the demand signal.
Speaker #2: That's just one of the pieces of the missiles business.
Speaker #4: And Sheila, I'll just chime in. There have been a lot of questions about the billion-dollar investment, but I want to re-emphasize that it gave us the confidence to invest.
Speaker #4: Changed our strategy a little bit, and that will be open in late 2027. And as Ken said, many other buildings are going up real time.
Speaker #4: Probably 12 to 18 months earlier than we would have. And we waited for the framework agreements, or something to go put a shovel in the ground, we'd be doing it today.
Speaker #4: And it's quite exciting. So this ramp will probably take a couple of years before you start to see the real significant spike in profitability and revenue.
Speaker #4: But in the interim, it's still growing 20%, which I think is hard to beat
Speaker #4: We did this starting well over a year ago. We're opening the Gimmeler's building next month. The brand new PAC-3 building we just literally started building earlier this year when we got the demand signal.
Speaker #1: Your next question comes from the line of Christine Lieweg from Morgan Stanley. Please go ahead.
Speaker #4: We changed our strategy a little bit, and that will be open in late 2027. And as Ken said, many other buildings are going up in real time.
Speaker #5: Hey, good afternoon, everyone. Maybe switching topics. It's been four years now since you've announced your strategic relationship with Shield Capital to engage with emerging dual-use technologies.
Speaker #4: And it's quite exciting. So this ramp will probably take a couple of years before you start to see the real significant spike in profitability and revenue.
Speaker #5: Can you provide an update on how the partnership has evolved, specifically how much have you committed to the fund, how do you define a successful outcome, and ultimately, should we expect investment income as a recurring component of operating earnings going forward?
Speaker #4: But in the interim, it's still growing 20%, which I think is hard to beat.
Speaker #1: Your next question comes from the line of Christine Lieweg from Morgan Stanley. Please go ahead.
Speaker #4: All right, thank you. Great question. I was hoping someone would ask me about Shield. It was a little over four years ago, I think first quarter of '22, we made a big announcement.
Speaker #5: Hey, good afternoon, everyone. Maybe switching topics. It's been four years now since you've announced your strategic relationship with Shield Capital to engage with emerging dual-use technologies.
Speaker #4: We were the first movers into this concept, in my opinion. I think for those four years, and maybe even earlier than that, we've always embraced and encouraged venture-backed tech companies to join the defense ecosystem, and they are all over, and we're proud to be part of helping them get started.
Speaker #5: Can you provide an update on how the partnership has evolved? Specifically, how much have you committed to the fund, and how do you define a successful outcome?
Speaker #5: And ultimately, should we expect investment income as a recurring component of operating earnings going forward?
Speaker #4: So we had about three goals when we announced it in probably most they're maybe of equal importance, but maybe a little more important, was to pull through this new technology.
Speaker #4: All right, thank you. Great question. I was hoping someone would ask me about Shield. It was a little over four years ago—I think first quarter of '22—we made a big announcement.
Speaker #4: These are all dual-use technologies, meaning commercial and defense. And we wanted to get these offerings into our products. So our customers had newer, more innovative products, whether it was the use of metadata, AI, or some of the things we're doing in autonomy and space.
Speaker #4: We were the first movers into this concept, in my opinion. I think for those four years, and maybe even earlier than that, we've always embraced and encouraged venture-backed tech companies to join the defense ecosystem and they are all over and we're proud to be part of helping them get started.
Speaker #4: It was also a way for us to accelerate R&D and instead of us spending a few million bucks in a year or so to develop something, obviously, these companies already had it.
Speaker #4: So we had about three goals when we announced it. Probably most, they're maybe of equal importance, but maybe a little more important was to pull through this new technology.
Speaker #4: So it was easy to go ahead and team up with them in that regard. And then ultimately, we'd like it to create shareholder value, not only through winning more business as a result of working with these companies and their technologies, but also through good old-fashioned investment gains.
Speaker #4: These are all dual-use technologies, meaning commercial and defense. And we wanted to get these offerings into our products. So our customers had newer, more innovative products, whether it was the use of metadata, AI, or some of the things we're doing in autonomy and space.
Speaker #4: And these companies are starting to appreciate in value. And I'll let Ken talk a little bit about the numbers, but we're in two of their funds.
Speaker #4: It was also a way for us to accelerate R&D, instead of us spending a few million bucks in a year or so to develop something.
Speaker #4: We're the strategic partners. They're kind of both about 50 million dollar commitments. I don't think I've disclosed that before, but there you go. So like any VC fund, you make contributions, fund once, probably 70, 80 percent drawn, and fund twos, maybe 10 or 20.
Speaker #4: Obviously, these companies already had it. So it was easy to go ahead and team up with them in that regard. And then ultimately, we'd like it to create shareholder value, not only through winning more business as a result of working with these companies and their technologies, but also through good old-fashioned investment gains.
Speaker #4: But it's something we're quite proud of, and I'm glad it's working. And the most important thing is it helps with our culture of going fast.
Speaker #4: We get a quick turn on some of these investments and decisions, and the team's excited to work 24 straight hours and make a yes/no decision.
Speaker #4: And these companies are starting to appreciate in value. And I'll let Ken talk a little bit about the numbers, but we're in two of their funds where the strategic partners.
Speaker #4: You don't have time. To do your more traditional corporate months of reviews. You make decisions in hours or days, and they're great partners. I'm glad we connected, and I'm glad it's working out, and looking forward to their fund three when they finish with fund two.
Speaker #4: They're kind of both about 50 million dollar commitments. I don't think I've disclosed that before, but there you go. So like any VC fund, you make contributions, fund once, probably 70, 80 percent drawn and fund twos, maybe 10 or 20.
Speaker #4: Ken, you want to give it a little more?
Speaker #6: Yeah, sure. Absolutely, Chris. And it is that we are seeing some kind of great benefits of the relationship. We did have some gains this quarter I would characterize them as below operating income gains.
Speaker #4: But it's something we're quite proud of, and I'm glad it's working. And the most important thing is it helps with our culture of going fast.
Speaker #4: We get a quick turn on some of these investments and decisions, and the team's excited to work 24 straight hours and make a yes-no decision.
Speaker #6: So they tend to impact or positively benefit the EPS. So we did call out the benefits in our EPS walk. So you can pick them up there.
Speaker #4: You don't have time. To do your more traditional corporate months of reviews. You make decisions in hours or days. And they're great partners. I'm glad we connected and I'm glad it's working out and looking forward to their fund three when they finish with fund two.
Speaker #1: A reminder, if you would like to ask an additional question, please press star one on your telephone keypad. Your next question comes from the line of Matthew Akers from BNB Parabas.
Speaker #4: Ken, do you want to add a little more?
Speaker #2: Yeah, sure. Absolutely, Chris. And it is that we are seeing some kind of great benefits of the relationship. We did have some gains this quarter I would characterize them as below operating income gains.
Speaker #1: Please go ahead.
Speaker #7: Hey, good afternoon, guys. Thanks for the question. I wanted to ask about capital deployment at you. As you mentioned, you're going to have a fair amount of cash on the balance sheet at the end of the year.
Speaker #2: So they tend to impact, or positively benefit, the EPS. We did call out the benefits in our EPS walk, so you can pick them up there.
Speaker #7: I think you mentioned share buybacks have done a fair amount of share buybacks year to date. Just your appetite to continue doing that, given kind of some of the political pressure we've seen on it.
Speaker #1: A reminder: if you would like to ask an additional question, please press star one on your telephone keypad. Your next question comes from the line of Matthew Acres from BNP Paribas.
Speaker #6: Sure. So let me just first say that our goal is to be a very disciplined capital allocators. And clearly, today, our first focus is investing in the business.
Speaker #1: Please go ahead.
Speaker #6: We talked about two billion dollars of commitments. We've made to build out our missile capability and prime the supply chain, which I think the team is doing amazing job.
Speaker #6: Hey, good afternoon, guys. Thanks for the question. I wanted to ask about capital deployment at you. As you mentioned, you're going to have a fair amount of cash on the balance sheet at the end of the year.
Speaker #6: That'll drive significant revenue growth. Second, we think about debt well, I should just add to investing in the business. Certainly, if there's assets that made sense to tuck into our business, we would look at that.
Speaker #6: I think you mentioned share buybacks. You've done a fair amount of share buybacks year to date. Just your appetite to continue doing that, given some of the political pressure we've seen on it?
Speaker #2: Sure. So let me just first say that our goal is to be very disciplined capital allocators. And, clearly, today our first focus is investing in the business.
Speaker #6: Right now, there's nothing in our process that we're looking at intensely to say it makes strategic sense. I mean, the valuations have to be right at the end of the day.
Speaker #2: We talked about $2 billion of commitments we've made to build out our missile capability and prime the supply chain, which I think the team is doing an amazing job with.
Speaker #6: I think that's really important. Second, I would categorize as debt pay down would also be a sensible place to go. I think we have about a billion eight coming due.
Speaker #2: That'll drive significant revenue growth. Second, we think about debt well, I should just add to investing in the business. Certainly, if there's assets that made sense to tuck into our business, we would look at that.
Speaker #6: Our total leverage is I think in pretty good shape, but at the end of the day, I mean, we're down to 2.3. We've almost reduced the turn from last quarter.
Speaker #6: And then share repurchases, I also think, are something really important to consider. And I probably should add to the share repurchase line we're in 24 years of dividend growth.
Speaker #2: Right now, there's nothing in our process that we're looking at intensely to say it makes strategic sense. I mean, the valuations have to be right at the end of the day.
Speaker #6: So making sure that we get the dividend aristocrat, I think, is important to us. So we'll continue to look at that. But certainly, the four billion dollars of excess cash gives us significant flexibility.
Speaker #2: I think that's really important. Second, I would categorize as debt pay down would also be a sensible place to go. I think we have about a billion eight coming due.
Speaker #2: Our total leverage is, I think, in pretty good shape. At the end of the day, we're down to 2.3. We've almost reduced a turn from last quarter.
Speaker #6: We're very comfortable making investments with our missile capacity and capability. And the business holistically.
Speaker #4: Yeah, I think I'll just chime in a little bit here. I talked about the venture capital, so that's another source of cash. We kind of throw capex out there as a general category, but it's a lot of detail in there.
Speaker #2: And then share repurchases I also think are something really important to consider. And I probably should add to the share repurchase line, we're in 24 years of dividend growth.
Speaker #2: So making sure that we get the dividend aristocrat, I think, is important to us. So we'll continue to look at that. But certainly, the four billion dollars of excess cash gives us significant flexibility.
Speaker #4: We've been modernizing our IT systems over the past few years, and there's more we're going to do there. But in parallel. Also transforming the company and really focusing on a digitization ecosystem, which is a little different than just modernizing the infrastructure and staying current.
Speaker #2: We're very comfortable making investments in our missile capacity and capability, as well as in the business holistically.
Speaker #4: So we have some exciting products that we're using there and developing, working with some world-class companies. This includes embedding AI and it's a pretty exciting opportunity.
Speaker #4: Yeah, I think I'll just chime in a little bit here. I talked about the venture capital, so that's another source of cash. We kind of throw capex out there as a general category, but it's a lot of detail in there.
Speaker #4: And then the more traditional, I think we have more than enough land, but as Ken said, we're building 60 buildings. For missiles alone, we built a couple for space a few years back.
Speaker #4: We've been modernizing our IT systems over the past few years, and there's more we're going to do there. But in parallel, we're also transforming the company and really focusing on a digitization ecosystem, which is a little different than just modernizing the infrastructure and staying current.
Speaker #4: Those are operational and contributed to the winds. And then, of course, we need a lot of equipment. And we're using more and more modernized equipment as we grow the business.
Speaker #4: So we have some exciting products that we're using there and developing, working with some world-class companies. This includes embedding AI, and it's a pretty exciting opportunity.
Speaker #4: So it's great to have that extra cash. It's kind of a point in time. So we'll obviously do what makes sense. And as I said earlier, the capex ramp picks up a little bit more, as you would expect, as we're starting to get through these buildings.
Speaker #4: And then the more traditional, I think we have more than enough land, but as Ken said, we're building 60 buildings. For missiles alone, we built a couple for space a few years back.
Speaker #4: So it's my understanding that that was the last question of the evening. So let me wrap it up here. Start by thanking Tony for his time and investor relations.
Speaker #4: Those are operational and contributed to the winds. And then, of course, we need a lot of equipment. And we're using more and more modernized equipment as we grow the business.
Speaker #4: With his business acumen and multiple engineering degrees, he's going to be promoted to run one of our sectors. I have no doubt he'll do a great job, and I wish him the best in his new role.
Speaker #4: So it's great to have that extra cash. It's kind of a point in time, so we'll obviously do what makes sense. And as I said earlier, the capex ramp picks up a little bit more, as you would expect, as we’re starting to get through these buildings.
Speaker #4: You're welcome. We'll miss you. I also want to recognize and thank our employees for their commitment and execution throughout the first half of the year.
Speaker #4: Their efforts have supported the warfighter while reinforcing the critical role we are playing in enabling our customers' most important missions. I also want to thank the Department of War leadership for transforming the department and changing the way capabilities are acquired.
Speaker #4: So it's my understanding that that was the last question of the evening. So let me wrap it up here. I'll start by thanking Tony for his time and investor relations.
Speaker #4: With his business acumen and multiple engineering degrees, he's going to be promoted to run one of our sectors. I have no doubt he'll do a great job, and I wish him the best in his new role.
Speaker #4: We are fully aligned and supportive of your efforts to get the entire ecosystem on a wartime footing. So thank you all for joining us today.
Speaker #4: And we look forward to talking to you in the months ahead. Have a good evening. Thanks.
Speaker #4: You're welcome. We'll miss you. I also want to recognize and thank our employees for their commitment and execution throughout the first half of the year.
Speaker #4: Their efforts have supported the warfighter while reinforcing the critical role we are playing in enabling our customers' most important missions. I also want to thank the department award leadership for transforming the department and changing the way capabilities are acquired.
Speaker #4: We are fully aligned and supportive of your efforts to get the entire ecosystem on a wartime footing. So thank you all for joining us today.
Speaker #4: And we look forward to talking to you in the months ahead. Have a good evening. Thanks.
