L3Harris Technologies, Inc. (LHX) Earnings

Management highlights

### Strategic Position & Core Strategy - The company continues to execute its multi-year "trusted disruptor" strategy focused on national security, targeting growth in emerging and high-demand domains amid rising global security threats. - Early investments in capacity and prime contracting positioning have paid off, with $2.4 billion in new contracts secured since Q4 2025, validating the strategy. ### Key Contract Wins & Pipeline - Selected by the U.S. Space Force for the AMDT-3 satellite constellation, and is the only company awarded all five missile tracking-related contracts, with a $9 billion pipeline across missile warning, missile defense, and classified space missions over the next several years. - Awarded the first phase of two U.S. Air Force electronic attack missionized business jets, and has secured $3 billion in international airborne early warning and control program awards since Q4 2025, with a $10 billion international opportunity pipeline across the Middle East, Asia Pacific, and Europe. - Signed a seven-year framework agreement for THAAD and PAC-3 production, representing ~$12 billion in future production revenue and ~$2 billion in future profit. ### Aerojet Acquisition & Missile Business Transformation - Three years after acquiring Aerojet, the company has completed operational and portfolio transformation, integrating it with existing missile technologies to create a comprehensive end-to-end missile solutions business spanning propulsion, seekers, and other critical components. - Operational improvements include new leadership, enhanced manufacturing rigor and automation, and 10x increased R&D and CapEx investment. Deliveries have risen over 60%, eliminating nearly all legacy delinquent deliveries, and operational efficiency has improved 22%. - A $1 billion U.S. Department of War investment allowed the company to accelerate capacity expansion plans by 12-18 months. Almost 1 million square feet of new automated, AI-integrated production capacity is being added, with the new GMLRS "Arsenal of Freedom" facility coming online next month, which will double capacity and cut manufacturing time by 50%. - Over $20 billion in new missile contracts are currently under negotiation, which could triple the segment's backlog. ### IPO Update - The planned Missile Solutions IPO has been delayed to mid-2027 due to current unfavorable market conditions that do not reflect the business's underlying value. The company will focus on execution and growth until market conditions improve. ### Other Operational Highlights - Secured a $4 billion multi-year FAA contract to modernize U.S. air traffic control telecommunications infrastructure, with options extending through 2046. - Wraith Shield, a software counter-drone jamming solution for smart software-defined radios, has demonstrated strong performance, creating new licensing revenue opportunities. The company targets $500 million in new orders for its Vampire counter-UAS system, building on a Q2 $100 million U.S. Army award.

Guidance

- Full-year 2026 revenue guidance was raised by $200 million at both the top and bottom of the range, to $23.2 - $23.7 billion, implying organic revenue growth of 8% to 10%, driven by stronger performance in the Space and Mission Systems segment and the AMDT-3 win. - Segment operating margin guidance is maintained at low 16%. Net interest expense guidance was lowered by $30 million to ~$560 million. - Diluted earnings per share guidance was raised by $40 cents at both ends of the range, to $11.80 - $12.00, even after absorbing a ~20 cent headwind from the commercial space propulsion divestiture. - Full-year free cash flow guidance of $3 billion is reaffirmed. - Full-year Space and Mission Systems revenue guidance was increased by $200 million to $11.7 billion. - The company expects Missile Solutions (retained business) to grow at a minimum of high teens percentage annually for the foreseeable future, with propulsion sub-segment growth exceeding 20% annually.

Segment performance

1. Space and Mission Systems: Revenue grew 7% YoY to $3 billion. Revenue increased across ISR missionized aircraft, classified space, F-35 control systems, and air traffic control modernization. Segment operating margin was 9.8%, a 60 basis point decrease YoY, primarily driven by a non-recurring $75 million product line sale gain in the prior year quarter, partially offset by improved program performance and a $23 million net gain on segment investments. 2. Communication and Spectrum Dominance: Revenue grew 4% YoY to $1.9 billion, driven by increased international volume and higher revenue from electronic warfare and data links. Segment operating margin was 26.9%, a 230 basis point increase YoY, driven by stronger international revenue partially offset by increased R&D investments. Full-year 2026 segment margin guidance was raised to mid 25% from ~25%. 3. Missile Solutions: Revenue grew 14% YoY overall; retained missile business grew 16% YoY, partially offset by lower growth in the divesting commercial space propulsion business. Segment operating margin was substantially similar to the prior year. Full-year 2026 guidance was adjusted to remove the commercial space propulsion business, which will be divested in August 2026. Total company Q2 2026 revenue was $5.9 billion, up 8% YoY, with international revenue accounting for 23% of total revenue, an increase of 250 basis points over the past year.

Risks & headwinds

- Current unfavorable public market conditions for IPOs mean the Missile Solutions IPO will need to be delayed to mid-2027, until market valuations recover. - There is ongoing uncertainty around U.S. Department of War budget negotiations and the timing of supplemental appropriations for munitions, driven by political debate, election-year dynamics, and continuing resolution processes. - The integration of the Aerojet acquisition and rapid scaling of missile production capacity carries execution risk, though the company has made substantial progress to date.

Analyst Q&A

• Q: An analyst asked if the implied 17% margin on the seven-year THAAD/PAC-3 framework agreement is an accurate expectation, or if margins could go higher. /

  A: Management said the 15% to 18% range is a reasonable target to strive for as production ramps and long-term supply chain agreements are locked in. They noted the seven-year aggregate number has some rounding, but that this range is a solid starting point with upside potential as volume scales. (223 characters)

• Q: An analyst asked what drove the decision to delay the Missile Solutions IPO to mid-2027 from the second half of 2026. /

  A: Management explained that current market conditions do not reflect the underlying value of the mature, profitable Missile Solutions business, as weak recent IPO performance has dragged on overall market valuations. They added that the bulk of IPO cash needs do not arise until late 2027-2029, so waiting for markets to stabilize is prudent for shareholders. (301 characters)

• Q: An analyst asked what near-to-medium term growth outlook management expects for the Missile Solutions segment, and when revenue and profitability will see major acceleration. /

  A: Management expects high-teens annual growth for the segment for the foreseeable future, with propulsion growing over 20% annually, driven by $20 billion in active contract negotiations that would triple backlog. Major capacity expansion facilities will come online between 2027 and 2029, so the most significant revenue and profitability spikes will occur after a 2-year ramp period. (347 characters)

• Q: An analyst asked for an update on the 4-year Shield Capital dual-use technology venture partnership, including committed capital and expected recurring investment income. /

  A: Management disclosed $50 million commitments to each of Shield's two funds, with 70-80% of Fund 1 drawn and 10-20% of Fund 2 drawn. The primary goals are to pull innovative dual-use AI, autonomy, and other technologies into L3Harris products and accelerate internal R&D, with investment gains as a secondary benefit. Gains are recorded below operating income but positively impact EPS. (352 characters)