LHX - Earnings call transcript Q4 2018 | L3Harris Technologies, Inc.

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Operator

Greetings, and welcome to the Harris Corporation Fourth 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. And it is now my pleasure to introduce your host, Anurag Maheshwari, Vice President of Investor Relations. you. Thank

begin. may You

Anurag Maheshwari

Good XXXX and earnings Michelle. fourth 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

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

William M. Brown

you, growth morning, per XX highest quarter X%, fourth all ended Okay. everyone. basis note a up margin again revenue XX.X%. and earnings top-line points segments on Revenue we've Well, in good and in on expanded We of high operating XX% thank seven XXXX fiscal years. seen was with once growth to the share up Anurag,

the year and driven just But investment the take by X.X, For generated XX% $XXX year, and XX% through the free and Tactical environment. X% readiness Night revenue was by demand on than on to growth and X% up of driven DoD recap a multi-year highlights the flow earnings the for year will strength up Army overseas, innovation, we Order budget Systems double-digits All for results. were the of and I had Air a by from the customer up to revenue and of increased quarter, was net per XX% win Vision. was our quarter the ramp Communication year Rahul slide XX% up to DoD in revenue XX%. with for the terrific details financial support to deployment the XX% consecutive the up and more of upgraded first positions, rates, improving income. X. year book-to-bill of ending million in million, software-defined-radios. $X.XX Notable of with up $XXX XX% even moment quarter an and XXX% include cash backlog security for modernization wins stronger Orders of the support record the HMS and programs. share forces up readiness from momentum want Force fifth the year Manpack. LRIP the strong a of Army order to and with high full-year Tactical walk

with of a a the F-XX fiscal a over programs; and the our half Additional million $X years. year orders backlog F-XX Tactical result a ramped $XXX and sole-source Corps for work the up IDIQ and stronger to than platforms. and beyond. East up forces production, Electronic orders of ISR of to We expected develop ramp contract ADS-B up a F-XX, F-XX, in to the aligned Force MUOS by X% Asia-Pacific data CS representing international to by were doubled The collectively by as growth and upgrades, successful Manpack revenue F-XXs. Electronic growth next-gen confidence X%, to increased UAE also combined $XXX more XX% the us a Marine from Falcon the driver XXXX markets XX% the increased the and link which orders with and than year, capturing with an in sole-source International year half opportunity. towards Systems key item high video up to Overall million robust content. more that XX%, IDIQ Europe. fiscal all up ES. ended we end diverse and Tactical Giving Warfare year, in orders $X.X and technology Marine Tactical Tactical activity, well, request and awarded the international for collected first – the Robotics the ISR. due five the budget and to the Systems, the few less more return modernization year Corps $XXX for a and of for $X.X and first international offset June, we IDIQ with the businesses growth million and Middle on for for accelerated program penetrate were and the growth modernization as capability, million. over expected to billion information produce Battle also in XXXX. Eastern efforts transition, and ground, billion year, we strategy in decline awarded us region as Corps handheld pipeline our strong a Air than and XX% That's in above about were III estimated on with airborne which the the guidance with billion long-term radios segment like to in Australian radio counter-terrorism execution gives revenue revenue F-XX second range. In performed the a will radios, than support the across gating ES provide International grew Africa confidence supply broader the F-XX, than continued to the to like XX% adjacent sole-source the with the growth to and In $XXX to XX% double Segment the after for also and XX% Navy with platforms X% flattish quarter demand ending UK next in previous Two contributed year-over-year down increased Management key Marine the

jammers year in U.S. against and on this international orders growth record, to $XXX on our we to received best supply protect totaling awards FXXs supporting had we multi-year electronic F-XX, the platform. two On threats, important electronic million

Explosive our two milestone System the other robotic pursue Robotic we international important first systems to opportunities Achieving DoD progress missions is as this successfully MOD. continue pursuits, in We for Ordnance UK international Competition. make U.S. the Common on Disposal delivering to upcoming the

$X.X grew We billion. communications also combined in full-mission with increased Investments backlog customer model of Electronic will and ramp double-digit the continue XXXX. programs. the confidence book-to-bill in revenue managed our to Space growth the orders surveillance of in to and up from billion services with in and ahead now X.X Classified in of resulted solutions. growth hosted and and fiscal largest pipeline for leadership strengthen ground-based FAA addressable Classified R&D year wallet market needs, share leveraged accelerate the us billion segment modernize the expanded existing our $XX in our year in customers, payloads, Overall in pipeline, outstanding, and smallsats, revenue headwinds innovation the for adjacencies our for With world's programs, XX-year than Classified X% we programs a the In digit our was fiscal environmental was markets. decreasing to supporting Orders slightly the the components high global now a $XX the air contract X% follow-on of for to on Systems, Space proposals management billion This strength we as for increased in fiscal of $X.X environmental and Space, XX% continued opportunities, to year. Intel, offset growth for aviation and was XXXX. expected confidence, XXXX and from programs, capture expect the book-to-bill one for in greater backlog mid-single on in growth about segment year quarter the XX% million gives traffic revenue and that headwinds $XXX India's infrastructure, X% as

maintain million $XXX generate returning cash margins to record a best-in-class continue flow free to We $XXX shareholders. million, about and of

program relentless commitment part reduction We strong Harris of and be to pension until also achieved continuous a Excellence pre-funded is no our to It's excellence. of XXXX, cash the on XX%, or focus culture HBX and But future integral our billion, it's without call about enterprise. the Harris across performance flow plan possible our flexibility. operational of HBX. operation contributions Business successes a $X contributed wouldn't we improvement post-Exelis required with creating debt

programs. a Night the yield watch years, and This delivery us a give example, being acquired moved has when Exelis business over room the lowering the to significant modernization growth we've compete improved to while we investment improved the in U.S. area, resulting international Vision margin from last driver. double-digit and growth. returns, cost, increase For on upcoming on-time to two and expansion And

program program in to commitment the F-XX, expand XX% an year. delivered established Amityville. more In upcoming March returned today, you've from we've and increasing in through we to per we're the next award record has record release payload past developed we and F-XX IDECM and X in and delivery And recently the this program and we've Award on in and in well-positioned revenue early by parts shipset On it and digital year, driving been per with Operational now and cycle corrected year. just targets delivery the finally, a XX.XX% the GPS had time Exelis greater ourselves. production a on-time Data have cut set share free maintaining further for the the future. cadence, generated weapons XX% by billion X factory with opportunities progress, on with million the franchise growth to Supplier XX% delivery continue IIIF the proven XXX% SENSOR expected delivering XX% Space we Navy on improved acquired in on-time earnings Overall, increased III, on-time factory to driven XX on and Outstanding And exceptional a growth by and with incumbency. the received orders numbers for performance maintaining date, than issues make legacy heard cash the recognized the a our meeting execution Mission to we've exceeding or over a $X with than about flow, program, with reliable we a we've to fifth to for Unit, GPS content which And when past fully years. we've me over Intel innovation speak

increasing performance, all XXXX, margins segments, that build fiscal momentum growth and accelerating and strong cash. to in three maximizing expect continue For we our on

expect on our to For earnings goal. $X we cash $X.XX to X% the free revenue flow share of billion $X.XX X% per growth of year, and achieve to

to results Rahul me Let a outlook. Rahul? over on before with close details fiscal medium-term few guidance, through I turn our our financial comments it on to now walk additional XXXX and

Rahul Ghai

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

on of XX% basis on operational reminder, the increased in one-time non-GAAP discussions in are higher Revenue fourth efficiencies, and adjustments. to and of XX.X%. a volume operating basis today expansion XX%, million margin cash $X.XX, EPS quarter points for flow grew resulting record As and X% a up exclude the or tax was reform up a quarter. or income benefit $X.XX. by the $XXX XX was excluding Free and XX%, was

by mix. lower EPS and grew program from of higher $X.XX income program environmental Half The the offset from Turning EPS program EPS on to in volume higher capital Space, solid was disciplined XX%, X. the Tactical Classified and or execution, and transition bridge Communications, was deployment. $X.XX. ADS-B full-year volume productivity slide by the expected offset by pension Avionics, headwind growth

was versus lower $XXX growth The XX% Communication benefit the reform. other all three a the X, half On rate Systems' quarter slide came segment. year in from including with across the tax businesses prior in revenue million, the up tax the from

growing the eighth to again XX% up continued to business XX% and Tactical, as in addition higher efficiencies. margin Operating to up double-digits million Operating was Night at improve was for the revenue segment XX% up orders from consecutive X%, were growth execution. income remained the quarter. strong of the In and volume operational strong $XXX Vision for

in each For operating book-to-bill revenue the X% than increased businesses with operating income orders Xx each XX%. and the was segment. the three full-year, of margin XX%, in Segment X.Xx, of increased greater and

XX% million in Orders CXISR. presentation. at the continue X% and include Electronic and to Warfare, by straight quarter, income strong up information $XXX of operational orders, X.Xx. higher with the as book-to-bill for performance. growth On from a revenue Segment $XXX quarter, million, the information volume driven Systems' fifth end was of historical Avionics, and XX% slide double-digits to for backlog the X, Electronic revenue grew Tactical We for operating supplemental up increased

fourth revenue at full execution impact up and the mix. the For quarter Intelligence, as slide income. On up X%, Space was revenue margins was program offset year, expanded revenue was program in investment, basis X.X% incremental X% from income XXX and strong and the XX.X%, higher operational of margin and operating up points X, ADS-B segment efficiencies in program was pension partially for the transition, and shift as negative operating

X% basis points to in expected guidance revenue decline by up was offset For in an XXXX. Operating revenue. Classified the program full-year, expanded was XXX environmental as the growth to programs fiscal continued for XX.X%. Switching margin partially

We have of fiscal results. Adopting retrospective the total certain standard the effective impact new few XXX of materially and revenue of program XXXX. revenue ASC recognition method, not adjusting a adopted but does using standard beginning of expenses, the timing treatment contract, the financial full cost the requires recognition at new for associated our

historical on are Our recognition included the financials information as guidance based is revenue slide preliminary the and re-casted supplemental on new XX. standard

re-casted XXXX up to expected the numbers. reported which is X% base, For than to fiscal lower million fiscal X% over the revenue XXXX, $XX is be

in material Tactical and Programs. not as Avionics, Warfare, driven growth Classified by modernization, DoD Space impact. So year a well The across continued Battle the as has Electronic growth Management

We margins and expect EBIT XX%. repurchases EPS to XX.X% total $X.XX includes is between of placeholder to and XX.X% share million and effective Fiscal $X.XX company higher a from margin Systems segments. of growth $XXX expected Communications strong Systems tax XXXX and Electronic in between be rate an and for be

capital new or days, Capital grew capital timing earnings a XXXX in $XX to offset $XXX capital, $X billion and XX reflecting free XXXX working pension partially tax and the We than of increased cash reflects expenditures from working day prefunding, tax higher in with XXXX improvement expect benefit program of approximately generate support flow one by to continued fiscal over and ended equal fiscal cash higher We improvement capital to payments. working starts. guidance expenditures, performance. million million to by greater in XXXX,

Tactical And margin X% is margin between revenue In XX% by segment program. offset representing expected XX% to of expected from growth be Systems business of deliveries and segments Tactical trough DoD up to is are lower We Night expected expected Tactical ship in to higher digits. volume $X.XX as XX. grow and DoD expected and low ramp-up ramp the is program operating margin in reflecting be Fiscal XX% from X% grow Management Rochester and by strong in each for to of lower work revenue across remarks. and and XX.X% is excellence. be the operational closing fiscal up Communications capital fixed X%. is Segment backlog modest in to efficiencies, up the back International Army be by and is to growth expecting the tax and including the and reflecting of will is year. mid-single between XXXX mid starts on XXXX. SOCOM accelerated about UAE as operational and year With is more efficiencies. Intelligence, between and reform from Segment excellence operating expected deployment. teens, from turn Public Segment of fiscal start tax digits, cost Vision, three leverage and fiscal to EPS Space weakness Warfare revenue, handhelds double-digits program be and in programs, we with let high-single Bill the fiscal segments; and Avionics this up XX%. volume it up and increase to production to is with and continued Battle growth margin that, between primarily between higher converts expected is to continued and in as between half Army. to be the to second of between XX%, occur dilutive benefits volume a bridge two-thirds to environmental Manpacks the systems that offset to and and EPS Safety which partially the expected me accretive $X.XX rate growth for the operating Modernization revenue margin by XXXX we reach the driven X% operational offset high factory. Electronic in up impact the X%, benefit Electronic XX.X%, new slide Systems' operational than the incremental expect Classified of

William M. Brown

Okay. medium-term. including comments a our strategy, Well, with close for Rahul. to few on thank you, the the outlook want multi-year I growth

recap that slide new several led made our program As and we the strategic in we on recent integrated business high-margin launches XX, reshaped product high-growth, on in businesses, focus years investments successfully portfolio and to wins. to disciplined Exelis,

driving tailwinds. much journey and centers. is environmental growing we become fully productivity analysis us. in in years, the more We high also into now driving as while last Officer services, and that entering long-term develop on I backlog cycle, digits, Avionics mid-single the be defense opportunity fundamentally sole-source our Space rates and cost a drivers DoD win partners. see on value at combined favorable We recent on of over higher more in design point well efficiency modernization strategic who is to to increase dollar laid financial medium-term. time and is to invest. with them. work savings in will expected in products new progress components foundation spending on Systems, X, how growth R&D fiscal improve than we've squeeze in Classified made of the performance in through the by beginning time We're inflection expand in continue And We're reshaping Chief standardizing number the front grew which base been Technology supplier environment, engineering of areas, medium-term to a to to year, software engineering development, Warfare eliminated business over by our and operating in especially slide to XX% multi-year more Tactical, Electronic installed returned our environment, In I systems By this of Electronic legacy should three significantly. XXXX to processes, a headwinds maintain and the coalition remainder from digits and through in accelerate time. margins. the seen Intel, growth budgeted position streamline an sheet Space growth accelerate new growth Fiscal deploying Harris going new large out we that At for across will growth strategy. supply-chain we're cost our as and budget cloud be de-risked now the us the this are to get and DevOps today, And in adjacencies And out growth we reducing enabled. and XXXX productivity ramp expected environment a fiscal solutions. the as from a platforms. driven and and Communication benefit we and every shared range improving the to to incumbency our segment hired Electronic core through and us higher to Systems and simplifying by end we by more laying for We've was end grow now balance ERP XXXX, and and in we we products, fully growth the recently will flexibility. multi-year And digital all and each last of to Intel data have stabilized is of This see give we reduce outlook our platforms out shown halfway of improve and the this is segments our more are past we year high-single XX, enterprise-wide In growth year. will indicated our medium-term year, services, and International that of returning automating of XX% leverage all the has of the XX positions more

earnings double-digit the like Harris that we operational expect a the And summary, that, as incremental growth, as relentless sustained and as with for questions. on operator volume whole. together, Electronic margin generation cash for combined drive the this will focus line through revenue, per Communication well higher and Taken share in leverage higher with margin, In the excellence ask expansion on to medium-term. to I'd open Systems

Operator

you. Thank

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

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

William M. Brown

questions. Robert a - Rob. morning, M. LLC just couple had I Good Credit Spingarn program-related (USA) Securities Suisse of

the offset you mix ES out I midpoint programs, be on with perhaps of lower-margin your call guidance by shift see First, operational lower-margin the some some flattish improvement. programs And of think are XXXX. the would What that here? being you segment, margin or these

William M. Brown

to on to and I first were I'd say ended think, Well, XX.X% year XX.X% XXXX, the we XX.X%. at guiding we

content the at about we've Classified in wins in programs, So, at But healthily, down opportunities order value, on risks lower as lower that's growing to in there. that segments, and the packages the before we bit, in coming Communication as one ramp again drivers the better some basis the on goes your in margins you center or seen points than segment of little of segment normal excellence. and average time basis life it's Tactical we've on the F-XX, not or segment over see Lockheed's costs up those And continue least improving said lower Rev SIS times past. but are XX costs Tactical, segment higher this that doing new pretty operational our see further we've and of our at in environmental, bring been at a like recognition. modernization place, some Robert with talked aircraft? Securities we products, about a in things the of slightly of done little XX as our Rec business take there points the programs pursue by as especially offset the for including Are point things margins, to is in on bit many a M. the call, as (USA) course, - over will Okay. LLC Electronic coming out suppliers we're before Systems Suisse Credit program. revenue and Systems' business, Space, than Spingarn growth in And we'll a as

William M. Brown

that see more today. we Rob, million risk, $X.X there components. provide the Either know, We're or opportunities remain risks shipset. we per so some about common than You mat are the (XX:XX) provide we

We have system. System. the system, the over bomb-release the as carriage-release Memory last PCD won, year, recently EU Aircraft as We well the the

one Processor, on over improvements ICP, and year. of know awarded You that. the given And one as the be systems, we companies EW algorithms Processor hunt far about that'll weight they our time, through sometime last things on Lockheed do in software-defined you've that's a of Integrated size, coming the I the several EW and probably And the EW, the and talk think, what the have. platform. up the really the is so ICNI later work Mission on on We're years, power might we've the Core or this big heard are as done cognitive in progress small investment on well over in three a

think You the a decide path if we'll down re-compete that. move they and player know we be to there

very content to volume I see Spingarn at both F-XX, look much, think shipset grow opportunities over M. but Suisse per time. a going Robert Okay. (USA) Securities Credit - Bill. perspective, as I Thanks So, increase our LLC I from to net-net is

William M. Brown

bet. You

Operator

you. Thank

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

David Strauss

Good my morning. taking for Thanks question.

William M. Brown

Dave. morning, Good

David Strauss

ones ES. hear again the I talked, about, expect would $X in to bids think, those? around the talk you those chunky obviously, you about just you billion the when and Could at on big ones, outstanding Bill, timing

William M. Brown

important over a the couple what I just an to going There's big lot to activities we expect other on the the contract a be mentioned some including of We which – Yeah, have months there's there's that's of F-XX. with opportunities, is program. going bridge the piece certainly FAA, of that on on a some some of is it FTI F-XX. opportunities should one, but next be

opportunities You the other as pipeline as U.S. that into markets on well robotic know there's systems, in near-term the we beyond especially as platform extend UK DoD. international

what's goes don't So, have Rahul? color, gamut business. if in of Systems know, the across you Electronic it I really any the other

Rahul Ghai

further other are would that program, talking only we've been we've that and lots the country. land a you outstanding even to but Bill beyond the – I David, forces, within The not thing the to is, only with got know expand about that UAE of add program, bids that

William M. Brown

That in was a that million gone, close goes ahead UAE mission a in program the in as big UAE. exceptionally coming up has there's August-September as or $XXX exercise in we're so month well and readiness out, which to us next far timeframe, the a opportunity point and the the well two very well as of

David Strauss

ballpark how this percentage are are the So, is kind you year, year? of – much percentage, to – that I mean, would to on what you, hear of in going terms of hear on you $X this billion, you expect or XX% hear

William M. Brown

of year, we within the the I next think bulk it, yes. hear on should

David Strauss

Would various Okay. All you kind other volume potential the upside between care businesses right. XX%. you're upside outlined Currently, margin potential margin whole running the a here? as the about frame you and for of Bill, to around and productivity are things. thinking

William M. Brown

Harris-wide at – I EBIT it or look from let talking margin segment Yeah, take me when perspective, seg the it margin. the about Op you're

David Strauss

Yeah.

William M. Brown

XX.X%. we're of going again, – year, is our be This guidance center to point

But an fiscal XXXX, XXXX should out XXXX. I on – revenue XX%. about points more little into recognition than up at the be not if restatement hitting in a bit that's I in go basis XX So average you think that we XXXX, the when look if over reported approaching,

our beyond. way today take taking months, and cost of XX confident program, margin the launches some XX operational in the expansion of over maturity out to pretty of the new we're product and Tactical the excellence the with of going in we're believe we like So, steps XXXX next to actions, we're

David Strauss

in the back get queue. I'll Thanks. Great.

William M. Brown

You bet, David.

Operator

Thank you.

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

Gavin Parsons

good Hey, It's Noah. on Gavin for morning.

William M. Brown

Hey, Gavin.

Gavin Parsons

visibility up bookings just how we the few the have you how of how of that revenue should given already over years? in of the guidance is much or backlog growth? that kind in all contingent you've think of budget years had much How above much is taken three revenue past few segments, that further next having So, into about well upon

William M. Brown

year, X% either with from my I'll opportunities, two-thirds at X% is the well as have segment. we business, growth. very as into ended the into look up of CS look pretty about year, again, really last keep Space guiding next the as I to where XXXX, fiscal And – When up covered which year it's our a in comments probability and Intel We revenue strong specific in or backlog going whole substantially next growth. And as revenue to we follow-on we're year. to high and that's we were backlog Harris in

think going we on are more backlog based pipeline ago. is, the fiscal XXXX XXXX on I would that bids revenue into visibility we So, in have, the the where just year say outstanding, than we see a

Gavin Parsons

of ultimately Okay. do program? that than update XX% might how And be just share, think much can and think exercised. Manpack, share if long-term think get what IDIQ you on if you could you so, curious you you be for the on then could on the I'm your us Do more outlook

William M. Brown

higher Look, historically XX over a the to last much we've years than XX%. at five been running share

was they're from the billion actually of quite for So, from share about whole and XXXX, or XX% growing year we a fiscal Tactical to next fair be would and our have $X would more over up XXXX fiscal are aspire than XX%. in XX%, years. They're the about market, several strong. a up all, billion lines which $X.X XXXX the as NDAA XXXX, that Look, funding to first of

Tactical overall supporting well. order, that's funding had Manpack. including very a units delivery (XX:XX) an business delivery order LRIP the the X,XXX HMS is strong the We're We XXXX. very, doing out So, in delivery of fiscal for

into that we'll the half size, fiscal expect back We another leading of LRIP in testing our of order see operational probably fiscal XXXX. in some XXXX

think, we'd out, all budget very I It's is The the The is as program. it Army So, there. forward expected. well. moving is playing moving

whole. programs the news Radio very all it's think, on a Army really I all just Manpack, So, the good but Tactical not as

Gavin Parsons

you. Thank Great.

William M. Brown

bet. You

Operator

you. Thank

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

Carter Copeland

guys, and results nice Hey, again. good morning,

William M. Brown

you. Hey, good Carter. Thank morning,

Carter Copeland

little wondered couple already. about the R&D around be that attractive payoff mean, expand incremental there I pipeline. I have have thought dollars investments process may lot payoff, the success, Obviously, and IRAD the bit us and opportunities you if you've might seen of in if your think process with Bill, just changing? is that I – had wonder had these years, just around you've in just a lot the the a the lot of out around last you on things of you a the a mindset what obviously your pipeline, given help else success of thought

William M. Brown

Well, it's Carter, thank you. question, good a very

This again where X% IRAD. else over our enacted, last number our is new the helping bit over like In the because we million, new our was invested in spending It's more up to segment, year XXXX. we opportunities really saw fiscal reform our at where little we about I over a above in revenue, the team XXXX be the in going right, is $XX we're raised where happen mean, into a investment dig lot things peers money in up just fact, forward. and took CTO of the to a we shouldn't years having fiscal go When robotics be. you're of spending last we've tax that year which on us closed everyone in. in money we couple going

on the look invest leverage at do investments how we company the way. about we a capabilities of look and how across we more in we're how to company. waveforms, various around programs, have of places So, continue thinking in features Lots at Harris we the we or software we the spend at different leverage money, across we return look productive

So that's one of helping the CTO things us is think about. our

As I than from or two or be percentage here, substantially a revenue. don't we'll year as think a of go higher out I three

good of at the or as years. So, out as today opportunities is drag four ahead to investments customer invest come I the to ahead from find we're invest, we've we But And see some in invest going results go. it you last good I where really think the three growth, and made the look does IRAD pointing neither if very margin of of our curve, it margins. a to tailwind the continue nor on

Carter Copeland

can velocity dollars at there so Is a increase you the identifying you're that level to segment way the more of down deploy that direction? in opportunities

William M. Brown

integrate Well, to the that's is feature always looking builds have focused concept which not, that certainly being you test your something seen we is basically in an where of software cycle able on as you substantially. is developed to software time deployed continuously we're help We've faster. and like multiple in and tools organization. at and a can that – field carefully software that – content very companies very, going that not develop so significant that have integrate The pretty something lot something cases that that have that we're going and deploy compress as you Certainly, software DevOps, the products DevOps. for market, we a it's you defense have to

of next XXXX, we XX% think two developing products, key and Carter. to As I going think a in XX% new DevOps, time by years out launching starts know the go will compressing to that's or be on cycle you years, fiscal our our be overall new to thing we three

Carter Copeland

Bill. Awesome. for color, the Thanks

Rahul Ghai

to what wanted Carter, Bill said. I add just to

an So of just if over couple you a or products years Systems the of Army last hardware a SOCOM of the investing all on. with Communication a to in examples, lot give coming like a the lot take as couple been you we've different and – segment, example

of program to that kind year. to end one is that work next on a is an going this So is point, big SOCOM coming even at with Manpack

onto the how now goes waveforms those with MUOS radios, stream of as shift monetize previously the done software and So, attention the lot going is a we that we've do and that to revenue to waveform.

So, spending our shift there's well R&D within a the dollars happening space. where of as we're are

Operator

you. Thank

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

Gautam Khanna

Thanks. Good guys. morning,

William M. Brown

morning, Gautam. Good Hey,

Gautam Khanna

could at on pipeline of that the you us call if couple hoping campaigns update you questions. I of pursuing? out Just larger any kind a can was and Tactical RS, you're International DoD

William M. Brown

Sure. Yeah.

international the It's last we pipeline First, is still on $X.X it's still where about actually the good. were quarter. same very about side, billion,

Middle makeup Africa. XX% You know, is really East looks and same about the the about

substantial know, XXXX. Iraq in remains beyond. pretty You will big was a amount in It substantial a be XXXX opportunity. and It

smaller And good Europe little Europe About countries bit Romania from Western opportunities like is the in in Asia. be from there. Central starting see America, countries, see In bigger Canada. So, in rise so XX% to XXXX. a we're we other XXXX had to there's of and Asia, see than to Europe we Eastern we in a America, Central a in opportunities opportunity of And going bit really still Western additional balance a we to and and is being see a NATO Latin the a in Poland shift then shift. Australia and in countries in some little little Asia, Mexico on in bit Europe

thought, at overall So, little X% year are little having of International, a a We trends beginning than a down in International. than the in less Europe the in we think than very fiscal XXXX bit in bit the I had better year. up positive the anticipated and ended good we better

want we'll than I be better XXXX. bit had low-mid-single you growth fiscal back to And the little we a thought. cover think Do in digit to out played So, DoD?

Rahul Ghai

Yeah, billion, actually – on last a of base DoD, million, that's has if side remember – $X.X about million The $X.XX $XXX it it's $X.X Tactical billion, the it billion was we correctly. I pipeline which right, modernization spoke, includes so the around last pipeline since it's I DoD Tactical, the and we billion think the about spoke. time so now grown $X.X DoD Gautam, is $XXX

William M. Brown

Right.

Gautam Khanna

challenged difficult Harris has it the you potential there from allies Okay, your blowback allies, – the helpful. friction European instead? that there what from seen U.S. some any NATO in? very radios a prefer curious there potential And like how sort is any can with NATO where I'm you've just the switch the much they to have and may for curious suppliers of is just some or you from of they've is purchased talk that's away of about seeing – more we're if already blowback incumbency any how relationships of the

William M. Brown

interesting. it's say countries. I it's we've Gautam, going fact, I the we're with seen past we've in no more direction – than seen see in seeing would opportunities other in the NATO blowback

I of a lots positive be think it's a a bit ways. out to more of little than turning negative in

opportunities for are coalition not more decreasing. seeing that side stepping Radio increasing are partners on And partners, the spending. NATO with We up Harris see do defense we Tactical

Gautam Khanna

stock, this one a last at your does medium-term into M&A dividend, raising have one How all? just me, you repaying And been of repurchasing bit Okay. from the if fit guys quite plans, debt.

William M. Brown

generate at year. a I a good I if mean I think what out. we'll increase you $XXX dollars done an meeting evaluate I dividend August decide look, a cash of million, things think $X and and mean that's billion our sheet, on that we've under Well, board paying extent. lot there's to this the of We've pointed been balance we'll just

M&A. fact when to at free – for course evaluate look Certainly, over to going it's placeholder at as in $XXX to of We're we the year. due step more $XXX million cash more that's of the really there to a the any on of more placeholder places have back free out to that And buyback of and M&A. generate We optionality XXXX you get that backend buy million on XXXX, that to drag going or best worth repayments any on million have we're you cash debt debt stock buyback, we $XXX our for zero. beyond cash up the as see whether share go

Harris, and variety it certainly, M&A. we're on going any will that very of within our to Exelis to building core compete. we on more at effective But be to strategic look, would on all execute looking the report that different be a accretive ability our today, business segments with and do I'm – at we So, way bolster We're to opportunities pipeline and we're would the we transformed and confident company. execute we be how deal when strategic the would nothing

Gautam Khanna

Thank you, guys.

William M. Brown

You bet, Gautam.

Operator

you. Thank

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

Jon Raviv

everyone. morning, good Hey,

William M. Brown

are Jon. Hey, doing? you How

Jon Raviv

narrow bit little just year? tailwind? cash so $X went on headwind the in flow, blocks of of cash sort of versus more also, I some know building through you capital, couple heading a us your then like step on into prepared but blocks cash the can through working you in remarks, a building can Rahul, things them mentioned CapEx, You you next And billion? towards

Rahul Ghai

did $XX million Yeah, net our the offset did $XX that that or from capital get to And by absolutely. so we in increase working up tax XXXX million. million. about benefit XXXX, in in about about we cash $XX of of million $XXX back getting the Jon, that's pension prefunding partially income funding is and we

As but in drag our growth – days day, by one the some we the we down still remarks, because revenue working see come I prepared mentioned on still capital.

and there primarily CapEx that to like win program So, fund new million it's Bill growth India the $XX is of FTI about mentioned. starts

bit Space this ERP is year as Classified of well. little a multi-year we it's up that investment, that wins a a Our bit in got little investment CapEx. of step in that required

that's CapEx. then a fiscal well that million got earlier discussed won't headwind about we growth that and And it's in refunds payments some $XX there's we old as that from So, XXXX in repeat. in XXXX tax cash and

recovered spent think government. that So, we of that we cash you further prefunding. we about as we and all together multi-year we a Exelis not XXXX, one-time the the biggest that fiscal all Jon And that there's start from but program. XXXX as it's our being $X the previously yet a cost-plus from several big fiscal It's $XX recovered at feel tax offsets item dollars, benefit pension recovering proposal, good process have through we we fiscal restructuring (XX:XX) million have that look proposal restructuring look out have this the we to know and look put is and into approval in that, you we outflows XXXX, we the money had the

that outflow that a because in still fiscal that then fiscal $XX lot working will we've $XX restructuring the results think behind year CapEx tax winding is kind of that Exelis be in will the So, also We off CapEx little projects XXXX. of bit million kicked start a And that range us of starts in down. saving tailwind XXXX, there's on the ERP away. of we're program million delivering implementation do to in cash kind other happening this and several a goes

benefit offset then together that million the drive to there's we'll fiscal all one-time XXXX in get enough cash $XX and beyond. growth earnings flow in of that XXXX put So, and

Jon Raviv

just deliver decision? to of investments. Do more investments curious driving then and can that just very, other you that you for comes it That's the end? or when upfront a it. those you helpful. earlier then And sense is role then Bill, also playing decisions. CapEx very on in the approaching offer offered are mature color customers the the Just making investment at desiring the kind And perspective you more Got thank to R&D the conversations you Can call. in on product all customer see some what what customer like

William M. Brown

a them We don't investment dividends shape business some case, today. make understanding understanding ago. in The investments pipeline messages is going. accordingly. we're internally without from the customer paying hearing and And we Well, internal we I R&D that's really and our up DoD customers message or industry I It's step that it's signal. in We four multi-year step think the that years heard started And push by to question, for five that think to R&D. been on years very this a up good man. where demand our

So, the fifth-gen we're us. in are but are not strong and up down and that think, that what's an Warfare, platform to where And that for from that aircraft And mix on by get the starting the been Exelis now, positioned it's them we've in I road. Electronic you step with to B-XX dramatically F-XX, ourselves happening Electronic Warfare. connected fact only dividends being envisioned platforms stepped internally we've now area retain clearly going. position proprietary into very all F-XX, the has re-competes see customers we on our also very on up was upon for Input paid willing we underinvested believe well to to

our behalf of hearing and one think good I investing So, message, we're on I example smartly shaping of where the think we're investments shareowners.

our further next to pretty in help it's And it tightly new the connected. is CTO I again, years. couple shape of So, think even all going us

Jon Raviv

you. Thank

William M. Brown

bet. You

Operator

Thank you.

next Our the from question. comes Jefferies. proceed question Kahyaoglu with your Please Sheila line of with

Sheila Kahyaoglu

you. morning. Thank Good

William M. Brown

Sheila. morning, Good

Sheila Kahyaoglu

outlook Op you tied on guess, there's risks, Just target, across it's do I related the in solid whether the biggest portfolio. the (XX:XX) about maybe growth pursuits pipeline? budget think medium-term how or to

William M. Brown

the What – referring all outlooks and that. passed unique. difficult driver we think XXXX, week, which bit you're this I've little be the of would could I medium-term be to seen an to is hear, going to House, by positively fiscal supposed signed out budget it before the important very be A President, to which the NDAA, to it's even Senate pretty be first in at but the get of

quickly, of encouraging think even us the to well in if as September, very NDAA the to an all that DoD, the procurement decisions that's can signed Bill I and people who as even a possibility. issue maybe get Appropriations by end

these I are very indicators. positive think So, all

it's I Harris, So, about as see segments. when mid-to-high in think time It's that growth the I digit XXXX. through across you talked last look coming mid-single now medium-term single you really digits, at plus,

or Air dramatically strong, pretty recap Army in the years. four Corps and quite Force budgets growing, the you see see Tactical commentary Communication next in Radio on be we've substantially. you been on Army. the a segment think a a Systems focusing that do the where lot see we the driver business, is ramp see But growing Marine the We the to being SOCOM I strong going you coming the in important DoD also very and very around see of in five over

worth So, side our over look when to Tactical at on available next Harris billion the I about there's five Radio years, the years. next our cumulative supports $X.X budget business five that of

encouraging to very, me. it's So, very

also progress platforms Warfare. the on some of and both think We in great Avionics see I Electronic

I The EW starting think won platform this $XXX the internationally IDIQ million. for we F-XX on growth. big really just we're was

an (XX:XX), for before was award $XX in we Morocco So, million had booked Turkey that QX, we that.

grow, F-XXs, I growth a think and F-XX's we're to We the trajectory Space on to grow, going nice business. ahead Classified again, that's international of on F-XX's of going billion $X.X the frontend the opportunity us a have about on

So, Sheila, really as headwinds at I across turn the prospects. have growth and really tailwinds environmental, even like see to the really franchise business I that look I see things been good

the a and think – budgets by positioned by portfolio it's we've are in driven have well our our products the I by and of and it differentiators driven of lot it's of we Some growing. driven a lot where But solutions. our how

Sheila Kahyaoglu

And one Got just it. Bill. you, more. then Thank

over as time a a and do the the potential for opportunities? You are mentioned evolving software where guess defense opportunity yourselves those contributor and think primes. I we about to how as software top-line

William M. Brown

Well, of content it's XX% the today, do we to than be going in more it's engineering. work –

really content. it XX% line. our it of of been top part is today would've ago, or half years the Five engineering So, that

As XX%, going can we to go XX%, it than it's more to grow be XX%. forward, XX%,

going in develop other we strategically this or see faster think become it's are it's so maturing I of as DevOps we to space best to top-line we fundamental can better I we good software and the that. the it's I to be win. going next and space, to are I to And can going ones with rates, on going to defect mostly to I players that lot are this players company think that, and me that than think A that To to going contribute how I where software more the it's products. lower where develop ingesting the years, four better Sheila, so the with top-line, contribute do turn is we capability. in the at is over space how people the in five other probably the think within think

Sheila Kahyaoglu

Thank you.

William M. Brown

bet. You

Operator

you. Thank

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

Seth M. Seifman

Good much. morning. very Thanks

William M. Brown

Seth. morning, Good

Seth M. Seifman

wonder – and that the higher Space exciting the so seeing you guys. up to CapEx, at are a XXXX CapEx, it all, could if what's out. and beyond see you're if and can maybe then play to that And around the of what that's the in look that. mentioned area resources, bring you we of shaking when out out where of for maybe just budget to are you how I You an we've lot for And driving back you where most fiscal talk CapEx about, seen far, terms kind what areas company coming contracts underlying additional then overall of the

William M. Brown

we've the We $X.X have on yeah, Space years. of it's win It's happening. Well, to talked mission are over next that going stuff deliver billion last the six on quarter we look, experience lot side, a mean, a that had exciting, on. I exquisite a very the that's about prime to five, a some

Our is probably associated over more piece with our talked loaded, front-end some on We've smallsats. capital there's year of about that positioning the that program. last

past have driver we mission growth on. control our – We with than talked systems is I lots And on grow, exceptionally situational capabilities this contract multiple exciting. ourselves ground continuing about for we're and well-positioned positioning we're there's awards space on That's well going will area the that. other associated for all, that as We areas growth that months that so, that. is year. in some augmenting next as I that smallsat as being think of XX the superiority a be and more think, There opportunities huge well. XX% very for mission Space company. that It's see matures that over to capital components awareness. or

a RF sometimes of related investment. And of there recapitalizations Space, capabilities the different and our requires And up are space lots a great for Rochester the in some and those ways of related. is recap Exelis, lot is optics on some optics some optics in on, one superiority. on capital different we're capability acquired With last are facility So additional side. we competing a

all So spending growth on of XXXX. in that capital some together goes our we're things the in

in see XXXX. one-time We'll million into itself $XX lot sort get around see a about this XXXX, or growth we bit of a down that we through million we're mentioned, XXXX. capital million Rahul of probably $XX as up As to going mitigate $XXX fiscal in little

Seth M. Seifman

go of the year? through as earnings year, be maybe And the then Rahul, anything of this aware just a Thanks. terms the quick of Great. should follow-up, the in as we cadence or sales we

Rahul Ghai

mentioned are are the bit sales backend earlier, a backend Army kind that's don't basically it's DoD, little handhelds start a us. I as tail-end – the loaded, – split – as loaded they bit traditionally Our you SOCOM a of and little XX%/XX% of till for typically QX. and Tactical, is

our kind So, then starts start time. December-ish year. is QX second of of when in the then half Manpack a the ramp they And and

But ES typical. fairly bit typical. more little other loaded should so a So, and than than that, Space backend be

William M. Brown

We orders year backend back the the Rahul execution in Army and delivery, half. should towards the more see into SOCOM and the in end is that of front handheld the referencing on the the revenue, handheld QX with

Seth M. Seifman

Great. Thanks guys. very much,

William M. Brown

Seth. bet, You

Operator

you. Thank

Please with Our Global. comes question. your the next question of Josh proceed with Sullivan from line Seaport

Josh Ward Sullivan

good morning. Hey,

William M. Brown

morning, good Josh. Hey,

Josh Ward Sullivan

consolidating see maybe first? and where CTO, development. Bill, the of the the benchmarking what's way would hiring some some changing mentioned What kind of you a efforts on those new you then ERPs, of just you And team, have impact design the of new the we approach timeline for done that?

William M. Brown

government, five the maybe over or end be above X% the that what's over OpEx last continue last what six to over X% the What's given think to of time. really driving bottom dropping delivers been next to running towards started Harris, the the that is And line. changing X.X% expect inflation I to X% and at of to and savings, program years, as years, have I've so a I that net been Well, consider even a high program of we've broadly back to it years. the this range several that over go five good is talking OpEx I I we to or X% X% six to program about net cost, reshape of net

productivity productivities, better integration labor going chain is continue Exelis be integration, the Of engineering opportunities to to get some even course on in our through continuation. from important we the savings what there's every that's Exelis and of supply at but factories, just and day the we top see do, to

from what doing. was that see UTC other companies I my and experience So at

pretty I think good. generally So, that is

that ERP but I is say, you too right a which three. systems is many, got In and the can bringing XX business, unique, or either it's terms of – as ahead commercial roles outside and on what's And captured new have us we experiences us. that got Harris hard as really into past. government systems, really look benchmarking number. in tell practices today recent a bring future, to is of three some about as we've what light their said, We've are fairly best I do the us and opportunities to in into that see we're at really here, shining an as front company is is, opportunity and at in seen But pretty I've experience it's places we're from I why doing of of is on business, I senior much we some one technology people IT what we're other giving or the look the the

is get better, in couple So, years. the really on business and efficiency continuing drive next the across I our to ground pretty of productivity fertile think

Josh Ward Sullivan

I two optics, then some you the that in to the targets, can just and at paradigm medium-term Great. opportunities utilization, that target new question maybe facility update next on with just where the you does all? over medium the in utilization years? you – us three mentioned Rochester know going see change previous And Okay. the

William M. Brown

the facilities XX% Rochester no, side, we've in and got on been low doesn't, fact up we've I in mean utilization. tactical – the our in It Rochester XX% Tact, in multiple running

capital, of know But shifts grow opportunity components there're old. of to multiple the there. even opportunities You with to do it's any years we plenty as to facility Rochester additional in go some something we there make about different that without six there's

any optics other in Tactical facility. no see any really And Rochester. that we at other rise matter for in I limitations do things capacity there. facilities work And our I see don't So, the a Rochester on in, of in limitation lot some up

capital. I really not and not capital on program think the spike basically capital is we're specific seeing year on on infrastructure programs on this

Josh Ward Sullivan

you. Thank Okay.

William M. Brown

bet. You

Operator

Thank you.

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

Robert A. Stallard

Good afternoon. Thanks sorry. morning, so Good much.

William M. Brown

Good Rob. morning,

Robert A. Stallard

a expect up to Well, medium-term there commentary plan. get your XXXX, Bill, everything growth if revenue rate it of high-single guidance the to digit. accelerate bit to you said the kind Slide and pedantic, you may but in sound goes I'm going to going XX to

sort you you're faster the year see this And of sort in is, in you So, or of year, it and affair? growth do what how do five see go year, as a two sustainable think that relation to this three being than XXXX? you of years or guiding then is do one it potential slows, rate sort to a to four

William M. Brown

or we in acceleration Intel, fiscal slide, Well, XXXX Systems and first, is XXXX. what Electronic the an and from Space there in on fiscal that see

guidance there. So high-single digit see be low-XXs% on was we I XXXX it XX%. our XX% or to mid-teens CS think and XXXX and a on We at keep – there's range. we in at to XX% started we believe I mind DoD or acceleration up Communications we as some back and ended Then to Frankly, on continue where I started, look Tactical. went

sort really So, of so it accurately. not sure, calling I'm I'm

think I aggressive well. assumptions in hopefully same the in conservative our there we're and hopefully as XXXX, and with more being than beyond place today

people happening a I confidence and of approved approved is like unique. And when think dollars House gives even that like I last placed, we intelligence placed this being And in put rate is over a up. are been hit than being faster from obligated when we DoD lot the saw we on maybe a not who at the also procurement – the or happen, pretty were order a to issue out said goes As much just obligate And two couple getting of see even the that faster opportunities year things Orders surprise. to years, but September phenomenon. we President dollars before by community, that's very where Their in remarkable it ago. and what's – encouragement faster. are the certainly a getting pretty positive NDAA decisions

beyond. see I opportunities continue So, to XXXX in and

medium-term, us three is to to what's four So, term medium years.

budgets look committed, look I positioning, Rob. and are what a five the and dollars really are unused opportunity continue yet in growth we can there's amount we actually the robust it the across five-year budget three-year, going four-year, As the our in see growing of that that where we lot at of next see Harris, at out that years, period, to over not

Robert A. Stallard

That's great. Thanks for it, Bill.

William M. Brown

Okay.

You bet.

Anurag Maheshwari

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

Operator

concludes today's This you. Thank teleconference.

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

Anurag Maheshwari	Harris Corp.
William M. Brown	Harris Corp.
Rahul Ghai	Harris Corp.
Robert M. Spingarn	Credit Suisse Securities (NYSE:USA) LLC
David Strauss	Barclays Capital, Inc.
Gavin Parsons	Goldman Sachs & Co. LLC
Carter Copeland	Melius Research LLC
Gautam Khanna	Cowen and Company, LLC
Jon Raviv	Citigroup Global Markets, Inc.
Sheila Kahyaoglu	Jefferies LLC
Seth M. Seifman	JPMorgan Securities LLC
Josh Ward Sullivan	Seaport Global Securities LLC
Robert A. Stallard	Vertical Research Partners LLC

L3Harris (LHX) 31 Jul 182018 Q4 Earnings call transcript