LHX - Earnings call transcript Q3 2018 | L3Harris Technologies, Inc.

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Operator

Greetings and welcome to the Harris Corporation Third Quarter Fiscal Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anurag Maheshwari, Vice President, Investor Relations. you. Thank

begin. may You

Anurag Maheshwari

Good XXXX and earnings Michelle. third to quarter fiscal call. morning, you, welcome everyone, our Thank

On the Senior call Chairman Chief and with Officer. me today Executive Financial and is Officer; Rahul Ghai, Vice and Chief President Bill Brown,

Discussions First, forward-looking will statements forward-looking measures. include financial today a non-GAAP on few words statements. and

uncertainties involve those statements. and cause results that statements Forward-looking risks, to actual could assumptions, differ from materially

it comparable Harris GAAP the of to SEC please www.harris.com, is Investor For see press financial available. this release, over of measures presentation the non-GAAP more also a where the to A filings. you. our in With will and measures reconciliation included turn is on quarterly be of information, Bill, the that, replay call website, materials which section Relations I'll

William M. Brown

Earlier up and free flow. Revenue and quarter Anurag, growth. year, was reported for non-GAAP XX% the with margin and in per highlight quarter extend double-digit over revenue X% consecutive with cash share of operating order quarter XX% the earnings you, and last we X.X is orders XX.X%. These increasing and XX% for Book-to-bill again XX% higher this performance quarter with on our everyone. total per year. year in quarter first our the on The the for strong quarters XX% up was basis growth expanded growth. up company results strong XX momentum, morning, backlog our the fourth good X% non-GAAP year-to-date today, results over thank revenue share up three of earnings points third to strong segments Well, all $X.XX,

in The $XXX Systems' quarter as European momentum growth has about when and XXXX from the XX% year-over-year solid going especially we year. services, up revenue a Europe in the QX into drivers increase noted X. line by the XX%, growth by color prior upgrade XX% and revenue. Tactical of next on has on Eastern of Middle the a for in Vision. as another on a me revenue continue record offset now of orders growth in XX% tough DoD driven International communication as DoD the let these low across providing they Asia and legacy Communication decline driven start quarter X% growth backlog, modernization the quarter year. XX% readiness continued more Strong up Tactical Communications of XX% the mid-teens in nearly partially segments of support fourth and readiness The counterterrorism and with versus Night XX% East So, our DoD their doubled International expected delivered expectation as grew compare, ongoing quarter, and Australian started million focus in of strong program revenue ramp region. Africa, and was growth Tactical Army, radios. and the across up Eastern by slide be top the driven by on revenue Pacific year-to-date a some Air drive providing to included expect XX% the and growth down to by visibility sustained was software-defined demand Force orders to DoD we year-to-date equipment revenue

down. International expect still we year, will flat the be For to slightly

the the ground GFY make additional programs more we progress. is with airborne. against and the in our Manpack budget to solid adjustable and well original million this We execute systems, than proceed $XXX to HMS leverage In Army XXXX in GFY test up And bill, omnibus market investments wins win for from delivered to all million well and Manpack $XX the DoD the XX% President's ground modernization continue next this accomplishments funded several over quarter. request. strategy radios, prior tactical HMS third maintain to order programs, quarter expand than is higher an at the DoD program. and production radios communicating, additional radio been we've On the into year and, to SOCOM ISR the continue earlier program this International demonstrating our leadership and platform strategy with the week, LRIP radio, XXXX, an clearly network As we phase Army's Army the received commitment to delivery

expect On batch the award radios with deliver summer. first soon sometime the we Army two-channel an to handheld of anticipated radio, test this

Avionics, and we and Continuing delivered our quarter network by data provide to ISR expand will collected initial Middle information during as Orders Navy, ramp we now Classified expand recorded $XX third results for to the ES, of airborne builds selected will IDIQ on programs more and effort up stickiness. increase few X.X test aperture other to the platforms, device were and a a opportunity outstanding a than backlog more environmental develop electronic adjacency mitigated million protect For revenue to accelerating win in a and communications million continue forces up radios grow F/A-XX generate then and and aircraft radio now Asian driven the just countries the link Central ADS-B integrator prime that book-to-bill XX% medium-term. in and market our sole-source the digits for and opening produce Overall in expanded we by in customer Air Space upgrade release growth billion order new Asia a the International to the with Eastern and F-XX, orders systems, F-XX momentum quarter growth over leveraged ago, and as we when in were quarter, military This the systems, in we gives for to million modernize and track on the awarded of solid our We finally, increase successes revenue and position in into in And F-XX to this growth, excluding Australia, remained threats. incumbency two-channel production days another Force prior the platforms basis. $XXX to the awards the a fourth accelerate on space SOCOM UAE and five-year across handheld of the jammers ground, XX%. which platforms. handheld, to from F-XX, network. domestic video F/A-XX XXXX. fiscal of broader going the X% for to Night This in In systems us. revenue and to and helps the X% for continue us X.X, us enabled mid-single of Communication have year-to-date the electronic new across book-to-bill grow against forward. all long-standing F/A-XX, combined International book-to-bill Systems, growth across an the increase platforms, to to us X% a to Classified double-digit F-XX, area guidance accelerated in both Tactical, strong $X of in Segment additional the as billion win Systems, to grew positions and up pipeline to X% will programs, XX% customer wallet incumbent the ES supplying when a devices $X we we $XXX the on In adjacencies. for first X% an the in increase as with and subsided. share X.X% $XXX our year content smallsat, This F/A-XX coupled businesses, with strong this U.S. guidance surveillance another even Overall, ISR XX% ramp hit headwind in up in Intelligence was X% ground This the year and double-digit of programs Vision, resulting confidence are grow resulting F-XX, year. programs. than ramped F-XX, as by prior and have including backlog footprint. to well strategic half with raise of quarter and with of year-over-year production ADS-B and $XXX proposals increased continue contract headwinds increased long-term upgrades, are like Electronic started XX% we to million. that first year. offset This technology more X% to the quarter quarter growth production orders million billion opportunity year-to-date the a $XXX expected of half airborne X% X.X% leveraged growth revenue X.X, revenue was XX% quarters, in has ground-based growth Kuwaiti the Australian with strong growth against a funding impact to Tactical first weapons increase for a three than revenue new and with accelerated segment doubled our In X% to also Systems growth Order us on for collectively versus of year booked three

pleased addition, updates missions. an In $XXX that of March forecasting. Imager, choice our of November a This Baseline system. exquisite four but satellites, enterprise exquisite only entire not in imagery two in classified Advanced a recent last provide also improves as the latest five were to GOES-U, fire full space also payloads In for or mission providing strengthen which the to with the are contract solution hurricanes continued XXXX, we technology forecasters an weather million follows the to geostationary awarded in system, second partner entire of multi-year expand success leveraging reflecting on successful approximately launch ground on has GOES-S and few position with strengthen launch Harris to of NOAA's early resolution with and important download Harris' of as business, and of times Western of platforms. note in I'm GOES-R a the severe satellite by GOES-T solutions ABIs partner competitive on accomplishments also Hemisphere. a our controlled speed, large position Constellation the detection which our included environmental provided smallsats, unprecedented of ABI, XX-second NOAA's the times weather generation

and XXX% was a GPS payload than book-to-bill along X% award. on GPS Year-to-date, and ahead that with were X. of well delivering data a positions days X%, well a unit proven resulting upcoming included us digital a up greater fully mission tested execute developed and in Intel March, navigation of for early XX fifth production III Space revenue Strong the up with to continued in orders We Plus XX reliable cadence execution and schedule. GPS III

into over past the this year pipeline with recent $XX grown by has to in a Our expanding the can driver the success XX% be billion of confident with growth new GFY guidance we're XXXX fiscal XXXX adjacencies, and momentum and and on to X%. to at the medium-term. million. year-to-date strong end a outlook cash our In X% of expect growth, tightening revenue to $XXX budget now range our of EPS back continued our improved we're the an to summary, performance, favorable be order business gives a to performance, of combined to operating from guidance Rahul. us the free with with that, it of This flow tighten the confidence let approximately up $X.XX X% And and high me our over range $X.XX guidance previous previous strong turn million to resolution, to $XXX increase

Rahul Ghai

X. Bill, Starting morning, everyone. company and with you, good Thank slide total results on

in flow today adjusted tax of Year-to-date, our from margin program inventory, was reform. XX% cash million, XX% was and up the and reminder, the $XXX As Operating in and momentum XX strongest free unwind a $XX higher flow a of XX%, first despite up which cash in up non-GAAP year basis three impact revenue we up backend (XX:XX) points basis quarter $XXX with volume Year-to-date to in growth and Adjusted will XX.X%. income EPS efficiencies, increase the the of on was quarter. third in fourth over the a X% million $XXX as half higher and transition adjustments. exclude income cash was and the grew was million X% expansion ADS-B on unfavorable excluding the across of are was resulting Revenue one-time million as free all quarter, X% revenues receivables up resulted operating quarter. prior order the of X% benefit enter increase operational was in the a generation segments. year.

shareholders, to We million have in share million repurchases. approximately returned $XXX $XXX a total of about including

XX-month prefunded a about $XXX we million. quarter. $XXX third last cash addition, was free the pension adjusted In On the million in flow basis, by

increased this, by R&D Turning partially $X.XX contributed bridge on investment. offset This grew XX% interest and and growth volume EPS came in X, execution Tactical and solid Of or pension EPS slide reduced to Classified radios, count lower environmental $X.XX. quarter EPS the Avionics space, higher was volume and $X.XX. third Lower expense by higher of program income. from share

versus rate, X. Systems added tax third Segment tax benefit on a was prior slide X% quarter lower $XXX reform, year. including details to $X.XX revenue from growth. million, the a EPS Lastly, Communication up

In Night wallet addition digits, income with to also to Vision share of the for basis execution strong a improve straight growth million as in the double up on business was segment to the its the margin DoD and Operating Army. revenue for continued X.X. $XXX quarter, Tactical, was up book-to-bill of X% grew higher operating XX% volume. XX and seventh up XX.X% to with points expanded increase Orders

award margin operating Year-to-date and have segment in XX three orders the segment it's the to demand X to Year-to-date grew local a addition prior points for up upgrades U.S. Vision. XX.X% PSPC XX% and grew agencies. In momentum with basis segment, and increased and received Night was with X% support of greater Operating increased PSPC Night legacy Vision from orders in Army orders we bookings state than million readiness. logistics X%. strong in on revenue a book-to-bill the Tactical, Tactical, was continued of from increased X.X all increased XX% year. up $XX system versus XX% income and businesses

We as slide On include revenue and historical the for continue $XXX orders, Electronic backlog presentation. X, was for information XX% Systems' quarter. Tactical of end information the at to revenue up million, this supplemental

income growth of than up revenues. slide pension basis of points and million programs. was that Systems, up income. offset partially was we and operational revenue ADS-B declined revenue was X, program X% a Electronic solid to income impact and Intelligence (XX:XX) up was environmental offset addition segment In operating investment from mentioned, Bill R&D battle and revenue investment operating segment offset strong in robotics margin $X by the XXX and to and management programs, Avionics X% from up with expanded revenue X% Warfare XXX down margins as the Segment UAE and mix. program operating Space increase and to Operating ramp more increased margin in by mix. program, higher execution was UK growth Year-to-date X% continued XX.X% revenue the as efficiencies Year-to-date negative points On XX.X%. in was R&D segment the Classified basis decline program in revenue saw expanded

revenue the previously. up full through guidance X% end for Tactical up we year, performance, are In X% as X% the Vision Bill up the as X.X% Moving about Night end narrowing debt guidance strength indicated, by dilution higher versus Avionics DoD Intelligence, higher X% the to guidance improved from range now from $X.XX a to increasing of be the DoD to previously to additional raised XX% to X% given tightening revenue. be year-to-date flat be to outlook up up Avionics. Systems, be convert and to X% to from Tactical slide in are X.X% previously. demand. readiness revenue and up at The to reflecting we in versus up for share $X.XX X% XX to strong guidance or guidance, we drop tax Electronic orders revenue previously range are from pension Systems, guidance $X.XX In approximately increase than to Communication in prefunding. year to of strong In We're now X% the rate narrowing revenue the expect Space we to X.X% be from and higher and expense to versus lower EPS volume. rate the expected the high XX.X% now will offset interest benefit Tax an on is

be guidance in at expected Intelligence. midpoint and and in to ranges, still in around XX% Systems, the about the are of margins segment, Communication Electronic each Systems XX.X% For XX.X% Space

it $XXX the for would to due We are Bill remarks. back range turn higher approximately adjusted cash to free increasing that, of like to $XXX And from million I to $XXX flow guidance million million earnings. to a closing with

William M. Brown

thanks, Rahul. Well,

setting and programs areas increased, the year. we other rates aircraft our have invested programs been high, passage bid of time GFY in trend years The an where and are with and to for orders as continue well-funded. space for and that, and shareholder budget the real and proposal line priorities year. support, we Overall, results strategic billion past accelerating in have innings and our our – years over last are open R&D Harris growth our balance expectations beyond value. where and growth good feel rates especially positives President's strong trending and to Tactical and win the now in by deliver this the the up fiscal they are our radio IC we are like the of F-XX solid and customer line and are final to order I'd compared Classified Omnibus ask about medium-term for F/A five the Bill in And our us remains XXXX the our with and in XXXX several were our increased backlog and XXXX questions. the the of for quantities Budget in We grow, additional operator year-to-date F/A-XX $X positions. in execute the next have strategic the we budgets over up activity against XXXX

Operator

you. Thank

We will a now conducting be question-and-answer session.

with the from comes of your JPMorgan. Seth proceed question Please question. first Seifman with line Our

Seth M. Seifman

Thanks much very morning. and good

William M. Brown

Good morning.

Seth M. Seifman

overall it than budget little that a areas boost you talk should attractive I of if and higher the was a be lot for could bit in the Bill, think comes expected in maybe about much Harris.

kind guys to be to that think that much of growth, about possible at the when how you you there framework? the about is it so, time relative for acceleration might outlined, multi-year framework this And think framework

William M. Brown

the thanks question. for Yeah, Seth,

everybody budget the for very my about in and very us that good. space, encouraged as to the see smallsats. pretty aircraft I and additional quantities positive mentioned stake radio like able been the on intelligence Tactical we've in in areas including is we're For the was position budgets, line remarks. a the We trend

we're over we So, on based to today a and we're better very trend out growth the when any X% than beginning started of the sort guidance see year. fiscal encouraged in mid-single-digit to by we At I We across at providing XXXX. year, year showed the it set while incrementally framework medium-term started which that. being the of today, the we you CS, our could to seen X%. that In And see course lines we've what of the X%. X% the not went

we're X.X% range. the of Now, beginning the to started went year in X% We XX% Tactical, at mid-teens. to DoD year-over-year. a we growth

about traction in segments. We're we're Avionics XX%. in much seeing greater Warfare Electronic Now, the

CS it, high. sit segment, is digits mid-single incrementally we XXXX was so Clearly, beyond. better when feels mid-single-digit-plus So, look I and than did mid at think said probably the I time the at it it in before, maybe and to

I we mid beginning and of smallsats, an Systems Intel also well recently that. would payload. that were and principally business, the And on the mid-single-digit at think significant at Electronic which probably we getting exquisite high because Space traction of the mid-single-digit thinking end as in growth to was the as low to the growth received very closer it's feels year, the I on say of to high was win

a at thought I very and encouraging beginning see in us better incrementally the and we the bit that year. of beyond than is being all So, XXXX

Seth M. Seifman

today, in Great. if pension the Rahul, year happen income would Thanks. we great to XXXX? the That's color. fiscal ended And, what

Rahul Ghai

XX And of rates about we the million. million in up points every reduces increase for set by our income XX in pension XX-year rates, So, basis points $X the is June. since about it $XX to basis

headwind in So, there some increase rates. is from

contribution $XXX return However, of million fund we should reduce that our and a voluntary did it generate pension also PBGC make of premiums. will to rate X.XX% our

in but that will this all incremental June will increase the we manage the more we any our the contributions rates pension see in income XX, it. don't So, change year-over-year benefits of are and be as be to able it a where than point. at while But headwind, of depend should offset through rates on will

Seth M. Seifman

Great. Thanks very much, guys.

Operator

you. Thank

Credit line next comes the Good Please Suisse. Securities M. Spingarn Our (USA) Rob from question question. LLC with Spingarn Robert of with Credit Suisse proceed - your morning.

William M. Brown

the radios of Credit Army Robert making? morning. I'm Harris talk the Suisse and LLC forth, interactions (USA) beyond a its so Cross-Functional investments Securities wondering and the has can Spingarn talking Good what been M. business, you kind the network on are is basis, Network Bill, about existing the if at forward taking - Team I'm What but restructuring with Army? IRAD you

William M. Brown

We're have and question, very tightly time. Well, with for it's good the been partnered a quite Rob. some Army

priorities, linked been Futures one Army As closely There's you or fixed investment know, Command. on them. CFTs, or very facilities. cross-functional modernization eight teams, to which they're the to forming is our network. this of We're They've

IRAD We operate are how waveforms have importantly and detection, us conversations probability can think help with they more contested we intercept, in anti-jam radio on low that waveforms environment. detailed of can probability through both spend our of on them next-generation effectively invest but that probably low

with we're linked tightly very So, them.

As the which network, decisions lower moving very waveform that's for radios. moving radio decided see to orders WIN-T they've Tactical is there you to upper the forward handheld. separate around I'm we've them got And the on around is which the positioned They're a – forward Manpack. the the Tactical, placing and pleased from and – around a know,

think is I very, encouraging. all this very

adapt we everything? of Credit be Do way our M. Are for environment of Suisse happens Securities the an (USA) investments, - competitors you strategy long here? your saying changing share I of any very withdrawing giving where a perhaps, the to tightly opportunity you LLC moving. larger we're see and essentially Spingarn So, competitive and to given connected continue adjust think our and Army Robert

William M. Brown

one program, of dropped mean, out. JTRS Well, is I our we in around. shifting the competitors large it through space the had

low on waveforms certain handheld evolving community. developing There's are traction source that SOCOM One particular role or are on getting unique different the end radio. a DoD players on parts in radio some opportunity. has that sole competitor of the another partners and of a program. a their There's We're the a that's

- we with high but been So, to think an in Credit and Suisse Securities keep occurring course services and these based (USA) shifts pretty our margins LLC in, competitive high got some International shifting Is the Okay. area this and and in is top good across And then to question the little the to moment the think growth able we've budget we high ago, about think and given Spingarn a a of there about? new yeah, just up around, average – really question. Seth's DoD how that for given next, the call are defense feel about invest three area. in – level number share kind competitors the bit industry at that sustain heavily continue it's think But I and look kind years? a position. you this do this could the XXXX We've between budget, it, area. older for successful of growth clear competitors I we'll out, Robert environment this be end on XXXX I fact continuing M. Despite line

William M. Brown

fast depends think how I I cycle the on some going get the going positive. because to within at It even a got are flowed fast growth and clearly to Harris, about it's years. longer is some awarded affected But contracts way. in The businesses. individually different how and up, companies they is appropriations be and down average cycle can the we've shorter think Harris, least overall, into really don't to what everybody trends be next all execute it. on budget for several industry

LLC to line are So, to contract, satisfy top structure, things the the up it's to and your that all asset chain, I Harris, including be Spingarn including sure own better supply environment. (USA) think much. that positive budget to overall, need adapt sign in the beyond. provide there's very much Suisse employment, that Securities all lots Credit of clearly drive - companies, a Robert XXXX to dimensions making most mid-single-digit-plus your range But, going would and Thanks here you M. a growth, own needs

William M. Brown

Sure.

Operator

Thank you.

comes question. the question David proceed Strauss Barclays. your with with from Please next of Our line

David Strauss

you. morning. Thank Good

William M. Brown

Good morning.

David Strauss

ask to margins. Bill, wanted you about CS

You nice year-over-year improvement. improvement, margin. It like sequential had bit down of to little you're higher guiding year-over-year, QX, despite in a revenues forecasting looks

the on Just different pieces walk set for up if the you it through about? could talking might growth moving margins that and XXXX there how in you're

Rahul Ghai

is this David, Rahul. So,

And where are on Communication quarter slight this last a some the fourth expecting thing products. in the good So, margin come to side in – going Systems. the are strong XX.X% for basis we up been that's typically year-to-date points, year, – are step really up there from from the of we step a were CS, so really year, Last first year-to-date. increased the at And year same so – through quarters. year, we growth and XX it's margins up we've XX.X%, year-to-date. three we and volume shift This mix and is at we

the kind feel this we've So, XX% to of we approximately that guided about good year.

factory, getting, we're is the lower at we that the feel there we slightly going But, that overall, XX% drops products modernization should typically as are few be a coming margins. around can from also than less volume wins that are margin Now, will all things that margins. – the system through drive and we benefit there forward, and the come CS There with range. higher in product stay but gross the

and So, XX% you rate that for a is sustainable all we put together this segment. that feel

David Strauss

update Rochester? are in Okay. where you terms utilization capacity in the And any of on

Rahul Ghai

Sure.

the in now. right XX% around is utilization capacity factory Our

David Strauss

capital. working a Rahul, on follow-up And, Okay.

a you but either of of do capital? Where as working this So, growth. percentage sales you've How about the that can year, growth capital your or capital from level had sales to? some here, below get are days working working you thinking think

Rahul Ghai

Yeah.

– working days. So, mid-XXs. well we've XX well sorry, when Exelis, Harris we north XX% David. I of or was Exelis capital, whatever with bought was done around mean,

– And range the so combined, in XX days XXish range. we were probably

XX So, was where XXXX. six last we fiscal about than ended ended days at we year and that days lower

we've capital a working capital. we're year, improvement. in targeting about improvement better And this So, working sequentially two-day shown

The days. for is XX around we at payments. us So, advance around think opportunity areas. two One, we'll going forward end

lower advance are typically than Our much industry average. payments

improve there's an We've to inventory. and we So, reducing so there far, that see our incremental but opportunities. are well opportunity done

So, of not to under see that be we're going another but going to to there a to not next opportunity days years. three the – two it's is bring six-day couple an reduction, over down

So, keep progress on capital. working we'll making

David Strauss

lot Great. Thanks for the color. a

Operator

you. Thank

with Poponak Our next Please question comes from your question. proceed with Noah Sachs. Goldman

Noah Poponak

Hey, good everyone. morning,

William M. Brown

Good morning.

Noah Poponak

be total is but not potential is growth my scenario organic what of in revenue XX%? next case, company spinning base range it my should of Bill, my out model outcomes that my analysis, in year of

William M. Brown

certainly what again, We're we're we've comes vehicles. XXXX. down fast in providing it seen budget not That's that guidance to the onto plus-ups to today. to guiding not budget and contract flows XXXX the how all But, higher

have very faster positive. the a a delivery the bit had on Manpack. HMS week move order good seen expected we little than fortunately the We Army Receiving this was

were they it think perhaps indicating previously would mid-summer. be I

and So, on money in how contract But, fast they're it comes moving that. on into a we faster to can I XXXX. down deliver vehicles That's will then execute fast all flow That how that. good can sign. think

provide our or about next are higher So, out that of there at scenario there's guidance than end quarter in once a tell close mid-single-digit-plus fourth and that you at But, July in we'll today we the you June year. more August. we at gets late early some

Noah Poponak

new win there incremental and from rate growth investments investments simultaneously now some being growth the spending a business organically is or XX% the today? between hoping making is With up in quarter, today there, making are the some correlation there, the are you but rate ES you investments R&D business more Okay. and secured new to beyond you're already that

William M. Brown

– through to the lot in were and starting help open Warfare a recently we areas, even basis. in investments Electronic Warfare, would Electronic and think from technologies correlate will But we I of invest us some well and before that's of contract we've month-to-month years and day-to-day mean, to up we extent, executing also I paying as some side, we've dividends about investments that where the robotics. seen or to Avionics on and UK see We've raised the that clearly, I grow revenue the few in win. as again, order of beyond. in that made areas we've especially some the expect of in certainly, stepped very XXXX in of couple in continue in from talked a a these are Avionics sort see mission in they important really There's That that last quite franchise We're a over investments we some a is paying in don't includes and that. a and dividends. is to lot flow as in systems, investing variety new in very that opportunities

today, correlation help a IRAD rates is I'd investments So, there growth step today the going to made between the and say is XXXX few and us the last up but in in years we're the on we've in over spending beyond. what

Noah Poponak

Got on Tactical Systems. And then, it. one Comm more in International radio just the of piece

you International slightly being know, flat now a because Your talked tone normalize. memory, you kind what's sounded little think maybe then, in think, what about grow flat speaking are. this can again that down maybe next and the year backlogs a XXXX of the And but or to you've I I takes are recap European to even my said down more there? there more just the maybe refresh positive I view maybe latest to But, had you than thinking that year to year

William M. Brown

year can in we quarters, lumpiness. more Right a business flat Yeah. That down grow we're guiding at are modestly I quarter fiscal the this would to across indicate more than last loaded implies any even prior is guidance mean, haven't It's things looking see XXXX. than slightly. certain to even level the loaded there a years What have less but maybe in and XXXX, QX and seen XXXX, but still now, in the a that stronger being which We others, International that growth we we different little again, bit in loaded. good. given year that QX. are is always the

billion. the order as has rate despite quarter robust practically. same this about It's last seen year pipeline been remains about every year, over the that good at our pipeline, we've so Our the far $X.X very

and the happen feel though itself good even up, are is quickly the that to position the orders relatively coming we replenishing about have. we pipeline So,

XXXX, down give a So, I I get little and be step we'll think up. more we'll If you anything, into on as it will don't that. in we slightly bit fiscal International. see But, deliver QX a XXXX guidance probably

Noah Poponak

much. so Thanks

William M. Brown

bet. You

Operator

Thank you.

of comes Our line the from next question Citi. proceed with your Jon Raviv Please with question.

Jon Raviv

How Hey, forward? segment about do each in David's just around on thanks, investments about guys. margin understand about you stays I two? other mix, think R&D in was XX%, some how a about acceleration that spending in each growth potential We the could talking CS segment. wondering you're but expand you if going environment question

William M. Brown

or I being each mean, the year are the growth CS Yeah. be I as little the and – about near-term, clearly, to around we so flat XXXX. over in I mid-single-digit on Space XX% faster in and of looking in so and going be plus CS Intelligence fiscal a to where But, at guiding think, about comments to growing happen others the we're than the next segments, ES my bit business. margins

So, the and we of margins across just franchise, in the grow overall will beyond. across the in and beyond CS XXXX Harris and a so XXXX higher at into certainly some because company faster, there's higher going margin margins company, mix the side the could slightly businesses see growth level with

Jon Raviv

or highlighted? better cash Understood. terms And budgets just in update us capital opportunities again of working light the in care on you've do dollars you of to targets flow multi-year about thinking of free some

Rahul Ghai

about So, $XXX is to $XXX million our this year, the guidance guidance revised million.

million, half next get growth. get to probably to path tax $XX to year on reform, $X billion that puts About – $XX and that's of and it's takes. a see So, million these of several we to kind

since half So, company, of next of we are fiscal coming fiscal June a year, the got got is year, year year. we tax we kind benefit remaining this reform – of benefit

$XX $XX down XXXX. by from cash in fiscal Exelis there benefit then, is earnings. And reform outflow from should incremental That have year. wind be a to about million of million will integration we benefit increased next tax So, XXXX there and

revenue earnings, a do working clear improvement we $X line where there getting in we we'll on there So, growth that. flow deal with is next beyond and that to of that by that line earnings to working how and with – billion sight $X when capital the mix XXXX. see between then, beyond year opportunities see we of grow billion cash sight to through is should capital. terms there and And of But, get all changes then grow

Jon Raviv

Great. Rahul. Thanks,

Operator

you. Thank

comes proceed Please your question Company. and Gautam Khanna with question. with Cowen next Our from

Gautam Khanna

guys. morning, Good Thanks.

William M. Brown

morning. Good

Gautam Khanna

upon was your I expand pipeline. could on you comments the hoping

still of region the mentioned RF. in are $X.X just you campaigns Australia? billion that Maybe country? and by it some big could year, perspective on this big opportunities, year next are an give revenue side maybe us You the after? the the on ramping Tactical Is foreign or $XX million give What if underway year update us by

William M. Brown

Yeah, can I International around maybe it's mean, start and again is than and stable. XX% of was that quarter. in it's holding that's last Tactical in. quarters and $X.X good it's where it the Middle I'll news of think Yeah, over and and on last little relatively About higher despite so number orders, Rahul billion the the it's East Africa I that a pipeline is jump that about been

IOC opportunities execute in system going to UAE Middle We installing to which of past. soon, hitting is talked as Iraq the to continue Saudi the key for see East It's very see that to funded. we into well opportunities grow important the we're milestone. Emirates well is some we evolving going a us especially flowing in Iraq big the a we've opportunities opportunity. network the Land pipeline in Iraq. System, the very in So, there an as Tactical be in about opportunities lots in through on very, Arabia, continue There's Kuwait,

about the see pipeline. as see Europe we of well fairly, NATO the good that's to continuing in East. pipeline. fairly So, about opportunities to In in countries. that the in or is less, XX%, we're evolve see starting Europe Ukraine in Asia, we opportunities well. the opportunities Middle as other more And Again, Europe more XX% of good looks as continue Western

revenue continue the lot that to well. there. about work a Australia million end, XXXX is execute part opportunities fiscal that key we But XXXX. going well on of as what That Australia of well program. we well. It's executing systems So, in opportunity program. grow going It It's so there's in and far as but particular and opportunity front complete follow-on with is a XXXX going that we're in will $XXX

and us is market as what's importantly more a more builds couple installed through and a on opportunity we've around including very us, region. develop today, past bigger the installing what systems, another And a credibility encouraged a happening the I Asian base. what in modernization So, I'm systems in done of terms Southeast we Pacific of examples which much about awarded that in country legacy the was went that in network working on we're for Asia a of just to and

see the bit is So, for of This what on It happening expect very a do to a depends year good is piece the see is America But pipeline. Mexico. is in Latin opportunities. Pakistan, recapitalizations this are small growth year about continue we which softer. there. year pipeline, over year. very major we those Central XX% for market revenue us was Mexico. to in at the Colombia our Last looking And of Afghanistan, I'm a then a could fiscal Central time. to grow of not start XXXX. It Asia, that and piece small being

that's color a on So, little the maybe side. bit International of

Gautam Khanna

billion. it the That's could $X.X pipeline an the DoD Yeah. And about very was on Last to $X.X Tactical? billion you think Is and... helpful. update I same us give the time,

William M. Brown

$X call billion with about It's billion the about $X.X it's over just base. in Yeah, we Gautam. what same,

So, base and that modernization. HF be be radios some balance the in HF. will would would then readiness there's resets. And be the on and opportunities

system. the WIN-T program, where HMS bit as That's last higher the some the expect. for for you'd quarter, a SOCOM, that's radio than So, was opportunities it

of march indicated As will budget more the pipeline, the come time, in certainly that's and we in more opportunities the as into off well. modernization

So, again, billion we've and with $X.X for been. consistent where DoD about

Gautam Khanna

be curious, take was Company over Bill, et repurchase portfolio a you your how better or debt for historically you've And, I share repayment. you've become is want think in M&A position, has just cash and When time? cycle's a do cetera. story years, helping, redeployment you since about next where CEO. bigger about is done five part a been to the you of admirable think much the the to going job

William M. Brown

IRAD businesses, the think I really it When you us, lot as difficult of opportunities number the about soft, We've think over talking positioned Even invested the very strong today see come really, can very share. in through how we sequestered strategic great a the and we're helped it's reshape execution very, well very from we solid a the portfolio those Yeah. of Look, last quarters. We positioned market, a is our as lot investments. And of that portfolio transaction. well. well, invested in strong very last market over integrated and really franchises, and on things aggressively good good years. got We shape in the in five IRAD. executed the us I Exelis was

years, generate less going billion billion that in of of next the will than cash today, little $X of here to a of north of years, bit year. for dividends of the debt sitting So, next and $X a in lot we're couple next be of sort cash few

continue to remains So, We next buy it stock see of as our there's stock. in think value this quarter a as back both well leaves capacity M&A as going we for Harris value year. lot either or stock to in into our

be hard to opportunity to think that M&A. to going time. We we're So, happen do will thinking about continue this. there That is over

don't today, I to in continue franchise I business see well. I think exceptionally performing to the we're that we're which that the diverting business be in key a long-term part strategy. us are today, Gautam. that's But, of see us going bolster core again, from our

Gautam Khanna

Thanks a Good luck, lot. guys.

William M. Brown

You bet.

Operator

you. Thank

Carter with comes question. Our Melius Please with from proceed next Copeland your question Research.

Carter Copeland

Hey, guys. good morning,

William M. Brown

Good morning, Carter.

Carter Copeland

the just pipeline it a could to front both or CapEx that R&D bit go what might expansion the that. on some around the opportunities have commentary in you or front on expand on adjacencies front the highlighted, and the color little M&A I wondered into Bill, you if the capture expansion of maybe and the the opportunity insight some

what understanding done. an already might you've next how the leg of be Just in terms what you expand of

William M. Brown

for adjacency from a in across market. taking And It's player a they're And Yeah. it's the restricted not of that high strategy very in made addressable and we markets in, investors to large share clear continuing That's solid very, and strategy. it very see investments the leveraging Tactical so there's up a even been we market, well. why proven where spoke side, grow, network, high got into opening we've systems. International markets. I about to worked I into we've businesses laid we move a International the side of share out with going play selling the very base a as network more ground them DoD the bit and I little opportunities mean, Tactical to as ground this, the the really platform

the radio intelligent systems other end Australia, like make around the to we've the radio to have well as that places the don't into where users way another as more like easier maybe get we pull a we UAE systems opportunity competitor where as and and done radio in in a to markets and have in go with and Harris. that the that maybe use – incumbent use So, packaging to position it

$XXX that is received well into IDIQ. in this week, the a into clearly that airborne the ISR. direction on Exelis airborne that's this that clear particular market again, great And ARC-XXX on million radios been to from position and important as as very we've been as a So, product it well we our allows take last as the win ground go side just

I And, have areas these the we think are couple to in capabilities across we've is Carter, that the different of testament IRAD in over been it that domain. years. these last investing

the here investments have from a been don't it making. to I penetrate a these see So, see of domains. I big step we up go and continuation

smallsat. We've subsystems on supplying supplying talked That like mission talked significant in part. other we're supplier a over we've community. we've adjacencies been to The some from bit is a our about attacking end-to-end solutions, on moving quite complete done being that component about investment intelligence time a the the of thing to now has

in it our over Space up really is time investment after of and IRAD kinds business has those Our Intelligence crept going and opportunities.

$X.X have of new of couple winning You're in exquisite the Space for system last choice be that the the subsystems shows business systems. we to our and components prime, after but solutions model won of the a which this Intelligence as large end-to-end for we power really also go mission billion in just and weeks, partner both exquisite

very a today forward, materially. in take think a us, as for working range our percentage we're I see very, I of and well the I So, bit, but balance going not same in as revenue, this little up see IRAD could is

Carter Copeland

color. That's you, Thank great sir.

William M. Brown

You bet, Carter.

Operator

you. Thank

proceed Our question. with next question Pete Hamilton. from Please with your comes Skibitski Drexel

Peter John Skibitski

good Hey, guys. morning,

William M. Brown

Hey, morning, Pete. good

Peter John Skibitski

start So, the be with just cost on we let for suppliers seem to pressures more about the me reading more F-XX, and F-XX.

content guys impacting Just wondering expand all you an and/or if at yet, do there? that's you to still see opportunity your

William M. Brown

Well, both actually.

we think I the on player F-XX. a pretty significant are

I think we're XX. top in the

time per worth We set F-XX recent the have with few perhaps open content that wins see on computer. growing we things a working about ship of $X.X and and over on mission some system the we're of million that

we've I think cost we well. and do been see pressure performing exceptionally So,

we've over And out. the on for the Our at is time you of X date job performance that take company, the than F-XX. to more to really million we're cost capabilities continue XX.X% to add to look continue delivered on components when and

reduced very than on two-thirds from cost by we're more good supplier So, a F-XX. We've first shipset the there.

cost and take we've to capability work think I out. continue So, willingness to hard to demonstrated

and block opportunities take us to to continue both customers. move there's affordable it'll more for the the and systems, our of As end to buys, partners aircraft as and help Lockheed we to a customer and lots are open out drive share moving gain cost

all as F-XX. our we've or part the decade on in embedded doing and more of numbers it's for been worked it's all So, what last we've

Peter John Skibitski

how of demand I Security Assistance the Army think really along whole they Brigades. Okay. creation me. Army longer of back-fit I'm Force in MUOS And of will two (XX:XX) is That's characterized couple for radios, you. under much On for question just wondering think far and my programs great. on One, this those from opportunities. two then in but demand those both question incremental much just last of be I timeline, the this one other how will are How we of have the kind you? last? And driven kind terms a programs maybe, of those for

William M. Brown

Pete, both. Yeah,

Air to our XXXX. maybe $XXX two players, fiscal about Harris. a $XXX readiness SFABs. content tad manage both Roughly and Our that was but Army Security Not half and million, from is million, of that Army two just it's this Assistance above $XXX Forces other was Force year million. it's as of in was about and There's $XXX the outfitting There million. of the Brigades content half all

it's going XXXX It's new legacy, year, products. in the be in has and looks it Army in of I all As Army that's opportunity to additional product to us four into think outfitting But, going the to SFABs. exactly like we're worked. based mix that radio we terms of XXXX when decide out the next be what of from will then another go of for be an or it'll DoD SFABs outfit and they'll be on being hearing the

Peter John Skibitski

And Great. back-fit we done MUOS go MUOS the to on then or the back-fit, with are that? more

William M. Brown

Yeah. MUOS well. is going very

a upgrades new MUOS know, a Force. to capability XXXG. We've Air the the been capability for It Corps, the our you SOCOM, radio. is selling as threshold to to that we have in fact, Army as requirement In software Marine

radios, to reasons test other MUOS is including this that's So, but Army XXX radios the Reduction just capability new Field-based validate not and year. occurring why one really of to things, for imminently, we've had develop to that clearly and we'll in deliver to Risk the achieve success that summer able that again, happen that Army allows to on this of be next the into and generation fielding

So, into us, embedding a been radios, thriving new good the back but MUOS story both the ones. in on has legacy also it for

Peter John Skibitski

much. very Thanks Great.

William M. Brown

You bet, Pete.

Operator

you. Thank

Partners. question. Research Our with of comes from your the final with question Robert Vertical Please proceed Stallard line

Robert Stallard

morning. Thanks much. so Good

William M. Brown

Good morning.

Robert Stallard

follow-up from a me. Just questions of technical couple

latest repayments refinancing First the expect capital can going on of or couple on your your over of What's terms we in the what structure thoughts of debt all, forward. years? next

William M. Brown

Well, let this. me start with

April. we paid in of debt $XXX I think of the month million

the do that's year. borrowed a rate pension to million for XXXX. fund the fiscal that floating in pay we it in We've We'll in So, XXXX. note $XXX that

with due We'll and debt to will Beyond that, we happens and to be leverage by see we end where X further any to lower very repayment. Xs and year ratings. to that's of Any be don't times likely feel debt our then credit times debt low next comfortable refinanced. down year structure the even this in confident our hit X

Robert Stallard

And Okay. lot steady the stuff moving been XXXX there's of and run any tax, sort in forward then, this secondly expect on of beyond? do What around year. you rate a going

Rahul Ghai

step of part think doing now, in and is that the work for going XX% around that some other of of tax of year and of a is XX% next thinking been we've Rob, coming forward. right kind tax I year. sustainable So that what the half getting we're Again, reform from down planning

down feel another kind see XX.X% year from XX% So, sustainable step we is to that we of going rate this forward. and

Robert Stallard

great. That's

much. so thanks Okay,

William M. Brown

you. Thank

Anurag Maheshwari

a this in call joining to do for me morning get Thank Have everyone. the and please not hesitate questions. you, great additional day, any everyone, for with Thanks. touch

Operator

you. concludes This today's Thank teleconference.

your your wonderful Thank participation for a at and disconnect time. may you day. have this You lines

Anurag Maheshwari	Harris Corp.
William M. Brown	Harris Corp.
Rahul Ghai	Harris Corp.
Seth M. Seifman	JPMorgan Securities LLC
Robert M. Spingarn	Credit Suisse Securities (NYSE:USA) LLC
David Strauss	Barclays Capital, Inc.
Noah Poponak	Goldman Sachs & Co. LLC
Jon Raviv	Citigroup Global Markets, Inc.
Gautam Khanna	Cowen and Company, LLC
Carter Copeland	Melius Research LLC
Peter John Skibitski	Drexel Hamilton LLC
Robert Stallard	Vertical Research Partners LLC

L3Harris (LHX) 2 May 182018 Q3 Earnings call transcript