L3HARRIS TECHNOLOGIES, INC. /DE/ Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a pivotal year marking the five-year anniversary of the L3-Harris merger, with record backlog. Achieved key wins like the Next-Gen Jammer competition, Glide Phase Interceptor and next-generation interceptor programs, and a $1 billion IDIQ award for U.S. Navy resilient communications.
• Partnered with venture-backed startups to prototype command-and-control systems for swarming autonomous assets, advancing the DoD's replicator initiative.
• Strategically aligned leadership team: Ken appointed President of Aerojet Rocketdyne, Sam Mehta's role expanded, and LHX NeXt organization elevated. Ross Niebergall stepped down, and Chris elected Chairman of the Board of Governors for the Aerospace Industries Association.
• Completed integration of acquisitions, divested non-core businesses, and delivered satellites to orbit for SDA and MDA, reaching a record backlog of 40 satellites in five years. Achieved $800 million in gross cost savings from LHX NeXt in 2024, expecting $1.2 billion in cumulative cost savings by end of 2025

Segment Performance

• SAS: Fourth quarter revenue was $1.7 billion, down 4% year-over-year (largely due to divestiture of antenna business), down 1% organically primarily due to lower F-35 related volumes. Operating margin was 10.8%, up 20 basis points.
• IMS: Fourth quarter revenue was $1.8 billion, up 9% with a margin of 13.4%, expanding by 150 basis points. Reflects strong program execution and favorable mix.
• CS: Fourth quarter revenue was $1.4 billion, up 5% driven by demand for software-defined resilient communications equipment. Operating margin was 24.4% due to a heavier mix of deliveries to U.S. DoD customers.
• Aerojet Rocketdyne: Grew 5% with an operating margin of 11.5%, up 40 basis points, supported by progress on solid rocket motor production but offset by lower volume in space propulsion

Guidance

• 2025 revenue expected to be $21.8 billion to $22.2 billion, organic growth 4% at midpoint. Non-GAAP EPS projected in range of $10.55 to $10.85, growth of 10% at midpoint.
• Segment-level guidance: SAS revenue $6.9 billion to $7.1 billion, operating margin low 12%; IMS revenue $7 billion to $7.2 billion, operating margin low 12%; CS revenue $5.6 billion to $5.7 billion, margin high 24%; Aerojet Rocketdyne ~$2.5 billion, margin mid-12%.
• Updated 2026 financial framework: Increased segment operating margins to low 16% in 2026, target $23 billion in sales and $2.8 billion in cash flow

Risks

• Fixed price development programs in space facing challenges in later stages of completion.
• Fluctuations in international and domestic delivery mix impacting margins.
• Pension plan transfer of ~$1.2 billion in assets and liabilities with little gain/loss but impact on non-cash non-service FAS pension income

Question and Answer

Q: Peter Arment at Baird asked about feedback on recommendations to DOGE and impacts on DoD bureaucracy.

A: Christopher Kubasik stated he received positive feedback, aims to start dialogue, and sees unprecedented change in 2025 with L3Harris positioned to adapt.

Q: Myles Walton at Wolfe Research inquired about free cash flow growth and LHX NeXt savings.

A: Kenneth Bedingfield said free cash flow growth aligns with growth profile, LHX NeXt savings with 40% dropping through to margin opportunity.

Q: Douglas Harned at Bernstein questioned CS margin expansion potential.

A: Kenneth Bedingfield and Christopher Kubasik noted evaluating mix, software opportunities, and LHX NeXt integration to drive margin expansion.

Q: Sheila Kahyaoglu at Jefferies asked about LHX NeXt savings drivers and KPIs.

A: Christopher Kubasik and Kenneth Bedingfield discussed supply chain, facility rationalization, org structure, and transformation as drivers, with tracking through savings realization and program performance.

Q: Ron Epstein of Bank of America asked about M&A thoughts with new administration.

A: Christopher Kubasik mentioned favorable acquisition environment, partnership approach with AI and autonomy, and ongoing review of potential bolt-on acquisitions.

Q: David Strauss of Barclays inquired about CAS revenue and EACs.

A: Kenneth Bedingfield said CAS revenue north of $500-600 million, expected to close in 2025, and 2025 EACs expected flat with potential upside on strong program performance.

Q: Seth Seifman at JPMorgan asked about space program charges and risk.

A: Kenneth Bedingfield and Christopher Kubasik discussed space program challenges, nearing completion of classified programs, and ongoing risk management.

Q: Gautam Khanna at TD Cowen asked about Ken's role at Aerojet Rocketdyne.

A: Kenneth Bedingfield said focus on increasing capacity, driving efficiency in space propulsion, and delivering on commitments for Aerojet Rocketdyne.

Q: Gavin Parsons of UBS Financial asked about LHX NeXt savings drag on revenue growth and CAS in 2026 framework.

A: Kenneth Bedingfield said half of LHX NeXt savings could be revenue growth headwind, and CAS not included in 2026 $23 billion revenue framework.

Q: Michael Ciarmoli at Truist Securities asked about 2026 growth drivers excluding CAS.

A: Christopher Kubasik and Kenneth Bedingfield discussed F-35 hardware ramping, space growth in 2026, international ISR, Aerojet solid rocket motor growth, and CS Next-Gen Jammer volume as drivers.

Q: Richard Safran at Seaport Global asked about contracting environment changes.

A: Christopher Kubasik said desire to go quicker, DOGE organization driving change, with potential changes by end of 2025 affecting 2026.

Q: Ken Herbert at RBC asked about Ukraine exposure and international growth.

A: Christopher Kubasik said Ukraine exposure is tens of millions, manageable, and international growth seen faster than domestic with both areas growing